[House Report 107-3]
[From the U.S. Government Publishing Office]
107th Congress Rept. 107-3
HOUSE OF REPRESENTATIVES
1st Session Part 1
_______________________________________________________________________
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2001
__________
R E P O R T
of the
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
to accompany
H.R. 333
together with
DISSENTING VIEWS
February 26, 2001.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
__________
U.S. GOVERNMENT PRINTING OFFICE
89-000 WASHINGTON : 2001
107th Congress Rept. 107-3
HOUSE OF REPRESENTATIVES
1st Session Part 1
======================================================================
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2001
_______
February 26, 2001.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 333]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 333) amending title 11, United States Code, and for
other purposes, having considered the same, report favorably
thereon with amendments and recommend that the bill as amended
do pass.
CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 3
Hearings......................................................... 15
Committee Consideration.......................................... 16
Votes of the Committee........................................... 16
Committee Oversight Findings..................................... 23
Performance Goals and Objectives................................. 24
New Budget Authority and Tax Expenditures........................ 24
Committee Cost Estimate.......................................... 24
Committee Jurisdiction Letters................................... 25
Constitutional Authority Statement............................... 26
Preemption of State Law.......................................... 26
Section-by-Section Analysis and Discussion....................... 27
Changes in Existing Law Made by the Bill, as Reported............ 118
Markup Transcript................................................ 300
Dissenting Views................................................. 455
Additional Dissenting Views...................................... 488
The amendments (stated in terms of the page and line
numbers of the introduced bill) are as follows:
Page 174, line 5, strike ``30.76'' and insert ``33.87''.
Page 316, strike line 16 and insert the following:
(1) by redesignating section 407 as 407A;
Beginning on page 330, strike line 19 and all that follows
through line 10 on page 331 (and make such technical and
conforming changes as may be appropriate).
Page 356, beginning on line 5, strike ``and amended by this
Act, is reenacted.'' and insert ``is hereby reenacted, and as
here reenacted is amended by this Act.''.
Page 356, line 20, strike ``2001'' and insert ``2004''.
Page 368, line 4, strike ``and (38)'' and insert ``, (38),
and (54A)''.
Page 380, strike lines 19 through 21, and insert the
following:
(e) Effective Dates.--(1) Except as provided in paragraph
(2), this section and the amendments made by this section shall
take effect on the date of the enactment of this Act.
(2) With respect to the temporary bankruptcy judgeship
authorized for the district of South Carolina under paragraph
(8) of the Bankruptcy Judgeship Act of 1992 (28 U.S.C. 152
note), subsection (c)(1) as it applies to the extension
specified in subparagraph (D) of such subsection shall take
effect immediately before December 31, 2000.
The Amendment
H.R. 333, the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2001, was ordered reported with an amendment.
The amendment made conforming revisions to the bill.
Purpose and Summary
H.R. 333, the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2001, is a comprehensive package of reform
measures pertaining to both consumer and business bankruptcy
cases. The purpose of the bill is to improve bankruptcy law and
practice by restoring personal responsibility and integrity in
the bankruptcy system and by ensuring that the system is fair
for both debtors and creditors.
The heart of H.R. 333's consumer bankruptcy reforms is the
implementation of an income/expense screening mechanism
(``needs-based bankruptcy relief'') to ensure that debtors
repay creditors the maximum they can afford. In addition to
implementing needs-based bankruptcy relief, H.R. 333 institutes
a panoply of other consumer bankruptcy reforms. These include
new eligibility standards for bankruptcy relief, additional
financial disclosure requirements for consumer debtors, and
enhanced responsibilities for those charged with administering
consumer bankruptcy cases. H.R. 333, likewise, institutes
significant consumer protection reforms, including mandatory
credit counseling requirements, required disclosures in
connection with certain credit transactions, and protections
against abusive practices with respect to reaffirmation
agreements.
The bill also includes extensive reforms pertinent to
business bankruptcies. Many of these provisions are intended to
heighten administrative scrutiny and judicial oversight of
small business bankruptcy cases. In addition, the bill includes
provisions designed to reduce systemic risk in the financial
marketplace and clarify the treatment of tax claims in
bankruptcy cases. H.R. 333 also creates a new form of
bankruptcy relief for transnational insolvencies and includes
provisions regarding family farmer debtors and health care
providers.
Background and Need for the Legislation
Congressman George W. Gekas (for himself and 56 original
cosponsors) introduced H.R. 333 on January 31, 2001. H.R. 333
is the product of more than 3 years of Congressional
consideration of bankruptcy reform legislation. As introduced,
H.R. 333 is virtually identical to the conference report on
H.R. 2415,\1\ the Gekas-Grassley Bankruptcy Reform Act of 2000,
which passed the House by voice vote on October 12, 2000,\2\
and passed the Senate on December 7, 2000 by a vote of 70 to
28.\3\ On December 19, 2000, the conference report was pocket-
vetoed by President Clinton.
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\1\ H. Rep. No. 106-970 (2000). The only differences are H.R. 333's
title and the deletion of section 1224 (pertaining to the Bankruptcy
Administrator Program) from the conference report, as this provision
was enacted into law. Federal Courts Improvement Act of 2000, Pub. L.
No. 106-518, Sec. 501, 114 Stat. 2410, 2422 (2000).
\2\ 146 Cong. Rec. H9840 (daily ed. Oct. 12, 2000)
\3\ 146 Cong. Rec. S11730 (daily ed. Dec. 7, 2000). On October 19,
2000, the Senate, by a vote of 89 to 0, agreed to a motion to proceed
to consideration of the conference report on H.R. 2415. 146 Cong. Rec.
S10770 (daily ed. Oct. 19, 2000). A further motion to proceed was
agreed to in the Senate on October 27, 2000 by a vote of 87 to 1. 146
Cong. Rec. S11205 (daily ed. Oct. 27, 2000). After a cloture motion
failed by a vote of 53 to 30 on November 1, 2000, Senate Majority
Leader Trent Lott moved to reconsider the vote. 146 Cong. Rec. S11450
(daily ed. Nov. 1, 2000). On December 5, 2000, the Senate agreed to a
cloture motion by a vote of 67 to 31 and passed the conference report 2
days later. 146 Cong. Rec. S11553 (daily ed. Dec. 5, 2000).
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Support for bankruptcy reform legislation in the last two
Congresses has been overwhelming and bipartisan. In the 105th
Congress, for example, the House passed both H.R. 3150, the
Bankruptcy Reform Act of 1998, and the conference report on
that bill by a veto-proof margins.\4\ In the last Congress, the
House passed H.R. 833, the predecessor to H.R. 2415, by a veto-
proof margin of 313 to 108.\5\ Bankruptcy reform legislation
has also enjoyed broad bipartisan support in the Senate.\6\
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\4\ 144 Cong. Rec. H4442 (daily ed. June 10, 1998) (vote on final
passage of H.R. 3150 was 306 to 118); 144 Cong. Rec. H10239-40 (daily
ed. Oct. 9, 1998) (vote on final passage of the conference report on
H.R. 3150 was 300 to 125).
\5\ 145 Cong. Rec. H2771 (daily ed. May 5, 1999).
\6\ On February 2, 2000, H.R. 833 was laid before the Senate by
unanimous consent. The Senate struck all of H.R. 833's language after
its enacting clause and substituted the text of S. 625, as amended.
H.R. 833, as amended, was then passed by the Senate in lieu of S. 625
by a recorded vote of 83 to 14. 146 Cong. Rec. S255 (daily ed. Feb. 2,
2000).
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The Judiciary Committee commenced its consideration of
bankruptcy reform early in 105th Congress. On April 16, 1997,
the Subcommittee on Commercial and Administrative Law conducted
a hearing on the operation of the bankruptcy system that was
combined with a status report from the National Bankruptcy
Review Commission.\7\ This would be the first of 17 hearings on
bankruptcy reform over the ensuing 4 years.\8\ Ten of these
hearings were devoted solely to consideration of H.R. 333 and
its predecessors, H.R. 3150 (the Bankruptcy Reform Act of 1998)
and H.R. 833 (the Bankruptcy Reform Act of 1999). Over the
course of these hearings, nearly 130 witnesses, representing
nearly every major constituency in the bankruptcy community,
testified. With regard to H.R. 833 alone, testimony was
received from 69 witnesses, representing 23 organizations, with
additional material submitted by other groups. In fact, the
subcommittee's inaugural hearing on H.R. 833 was held jointly
with the Senate Subcommittee on Administrative Oversight and
the Courts on March 11, 1999.\9\ This marked the first time in
more than 60 years that a bicameral hearing was held on the
subject of bankruptcy reform.\10\
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\7\ Operation of the Bankruptcy System and Status Report from the
National Bankruptcy Review Commission: Hearing Before the Subcomm. on
Commercial and Administrative Law of the House Comm. on the Judiciary,
105th Cong. (1997).
\8\ The dates and subject matters of these hearings were as
follows:
April 16, 1997--Hearing on the operation of the bankruptcy
system and status report from the National Bankruptcy
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Review Commission.
April 30, 1997--Hearing on H.R. 764, ``Bankruptcy
Amendments of 1997,'' and H.R. 120, ``Bankruptcy Law
Technical Corrections Act of 1997.''
October 9, 1997--Hearing on H.R. 2592, ``Private Trustee
Reform Act of 1997'' and review of post-confirmation fees
in chapter 11 cases.
November 13, 1997--Hearing on the Report of the National
Bankruptcy Review Commission.
February 12, 1998--Hearing on H.R. 2604, ``Religious
Liberty and Charitable Donation Protection Act of 1997.''
March 10-11, 18-19, 1998--Hearings on H.R. 3150,
``Bankruptcy Reform Act of 1998,'' H.R. 3146, ``Consumer
Lenders and Borrowers Bankruptcy Accountability Act of
1998,'' and H.R. 2500, ``Responsible Borrower Protection
Bankruptcy Act.''
March 11-12, 18-19, 1999--Hearings on H.R. 833,
``Bankruptcy Reform Act of 1999.''
November 2, 1999--Joint oversight hearing on additional
bankruptcy judgeship needs.
April 11, 2000--Oversight hearing on the limits on
regulatory powers under the Bankruptcy Code.''
February 7-8, 2001--Hearings on H.R. 333, the ``Bankruptcy
Abuse Prevention and Consumer Protection Act of 2001.''
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\9\ Representatives on behalf of the Commercial Law League of
America, the Credit Union National Association, MBNA America Bank,
N.A., National Retail Federation, and the National Consumer Law Center
also testified. Some of the nation's leading jurists and academics
presented testimony as well. Bankruptcy Reform: Joint Hearing Before
the Subcomm. on Commercial and Administrative Law of the House Comm. on
the Judiciary and the Subcomm. on Administrative Oversight and the
Courts of the Senate Comm. on the Judiciary, 106th Cong. (1999).
\10\ Senators testifying at the hearing included Charles Grassley
(R-Iowa), Joseph Biden (D-Del.) and Christopher Dodd (D-Conn.). House
Members included Jim Moran (D-Va.), Pete Sessions (R-Texas) and Nick
Smith (R-Mich.). Id. The March 16, 1999 hearing provided an opportunity
for the subcommittee to hear divergent historical perspectives of
consumer bankruptcy reform. Specific topics included an analysis of the
history and significance of the ``fresh start'' discharge under
American bankruptcy law, the impact of the Bankruptcy Reform Act of
1978, the historical underpinnings of needs-based bankruptcy relief,
and how bankruptcy affects the rights of creditors. Another panel
examined the need for consumer bankruptcy reform from various
perspectives. Bankruptcy Reform Act of 1999 (Pt. I): Hearing before the
Subcomm. on Commercial and Administrative Law of the House Comm. on the
Judiciary, 106th Cong. (1999).
At its third hearing, on March 17, 1999, the subcommittee heard
from many of the major organizations in the bankruptcy community,
including the American Bankruptcy Institute, the American Financial
Services Association, the National Association of Consumer Bankruptcy
Attorneys, the National Bankruptcy Conference, the National Consumer
Bankruptcy Coalition, the National Governors' Association, and the
National Retail Federation, on the topic of consumer bankruptcy reform.
A separate panel was devoted to judicial and administrative aspects of
consumer bankruptcy reform. The hearing concluded with a statistical
analysis of the needs-based reforms in H.R. 833. Bankruptcy Reform Act
of 1999 (Pt. II): Hearing before the Subcomm. on Commercial and
Administrative Law of the House Comm. on the Judiciary, 106th Cong.
(1999).
The fourth and final hearing on H.R. 833 was held on March 18,
1999. One panel focused on the treatment of domestic support
obligations under the bill. Another panel offered various perspectives
on business bankruptcy reform provisions in the bill from some of the
major organizations in the bankruptcy community, including the AFL-CIO,
American Bankers Association, American Bar Association/Business
Bankruptcy Section, Commercial Law League of America, National
Association of Credit Managers, and the Office of Chief Counsel for
Advocacy at the Small Business Administration. The final panel examined
a variety of other provisions in H.R. 833, including the treatment of
tax claims in bankruptcy cases, international insolvencies, financial
contracts, and chapter 12 (family farmer bankruptcy relief). Bankruptcy
Reform Act of 1999 (Pt. III): Hearing before the Subcomm. on Commercial
and Administrative Law of the House Comm. on the Judiciary, 106th Cong.
(1999).
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It is also important to note that H.R. 333 is the product
of extensive negotiation and compromise. Shortly after its
predecessor, H.R. 833, was passed by the Senate last year,
Members of the House and Senate, together with their staffs,
spent nearly 7 months engaged in what was initially an informal
conference to reconcile differences between the House and
Senate passed versions of this bill. The product of these
exhaustive efforts was the conference report on H.R. 2415,
which is virtually identical to H.R. 333.
Consumer Bankruptcy
Overview. With respect to its consumer provisions, H.R. 333
responds to several significant developments. One of these
developments was the exponential increase in consumer
bankruptcy filings and the losses associated with these
filings. Based on data released by the Administrative Office of
the United States Courts, bankruptcy filings increased by more
than 72 percent between 1994 and 1998.\11\ For the first time
in our nation's history, bankruptcy filings exceeded one
million in 1996.\12\ In calendar year 1997 alone, bankruptcy
filings increased by more than 19 percent over the prior year.
By 1998, the number of bankruptcy filings, according to the
Administrative Office, reached an ``all-time high'' of more
than 1.4 million cases.\13\ Although the most recent reporting
periods indicate that filings have somewhat decreased, the
Administrative Office states that they ``remain well above the
one million mark.'' \14\ Paradoxically, this dramatic increase
in bankruptcy filing rates has occurred during a period when
the economy was generally robust, with relatively low
unemployment and high consumer confidence.\15\
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\11\ Administrative Office for United States Courts News Release,
Bankruptcy Filings Decrease in Fiscal Year 2000, at 1 (Nov. 21, 2000).
\12\ Administrative Office for United States Courts News Release,
Increase in Bankruptcy Filings Slowed in Calendar Year 1998, at 1 (Mar.
1, 1999).
\13\ Id.
\14\ Administrative Office for United States Courts News Release,
Bankruptcy Filings Decrease in Fiscal Year 2000, at 1 (Nov. 21, 2000).
For example, the number of bankruptcy cases filed in fiscal year 2000
exceeded 1.3 million. Id.
\15\ See, e.g., Congressional Budget Office, Personal Bankruptcy: A
Literature Review (Sept. 2000); Bankruptcy Reform: Joint Hearing Before
the Subcomm. on Commercial and Administrative Law of the House Comm. on
the Judiciary and the Subcomm. on Administrative Oversight and the
Courts of the Senate Comm. on the Judiciary, 106th Cong. 97 (1999);
Bankruptcy Reform Act of 1998: Hearings on H.R. 3150 Before the
Subcomm. on Commercial and Administrative Law of the House Comm. on the
Judiciary, 105th Cong. 141 (1998).
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Coupled with this development was the release of a study
estimating that financial losses attributable to bankruptcy
filings in 1997 exceeded $44 billion.\16\ The committee
received testimony in the last Congress stating that this
figure, when amortized on a daily basis, amounts to a loss of
``at least $110 million every day.'' \17\ Various other
studies, which thereafter became available, concluded that some
bankruptcy debtors can, in fact, repay a significant portion of
their debts.\18\
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\16\ Bankruptcy Reform Act of 1998: Hearings on H.R. 3150 Before
the Subcomm. on Commercial and Administrative Law of the House Comm. on
the Judiciary, 105th Cong. 147 (1998).
\17\ Bankruptcy Reform: Joint Hearing Before the Subcomm. on
Commercial and Administrative Law of the House Comm. on the Judiciary
and the Subcomm. on Administrative Oversight and the Courts of the
Senate Comm. on the Judiciary, 106th Cong. 26 (1999). This estimated
loss has been calculated to be $400 per household. Id.
\18\ See, e.g., Bankruptcy Reform Act of 1999 (Part II): Hearing on
H.R. 833 Before the Subcomm. on Commercial and Administrative Law of
the House Comm. on the Judiciary, 106th Cong. 298 (1999) (statement of
Thomas S. Neubig, Ernst & Young LLP--Policy Economics and Quantitative
Analysis Group, concluding that ``large numbers of 1997 U.S. chapter 7
filers had the ability to repay large portions of their debts''); Id.
at 228-29 (statement of Michael E. Staten, Credit Research Center,
concluding that ``about 25 percent of chapter 7 debtors could have
repaid at least 30 percent of their non-housing debts over a 5-year
repayment plan, after accounting for monthly expenses and housing
payments'' and that ``[a]bout 5 percent of chapter 7 filers appeared
capable of repaying all of their non-housing debt over a 5-year plan,''
although these ``calculations assumed income would remain unchanged
relative to expenses over the 5 years''); Marianne B. Culhane &
Michaela M. White, Taking the New Consumer Bankruptcy Model for a Test
Drive: Means-Testing Real Chapter 7 Debtors, 7 Am. Bankr. L. J. 27, 31
(1999) (concluding that 3.6% of sampled debtors ``emerged as apparent
can-pays'').
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The consumer bankruptcy provisions of H.R. 333 address the
needs of creditors as well as debtors. With respect to the
interests of creditors, this legislation responds to many of
the factors contributing to the increase in consumer bankruptcy
filings, such as lack of personal financial accountability,\19\
the proliferation of serial filings, and the absence of
effective oversight to eliminate abuse in the system. The
bill's debtor protections consist of provisions allowing
debtors to exempt certain education IRA plans, fortifying the
Bankruptcy Code's exemptions for certain retirement pension
funds, enhancing the professionalism standards for attorneys
and others who assist consumer debtors with their bankruptcy
cases, ensuring that debtors receive notice of alternatives to
bankruptcy relief, requiring debtors to participate in debt
repayment programs, and instituting a pilot program to study
the effectiveness of consumer financial management programs.
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\19\ As one academic explained:
[S]hoplifting is wrong; bankruptcy is also a moral act.
Bankruptcy is a moral as well as an economic act. There is
a conscious decision not to keep one's promises. It is a
decision not to reciprocate a benefit received, a good deed
done on the promise that you will reciprocate. Promise-
keeping and reciprocity are the foundation of an economy
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and healthy civil society.
Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and
Administrative Law of the House Comm. on the Judiciary and the Subcomm.
on Administrative Oversight and the Courts of the Senate Comm. on the
Judiciary, 106th Cong. (1999) 98 (statement of Prof. Todd Zywicki).
Consumer creditor protections: needs-based reforms. Chapter
7 is a form of bankruptcy relief where an individual debtor
receives an immediate unconditional discharge of personal
liability for certain debts in exchange for turning over his or
her nonexempt assets to a bankruptcy trustee for liquidation
and distribution to creditors.\20\ This ``unconditional
discharge'' in chapter 7 contrasts with the ``conditional
discharge'' provisions of chapter 13, under which a debtor
commits to repay some portion of his or her financial
obligations in exchange for retaining nonexempt assets and
receiving a broader discharge of debt than is available under
chapter 7.
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\20\ Under the Bankruptcy Code, only an individual may obtain a
chapter 7 discharge. Thus, a corporation is not eligible to receive a
discharge under chapter 7. 11 U.S.C. Sec. 727(a)(1).
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Allowing consumer debtors in financial distress to choose
voluntarily an ``unconditional discharge'' has been a part of
American bankruptcy law since the enactment of the Bankruptcy
Act of 1898.\21\ The rationale of an unconditional discharge
was explained by Congress more than 100 years ago:
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\21\ Bankruptcy Act of 1898, 30 Stat. 544 (1898) (repealed 1978).
[W]hen an honest man is hopelessly down financially,
nothing is gained for the public by keeping him down,
but, on the contrary, the public good will be promoted
by having his assets distributed ratably as far as they
will go among his creditors and letting him start
anew.\22\
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\22\ H.R. Rep. No. 55-65, at 43 (1897).
The heart of H.R. 333's consumer bankruptcy reforms is the
implementation of a needs-based screening mechanism, which uses
the debtor's income and expenses to assess repayment ability.
The concept of needs-based bankruptcy relief has long been
debated in the United States. In 1932, President Herbert
Hoover, for instance, recommended to the Congress the
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following:
The discretion of the courts in granting or refusing
discharges should be broadened, and they should be
authorized to postpone discharges for a time and
require bankrupts, during the period of suspension, to
make some satisfaction out of after-acquired property
as a condition to the granting of a full discharge.\23\
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\23\ President's Special Message to the Congress on Reform of
Judicial Procedure, 69 Pub. Papers 83, 90 (Feb. 29, 1932).
Congressional recognition of needs-based relief has been
gradual. In 1938, chapter XIII (the predecessor to chapter 13
of the Bankruptcy Code) was enacted as a purely voluntary form
of bankruptcy relief that allowed a debtor to voluntarily
propose a plan to repay creditors out of future earnings.\24\
Over the ensuing years, there continued to be repeated
expressions of support for and opposition to needs-based
bankruptcy reform.\25\ The Bankruptcy Reform Act of 1978,\26\
however, retained the principle that a debtor's decision to
choose relief premised on repayment to creditors had to be
``completely voluntary.'' \27\
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\24\ Chandler Act of 1938, 52 Stat. 840 (1938); Bankruptcy Reform
Act of 1999 (Part II): Hearing on H.R. 833 Before the Subcomm. on
Commercial and Administrative Law of the House Comm. on the Judiciary,
106th Cong. 100 (1999) (statement of Prof. Lawrence P. King).
\25\ See, e.g., Report of the Commission on the Bankruptcy Laws of
the United States--July 1973, H.R. Doc. No. 93 137, pt. I, at 158
(1973) (observing that ``proposals have been made to Congress from time
to time that a debtor able to obtain relief under chapter XIII
[predecessor of chapter 13] should be denied relief in straight
bankruptcy''); Hearings on H.R. 1057 and H.R. 5771 Before the Subcomm.
No. 4 of the House Committee on the Judiciary, 90th Cong. (1967).
Organizations that testified before Congress in 1967 in support of such
reform included the American Bar Association, the American Bankers
Association, the Chamber of Commerce of the United States, Credit Union
National Association, Inc., the National Federation of Independent
Businesses, and the American Industrial Bankers Association. Id. The
Commission on the Bankruptcy Laws of the United States, while
supporting the concept that repayment plans should be ``fostered,''
nevertheless concluded in 1973 that ``forced participation by a debtor
in a plan requiring contributions out of future income has so little
prospect for success that it should not be adopted as a feature of the
bankruptcy system.'' Id. at 159.
\26\ Pub. L. No. 95-598, 92 Stat. 2549 (1978).
\27\ H.R. Rep. No. 95-595, at 120 (1977) (observing that ``[t]he
thirteenth amendment prohibits involuntary servitude'' and suggesting
that ``a mandatory chapter 13, by forcing an individual to work for
creditors, would violate this prohibition'').
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Although as originally enacted, the Bankruptcy Code
provided that a chapter 7 case could only be dismissed for
``cause,'' the Code was in 1984 amended to permit the court to
dismiss a chapter 7 case for ``substantial abuse.'' \28\ This
provision, codified in section 707(b) of the Bankruptcy
Code,\29\ was added ``as part of a package of consumer credit
amendments designed to reduce perceived abuses in the use of
chapter 7.'' \30\ It was intended to respond ``to concerns that
some debtors who could easily pay their creditors might resort
to chapter 7 to avoid their obligations.'' \31\ In 1986,
section 707(b) was further amended to allow a United States
trustee (a Department of Justice official) to move for
dismissal.\32\
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\28\ Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.
L. No. 98-353, 98 Stat. 333.
\29\ 11 U.S.C. Sec. 707(b).
\30\ 6 Lawrence P. King et al., Collier on Bankruptcy para.
707.LH[2], at 707-30 (15th ed. rev. 2000).
\31\ Id. para. 707.04, at 707-15.
\32\ Bankruptcy Judges, United States Trustees, and Family Farmer
Bankruptcy Act of 1986, Pub. L. No. 99-554, 100 Stat. 3008.
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Under current practice, section 707(b) motions are
infrequently made for several reasons. First, neither the court
nor the United States trustee is required to make these
motions, even in cases evidencing obvious abuse of the
bankruptcy system. Second, other parties in interest, such as
chapter 7 trustees and creditors, are prohibited from filing
these motions. In fact, section 707(b) provides that a motion
under that provision may not even be made ``at the request or
suggestion of any party in interest.'' \33\ Third, the standard
for dismissal--substantial abuse--is inherently vague, which
has lead to its disparate interpretation and application by the
bankruptcy bench.\34\ Some courts, for example, hold that a
debtor's ability to repay a significant portion of his or her
debts out of future income constitutes substantial abuse and
therefore is cause for dismissal; \35\ others require some
evidence of moral turpitude.\36\ A fourth reason militating
against filing section 707(b) motions is that the Bankruptcy
Code codifies a presumption that favors granting a debtor a
discharge.\37\
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\33\ 11 U.S.C. Sec. 707(b).
\34\ See, e.g., David White, Disorder in the Court: Section 707(b)
of the Bankruptcy Code, 1995-96 Ann. Survey of Bankr. L. 333, 355
(1996) (noting that the courts ``have taken divergent views in an
attempt to define the term'' and have resorted to ``a variety of
methods'' in applying it to specific cases).
\35\ See, e.g., In re Kelly , 841 F.2d 908, 913-14 (9th Cir. 1988)
(observing that the ``principal factor to be considered in determining
substantial abuse is the debtor's ability to repay debts for which a
discharge is sought'').
\36\ See, e.g., In re Braley, 103 B.R. 758 (Bankr. E.D. Va. 1989),
aff'd, 110 B.R. 211 (E.D. Va. 1990). Notwithstanding the fact that the
debtors in Braley had disposable monthly income of nearly $2,700, the
bankruptcy court did not dismiss the case for substantial abuse. Id. at
760. The court concluded, ``Based upon this legislative history, we are
persuaded that no future income tests exists in 707(b) and if it did,
as a finding of fact, the Braley family has insufficient future income
to merit barring the door in light of the circumstances of this Navy
family.'' Id. at 762.
\37\ Section 707(b) of the Bankruptcy Code mandates that ``[t]here
shall be a presumption in favor of granting the relief requested by the
debtor.'' 11 U.S.C. Sec. 707(b).
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Over the course of its hearings in the last two Congresses,
the committee received testimony explaining that if needs-based
reforms and other measures were implemented, the rate of
repayment to creditors would increase as more debtors are
shifted into chapter 13 (a form of bankruptcy relief where the
debtor commits to repay a portion or all of his debts in
exchange for receiving a broad discharge of debt) as opposed to
chapter 7 (a form of bankruptcy relief where the debtor
receives an immediate discharge of personal liability on
certain debts in exchange for turning over his or her nonexempt
assets to the bankruptcy trustee for distribution to
creditors).
Section 102 implements the act's needs-based bankruptcy
reforms. Subsection (a) amends section 707(b) of the Bankruptcy
Code to permit a court, on its own motion, or on motion of the
United States trustee, private trustee, bankruptcy
administrator, or party in interest, to dismiss a chapter 7
case for abuse if it was filed by an individual debtor whose
debts are primarily consumer debts. Alternatively, section
102(a) permits a chapter 7 case to be converted to a case under
chapter 11 or chapter 13 on consent of the debtor.
In addition, section 102(a) replaces the current law's
presumption in favor of the debtor with a mandatory presumption
of abuse that is triggered under certain conditions. Section
102(a) requires a court to presume that abuse exists if the
amount of the debtor's income remaining, after certain expenses
and other specified amounts are deducted from the debtor's
current monthly income (a defined term),\38\ when multiplied by
60, exceeds the lower of the following: (1) 25 percent of the
debtor's nonpriority unsecured claims, or $6000 (whichever is
greater); or (2) $10,000. In addition to other specified
expenses,\39\ the debtor's monthly expenses--exclusive of any
payments for debts (unless otherwise permitted)--must be the
applicable monthly amounts set forth in the Internal Revenue
Service Financial Analysis Handbook as Necessary Expenses under
the National and Local Standards categories and the debtor's
actual monthly expenditures for items categorized as Other
Necessary Expenses. For purposes of this provision, the
expenses include those of the debtor, the debtor's dependents,
and the debtor's spouse, if not otherwise a dependent. For
purposes of determining whether the mandatory presumption of
abuse applies under the needs-based test, section 102(a)
permits the debtor to deduct certain other liabilities.
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\38\ Section 102(b) defines ``current monthly income'' as the
average monthly income from all sources that the debtor receives (or,
in a joint case, the debtor and the debtor's spouse receive), without
regard to whether it is taxable income, in the 6-month period preceding
the date of determination. It includes any amount paid on a regular
basis by any entity (other than the debtor or, in a joint case, the
debtor and the debtor's spouse) to the household expenses of the debtor
or the debtor's dependents and, in a joint case, the debtor's spouse,
if not otherwise a dependent. It excludes Social Security Act benefits
and payments to victims of war crimes or crimes against humanity on
account of their status as victims of such crimes.
\39\ Section 102(a) mandates that the debtor's monthly expenses
also include reasonably necessary expenses incurred to maintain the
safety of the debtor and the debtor's family from family violence as
identified in section 309 of the Family Violence Prevention and
Services Act or other applicable law. In addition, the debtor may
deduct up to an additional 5 percent of the food and clothing expense
allowances under the National Standards category, if demonstrated to be
reasonable and necessary.
Other liabilities that may be deducted include the debtor's average
monthly payments on account of secured debts, calculated as the total
of all amounts scheduled as contractually due over the 60-month period
following the filing of the bankruptcy, divided by 60 months. This
amount may include any additional payments to secured creditors that a
chapter 13 debtor must make to retain possession of a primary
residence, motor vehicle, or other property necessary for the support
of the debtor and the debtor's dependents. With respect to claims and
expenses entitled to priority under section 507 of the Bankruptcy Code,
section 102(a) specifies that the debtor may deduct payments for these
obligations, calculated as the total amount of all priority debts,
divided by 60. If applicable, the debtor may deduct the following
additional expenses:
(1) the continuation of actual expenses paid by the debtor
that are reasonable and necessary for the care and support
of an elderly, chronically ill, or disabled household
member or member of the debtor's immediate family who is
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unable to pay such expenses;
(2) the actual administrative expenses (including
reasonable attorneys' fees) of administering a chapter 13
plan for the district in which the debtor resides, up to 10
percent of projected plan payments, as determined under
schedules issued by the Executive Office for United States
Trustees; and
(3) the actual expenses for each dependent child under the
age of 18 years up to $1,500 per year per child to attend a
private elementary or secondary school, if the debtor
documents these expenses and provides a detailed
explanation of why they are reasonable and necessary.
The mandatory presumption of abuse may only be rebutted if:
(1) the debtor demonstrates special circumstances that justify
any additional expense or adjustment to the debtor's current
monthly income for which there is no reasonable alternative;
and (2) such additional expense or income adjustment causes the
debtor's current monthly income (reduced by various amounts)
when multiplied by 60 to be less than the lesser of either (i)
25 percent of the debtor's nonpriority unsecured claims, or
$6,000 (whichever is greater), or (ii) $10,000.\40\
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\40\ The debtor must itemize and provide documentation of each
additional expense or income adjustment and an explanation of the
special circumstances that make such expense or income adjustment
reasonable and necessary. In addition, the debtor must attest under
oath to the accuracy of any information provided to demonstrate that
such additional expenses or adjustments to income are required.
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Where the mandatory presumption of abuse does not apply or
has been rebutted, the court, in order to determine whether the
granting of relief under chapter 7 would be an abuse of such
chapter, must consider: (1) whether the debtor filed the
chapter 7 case in bad faith; or (2) whether the totality of
circumstances of the debtor's financial situation (including
whether the debtor seeks to reject a personal services contract
and the financial need for such rejection) demonstrates abuse.
Should a court grant a section 707(b) motion made by a
trustee and find that the action of debtor's counsel in filing
the chapter 7 case violated Federal Rule of Bankruptcy
Procedure 9011, section 102(a) mandates that the court order
the attorney to reimburse the trustee for all reasonable costs
in prosecuting the motion, including reasonable attorneys'
fees. In addition, the court must assess an appropriate civil
penalty, payable to the private trustee, bankruptcy
administrator, or the United States trustee.\41\
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\41\ Section 102(a) specifies that the signature of an attorney on
a bankruptcy petition, pleading, or written motion constitutes a
certification that the attorney has (1) performed a reasonable
investigation into the circumstances giving rise to such petition,
pleading or motion; and (2) determined that the document is well
grounded in fact or warranted by existing law or a good faith argument
for the extension, modification, or reversal of existing law; and does
not constitute an abuse under section 707(b)(1) of the Bankruptcy Code.
Pursuant to section 102(a), the signature of an attorney on a
bankruptcy petition constitutes a certification that the attorney has
no knowledge after an inquiry that the information in the schedules
filed with such petition is incorrect.
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Two types of ``safe harbors'' are recognized under section
102(a). One provides that only a judge, United States trustee,
bankruptcy administrator, or private trustee may bring a motion
under section 707(b) of the Bankruptcy Code if the chapter 7
debtor's income (or in a joint case, the income of debtor and
the debtor's spouse) does not exceed the State median family
income for a family of equal or lesser size (adjusted for
larger sized families), or the State median family income for
one earner in the case of a one-person household. The second
safe harbor provides that no motion under section 707(b)(2)
(dismissal based on the debtor's ability to repay) may be filed
by a judge, United States trustee, bankruptcy administrator,
private trustee, or other party in interest if the debtor and
the debtor's spouse combined have income that does not exceed
the State median family income for a family of equal or lesser
size (adjusted for larger sized families), or the State median
family income for one earner in the case of a one-person
household.
Provisions of the bill that are directed to other forms of
abuse include Section 102(f), which amends section 707 of the
Bankruptcy Code to provide that a court may dismiss a chapter 7
case filed by an individual debtor convicted of a crime of
violence (as defined in 18 U.S.C. Sec. 16), or a drug
trafficking crime (as defined in 18 U.S.C. Sec. 924(c)(2)) on
motion of the victim, under certain circumstances. Section
102(g) amends section 1325(a) of the Bankruptcy Code to require
the court to find, as a condition of confirmation, that the
debtor filed the chapter 13 case in good faith.
Protections for creditors--in general. H.R. 333 contains a
broad range of reforms to provide greater protections for
creditors, while ensuring that the claims of those creditors
entitled to priority treatment, such as spousal and child
support claims, are not adversely impacted. The bill
accomplishes this goal by: (1) ensuring that creditors receive
proper and timely notice of important events and proceedings in
a bankruptcy case; (2) prohibiting abusive serial filings and
extending the period between successive discharges; (3)
implementing various provisions designed to improve the
accuracy of the information contained in debtors' schedules,
statements of financial affairs, and other documents; and (4)
limiting abusive use of homestead exemptions. It also clarifies
that creditors holding consumer debts may participate without
counsel at the section 341 meeting of creditors (which provides
an opportunity for creditors to examine the debtor under oath).
Protection of family support obligations. Domestic support
claimants receive a broad spectrum of special protections under
H.R. 333. According to one law enforcement official who
testified before this committee earlier this year:
It is my opinion, and the opinion of every professional
support collector with whom I have discussed the issue,
that the support amendments contained in Sections 211
through 219 of H.R. 333 will enhance substantially the
enforcement of support obligations against debtors in
bankruptcy. These enhancements will also result in a
more efficient and economical use of attorney and court
resources.\42\
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\42\ Bankruptcy Abuse Prevention and Consumer Protection Act of
2001: Hearing Before the Subcomm. on Commercial and Administrative Law
of the House Comm. on the Judiciary, 107th Cong.____(2001) (statement
of Philip L. Strauss on behalf of the California District Attorneys
Association and the California Family Support Council).
The bill creates a uniform and expanded definition of
domestic support obligations to include debts that accrue both
before or after a bankruptcy case is filed. H.R. 333 accords
the highest payment priority for these debts and gives new
priority treatment to certain claims assigned to governmental
units by a spouse, former spouse, child of the debtor, or
parent of a child. In addition, the bill mandates that a
chapter 13 or chapter 11 debtor must be current on postpetition
domestic support obligations to confirm a plan of
reorganization. The same obligation is imposed as a
prerequisite for a chapter 13 debtor to receive a discharge. To
facilitate the domestic support collection efforts by
governmental units, H.R. 333 creates various exceptions to
automatic stay provisions of the Bankruptcy Code (which enjoin
many forms of creditor collection activities). It also broadens
the categories of nondischargeable family support obligations
with the result that these debts will not be extinguished at
the end of the bankruptcy process. H.R. 333, in addition,
mandates that spousal and child support claimants as well as
State child support agencies receive specified information and
notices relevant to pending bankruptcy cases.
Protections for secured creditors. H.R. 333 gives secured
creditors a broad variety of enhanced protections. These
include a prohibition against bifurcating a secured debt
incurred within the 5-year period preceding the filing of a
bankruptcy case if the debt is secured by a purchase money
security interest in a motor vehicle acquired for the debtor's
personal use. Where the collateral consists of any other type
of property having value, H.R. 333 prohibits bifurcation of
specified secured debts if incurred during the 1-year period
preceding the filing of the bankruptcy case. The bill clarifies
current law to specify that the value of a claim secured by
personal property is the replacement value of such property
without deduction for the secured creditor's costs of sale or
marketing. In addition, the bill terminates the automatic stay
with respect to personal property if the debtor does not timely
reaffirm the underlying obligation or redeem the property. H.R.
333 also specifies that a secured claimant retains its lien in
a chapter 13 case until the underlying debt is paid or the
debtor receives a discharge.
Protections for unsecured creditors. H.R. 333 contains
various reforms tailored to remedy certain types of fraud and
abuse within the present bankruptcy system. For example, the
bill substantially limits a debtor's ability to file successive
bankruptcy cases. It also addresses abusive practices by
consumer debtors who, for example, knowingly load up with
credit card purchases or recklessly obtain cash advances and
then file for bankruptcy relief. In addition, H.R. 333 prevents
the discharge of debts based on fraud, embezzlement, and
malicious injury in a chapter 13 case.
Protections for lessors. With respect to the interests of
lessors, H.R. 333 requires chapter 13 debtors to remain current
on their personal property leases and provide proof of adequate
insurance. The bill specifies that a lessor may condition
assumption of a personal property lease on cure of any
outstanding default and it provides that a lessor is not
required to permit such assumption. The bill also addresses a
problem faced by thousands of small landlords across the nation
whose tenants file for bankruptcy relief solely for the purpose
of staying pending eviction proceedings so that they can live
``rent free.''
Consumer debtor protections. The bill's consumer
protections include provisions strengthening the
professionalism standards for attorneys and others who assist
consumer debtors with their bankruptcy cases. H.R. 333 mandates
that certain services and specified notices be provided to
consumers by professionals and others who render bankruptcy
assistance. To ensure compliance with these provisions, the
bill institutes various enforcement mechanisms.
In addition, H.R. 333 amends the Truth in Lending Act to
require certain credit card solicitations, monthly billing
statements, and related materials to include important
disclosures and explanatory statements regarding introductory
interest rates and minimum payments, among other matters. These
additional disclosures are intended to give debtors important
information to enable them to better manage their financial
affairs.
Reforms aimed to help debtors understand their rights and
obligations with respect to reaffirmation agreements are also
included in the legislation. To enforce these protections, for
example, H.R. 333 requires the Attorney General to designate a
U.S. Attorney for each judicial district and a FBI agent for
each field office to have primary law enforcement
responsibility regarding abusive reaffirmation practices.
In addition, the legislation substantially expands a
debtor's ability to exempt certain tax-qualified retirement
accounts and pensions. It also creates a new provision that
allows a consumer debtor to exempt certain education IRA and
State tuition plans for his or her child's postsecondary
education from the claims of creditors.
Most importantly, H.R. 333 requires debtors to participate
in credit counseling programs before filing for bankruptcy
relief (unless special circumstances do not permit such
participation). The legislation's credit counseling provisions
are intended to give consumers in financial distress an
opportunity to learn about the consequences of bankruptcy--such
as the potentially devastating effect it can have on their
credit rating--and guidance about how to manage their finances,
so that they can avoid future financial difficulties.
Other debtor protections include expanded notice
requirements for consumers. Under the bill, individuals with
primarily consumer debts must receive notice of alternatives to
bankruptcy relief before they file for bankruptcy and it
requires them to be informed of other matters pertaining to the
integrity of the bankruptcy system. The legislation also
permits certain filing fees and related charges to be waived,
in appropriate cases, for individuals who lack the ability to
pay these costs.
Business Bankruptcy. H.R. 333 contains a comprehensive set
of reforms pertinent to business bankruptcies. They include
provisions addressing the special problems presented by small
business bankruptcies and single asset real estate debtors as
well as provisions dealing with business bankruptcy cases in
general. H.R. 333 establishes a new form of bankruptcy relief
for transnational insolvencies that is intended to promote
international comity and greater certainty. It also includes
provisions concerning the treatment of certain financial
contracts under the banking laws as well as under the
Bankruptcy Code. H.R. 333 responds to the special needs of
family farmers by making chapter 12 of the Bankruptcy Code (a
form of bankruptcy relief available only to eligible family
farmers) permanent.
Small business/single asset real estate debtors. Most
chapter 11 cases are filed by small business debtors. Although
the Bankruptcy Code envisions that creditors should play a
major role in the oversight of chapter 11 cases, this often
does not occur with respect to small business debtors. The main
reason is that creditors in these smaller cases do not have
claims large enough to warrant the time and money to
participate actively in these cases. The resulting lack of
creditor oversight creates a greater need for the United States
trustee to monitor these cases closely. Nevertheless, the
monitoring of these debtors by United States trustees varies
throughout the nation.
H.R. 333 addresses the special problems presented by small
business cases by instituting a variety of time frames and
enforcement mechanisms designed to weed out small business
debtors who are not likely to reorganize. It also requires
these cases to be more actively monitored by United States
trustees and the bankruptcy courts. The small business and
single asset real estate provisions of H.R. 333 are largely
derived from consensus recommendations of the National
Bankruptcy Review Commission.\43\ These provisions have also
received broad support from many in the business community.\44\
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\43\ See generally Report of the National Bankruptcy Review
Commission, at 303-706 (Oct. 20, 1997).
\44\ See, e.g., Bankruptcy Abuse Prevention and Consumer Protection
Act of 2001: Hearing Before the Subcomm. on Commercial and
Administrative Law of the House Comm. on the Judiciary, 107th
Cong.____(2001) (statement of R. Bruce Josten on behalf of the U.S.
Chamber of Commerce).
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With regard to the Bankruptcy Code's treatment of single
asset real estate debtors, H.R. 333 makes several amendments.
First, it eliminates the monetary cap from the single asset
real estate debtor definition. Second, it makes these debtors
subject to the bill's small business reforms. Third, H.R. 333
amends the automatic stay provisions by permitting a single
asset real estate debtor to make requisite interest payments
out of rents or other proceeds generated by the real property.
Financial contracts. H.R. 333 contains a series of
provisions pertaining to the treatment of certain financial
transactions under the Bankruptcy Code and relevant banking
laws. These provisions are intended to reduce ``systemic risk''
in the banking system and financial marketplace. To minimize
the risk of disruption when parties to these transactions
become bankrupt or insolvent, the bill amends provisions of the
banking and investment laws, as well as the Bankruptcy Code,
applicable to certain types of financial transactions.\45\ In
addition to the Bankruptcy Code, the bill amends the Federal
Deposit Insurance Act; Financial Institutions Reform, Recovery
and Enforcement Act of 1989; Federal Deposit Insurance
Corporation Improvement Act of 1991; Federal Reserve Act; and
Securities Investor Protection Act of 1971.
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\45\ The report on H.R. 4393, a bill substantially similar to title
X of H.R. 833 that was introduced in the 106th Congress by Banking and
Financial Services Committee Chair James Leach (R-Iowa), explained as
follows:
Systemic risk is the risk that the failure of a firm or
disruption of a market or settlement system will cause
widespread difficulties at other firms, in other market
segments or in the financial system as a whole. If
participants in certain financial activities are unable to
enforce their rights to terminate financial contracts with
an insolvent entity in a timely manner, or to offset or net
their various contractual obligations, the resulting
uncertainty and potential lack of liquidity could increase
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the risk of an inter-market disruption.
H. Rep. No. 105-688, Part 1, at 2 (1998).
Many of these provisions are derived from recommendations
issued by a presidential interagency working group \46\ and
revisions espoused by the financial industry. Other provisions
would treat certain asset-backed securitizations as valid
transfers and limit the authority of a court or administrative
agency to enjoin certain actions.
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\46\ The Working Group's members included representatives from the
Commodity Futures Trading Commission, the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System, the
Federal Reserve Bank of New York, the Securities and Exchange
Commission, and the Department of the Treasury, including the Office of
the Comptroller of the Currency. Id. at 1.
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Transnational insolvencies. In response to the increasing
globalization of business dealings and operations, the bill
establishes a separate chapter under the Bankruptcy Code
devoted to transnational insolvencies. These provisions are
intended to provide greater legal certainty for trade and
investment as well as to provide for the fair and efficient
administration of these cases.
Health care providers. H.R. 333 adds a provision to the
Bankruptcy Code specifying requirements for the disposal of
patient records in a chapter 7, 9, or 11 case of a health care
business where the trustee lacks sufficient funds to pay for
the storage of such records in accordance with applicable
Federal or State law. These requirements are intended to
protect the privacy and confidentiality of a patient's medical
records when they are in the custody of a health care business
in bankruptcy.
In addition, the bill includes a provision according
administrative expense priority to the actual, necessary costs
and expenses of closing a health care business (including the
disposal of patient records or transferral of patients)
incurred by a trustee, Federal agency, or a department or
agency of a State. It also requires the court to order the
appointment of an ombudsman within 30 days after the
commencement of a chapter 7, 9 or 11 case by a health care
provider, unless the court finds that such appointment is not
necessary for the protection of patients under the specific
facts of the case. The ombudsman is responsible for monitoring
the quality of patient care and to represent the interests of
the patients. Other provisions include the requirement that a
bankruptcy trustee use all reasonable and best efforts to
transfer patients from a health care business that is being
closed to an appropriate alternative facility that meets
certain specified criteria.
Other Provisions Having General Impact. H.R. 333 contains
several provisions having general impact with respect to
bankruptcy law and practice. For example, it requires the
Executive Office for United States Trustees to compile various
statistics regarding chapter 7, 11 and 13 cases and to make
these data available to the public. Other general provisions
include allowing compensation to be shared with bona fide
public service attorney referral programs, and mandating that a
bankruptcy court conduct scheduling conferences in bankruptcy
cases if necessary to further the expeditious and economical
resolution of such cases.
The bill makes several revisions to the Bankruptcy Code's
preference provisions. Under H.R. 333, a defendant in a
preference action may establish that the transfer was made in
the ordinary course of the debtor's financial affairs or
business, or that the transfer was made in accordance with
ordinary business terms. The bill also establishes a threshold
amount as a prerequisite to the commencement of a preferential
transfer proceeding. In addition, H.R. 333 amends the venue
provisions for preferential transfer actions. A preferential
transfer action in the amount of $10,000 or less would have to
be filed in the district where the defendant resides.
Currently, this amount is fixed at $1,000.
Hearings
The committee held 2 days of hearings on H.R. 333 on
February 7 and 8, 2001. Testimony was received from eight
witnesses, representing seven organizations. During the course
of the first hearing, the committee received testimony from
Kenneth Beine on behalf of the Credit Union National
Association who explained how the current bankruptcy system
impacts small businesses and non-profits. The committee also
received testimony from R. Bruce Josten on behalf of the U.S.
Chamber of Commerce who described the current consumer
bankruptcy law's adverse impact on businesses. In addition, the
committee heard from Phillip Strauss, a professional with more
than 25 years of experience in child support enforcement.
Speaking on behalf of the California District Attorneys
Association and the California Family Support Council, Mr.
Strauss described the ways in which H.R. 333 would help ensure
payment of these obligations. George Wallace, the final witness
appeared on behalf of The Coalition for Responsible Bankruptcy
Laws. He explained the differences between the version of the
bill as reported by the committee in the 106th Congress and
H.R. 333.
The second day of hearings provided a different
perspective. The witnesses included Charles Trapp, who was a
former chapter 7 debtor. He was joined by Ralph Mabey, who
appeared on behalf of the National Bankruptcy Conference and
Professor Karen Gross of New York Law School. The final witness
was Damon Silvers, who testified on behalf of the AFL-CIO.
Although each of these witnesses acknowledged that H.R. 333 did
make needed improvements to current bankruptcy law, they
questioned the efficacy of certain provisions of the bill.
Committee Consideration
On February 14, 2001, the committee met in open session and
ordered favorably reported the bill H.R. 333 with amendment by
a recorded vote of 19 to 8, a quorum being present.
Votes of the Committee
1. An amendment offered by Mr. Conyers and Ms. Waters to
create an exception to the nondischargeability of certain
specified debts if the debtor's ability to pay domestic support
obligations is impaired by such limitation on the debtor's
discharge. Defeated 10 to 14.
AYES NAYS
Mr. Conyers Mr. Sensenbrenner
Mr. Nadler Mr. Gekas
Mr. Watt Mr. Smith (TX)
Mr. Lofgren Mr. Goodlatte
Ms. Jackson Lee Mr. Chabot
Ms. Waters Mr. Barr
Mr. Meehan Mr. Hutchinson
Mr. Delahunt Mr. Cannon
Mr. Baldwin Mr. Graham
Mr. Weiner Mr. Bachus
Mr. Hostettler
Mr. Green
Mr. Keller
Ms. Hart
2. An amendment offered by Mr. Watt to specify that the
terms ``cash advances'' and ``extensions of consumer credit
under an open end credit plan'' do not include expenditures
reasonably necessary for the support or maintenance of the
debtor or a dependent of the debtor with respect to determining
the dischargeability of these debts. Defeated 8 to 15.
AYES NAYS
Mr. Conyers Mr. Sensenbrenner
Mr. Nadler Mr. Gekas
Mr. Watt Mr. Smith (TX)
Mr. Lofgren Mr. Gallegly
Ms. Jackson Lee Mr. Goodlatte
Ms. Waters Mr. Chabot
Mr. Weiner Mr. Barr
Mr. Schiff Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Hostettler
Mr. Green
Mr. Keller
Ms. Hart
3. An amendment offered by Mr. Conyers (1) to permit the
extension of certain time periods pertaining to the assumption
and rejection of unexpired leases of nonresidential real
property, the filing of chapter 11 plans of reorganization and
the obtaining of acceptances, the provision of adequate
assurance of payment for utility service in a chapter 11 case,
the performance of specified duties of trustees and debtors in
possession in small business cases, and plan filing and
confirmation in small business cases; and (2) to create an
exception to the exclusion of asset-backed securitizations as
property of the estate in section 912. Defeated 6 to 18.
AYES NAYS
Mr. Nadler Mr. Sensenbrenner
Mr. Watt Mr. Gekas
Ms. Jackson Lee Mr. Smith (TX)
Ms. Waters Mr. Gallegly
Mr. Weiner Mr. Goodlatte
Mr. Schiff Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
4. An amendment offered by Mr. Nadler to make specified
debts relating to violations of law concerning certain health
care facilities and the provision of health services
nondischargeable. Defeated 9 to 20.
AYES NAYS
Mr. Nadler Mr. Sensenbrenner
Mr. Scott Mr. Gekas
Mr. Watt Mr. Coble
Mr. Lofgren Mr. Smith (TX)
Ms. Jackson Lee Mr. Gallegly
Ms. Waters Mr. Goodlatte
Ms. Baldwin Mr. Chabot
Mr. Weiner Mr. Barr
Mr. Schiff Mr. Jenkins
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
5. An amendment offered by Ms. Jackson Lee to prohibit a
creditor in a bankruptcy case from asserting any claim if the
creditor failed to comply with certain requirements of the
Consumer Credit Protection Act for the amount of the debt that
a debtor incurred on a credit card issued in violation of such
requirements. Defeated 6 to 18.
AYES NAYS
Mr. Scott Mr. Sensenbrenner
Mr. Watt Mr. Gekas
Ms. Jackson Lee Mr. Coble
Ms. Waters Mr. Smith (TX)
Ms. Baldwin Mr. Gallegly
Mr. Schiff Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Ms. Hart
Mr. Flake
6. An amendment offered by Mr. Watt to an amendment by Ms.
Waters to exempt certain debtors from specified filing
requirements. Defeated 9 to 13.
AYES NAYS
Mr. Scarborough Mr. Sensenbrenner
Mr. Conyers Mr. Gekas
Mr. Frank Mr. Coble
Mr. Scott Mr. Goodlatte
Mr. Watt Mr. Chabot
Ms. Waters Mr. Hutchinson
Mr. Delahunt Mr. Bachus
Ms. Baldwin Mr. Hostettler
Mr. Schiff Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
7. An amendment offered by Ms. Waters to provide that the
exceptions to the automatic stay do not apply to certain types
of debtors. Defeated 9 to 13.
AYES NAYS
Mr. Conyers Mr. Sensenbrenner
Mr. Frank Mr. Gekas
Mr. Scott Mr. Smith (TX)
Ms. Jackson Lee Mr. Chabot
Ms. Waters Mr. Barr
Mr. Meehan Mr. Hutchinson
Ms. Baldwin Mr. Graham
Mr. Weiner Mr. Bachus
Mr. Schiff Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
8. An amendment offered by Mr. Meehan to require the
applicable State median income amount specified in sections 102
(needs-based reforms) and 318 (duration of chapter 13 plans) to
be adjusted, under certain circumstances, to reflect the
percentage change in the Consumer Price Index for All Urban
Consumers for each subsequent year during which median income
is not reported by the Bureau of the Census. Defeated 9 to 13.
AYES NAYS
Mr. Conyers Mr. Sensenbrenner
Mr. Frank Mr. Gekas
Mr. Scott Mr. Smith (TX)
Mr. Watt Mr. Barr
Ms. Jackson Lee Mr. Hutchinson
Mr. Meehan Mr. Graham
Mr. Delahunt Mr. Bachus
Ms. Baldwin Mr. Scarborough
Mr. Schiff Mr. Hostettler
Mr. Green
Mr. Keller
Ms. Hart
Mr. Flake
9. An amendment offered by Mr. Delahunt to eliminate the 2-
year reachback period applicable to the exemption limitation in
section 322 and to increase the exemption amount to $500,000.
Defeated 6 to 18.
AYES NAYS
Mr. Scott Mr. Sensenbrenner
Mr. Watt Mr. Gekas
Ms. Waters Mr. Coble
Mr. Delahunt Mr. Smith (TX)
Ms. Baldwin Mr. Chabot
Mr. Schiff Mr. Barr
Mr. Hutchinson
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Ms. Jackson Lee
Mr. Wexler
10. An amendment offered by Ms. Baldwin to accord
administrative expense priority under section 503(b)(1)(A) of
the Bankruptcy Code to wages and benefits attributable to any
period of time after a bankruptcy case is filed as a result of
the debtor's violation of Federal or State law, without regard
to when the original unlawful act occurred or to whether any
services were rendered. Defeated 3 to 15.
AYES NAYS
Mr. Watt Mr. Sensenbrenner
Ms. Baldwin Mr. Gekas
Mr. Schiff Mr. Coble
Mr. Smith (TX)
Mr. Chabot
Mr. Barr
Mr. Hutchinson
Mr. Graham
Mr. Bachus
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
11. An amendment offered by Ms. Baldwin to expand the
Bankruptcy Code's definition of ``family farmer''. Defeated 4
to 13.
AYES NAYS
Mr. Scott Mr. Sensenbrenner
Mr. Watt Mr. Gekas
Ms. Baldwin Mr. Coble
Mr. Schiff Mr. Smith (TX)
Mr. Chabot
Mr. Barr
Mr. Hutchinson
Mr. Graham
Mr. Bachus
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
12. An amendment offered by Mr. Schiff to amend a safe
harbor provision in section 102 with respect to the treatment
of spousal income. Defeated 5 to 13.
AYES NAYS
Mr. Scott Mr. Sensenbrenner
Mr. Watt Mr. Gekas
Ms. Waters Mr. Coble
Ms. Baldwin Mr. Chabot
Mr. Schiff Mr. Barr
Mr. Hutchinson
Mr. Graham
Mr. Bachus
Mr. Hostettler
Mr. Green
Mr. Issa
Ms. Hart
Mr. Flake
13. An amendment offered by Mr. Schiff to require the
Comptroller General of the United States to study and file a
report containing the results of the study to determine any
effect that H.R. 333 has on the ability of a parent to pay
child support or the ability of a parent to collect child
support. Defeated 5 to 16.
AYES NAYS
Mr. Scott Mr. Sensenbrenner
Mr. Watt Mr. Gekas
Ms. Waters Mr. Coble
Ms. Baldwin Mr. Smith (TX)
Mr. Schiff Mr. Chabot
Mr. Barr
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
14. Part one of an amendment offered by Mr. Sensenbrenner,
which conforms the fee allocation percentage in section 325
with that specified under Section 406(b) of the Judiciary
Appropriations Act, as amended. Passed 22 to 0.
AYES NAYS
Mr. Sensenbrenner
Mr. Gekas
Mr. Smith (TX)
Mr. Goodlatte
Mr. Chabot
Mr. Barr
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Mr. Nadler
Mr. Scott
Mr. Watt
Ms. Baldwin
Mr. Schiff
15. Part two of an amendment by Mr. Sensenbrenner to
conform a statutory cross reference necessitated by the
enactment of the Commodity Futures Modernization Act of 2000.
Passed 21 to 0.
AYES NAYS
Mr. Sensenbrenner
Mr. Gekas
Mr. Goodlatte
Mr. Chabot
Mr. Barr
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Mr. Nadler
Mr. Scott
Mr. Watt
Ms. Baldwin
Mr. Schiff
16. Motion to move the previous question. Passed 18 to 5.
AYES NAYS
Mr. Sensenbrenner Mr. Conyers
Mr. Gekas Mr. Scott
Mr. Coble Mr. Watt
Mr. Goodlatte Ms. Baldwin
Mr. Chabot Mr. Schiff
Mr. Barr
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Mr. Nadler
17. Motion to table the motion to reconsider the vote
ordering the previous question. Passed 18 to 7.
AYES NAYS
Mr. Sensenbrenner Mr. Conyers
Mr. Gekas Mr. Nadler
Mr. Coble Mr. Scott
Mr. Smith (TX) Mr. Watt
Mr. Goodlatte Ms. Jackson Lee
Mr. Chabot Ms. Baldwin
Mr. Barr Mr. Schiff
Mr. Hutchinson
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
18. Motion to report favorably H.R. 333, as amended. Passed
19 to 8.
AYES NAYS
Mr. Sensenbrenner Mr. Conyers
Mr. Gekas Mr. Nadler
Mr. Coble Mr. Scott
Mr. Smith (TX) Mr. Watt
Mr. Goodlatte Ms. Jackson Lee
Mr. Chabot Ms. Waters
Mr. Barr Ms. Baldwin
Mr. Hutchinson Mr. Schiff
Mr. Cannon
Mr. Graham
Mr. Bachus
Mr. Scarborough
Mr. Hostettler
Mr. Green
Mr. Keller
Mr. Issa
Ms. Hart
Mr. Flake
Mr. Boucher
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the committee reports that the
findings and recommendations of the committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Performance Goals and Objectives
The bill is intended to improve the bankruptcy system by
deterring abuse, setting enhanced standards for bankruptcy
professionals, and streamlining case administration.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of House Rule XIII is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Committee Cost Estimate
The estimate of the Congressional Budget Office (CBO) was
not available at the time of the filing of this report. In
compliance with clause 3(d)(2) of rule XIII of the Rules of the
House of Representatives, the committee believes that the bill
will have a budget effect for fiscal year 2001 and subsequent
years comparable to that projected by the CBO for H.R. 833, the
Bankruptcy Reform Act of 1999, a bill substantively similar to
H.R. 333 that was passed by the House during the 106th
Congress, with some differences. Although H.R. 333 and H.R. 833
both authorize the extension of five existing temporary
bankruptcy judgeships, H.R. 333 authorizes 23 new temporary
bankruptcy judges (five more than H.R. 833). With salaries and
benefits considered as mandatory costs, the committee estimates
that these costs may approximate $ 14 million a year over 5
years. The committee believes that this provision is necessary
to facilitate the improvements proposed by the legislation and
will enhance the efficiency of the system.
As indicated, H.R. 333 is substantially similar to H.R.
833. In a letter dated May 5, 1999, the CBO prepared an initial
Federal cost estimate and an assessment of H.R. 833's impact on
state, local, and tribal governments. \1\ In that cost
estimate, the CBO stated that implementing H.R. 833 would
``cost $333 million over the 2000-2004 period--$322 million in
discretionary spending, subject to appropriation of the
necessary funds''. In addition, the CBO observed that because
H.R. 833 would have decreased ``receipts by about $4 million
over the next 5 years,'' the bill would have affected direct
spending and governmental receipts and pay-as-you-go procedures
would apply. With regard to the Unfunded Mandates Reform Act
(UMRA), the CBO noted that H.R. 833 contained an
intergovernmental mandate, but that the bill's ``costs would be
insignificant and would not exceed the threshold established in
that act ($50 million in 1996, adjusted annually for
inflation).'' As to new private-sector mandates (as defined in
UMRA) that H.R. 833 would impose on bankruptcy attorneys,
creditors, and credit and charge-card companies, CBO estimated
that the costs of these mandates would exceed the $100 million
(in 1996 dollars) threshold established in UMRA. ``Overall,''
the CBO expected that ``enacting this bill would benefit state
and local governments by enhancing their ability to collect
outstanding obligations in bankruptcy cases.''
---------------------------------------------------------------------------
\1\ 145 Cong. Rec. H2656 (daily ed. May 5, 1999).
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The committee notes that H.R. 333 could result in some
increased discretionary expenditures with regard to such
matters integral to the reforms proposed as: a debtor financial
management training test program; mandatory case auditing; and
the compilation and publication of bankruptcy data and
statistics as well as other provisions. However, costs related
to some of these expenditures, such as increased auditing, are
subject to appropriations and likely to be offset by enhanced
collections resulting from greater protections accorded to
Federal taxing authorities in Title VII of H.R. 333, as
amended.
Committee Jurisdiction Letters
House Committee on Financial Services,
Washington, DC, February 21, 2001.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Jim: On February 14, 2001, the Committee on the
Judiciary ordered reported H.R. 333, the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2001. As you know,
the Committee on Financial Services was granted an additional
referral upon the bill's introduction pursuant to the
Committee's jurisdiction under Rule X of the Rules of the House
of Representatives over banks and banking, credit, and
securities and exchanges.
Because of your willingness to consult with the Committee
on Financial Services regarding this matter, your continuing
support for our requested changes, and the need to move this
legislation expeditiously, I will waive consideration of the
bill by the Financial Services Committee. By agreeing to waive
its consideration of the bill, the Financial Services Committee
does not waive its jurisdiction over H.R. 333. In addition, the
Committee on Financial Services reserves its authority to seek
conferees on any provisions of the bill that are within the
Financial Services Committee's jurisdiction during any House-
Senate conference that may be convened on this legislation. I
ask your commitment to support any request by the Committee on
Financial Services for conferees on H.R. 333 or related
legislation.
I request that you include this letter and your response as
part of your committee's report on the bill and the
Congressional Record during consideration of the legislation on
the House floor.
Thank you for your attention to these matters.
Sincerely,
Michael G. Oxley, Chairman.
MGO/hnh
cc:
The Honorable J. Dennis Hastert, Speaker
The Honorable John J. LaFalce
The Honorable Spencer Baccus
The Honorable Richard H. Baker
The Honorable Charles W. Johnson, III, Parliamentarian
Committee on the Judiciary,
House of Representatives,
Washington, DC, February 22, 2001.
Hon. Michael G. Oxley, Chairman,
House Committee on Financial Services,
Washington, DC.
Dear Mike: This letter responds to your letter dated
February 21, 2001, concerning H.R. 333, the ``Bankruptcy Abuse
Prevention and Consumer Protection Act of 2001'' which was
favorably reported by the House Committee on the Judiciary on
February 14, 2001.
I agree that the bill contains matters within the Financial
Services Committee's jurisdiction and appreciate your
willingness to be discharged from further consideration of H.R.
333 so that we may proceed to the floor.
Pursuant to your request, a copy of your letter and this
letter will be included in the report of the Committee on the
Judiciary on H.R. 333.
Sincerely,
F. James Sensenbrenner, Jr., Chairman.
cc:
The Honorable J. Dennis Hastert
The Honorable John Conyers, Jr.
The Honorable John J. LaFalce
The Honorable Charles W. Johnson, III
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the committee finds the authority for
this legislation in Article I, section 8, clauses 3 and 4 of
the Constitution.
Preemption of State Law
Pursuant to section 423(e) of the Congressional Budget and
Impoundment Act, the committee states that the following
provisions of H.R. 333 may preempt state law to the extent
described herein.
Section 219(b) provides that, notwithstanding any other
provision of law, a creditor who discloses a debtor's last
known address in connection with such request is not liable to
the debtor or any other person by reason of making that
disclosure.
Section 227 contains provisions delineating the
responsibilities that a ``debt relief agency'' must perform
with respect to an ``assisted person'' and specifies the
procedures for their enforcement. Section 227(a), in pertinent
part, states that ``[n]o provision of this section, section
527, or section 528 shall . . . annul, alter, affect, or exempt
any person subject to such sections from complying with any law
of any State except to the extent that such law is inconsistent
with those sections, and then only to the extent of the
inconsistency[.]''
Section 417 permits a utility to recover or set off against
a security deposit provided prepetition by the debtor to the
utility without notice or court order, notwithstanding any
other provision of law.
Section 906 includes a number of provisions pertaining to
the enforceability of certain bilateral netting contracts and
clearing organization netting contracts, notwithstanding any
other provision of state law.
Section 1310(a) provides that notwithstanding any other
provision of law or contract, a court within the United States
shall not recognize or enforce certain judgments rendered by
foreign courts under specified circumstances.
Section-by-Section Analysis and Discussion
Section 1. Short Title; References; Table of Contents
The title of the bill is the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2001 (hereinafter the ``Act'').
TITLE I. NEEDS-BASED BANKRUPTCY
Section 101. Conversion
Section 101 amends section 706(c) of the Bankruptcy Code to
allow a chapter 7 case to be converted to a case under chapter
12 or chapter 13 on consent of the debtor.
Section 102. Dismissal or conversion
Section 102 implements the Act's needs-based bankruptcy
reforms. Subsection (a) amends section 707(b) of the Bankruptcy
Code to permit a court, on its own motion, or on motion of the
United States trustee, trustee, bankruptcy administrator, or
party in interest, to dismiss on the basis of abuse a chapter 7
case filed by an individual debtor whose debts are primarily
consumer debts. Alternatively, it permits the United States
trustee, trustee, bankruptcy administrator, or party in
interest to seek conversion of a chapter 7 case to a case under
chapter 11 or chapter 13 on consent of the debtor. Under
current law, only the court or the United States Trustee may
seek dismissal of a chapter 7 case under section 707(b) for
substantial abuse.
In addition, section 102(a) replaces the current law's
presumption in favor of the debtor with a mandatory presumption
of abuse that is triggered under certain conditions. Section
102(a) requires a court to presume that abuse exists if the
amount remaining, after certain expenses and other specified
amounts are deducted from the debtor's current monthly income
(a defined term), when multiplied by 60, exceeds (1) 25 percent
of the debtor's nonpriority unsecured claims, or $6000
(whichever is greater); or (2) $10,000, whichever is lower.
Under section 102(a), the debtor's monthly expenses--exclusive
of any payments for debts (unless otherwise permitted)--must be
the applicable monthly amounts set forth in the Internal
Revenue Service Financial Analysis Handbook as Necessary
Expenses under the National and Local Standards categories and
the debtor's actual monthly expenditures for items categorized
as Other Necessary Expenses in the Internal Revenue Service
Financial Analysis Handbook. For purposes of this provision,
the expenses include those of the debtor, the debtor's
dependents, and the debtor's spouse, if not otherwise a
dependent.
Section 102(a) mandates that the debtor's monthly expenses
include reasonably necessary expenses incurred to maintain the
safety of the debtor and the debtor's family from family
violence as identified in section 309 of the Family Violence
Prevention and Services Act or other applicable law. In
addition, the debtor may deduct up to an additional 5 percent
of the food and clothing expense allowances under the National
Standards category, if demonstrated to be reasonable and
necessary.
For purposes of determining whether the mandatory
presumption of abuse applies under the needs-based test,
section 102(a) permits the debtor to deduct certain other
liabilities. These include the debtor's average monthly
payments on account of secured debts, calculated as the total
of all amounts scheduled as contractually due over the 60-month
period following the filing of the bankruptcy, divided by 60
months. This amount may include any additional payments to
secured creditors that a chapter 13 debtor must make to retain
possession of a primary residence, motor vehicle, or other
property necessary for the support of the debtor and the
debtor's dependents. With respect to claims and expenses
entitled to priority under section 507 of the Bankruptcy Code,
section 102(a) specifies that the debtor may deduct payments
for these obligations, calculated as the total amount of all
priority debts, divided by 60. If applicable, the debtor may
deduct the following additional expenses:
(1) the continuation of actual expenses paid by the
debtor that are reasonable and necessary for the care
and support of an elderly, chronically ill, or disabled
household member or member of the debtor's immediate
family who is unable to pay such expenses;
(2) the actual administrative expenses (including
reasonable attorneys' fees) of administering a chapter
13 plan for the district in which the debtor resides,
up to 10 percent of projected plan payments, as
determined under schedules issued by the Executive
Office for United States Trustees; and
(3) the actual expenses for each dependent child under
the age of 18 years up to $1,500 per year per child to
attend a private elementary or secondary school, if the
debtor documents these expenses and provides a detailed
explanation of why they are reasonable and necessary.
The mandatory presumption of abuse may only be rebutted if
(1) the debtor demonstrates special circumstances that justify
any additional expense or adjustment to the debtor's current
monthly income for which there is no reasonable alternative;
and (2) such additional expense or income adjustment causes the
debtor's current monthly income (reduced by various amounts)
when multiplied by 60 to be less than the lesser of either (i)
25 percent of the debtor's nonpriority unsecured claims, or
$6,000 (whichever is greater), or (ii) $10,000. The debtor must
itemize and provide documentation of each additional expense or
income adjustment and an explanation of the special
circumstances that make such expense or income adjustment
reasonable and necessary. In addition, the debtor must attest
under oath to the accuracy of any information provided to
demonstrate that such additional expenses or adjustments to
income are required.
Section 102(a) specifies that the debtor file a statement
of current monthly income and the calculations that determine
whether a presumption arises under this provision as part of
the schedules that the debtor must file pursuant to section 521
of the Bankruptcy Code. The statement must also explain how
each amount is calculated.
Where the mandatory presumption of abuse does not apply or
has been rebutted, the court, in order to determine whether the
granting of relief under chapter 7 would be an abuse of such
chapter, must consider (1) whether the debtor filed the chapter
7 case in bad faith; or (2) whether the totality of
circumstances of the debtor's financial situation (including
whether the debtor seeks to reject a personal services contract
and the financial need for such rejection) demonstrates abuse.
Should a court grant a section 707(b) motion made by a
trustee and find that the action of debtor's counsel in filing
the chapter 7 case violated Federal Rule of Bankruptcy
Procedure 9011, section 102(a) mandates that the court order
the attorney to reimburse the trustee for all reasonable costs
in prosecuting the motion, including reasonable attorneys'
fees. In addition, if the court finds that the debtor's
attorney violated rule 9011, the court, at a minimum, must
assess an appropriate civil penalty, payable to the trustee,
bankruptcy administrator, or the United States trustee.
Section 102(a) specifies that the signature of an attorney
on a bankruptcy petition, pleading, or written motion
constitutes a certification that the attorney has (1) performed
a reasonable investigation into the circumstances giving rise
to such petition, pleading or motion; and (2) determined that
the document is well grounded in fact or warranted by existing
law or a good faith argument for the extension, modification,
or reversal of existing law; and does not constitute an abuse
under section 707(b)(1) of the Bankruptcy Code. Pursuant to
section 102(a), the signature of an attorney on a bankruptcy
petition constitutes a certification that the attorney has no
knowledge after an inquiry that the information in the
schedules filed with such petition is incorrect.
A court may award a debtor all reasonable costs, including
reasonable attorneys' fees, incurred by the debtor in
successfully contesting a section 707(b) motion brought by a
party in interest (other than a trustee, United States trustee
or bankruptcy administrator) if the court finds that either (1)
the action of the party in filing the motion violated rule 9011
or (2) the party filed the motion solely for the purpose of
coercing the debtor into waiving a right guaranteed to the
debtor under the Bankruptcy Code. An exception with respect to
the rule 9011 ground applies to a small business having an
aggregate claim of less than $1,000. For purposes of this
provision, a small business is defined as an unincorporated
business, partnership, corporation, association, or
organization with less than 25 full-time employees that is
engaged in commercial or business activity. The number of
employees of a wholly-owned subsidiary of a corporation
includes the employees of the subsidiary's parent corporation
and any other subsidiary corporation of the parent corporation.
Two forms of ``safe harbors'' are recognized under section
102(a). One provides that only a judge, United States trustee,
bankruptcy administrator, or trustee may bring a motion under
section 707(b) of the Bankruptcy Code if the chapter 7 debtor's
income (or in a joint case, the income of debtor and the
debtor's spouse) does not exceed the State median family income
for a family of equal or lesser size (adjusted for larger sized
families), or the State median family income for one earner in
the case of a one-person household. The second safe harbor
provides that no motion under section 707(b)(2) may be filed by
a judge, United States trustee, bankruptcy administrator,
trustee, or other party in interest if the debtor and the
debtor's spouse combined have income that does not exceed the
State median family income for a family of equal or lesser size
(adjusted for larger sized families), or the State median
family income for one earner in the case of a one-person
household.
Section 102(b) defines ``current monthly income'' as the
average monthly income from all sources that the debtor
receives (or, in a joint case, the debtor and the debtor's
spouse receive), without regard to whether it is taxable
income, in the 6-month period preceding the date of
determination. It includes any amount paid on a regular basis
by any entity (other than the debtor or, in a joint case, the
debtor and the debtor's spouse) to the household expenses of
the debtor or the debtor's dependents and, in a joint case, the
debtor's spouse, if not otherwise a dependent. It excludes
Social Security Act benefits and payments to victims of war
crimes or crimes against humanity on account of their status as
victims of such crimes.
Section 102(c) amends section 704 to require the United
States trustee or bankruptcy administrator to review all
materials filed by an individual chapter 7 debtor and to file
with the court not later than 10 days after the date of the
first meeting of creditors a statement as to whether or not the
case should be presumed to be an abuse under section 707(b).
The court, in turn, must provide a copy of such statement
within 5 days of its filing to all creditors.
If the United States trustee or bankruptcy administrator
determines that the debtor's case should be presumed to be an
abuse under section 707(b) and the debtor's current monthly
income is not less than the applicable State median income,
such United States trustee or bankruptcy administrator must
file within 30 days after the filing of the statement
(described in the preceding paragraph) either a (1) motion to
dismiss or convert the case under section 707(b); or (2) a
statement setting forth the reasons why such a motion is not
appropriate. In a case where a motion to dismiss or convert or
a statement is required to be filed under section 704(b)(2),
the United States trustee or bankruptcy administrator may
decline to file such a motion if (1) the debtor's current
monthly income (when multiplied by 12) exceeds 100 percent, but
does not exceed 150 percent of the applicable State median
income; and (2) after subtracting certain deductions, the
debtor's remaining income when multiplied by 60 is less than
the lesser of (i) 25 percent of the debtor's nonpriority
unsecured claims or $6,000 (whichever is greater); or (ii)
$10,000.
Section 102(d) amends section 342 of the Bankruptcy Code to
require the clerk to give written notice to all creditors not
later than 10 days after the filing of a chapter 7 case in
which the presumption of abuse applies. It is anticipated that
the Judicial Conference of the United States will develop an
official form to implement this provision.
Section 102(e) specifies that no provision of the
Bankruptcy Code shall limit the ability of a creditor to supply
information to a judge (except for information communicated ex
parte, unless otherwise permitted by applicable law), United
States trustee, bankruptcy administrator, or trustee.
Section 102(f) amends section 707 of the Bankruptcy Code to
provide that a court may dismiss a chapter 7 case filed by an
individual debtor convicted of a crime of violence (as defined
in 18 U.S.C. Sec. 16), or a drug trafficking crime (as defined
in 18 U.S.C. Sec. 924(c)(2)) on motion of the victim, if
dismissal is in the best interest of such victim. The court,
however, may not dismiss a case under this provision if the
debtor establishes by a preponderance of the evidence that the
filing of the chapter 7 case is necessary to satisfy a domestic
support obligation.
Section 102(g) amends section 1325(a) of the Bankruptcy
Code to require the court to find, as a condition of
confirmation, that the debtor filed the chapter 13 case in good
faith.
Section 102(h) amends section 1325(b) of the Bankruptcy
Code to revise the definition of disposable income. As revised,
the term means current monthly income received by the debtor
(exclusive of child support payments, foster care payments, or
disability payments for a dependent child made in accordance
with applicable nonbankruptcy law to the extent reasonably
necessary to be expended for such child), less amounts
reasonably necessary to be expended for (1) the maintenance or
support of the debtor or dependent of the debtor; (2) a
domestic support obligation that first becomes due after the
petition is filed; (3) certain charitable contributions; and
(4) if the debtor is engaged in business, the payment of
expenditures necessary for the continuation, preservation, and
operation of such business. If the debtor's income exceeds the
applicable State median income threshold, then the expenses of
the debtor under this provision are determined in accordance
with section 707(b)(2)(A) and (B), which specifies what monthly
expenses a debtor may claim.
Section 102(i) makes a clerical amendment to the table of
sections.
Section 103. Sense of Congress and study
Section 103(a) states that it is the sense of Congress that
the Secretary of the Treasury has the authority to alter the
Internal Revenue Service expense standards established to set
guidelines for repayment plans as needed to accommodate their
use under section 707(b) of the Bankruptcy Code.
Section 103(b) requires the Director of the Executive
Office for United States Trustees to submit a report, not later
than 2 years from the enactment date of the Act, containing
findings with regard to the use of the Internal Revenue Service
expense standards for determining a debtor's current monthly
expenses under section 707(b) of the Bankruptcy Code and the
impact that these standards have on debtors and the bankruptcy
courts. The report may include recommendations for amendments
to the Bankruptcy Code consistent with the Director's findings.
Section 104. Notice of alternatives
Section 104 amends section 342(b) of the Bankruptcy Code to
require the clerk to give an individual with primarily consumer
debts--before he or she files for bankruptcy relief--notice of
the following:
(1) a brief description of the various forms of
bankruptcy relief, including an explanation of the
general purpose, benefits, and costs of proceeding
under each form of relief;
(2) a brief description of the services available from
credit counseling agencies;
(3) a statement explaining that a person who knowingly
and fraudulently conceals assets or makes a false oath
or statement under penalty of perjury shall be subject
to fine, imprisonment, or both; and
(4) a statement explaining that all information
supplied by a debtor in connection with the case is
subject to examination by the Attorney General.
Section 105. Debtor financial management training test program
Section 105(a) requires the Director of the Executive
Office for United States trustees to (1) consult with debtor
education experts and others who operate financial management
education programs; and (2) develop a financial management
training curriculum and materials to teach individual debtors
how to manage their personal finances better.
Section 105(b) requires the Director to select six judicial
districts to test the effectiveness of such curriculum and
materials for an 18-month period beginning not later than 270
days after the Act's enactment date. The curriculum and
materials shall be used in these six districts as the personal
financial management instructional course required by section
111 of the Bankruptcy Code, as added by the Act.
Section 105(c) requires the Director to evaluate the
effectiveness of the curriculum and materials as well as to
assess the effectiveness of a sample of existing consumer
education programs (such as those described in the Report of
the National Bankruptcy Review Commission) that are
representative of consumer education programs sponsored by the
credit industry, chapter 13 trustees, and consumer counseling
groups. Not later than 3 months after concluding such
evaluation, the Director must submit a report on the
effectiveness and cost of such curriculum, materials, and
programs.
Section 106. Credit counseling
Section 106(a) amends section 109 of the Bankruptcy Code to
require, as a condition for eligibility to be a debtor, that an
individual receive credit counseling within the 180-day period
preceding the filing of a bankruptcy case by such individual.
The credit counseling must be provided by an approved nonprofit
budget and credit counseling agency consisting of either an
individual or group briefing (which may include a briefing
conducted telephonically or via the Internet) that outlines
opportunities for available credit counseling and assists the
individual in performing a budget analysis.
The determination by the United States trustee or
bankruptcy administrator with regard to whether approved
nonprofit budget and credit counseling agencies in that
district are not reasonably able to provide adequate services
must be reviewed annually. The United States trustee or
bankruptcy administrator, however, may disapprove a nonprofit
budget and credit counseling service at any time.
The mandatory credit counseling requirement does not apply
if the debtor resides in a district where the United States
trustee or bankruptcy administrator determines that the
approved nonprofit budget and credit counseling agencies in
that district are not reasonably able to provide adequate
services.
In addition, this requirement does not apply if the debtor
files a certification that: (1) describes exigent circumstances
meriting a waiver of this requirement; (2) states that the
debtor requested credit counseling services from an approved
nonprofit budget and credit counseling agency, but was unable
to obtain such services within the 5-day period beginning on
the date the debtor made the request; and (3) is satisfactory
to the court. This exemption terminates when the debtor meets
the requirements for credit counseling participation, but not
longer than 30 days after the case is filed, unless the court,
for cause, extends this period for an additional 15 days.
Section 106(b) amends section 727(a) of the Bankruptcy Code
to provide that a chapter 7 debtor's discharge must be denied
if the debtor fails to complete a personal financial management
instructional course after the filing of the bankruptcy case.
This provision, however, does not apply if the debtor resides
in a district where the United States trustee or bankruptcy
administrator has determined that the approved instructional
courses in that district are not adequate. Such determination
must be reviewed annually by the United States trustee or
bankruptcy administrator.
Section 106(c) amends section 1328 of the Bankruptcy Code
to add a chapter 13 debtor's failure to complete an
instructional course concerning personal financial management
as a ground for denying a discharge, unless the debtor resides
in a district where the United States trustee or bankruptcy
administrator has determined that the approved instructional
courses in that district are not adequate. Such determination
must be reviewed annually by the United States trustee or
bankruptcy administrator.
Section 106(d) amends section 521 of the Bankruptcy Code to
mandate that an individual debtor file with the court a
certificate from the approved nonprofit budget and credit
counseling agency that rendered the requisite services
described under section 109(h), as added by this act. The
debtor must file a copy of the repayment plan, if any, that was
developed by the agency together with the certificate, which
must describe the services rendered.
Section 106(e) adds a new provision to the Bankruptcy Code
requiring the clerk for each district to maintain for the
public's use a list of approved (1) credit counseling agencies
that provide the services described in section 109(h) of the
Bankruptcy Code, as added by this Act; and (2) personal
financial management instructional courses. Under this
provision, the United States trustee or bankruptcy
administrator may only approve a credit counseling agency or
personal financial management instructional course that
satisfies certain specified criteria. If such agency or
instruction course is approved, the approval may only be for a
probationary period of up to 6 months. At the conclusion of the
probationary period, the United States trustee or bankruptcy
administrator may only approve such agency or instructional
course for an additional 1-year period and thereafter for
successive 1-year periods. Within 30 days after any final
decision occurring after the expiration of the initial
probationary period or after any 2-year period thereafter, an
interested person may seek judicial review of such decision in
the appropriate United States district court.
In addition, section 106(e) provides that the United States
district court may, at any time, investigate the qualifications
of a credit counseling agency and request it to produce
documents to ensure the agency's integrity and effectiveness.
The district court may remove a credit counseling agency from
the approved list that does not meet the specified
qualifications. Section 106(e) prohibits a credit counseling
agency from providing information as to whether an individual
debtor has received or sought personal financial management
instruction from such agency to a credit reporting entity.
A credit counseling agency that willfully or negligently
fails to comply with any requirement under the Bankruptcy Code
with respect to a debtor shall be liable to the debtor for
damages in an amount equal to (1) actual damages sustained by
the debtor as a result of the violation and (2) any court costs
or reasonable attorneys' fees incurred to recover such damages.
Section 106(f) amends section 362 of the Bankruptcy Code in
two respects. First, it provides that if a chapter 7, 11, or 13
case is dismissed due to the creation of a debt repayment plan,
the presumption under section 362(c)(2) shall not apply to any
subsequent bankruptcy case commenced by the debtor. Second, it
directs that the court, on request of a party in interest, must
issue an order under section 362(c) confirming that the
automatic stay has terminated.
Section 107. Schedules of reasonable and necessary expenses
Section 107 requires the Director of the Executive Office
for United States Trustees to issue schedules of reasonable and
necessary administrative expenses (including reasonable
attorneys' fees) relating to the administration of a chapter 13
plan for each judicial district.
TITLE II. ENHANCED CONSUMER PROTECTION
SUBTITLE A. PENALTIES FOR ABUSIVE CREDITOR PRACTICES
Section 201. Promotion of alternative dispute resolution
Section 201(a) amends section 502 of the Bankruptcy Code to
permit the court, after a hearing on motion of the debtor, to
reduce a wholly unsecured consumer claim by up to 20 percent if
the debtor can establish by clear and convincing evidence that
the claim was filed by a creditor who unreasonably refused to
negotiate a reasonable alternative repayment schedule proposed
by an approved credit counseling agency on behalf of the
debtor. The debtor must also establish by clear and convincing
evidence that the offer was made at least 60 days before the
filing of the petition. In addition, the offer must have
provided for payment of at least 60 percent of the amount of
the claim over a period not exceeding the loan's repayment
period, or a reasonable extension thereof. Further, no part of
the claim under the alternative repayment schedule may be
nondischargeable.
Section 201(b) amends section 547 of the Bankruptcy Code to
prohibit the avoidance as a preferential transfer a payment by
a debtor to a creditor pursuant to an alternative repayment
plan created by an approved credit counseling agency.
Section 202. Effect of discharge
Section 202 amends section 524 of the Bankruptcy Code in
two respects. First, it makes the willful failure of a creditor
to credit payments received under a confirmed chapter 11, 12,
or 13 plan a violation of the discharge injunction if the
creditor's action to collect and failure to credit payments
caused material injury to the debtor. This provision does not
apply if the plan is dismissed or in default, or where the
creditor did not receive payments pursuant to the plan.
Second, section 202 amends section 524 of the Bankruptcy
Code to provide that the discharge injunction does not apply to
an act by a creditor having a claim secured by an interest in
real property that is the debtor's principal residence if such
act is (1) in the ordinary course of business between the
creditor and the debtor; and (2) limited to seeking or
obtaining periodic payments associated with a valid security
interest in lieu of the creditor pursuing in rem relief to
enforce the underlying lien.
Section 203. Discouraging abuse of reaffirmation practices
Section 203 consists of a comprehensive overhaul of the law
applicable to reaffirmation agreements. Section 203(a) mandates
the provision of certain specified disclosures, which are the
only disclosures required in connection with a reaffirmation
agreement. These disclosures must be in written form and be
made clearly and conspicuously. In addition, the disclosure
statement must include certain advisories and explanations. At
the election of the creditor, the disclosure statement may
include a repayment schedule. If the debtor is represented by
counsel, section 203(a) mandates that the attorney file a
certification stating, inter alia, that the agreement
represents a fully informed and voluntary agreement by the
debtor, that the agreement does not impose an undue hardship on
the debtor or any dependent of the debtor, and that the
attorney advised the debtor of the legal effect and
consequences of such agreement. Where the presumption of undue
hardship applies, the attorney must also certify that it is his
or her opinion that the debtor is able to make the payments
required under the reaffirmation agreement. Further, the debtor
must submit a statement setting forth the debtor's monthly
income and expenditures. If the debtor is represented by
counsel and the debt being reaffirmed is owed to a credit
union, a modified version of this statement may be used.
Notwithstanding any other provision of the Bankruptcy Code,
section 203(a) permits a creditor to (1) accept payments from a
debtor before and after the filing of a reaffirmation agreement
with the court; and (2) accept payments from a debtor pursuant
to a reaffirmation agreement that the creditor believes in good
faith to be effective. It further provides that certain
specified disclosure requirements shall be satisfied if such
disclosures are given in good faith.
If the amount of the scheduled payment due on the
reaffirmed debt (as disclosed in the debtor's statement) is
greater than the debtor's available income, it is presumed for
60 days from the date on which the reaffirmation agreement is
filed with the court that the agreement presents an undue
hardship. Section 203(a) requires the court to review such
presumption, which can be rebutted if the debtor identifies in
writing additional sources of funds that would enable the
debtor to make the required payments on the reaffirmed debt. If
the presumption is not rebutted to the satisfaction of the
court, the court may disapprove the reaffirmation agreement. No
reaffirmation agreement may be disapproved without notice and
hearing to the debtor and creditor. The hearing must be
concluded before the entry of the debtor's discharge. The
requirements set forth in this paragraph do not apply to
reaffirmation agreements where the creditor is a credit union,
as defined.
Section 203(b) requires the Attorney General to designate a
U.S. attorney for each judicial district and an Federal Bureau
of Investigation agent for each field office to have primary
law enforcement responsibility for violations of sections 152
and 157 of title 18 of the United States Code with respect to
abusive reaffirmation agreements and materially fraudulent
statements in bankruptcy schedules that are intentionally false
or misleading. The U.S. attorney designated under this
provision has primary responsibility with respect to bankruptcy
investigations under section 3057 of title 18, United States
Code. The bankruptcy courts must establish procedures for
referring any case in which a materially fraudulent bankruptcy
schedule has been filed. The provision also makes a clerical
amendment to the table of sections in title 18.
SUBTITLE B. PRIORITY CHILD SUPPORT
Section 211. Definition of domestic support obligation
Section 211 amends section 101 of the Bankruptcy Code to
define a domestic support obligation as a debt that accrues
pre- or postpetition (including interest that accrues pursuant
to applicable nonbankruptcy law) and is owed to or recoverable
by a spouse, former spouse, or child of the debtor, or that
child's parent or legal guardian, or a responsible relative. It
also includes a debt owed to or recoverable by a governmental
unit. To qualify as a domestic support obligation, the debt
must be in the nature of alimony, maintenance, or support,
without regard to whether such debt is expressly so designated.
It must be established or subject to establishment either pre-
or postpetition pursuant to a: (i) separation agreement,
divorce decree, or property settlement agreement; (ii) an order
of a court of record; or (iii) a determination made in
accordance with applicable nonbankruptcy law by a governmental
unit. It does not apply to a debt assigned to a nongovernmental
entity, unless it was assigned voluntarily by the spouse,
former spouse, child, or parent solely for the purpose of
collecting the debt.
Section 212. Priorities for claims for domestic support obligations
Section 212 amends 507(a) of the Bankruptcy Code to make
domestic support obligations owed to or recoverable by a
spouse, former spouse, or child of the debtor, or the parent,
legal guardian, or responsible relative of such child or filed
by a governmental unit on behalf of such person payable before
all other expenses and claims, including expenses of
administration from the assets of a bankruptcy estate. Within
this priority, allowed claims for domestic support obligations
filed by a governmental unit must be paid on the condition that
funds received by such unit under this provision be applied and
distributed in accordance with nonbankruptcy law. Remaining
funds may be used to pay a domestic support obligation assigned
to a governmental unit (unless such obligation is assigned
voluntarily by a spouse, former spouse, child, parent, legal
guardian, or responsible relative of the child for the purpose
of collecting the debt) or owed directly to such entity if the
funds are applied and distributed in accordance with applicable
nonbankruptcy law.
Section 213. Requirements to obtain confirmation and discharge in cases
involving domestic support obligations
Section 213(1) amends section 1129(a) of the Bankruptcy
Code to mandate the payment of certain postpetition domestic
support obligations as a condition of confirmation in a chapter
11 case. Section 213(2) amends section 1208(c) of the
Bankruptcy Code to provide that the failure of a chapter 12
debtor to pay a postpetition domestic support obligation
constitutes cause for conversion or dismissal of the debtor's
case. Section 213(3) amends section 1222(a) of the Bankruptcy
Code to permit a chapter 12 debtor to propose a plan that
provides for less than full payment of all amounts owed for a
claim entitled to priority under section 507(a)(1)(B) if all of
the debtor's projected disposable income for a 5-year period is
applied to make payments under the plan. Section 213(4) amends
section 1222(b) of the Bankruptcy Code to permit a chapter 12
debtor, pursuant to a plan, to pay postpetition interest on
claims that are nondischargeable under Section 1328(a), but
only to the extent that the debtor has disposable income
available to pay such interest after payment of all allowed
claims. Section 213(5) amends section 1225(a) of the Bankruptcy
Code to require a chapter 12 debtor to be current with certain
postpetition domestic support obligations as a condition of
confirmation. Section 213(6) amends section 1228(a) to
condition the granting of a chapter 12 discharge on the
debtor's payment of certain postpetition domestic support
obligations. Section 213(7) amends section 1307 of the
Bankruptcy Code to add nonpayment of a postpetition domestic
support obligation as a ground for conversion or dismissal of a
chapter 13 case. Section 213(8) amends section 1322(a) to
permit a chapter 13 debtor, pursuant to a plan, to pay less
than the full amount of a claim entitled to priority under
section 507(a)(1)(B) if the plan provides that all of the
debtor's projected disposable income over a 5-year period will
be applied to make payments under the plan. Section 213(9)
amends section 1322(b) to permit a chapter 13 debtor, pursuant
to a plan, to pay postpetition interest on claims that are
nondischargeable under section 1328(a), but only to the extent
that the debtor has disposable income available to pay such
interest after payment of all allowed claims. Section 213(10)
amends section 1325(a) of the Bankruptcy Code to require, as a
condition of confirmation, that a chapter 13 debtor pay certain
postpetition domestic support obligations. Section 213(11)
amends section 1328(a) of the Bankruptcy Code to condition the
granting of a chapter 13 discharge on the debtor's payment of
certain postpetition domestic support obligations.
Section 214. Exceptions to automatic stay in domestic support
proceedings
Section 214 amends section 362(b) of the Bankruptcy Code to
except from the automatic stay actions or proceedings
pertaining to child custody and visitation, domestic violence,
and marriage dissolution to the extent that they do not pertain
to property determinations concerning property of the estate.
In addition, section 214 amends section 362(b) to except from
the automatic stay the withholding, suspension, or restriction
of a driver's license, or a professional, occupational or
recreational license under State law pursuant to section
466(a)(16) of the Social Security Act. Further, section 214
excepts from the automatic stay the reporting of overdue
support owed by a parent to any consumer reporting agency
pursuant to section 466(a)(7) of the Social Security Act; the
interception of tax refunds as authorized by sections 464 and
466(a)(3) of the Social Security Act; and the enforcement of
medical obligations as specified under title IV of the Social
Security Act.
Section 215. Nondischargeability of certain debts for alimony,
maintenance, and support
Section 215 amends section 523(a)(5) of the Bankruptcy Code
to provide that a ``domestic support obligation'' (as defined
in section 211 of the Act) is nondischargeable. With respect to
obligations that are not domestic support obligations, but
incurred in connection with a divorce or separation or related
action, section 215 provides that these obligations are also
nondischargeable irrespective of the debtor's inability to pay
such debts. In addition, section 215 amends section 523(c) of
the Bankruptcy Code to delete the reference to section
523(a)(15).
Section 216. Continued liability of property
Section 216 amends section 522(c) of the Bankruptcy Code to
make exempt property liable for nondischargeable domestic
support obligations notwithstanding any contrary provision of
applicable nonbankruptcy law. It also makes a conforming
amendment to section 522(f)(1)(A) of the Bankruptcy Code and
corrects an erroneous statutory reference in section 522(g)(2).
Section 217. Protection of domestic support claims against preferential
transfer motions
Section 217 makes a conforming amendment to section
547(c)(7) of the Bankruptcy Code, which provides that a bona
fide payment of a debt for a domestic support obligation may
not be avoided as a preferential transfer.
Section 218. Disposable income defined
Section 218(a) amends section 1225(b)(2)(A) of the
Bankruptcy Code to provide that disposable income in a chapter
12 case does not include payments for postpetition domestic
support obligations.
Section 218(b) amends section 1325(b)(2)(A) of the
Bankruptcy Code to provide that disposable income in a chapter
13 case does not include payments for postpetition domestic
support obligations.
Section 219. Collection of child support
Section 219 amends sections 704, 1106, 1202, and 1302 of
the Bankruptcy Code to require trustees in chapter 7, 11, 12,
and 13 cases to provide certain types of notices to child
support claimants and governmental enforcement agencies. First,
the trustee must notify the claimant in writing of the right to
use the services of a State child support enforcement agency
established under sections 464 and 466 of the Social Security
Act in the State where the claimant resides and include the
agency's address and telephone number. The notice must also
explain the claimant's right to payment under the applicable
chapter of the Bankruptcy Code. Second, the trustee must
provide written notice to the governmental enforcement agency
of the name, address, and telephone number of the child support
claimant. Third, the trustee must notify both the child support
claimant and the State agency that the debtor was granted a
discharge as well as supply them with the debtor's last known
address, the last known name and address of the debtor's
employer, and the name of each creditor holding a debt that is
not discharged under section 523(a)(2), (4) or (14A), or
holding a debt that is reaffirmed pursuant to section 524 of
the Bankruptcy Code. If a child support claimant or State
agency is not able to locate the debtor, such claimant or
agency may request such information from a creditor holding a
debt that is not discharged under section 523(a)(2), (4) or
(14A) or that is reaffirmed pursuant to section 524 of the
Bankruptcy Code. Section 219, in addition, provides that,
notwithstanding any other provision of law, a creditor who
discloses a debtor's last known address in connection with such
request is not liable to the debtor or any other person by
reason of making that disclosure.
Section 220. Nondischargeability of certain educational benefits and
loans
Section 220 amends section 523(a)(8) of the Bankruptcy Code
to provide that a debt for a qualified education loan (as
defined in section 221(e)(1) of the Internal Revenue Code) is
nondischargeable, unless excepting such debt from discharge
would impose an undue hardship on the debtor and the debtor's
dependents.
SUBTITLE C. OTHER CONSUMER PROTECTIONS
Section 221. Amendments to discourage abusive bankruptcy filings
Section 221 makes a series of amendments to section 110 of
the Bankruptcy Code. First, it clarifies the definition of a
bankruptcy petition preparer with respect to persons under the
direct supervision of an attorney. Second, it amends
subsections (b)(1) and (c)(2) of section 110 to provide that if
a bankruptcy petition preparer is not an individual, then an
officer, principal, responsible person, or partner of the
preparer must sign certain documents filed in connection with
the bankruptcy case as well as state the person's name and
address on such documents. Third, it requires a bankruptcy
petition preparer to give the debtor written notice explaining
that the preparer is not an attorney and may not practice law
or give legal advice. The notice may include examples of legal
advice that a preparer may not provide. The notice, which must
be signed by the preparer under penalty of perjury and the
debtor, is required to be filed with any document for filing.
Fourth, it requires the Supreme Court to promulgate rules or
the Judicial Conference of the United States to issue
guidelines for setting maximum fees. Fifth, it specifies that
the bankruptcy petition preparer file a declaration certifying
that the preparer complied with the notification requirements
concerning the preparer's fees. Sixth, it requires the court to
order the turnover of specified fees for services rendered
within 12 months of the filing if such fees violate any rule or
guideline. Seventh, it allows a debtor to exempt fees recovered
under this provision pursuant to section 522(b) of the
Bankruptcy Code. Eighth, it specifically authorizes the court
to enjoin a bankruptcy petition preparer who has failed to
comply with a prior order issued under section 110. Ninth, it
generally revises section 110's penalty provisions and
specifies that the penalties are to be paid to a special fund
of the United States trustee to pay for enforcement of this
provision.
Section 222. Sense of Congress
Section 222 expresses the sense of Congress that the States
should develop personal finance curricula for use in elementary
and secondary schools.
Section 223. Additional amendments to title 11, United States Code
Section 223 amends section 507(a) to add a tenth-level
priority for claims based on death or personal injuries
resulting from the debtor's operation of a motor vehicle or
vessel while intoxicated.
Section 224. Protection of retirement savings in bankruptcy
Section 224(a) amends section 522 to permit a debtor to
exempt certain retirement funds to the extent that those monies
are in a fund or account that is exempt from taxation under
section 401, 403, 408, 408A, 414, 457, or 501(a) of the
Internal Revenue Code and that have received a favorable
determination pursuant to Internal Revenue Code section 7805.
If the retirement monies are in a retirement fund that has not
received a favorable determination, those monies are exempt if
the debtor demonstrates that no prior unfavorable determination
has been made by a court or the Internal Revenue Service, and
the retirement fund is in substantial compliance with the
applicable requirements of the Internal Revenue Code. If the
retirement fund fails to be in substantial compliance with
applicable law, the debtor may claim the retirement funds as
exempt if the debtor is not materially responsible for such
failure. This section also applies to certain direct transfers
and rollover distributions. In addition, this provision ensures
that the specified retirement funds are exempt under State as
well as Federal law.
Section 224(b) amends section 362(b) of the Bankruptcy Code
to except from the automatic stay the withholding of income
from a debtor's wages pursuant to an agreement authorizing such
withholding for the benefit of a pension, profit-sharing, stock
bonus, or other employer-sponsored plan established under
Internal Revenue Code section 401, 403, 408, 408A, 414, 457, or
501(a) to the extent that the amounts withheld are used solely
to repay a loan from a plan as authorized by section 408(b)(1)
of the Employee Retirement Income Security Act of 1974 or that
they are subject to Internal Revenue Code section 72(p). The
exception also applies to certain thrift savings plan loans.
Section 224(c) amends section 523(a) of the Bankruptcy Code
to except from discharge any amount owed by the debtor to a
pension, profit-sharing, stock bonus, or other plan established
under Internal Revenue Code section 401, 403, 408, 408A, 414,
457, or 501(c) under a loan authorized under section 408(b)(1)
of the Employee Retirement Income Security Act of 1974 or
subject to Internal Revenue Code section 72(p). The exception
also pertains to a loan from a thrift savings plan made under a
governmental plan pursuant to section 414(d) or a contract or
account under section 403(b) of the Internal Revenue Code.
Section 224(d) amends section 1322 of the Bankruptcy Code
to provide that a chapter 13 plan may not materially alter the
terms of a loan owed to a pension, profit-sharing, stock bonus,
or other plan established under the Internal Revenue Code
section 401, 403, 408, 408A, 414, 457, or 501(a). In addition,
it specifies that any amounts required to repay such loan shall
not constitute ``disposable income'' under section 1325 of the
Bankruptcy Code.
Section 224(e) amends section 522 of the Bankruptcy Code to
impose a $1 million cap (periodically adjusted pursuant to
section 104 of the Bankruptcy Code to reflect changes in the
Consumer Price Index) on the value of the debtor's interest in
an individual retirement account established under either
section 408 or 408A of the Internal Revenue Code (other than a
simplified employee pension account under section 408(k) or a
simple retirement account under section 408(p) of the Internal
Revenue Code) that a debtor may claim as exempt property. This
limit applies without regard to amounts attributable to
rollover contributions made pursuant to section 402(c),
402(e)(6), 403(a)(4), 403(a)(5), or 403(b)(8) of the Internal
Revenue Code and earnings thereon. The cap may be increased if
required in the interest of justice.
Section 225. Protection of education savings in bankruptcy
Section 225(a) amends section 541 of the Bankruptcy Code to
provide that funds placed not less than 365 days before the
filing of the bankruptcy case in a education individual
retirement account are not property of the estate if certain
criteria are met. First, the designated beneficiary of such
account must be a child, stepchild, grandchild or step-
grandchild of the debtor for the taxable year during which
funds were placed in the account. A legally adopted child or a
foster child, under certain circumstances, may also qualify as
a designated beneficiary. Second, such funds may not be pledged
or promised to an entity in connection with any extension of
credit and they may not be excess contributions (as described
in section 4973(e) of the Internal Revenue Code). Third, a
$5,000 cap applies to funds deposited between 720 days and 365
days before the filing date. Similar criteria apply with
respect to funds used to purchase a tuition credit or
certificate or to funds contributed to a qualified State
tuition plan under section 529(b)(1)(A) of the Internal Revenue
Code.
Section 225(b) requires a debtor to file with the court a
record of any interest that the debtor has in an education
individual retirement account or qualified State tuition
program.
Section 226. Definitions
Section 226(a) amends section 101 of the Bankruptcy Code to
add certain definitions with respect to debt relief agencies.
Section 226(a)(1) defines an ``assisted person'' as a person
whose debts consist primarily of consumer debts and whose
nonexempt assets are less than $150,000. Section 226(a)(2)
defines ``bankruptcy assistance'' as any goods or services sold
or otherwise provided with the express or implied purpose of
giving information, advice, or counsel; preparing documents for
filing; or attending a meeting of creditors pursuant to section
341; appearing in a proceeding on behalf of a person; or
providing legal representation with respect to a case or
proceeding under the Bankruptcy Code. Section 226(a)(3) defines
a ``debt relief agency'' as any person (including a bankruptcy
petition preparer) who provides bankruptcy assistance to an
assisted person in return for the payment of money or other
valuable consideration. The definition does not include a
section 501(c)(3) nonprofit organization, depository
institution, or Federal credit union which provides assistance
with respect to restructuring debts. In addition, the
definition does not apply to an author, publisher, distributor,
or seller of works subject to copyright protection under title
17 of the United States Code when acting in such capacity.
Section 226(b) amends section 104(B)(1) of the Bankruptcy
Code to permit the monetary amount set forth in the definition
of an ``assisted person'' to be automatically adjusted to
reflect the change in the Consumer Price Index.
Section 227. Restrictions on debt relief agencies
Section 227 creates a new provision in the Bankruptcy Code
to prohibit a debt relief agency from engaging in certain
activities. First, section 227 bars the agency from failing to
perform any service that it informed an assisted person would
be provided. Second, this provision prohibits a debt relief
agency from advising an assisted person to make an untrue or
misleading statement. Third, it prohibits a debt relief agency
from misrepresenting the services it provides and the benefits
that an assisted person may receive as a result of bankruptcy.
Fourth, section 227 bans a debt relief agency from advising an
assisted person or prospective assisted person to incur
additional debt in contemplation of filing for bankruptcy
relief or for the purpose of paying fees for services rendered
by an attorney or petition preparer in connection with the
bankruptcy case. Any waiver by an assisted person of the
protections under this provision are unenforceable, except
against a debt relief agency.
In addition, section 227 imposes penalties for the
violation of section 526, 527 or 528 of the Bankruptcy Code (as
enacted by this Act). First, any contract between a debt relief
agency and an assisted person that does not comply with these
provisions is void and may not be enforced by any State or
Federal court or by any person, except an assisted person.
Second, a debt relief agency is liable to an assisted person,
under certain circumstances, for any fees or charges paid by
such person to the agency, actual damages, and reasonable
attorneys' fees and costs. A chief law enforcement officer of a
State having reason to believe that a person has violated or is
violating section 526 may seek to have such violation enjoined
and recover actual damages arising from such violation. Third,
section 227 provides that the United States district court has
concurrent jurisdiction of certain actions under section 526.
Fourth, section 227 provides that sections 526, 527 and 528
preempt inconsistent State law. In addition, it provides that
these provisions do not limit or curtail the authority of a
Federal court, a State, or a subdivision or instrumentality of
a State, to determine and enforce qualifications for the
practice of law before the Federal court or under the laws of
that State.
Section 228. Disclosures
Section 228 mandates that a debt relief agency provide
certain written notices to an assisted person. These include
the notice required under section 342(b)(1), as amended by this
Act, as well as a notice advising that: (1) all information the
assisted person provides in connection with the case must be
complete, accurate and truthful; (2) all assets and liabilities
must be completely and accurately disclosed in the documents
filed to commence the case, including the replacement value of
each asset (if required) after reasonable inquiry to establish
such value; (3) current monthly income, monthly expenses and,
in a chapter 13 case, disposable income must be stated after
reasonable inquiry; and (4) information an assisted person
provides may be audited and that the failure to provide such
information may result in dismissal of the case or other
sanction including, in some instances, criminal sanctions. In
addition, the agency must supply certain specified advisories
and explanations regarding the bankruptcy process. Further,
this provision requires the agency to advise an assisted person
(to the extent permitted under nonbankruptcy law) concerning
asset valuation, the calculation of disposable income, and the
determination of exempt property.
Section 229. Requirements for debt relief agencies
Section 229 requires a debt relief agency--not later than
five business days after the first date on which it provides
any bankruptcy assistance services to an assisted person (but
prior to such assisted person's petition being filed)--to
execute a written contract with the assisted person specifying
clearly and conspicuously the services the agency will provide,
the basis on which fees will be charged for such services, and
the terms of payment. The assisted person must be given a copy
of the fully executed and completed contract in a form the
person can retain. The debt relief agency must include certain
specified mandatory statements in any advertisement of
bankruptcy assistance services or regarding the benefits of
bankruptcy that is directed to the general public whether
through the general media, seminars, specific mailings,
telephonic or electronic messages, or otherwise.
Section 230. GAO study
Section 230 directs the Comptroller General of the United
States to conduct a study of and to report on the feasibility,
efficacy and cost of requiring a trustee to supply certain
specified information about a debtor's bankruptcy case to the
Office of Child Support Enforcement for the purpose of
determining whether a debtor has outstanding child support
obligations.
TITLE III--DISCOURAGING BANKRUPTCY ABUSE
Section 301. Reinforcement of the fresh start
Section 301 makes a clarifying amendment to section
523(a)(17) of the Bankruptcy Code concerning the
dischargeability of court fees incurred by prisoners. Section
523(a)(17) was added to the Bankruptcy Code by the Omnibus
Consolidated Rescissions and Appropriations Act of 1996 \1\ to
except from discharge the filing fees and related costs and
expenses assessed by a court in a civil case or appeal. Because
of a drafting error, however, this provision might be construed
to apply to filing fees, costs or expenses incurred by any
debtor, not solely by those who are prisoners. The amendment
eliminates the ambiguity and makes other conforming changes to
narrow its application in accordance with its original intent.
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\1\ Pub. L. No. 104-134, Section 804(b) (1996).
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Section 302. Discouraging bad faith repeat filings
Section 302(a) amends section 362(c) of the Bankruptcy Code
to terminate the automatic stay within 30 days in a chapter 7,
11, or 13 case filed by or against an individual if such
individual was a debtor in a previously dismissed case pending
within the preceding 1-year period. The provision does not
apply to a case refiled under a chapter other than chapter 7
after dismissal of the prior chapter 7 case pursuant to section
707(b) of the Bankruptcy Code. Upon motion of a party in
interest, the court may continue the stay after notice and a
hearing completed prior to the expiration of the 30-day period
if such party demonstrates that the latter case was filed in
good faith as to the creditors who are stayed by the filing.
For purposes of this provision, a case is presumptively not
filed in good faith as to all creditors if:
(1) more than one bankruptcy case under chapter 7, 11
or 13 was previously filed by the debtor within the
preceding 1-year period;
(2) the prior chapter 7, 11, or 13 case of the debtor
was dismissed within the preceding year for the
debtor's failure to (a) file or amend without
substantial excuse a document required under the
Bankruptcy Code or the court, (b) provide adequate
protection ordered by the court, or (c) perform the
terms of a confirmed plan; or
(3) there has been no substantial change in the
debtor's financial or personal affairs since the
dismissal of the prior case, or there is no reason to
conclude that the pending case will conclude either
with a discharge (if a chapter 7 case) or confirmation
(if a chapter 11 or 13 case).
In addition, a case is presumptively deemed filed not in
good faith as to any creditor who obtained relief from the
automatic stay in the prior case or sought such relief in the
prior case and such action was pending at the time of the prior
case's dismissal. The presumption may be rebutted by clear and
convincing evidence. A similar presumption applies if two or
more bankruptcy cases were pending in the 1-year preceding the
filing of the pending case.
Section 303. Curbing abusive filings
Section 303(a) amends section 362(d) of the Bankruptcy Code
to add a new ground for relief from the automatic stay. It
provides that cause for relief from the automatic stay may be
established for a creditor whose claim is secured by an
interest in real estate, if the court finds that the filing of
the bankruptcy case was part of a scheme to delay, hinder and
defraud creditors that involved either (a) a transfer of all or
part of an ownership interest in real property without such
creditor's consent or without court approval; or (b) multiple
bankruptcy filings affecting the real property. If recorded in
compliance with applicable State law governing notice of an
interest in or a lien on real property, an order entered under
this provision is binding in any other bankruptcy case for 2
years from the date of entry of such order. A debtor in a
subsequent case may move for relief based upon changed
circumstances or for good cause shown after notice and a
hearing. Section 303(a) further provides that any Federal,
State or local governmental unit that accepts a notice of
interest or a lien in real property, must accept a certified
copy of an order entered under this provision.
Section 303(b) amends section 362(b) of the Bankruptcy Code
to except from the automatic stay an act to enforce any lien
against or security interest in real property within 2 years
following the entry of an order entered under section
362(d)(4). A debtor, in a subsequent case, may move for relief
from such order based upon changed circumstances or for other
good cause shown after notice and a hearing. Section 303(b)
also provides that the automatic stay does not apply in a case
where the debtor (a) is ineligible to be a debtor in a
bankruptcy case pursuant to section 109(g) of the Bankruptcy
Code; or (b) filed the bankruptcy case in violation of an order
issued in a prior bankruptcy case prohibiting the debtor from
being a debtor in a subsequent bankruptcy case.
Section 304. Debtor retention of personal property security
Section 304(1) amends section 521(a) of the Bankruptcy Code
to provide that an individual who is a chapter 7 debtor may not
retain possession of personal property securing, in whole or in
part, a purchase money security interest unless the debtor,
within 45 days after the first meeting of creditors, enters
into a reaffirmation agreement with the creditor, or redeems
the property. If the debtor fails to so act within the
prescribed period, the property is not subject to the automatic
stay and is no longer property of the estate. An exception
applies if the court: (a) determines on motion of the trustee
filed before the expiration of the 45-day period that the
property has consequential value or would benefit the
bankruptcy estate; (b) orders adequate protection of the
creditor's interest; and (c) directs the debtor to deliver any
collateral in the debtor's possession.
Section 304(2) amends section 722 to clarify that a chapter
7 debtor must pay the redemption value in a lump sum payment at
the time of redemption.
Section 305. Relief from the automatic stay when the debtor does not
complete intended surrender of consumer debt collateral
Section 305(1) amends section 362 of the Bankruptcy Code to
terminate the automatic stay with respect to personal property
of the estate or of the debtor in a chapter 7, 11, or 13 case
that secures a claim (in whole or in part) or is subject to an
unexpired lease if the debtor fails to:
(1) file timely a statement of intention as required
by section 521(a)(2) of the Bankruptcy Code with
respect to such property;
(2) indicate in such statement whether the property
will be surrendered or retained, and if retained,
whether the debtor will redeem the property or reaffirm
the debt, or assume an unexpired lease, if the trustee
does not; and
(3) undertake timely the actions specified in such
statement of intention, unless the statement specifies
reaffirmation and the creditor refuses to enter into
the reaffirmation agreement on the original contract
terms.
In addition to terminating the automatic stay, this provision
renders such property no longer property of the estate. An
exception pertains where the court determines, on the motion of
the trustee made prior to the expiration of the applicable time
period under section 521(a)(2), and after notice and a hearing,
that such property is of consequential value or benefit to the
estate, orders adequate protection of the creditor's interest,
and directs the debtor to deliver any collateral in the
debtor's possession.
Section 305(2) amends section 521 of the Bankruptcy Code to
make the requirement to file a statement of intention
applicable to all secured debts, not just secured consumer
debts. In addition, it requires the debtor to effectuate his or
her stated intention within 30 days from the first date set for
the meeting of creditors. If the debtor fails to timely
undertake certain specified actions with respect to property
that a lessor or bailor owns and has leased, rented or bailed
to the debtor, or in which a creditor has a security interest
(not otherwise avoidable under section 522(f), 544, 545, 547,
548 or 549 of the Bankruptcy Code), then nothing in the
Bankruptcy Code shall prevent or limit the operation of a
provision in a lease or agreement that places the debtor in
default by reason of the debtor's bankruptcy or insolvency.
Section 306. Giving secured creditors fair treatment in chapter 13
Section 306(a) amends section 1325(a)(5)(B)(i) of the
Bankruptcy Code to require--as a condition of confirmation--
that a chapter 13 plan provide that a secured creditor retain
its lien until the earlier of when the underlying debt is paid
or the debtor receives a discharge. If the case is dismissed or
converted prior to completion of the plan, the secured creditor
is entitled to retain its lien to the extent recognized under
applicable nonbankruptcy law.
Section 306(b) amends section 1325(a) of the Bankruptcy
Code to provide that section 506 of the Code does not apply to
a debt incurred within the 5-year period preceding the filing
of the bankruptcy case if the debt is secured by a purchase
money security interest in a motor vehicle acquired for the
personal use of the debtor. Where the collateral consists of
any other type of property having value, section 306(b)
provides that section 506 of the Bankruptcy Code does not apply
if the debt was incurred during the 1-year period preceding the
filing of the bankruptcy case.
Section 306(c)(1) adds to section 101 of the Bankruptcy
Code a definition of the term, ``debtor's principal
residence,'' which it defines as a residential structure
(including incidental property) whether or not such structure
is attached to real property. The definition includes an
individual condominium or cooperative unit as well as a mobile
or manufactured home, and a trailer. Section 306(c)(2) defines
``incidental property'' as property commonly conveyed with a
principal residence in the area where the residence is located.
The term includes all easements, rights, appurtenances,
fixtures, rents, royalties, mineral rights, oil or gas rights
or profits, water rights, escrow funds, and insurance proceeds.
Further, the term includes all replacements and additions.
Section 307. Domiciliary requirements for exemptions
Section 307 amends 522(b)(2)(A) of the Bankruptcy Code to
extend the time that a debtor must be domiciled in a State
before he or she may claim that State's exemptions. If the
debtor's domicile was not located in a single State for the
730-day period, then the State where the debtor was domiciled
in the 180-day period preceding the 730-day period (or the
longer portion of such 180-day period) controls.
Section 308. Residency requirements for homestead exemption
Section 308 amends section 522 of the Bankruptcy Code to
reduce the value of a debtor's interest in the following
property that may be claimed as exempt under certain
circumstances: (1) real or personal property that the debtor or
a dependent of the debtor uses as a residence; (2) a
cooperative that owns property that the debtor or a dependent
of the debtor uses as a residence; or (3) a burial plot. Where
nonexempt property is converted to the above-specified exempt
property within the 7-year period preceding the filing of the
bankruptcy case, the exemption must be reduced to the extent
such value was acquired with the intent to hinder, delay or
defraud a creditor.
Section 309. Protection secured creditors in chapter 13 cases
Section 309(a) amends section 348(f)(1) of the Bankruptcy
Code to specify that valuations of property and allowed secured
claims in a chapter 13 case only apply if the case is
subsequently converted to one under chapter 11 or 12. If the
chapter 13 case is converted to one under chapter 7, then the
creditor holding security as of the petition date shall
continue to be secured unless its claim was paid in full as of
the conversion date. In addition, unless a prebankruptcy
default has been fully cured at the time of conversion, then
the default in any bankruptcy proceeding shall have the effect
given under applicable nonbankruptcy law.
Section 309(b) amends section 365 of the Bankruptcy Code to
provide that if a lease of personal property is rejected or not
timely assumed by the trustee, the leased property is no longer
property of the estate and the automatic stay under section 362
is terminated. With regard to a chapter 7 case of an individual
debtor, the debtor may notify the creditor in writing of his or
her desire to assume the lease. Upon being so notified, the
creditor may, at its option, inform the debtor that it is
willing to have the lease assumed and condition such assumption
on cure of any outstanding default on terms set by the
contract. If within 30 days after such notice the debtor
notifies the lessor in writing that the lease is assumed, the
debtor (not the bankruptcy estate) assumes the liability under
the lease. Section 309(b) provides that the automatic stay of
section 362 and the discharge injunction of section 524 are not
violated if the creditor notifies the debtor and negotiates a
cure under section 365(p)(2) (as codified by this Act).
In an individual chapter 11 or 13 case where the debtor is
the lessee with respect to personal property and the lease is
not assumed in the confirmed plan, the lease is deemed rejected
as of the conclusion of the confirmation hearing. If the lease
is rejected, the automatic stay under section 362 as well as
the chapter 13 codebtor stay under section 1301 are
automatically terminated with respect to such property.
Section 309(c)(1) amends section 1325(a)(5)(B) of the
Bankruptcy Code to require that periodic payments pursuant to a
chapter 13 plan with respect to a secured claim be made in
equal monthly installments and that the amount of such payments
shall not be less than the amount sufficient to provide
adequate protection to the holder of such claim.
Section 309(c)(2) amends section 1326(a) of the Bankruptcy
Code to require a chapter 13 debtor to commence making payments
within 30 days after the filing of the plan or the order for
relief, whichever is earlier. The amount of such payment must
be the amount proposed in the plan, scheduled in a personal
property lease for that portion of the obligation that becomes
due postpetition (which amount shall reduce the payment
required to be made to such lessor pursuant to the plan), and
provides adequate protection directly to a creditor holding an
allowed claim secured by personal property to the extent the
claim is attributable to the purchase of such property (which
amount shall reduce the payment required to be made to such
secured creditor pursuant to the plan). Payments made pursuant
to a plan must be retained by the chapter 13 trustee until
confirmation or denial of confirmation. Section 309(c)(2)
provides that if the plan is confirmed, the trustee must
distribute payments received from the debtor as soon as
practicable in accordance with the plan. If the plan is not
confirmed, the trustee must return to the debtor payments not
yet due and owing to creditors. Pending confirmation and
subject to section 363, the court, after notice and a hearing,
may modify the payments required under this provision. Section
309(c)(2) requires the debtor, within 60 days following the
filing of the bankruptcy case, to provide reasonable evidence
of any required insurance coverage with respect to the use or
ownership of leased personal property or property securing, in
whole or in part, a purchase money security interest.
Section 310. Limitation on luxury goods
Section 310 amends section 523(a)(2)(C) of the Bankruptcy
Code to establish a presumption that consumer debts owed to a
single creditor and aggregating more than $250 for luxury goods
or services incurred by an individual debtor within 90 days
before the order for relief are nondischargeable. With respect
to cash advances aggregating more than $750 that are extensions
of consumer credit under an open-end credit plan obtained by an
individual debtor within 70 days prepetition, section 310
establishes a presumption that these debts are
nondischargeable. The term, ``luxury goods or services,'' does
not include goods or services reasonably necessary for the
support or maintenance of the debtor or a dependent of the
debtor. In addition, ``an extension of consumer credit under an
open-end credit plan'' has the same meaning as it has under the
Consumer Credit Protection Act.
Section 311. Automatic stay
Section 311 amends section 362(b) of the Bankruptcy Code to
except the following proceedings from the automatic stay:
(1) the continuation of any eviction, unlawful
detainer action, or similar proceeding by a lessor
against a debtor involving residential real property
where the debtor resides as a tenant under a rental
agreement;
(2) the commencement of any eviction, unlawful
detainer action, or similar proceeding by a lessor
against a debtor involving residential real property
where the debtor resides as a tenant under a rental
agreement that has terminated pursuant to the lease
agreement or applicable State law; and
(3) an eviction action based on endangerment to
property or person, or the use of illegal drugs.
Section 311 also excepts from the automatic stay a transfer
that is not avoidable under section 544 and that is not
avoidable under section 549 of the Bankruptcy Code. This
amendment responds to a 1997 Ninth Circuit case,\2\ in which
two purchase money lenders (without knowledge that the debtor
had recently filed an undisclosed chapter 11 case that was
later converted to chapter 7), funded the debtor's acquisition
of an apartment complex and recorded their purchase-money deed
of trust immediately following recordation of the deed to the
debtors. Specifically, it amends the definition of ``transfer''
to include the ``creation of a lien.'' This amendment gives
expression to a widely held understanding that a transfer
includes the creation of a lien.
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\2\ Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir.
1997). The bankruptcy trustee sought to avoid the lien created by the
lenders' deed of trust by asserting that the deed was an unauthorized,
postpetition transfer under section 549(a) of the Bankruptcy Code. The
lenders claimed that the voluntary transfer to them was a transfer of
real property to good faith purchasers for value, which thereby
excepted it, under section 549(c) of the Bankruptcy Code, from
avoidance. The bankruptcy court held that: the postpetition recordation
of the lenders' deed of trust was without authorization under the
Bankruptcy Code or by the court and was therefore avoidable under
section 549(a) and that the lenders did not qualify under the section
549(c) exception as good faith purchasers of real property for value.
The District Court subsequently affirmed the bankruptcy court's ruling
granting the trustee the authority to avoid the lenders' lien.
McConville v. David Margen and Lawton Associates (In re McConville),
No. C 94-3308, 1994 U.S. Dist. LEXIS 18095 (N.D. Cal. Dec. 14, 1994).
On appeal, the lower court's decision in McConville was initially
affirmed. Thompson v. Margen (In re McConville), 84 F.3d 340 (9th Cir.
1996). The Ninth Circuit, however, subsequently issued an amended
opinion, also affirming the lower court, Thompson v. Margen (In re
McConville), 97 F.3d 316 (9th Cir. 1996), and finally issued an opinion
withdrawing its prior opinion and deciding the case on other grounds.
It held that by obtaining secured credit from the lenders after filing
but before the appointment of a trustee, the debtors violated their
fiduciary responsibility to their creditors. Thompson v. Margen (In re
McConville), 110 F.3d 47 (9th Cir. 1997).
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Section 312. Extension of period between bankruptcy discharges
Section 312(1) amends section 727(a)(8) of the Bankruptcy
Code to extend the period before which a chapter 7 debtor may
receive a subsequent chapter 7 discharge from six to 8 years.
Section 312(2) amends section 1328 to prohibit the issuance of
a discharge in a subsequent chapter 13 case if the debtor
received a discharge in a prior bankruptcy case within 5 years
preceding the filing of the subsequent chapter 13 case.
Section 313. Definition of household goods and antiques
Section 313(a) amends section 522(f) of the Bankruptcy Code
to codify a modified version of the Federal Trade Commission's
definition of ``household goods'' for purposes of the avoidance
of a nonpossessory, nonpurchase money lien in such property.
Section 313(b) requires the Director of the Executive Office
for United States Trustees to prepare a report containing
findings with respect to the use of this definition under
section 522(f)(4). The report may include recommendations for
amendments to section 522(f)(4).
Section 314. Debt incurred to pay nondischargeable debts
Section 314(a) amends section 523(a) of the Bankruptcy Code
to make a debt incurred to pay a nondischargeable tax owed to a
governmental unit (other than a tax owed to the United States)
nondischargeable as well.
Section 314(b) amends section 1328(a) of the Bankruptcy
Code to make the following additional debts nondischargeable in
a chapter 13 case:
(1) debts for money, property, services, or extensions
of credit obtained through fraud or by a false
statement in writing under section 523(a)(2)(A) and (B)
of the Bankruptcy Code;
(2) consumer debts owed to a single creditor that
aggregate to more than $250 for luxury goods or
services incurred by an individual debtor within 90
days before the filing of the bankruptcy case, and cash
advances aggregating more than $750 that are extensions
of consumer credit obtained by a debtor under an open-
end credit plan within 70 days before the order for
relief under section 523(a)(2)(C) (as amended by this
Act);
(3) pursuant to section 523(a)(3) of the Bankruptcy
Code, debts that require timely request for a
dischargeability determination, if the creditor lacks
notice or does not have actual knowledge of the case in
time to make such request;
(4) debts resulting from fraud or defalcation by the
debtor acting as a fiduciary under section 523(a)(4) of
the Bankruptcy Code;
(5) debts for restitution or damages, awarded in a
civil action against the debtor as a result of willful
or malicious conduct by the debtor that caused personal
injury to an individual or the death of an individual.
Section 315. Giving creditors fair notice in chapters 7 and 13 cases
Section 315(a) amends section 342 of the Bankruptcy Code in
several respects. First, it deletes the provision specifying
that the failure of a notice to include certain information
required to be given by a debtor to a creditor does not
invalidate the notice's legal effect. Second, it mandates that
a debtor send any notice required under the Bankruptcy Code to
the address specified by the creditor and to include on such
notice the account number, if within 90 days prior to the date
that the debtor filed for bankruptcy relief the creditor sent
at least two communications to the debtor specifying such
account number and address. If the creditor would be in
violation of applicable nonbankruptcy law by sending any such
communication during this time period, then the debtor must
send the notice to the address provided by the creditor stated
in the last two communications containing the creditor's
address and such notice shall include the current account
number. Third, it permits a creditor in a chapter 7 or 13 case
of an individual debtor to file with the court and serve on the
debtor the address to be used to notify such creditor in that
case. Five days after receipt of such notice, the court or
debtor must use the address so specified for noticing such
creditor. Fourth, section 315(a) specifies that if an entity
files a notice with the court stating an address to be used
generally in chapter 7 and chapter 13 cases, this address must
be used by the court for such cases within 30 days following
the filing of such notice. Fifth, it provides that any notice
shall not be effective until it has been brought to the
creditor's attention. If the creditor has designated an entity
to be responsible for receiving notices concerning bankruptcy
cases and has established reasonable procedures so that these
notices will be delivered to such entity, a notice will not be
deemed to have been received by the creditor until it has been
received by such entity. Sixth, it prohibits the imposition of
any sanction for violation of the automatic stay or for the
failure to comply with the Bankruptcy Code's turnover
provisions in sections 542 and 543 if a creditor has not
received proper notice.
Section 315(b)(1) amends section 521 to require the debtor
to file a certificate executed by the debtor's attorney or
bankruptcy petition preparer stating that the attorney or
preparer supplied the debtor with the notice required under
section 342(b) (as amended by this Act). If the debtor is pro
se and did not use the services of a bankruptcy petition
preparer, then the debtor must sign a certificate stating that
he or she obtained and read such notice. In addition, the
debtor must file:
(1) copies of all payment advices or other evidence of
payment from any employer within 60 days preceding the
bankruptcy filing;
(2) a statement of the amount of monthly net income,
itemized to show how such amount is calculated; and
(3) a statement disclosing any reasonably anticipated
increase in income or expenditures in the 12-month period
following the date of filing.
Upon request of a creditor, section 315(b)(2) requires the
court to make the petition, schedules, and statement of
financial affairs of an individual who is a chapter 7 or
chapter 13 debtor available to such creditor. In addition, it
requires the debtor to provide either a copy of his or her tax
return or transcript (at the election of the debtor) for the
latest taxable period prior to the filing of the bankruptcy
case for which a tax return has been or should have been filed
to the trustee not later than 7 days before the date first set
for the first meeting of creditors. The debtor's failure to
comply requires dismissal of the case unless the debtor
demonstrates that such failure was due to circumstances beyond
the debtor's control. If a creditor has requested a copy of the
tax return or transcript, the debtor must provide such document
to the creditor at the time the debtor supplies the return or
transcript to the trustee. Should the debtor fail to comply
with this requirement, the case must be dismissed, unless the
debtor demonstrates that such failure is due to circumstances
beyond the debtor's control. A creditor in a chapter 13 case
may, at any time, file a notice with the court requesting a
copy of the plan. The court must supply a copy of the chapter
13 plan at a reasonable cost not later than 5 days after such
request.
At the time filed with the taxing authority, an individual
debtor in a case under chapter 7, 11 or 13 must file copies of
tax returns (including any schedules or attachments) with the
court at the request of any party in interest during the
pendency of the case. This requirement pertains to all tax
returns (including any schedules or attachments) that were not
filed for the 3-year period preceding the date on which the
order for relief was entered. In addition, the debtor must file
copies of any amendments to such tax returns.
In a chapter 13 case, the debtor must file a statement,
under penalty of perjury, of income and expenditures in the
preceding tax year and monthly income showing how the amounts
were calculated. The statement must be filed on the date that
is the later of 90 days after the close of the debtor's tax
year or 1 year after the order for relief, unless a plan has
been confirmed. Thereafter, the statement must be filed on or
before the date that is 45 days before the anniversary date of
the plan's confirmation, until the case is closed. The
statement must disclose the amount and sources of the debtor's
income, the identity of any persons responsible with the debtor
for the support of the debtor's dependents, the identity of any
persons who contributed to the debtor's household expenses, and
the amount of any such contributions.
Section 315(b)(2) mandates that the tax returns, amendments
thereto, and the statement of income and expenditures of an
individual who is a chapter 7 or chapter 13 debtor be made
available to the United States trustee or bankruptcy
administrator, the trustee, and any party in interest for
inspection and copying, subject to procedures established by
the Director of the Administrative Office for United States
Courts within 180 days from the Act's enactment date. The
procedures must safeguard the confidentiality of any tax
information required under this provision and include
restrictions on creditor access to such information. In
addition, the Director must, within 1 year and 180 days from
the Act's enactment date, prepare and submit to the Congress a
report that assesses the effectiveness of such procedures and,
if appropriate, includes recommendations for legislation to
further protect the confidentiality of such tax information and
to impose penalties for its improper use.
If requested by the United States trustee or trustee, the
debtor must provide a document establishing the debtor's
identity, which may include a driver's license, passport, or
other document containing a photograph of the debtor, and such
other personal identifying information relating to the debtor.
Section 316. Dismissal for failure to timely file schedules or provide
required information
Section 316 amends section 521 of the Bankruptcy Code to
provide that if an individual debtor in a voluntary chapter 7
or chapter 13 case fails to file all of the information
required under section 521(a)(1) within 45 days of the date on
which the case is filed, the case must be automatically
dismissed, effective on the 46th day. The 45-day period may be
extended for an additional 45-day period providing the debtor
requests such extension prior to the expiration of the original
45-day period and the court finds justification for such
extension. Upon request of a party in interest, the court must
enter an order of dismissal within 5 days of such request.
Section 317. Adequate time to prepare for hearing on confirmation of
the plan
Section 317 amends section 1324 of the Bankruptcy Code to
require the chapter 13 confirmation hearing to be held not
earlier than 20 days following the first date set for the
meeting of creditors and not later than 45 days from this date.
Section 318. Chapter 13 plans to have a 5-year duration in certain
cases
Section 318(1) amends section 1322(d) to specify that a
chapter 13 plan may not provide for payments over a period that
is longer than 5 years if the current monthly income of the
debtor and the debtor's spouse (when multiplied by 12) is not
less than the applicable State median family income last
reported by the Census Bureau for a family of equal or lesser
size. For a household of one person, the income threshold is
the applicable State median family income for one earner.
Section 318(1) adjusts the income threshold for households with
more than four individuals. If the income of the debtor and the
debtor's spouse fall below this threshold, then the duration of
the plan may not be longer than 3 years, unless the court, for
cause, approves a longer period up to 5 years. Section 318(2),
(3), and (4) make conforming amendments to section 1325(b) and
1329(c) of the Bankruptcy Code.
Section 319. Sense of Congress regarding expansion of rule 9011 of the
Federal Rules of Bankruptcy Procedure
Section 319 expresses a sense of the Congress that rule
9011 of the Federal Rules of Bankruptcy Procedure be modified
to require that all signed and unsigned documents, including
schedules, supplied to the court or the trustee by a debtor be
submitted only after the debtor or the debtor's attorney has
made reasonable inquiry to verify that the information
contained in such documents is well grounded in fact and
warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law.
Section 320. Prompt relief from stay in individual cases
Section 320 amends section 362(e) of the Bankruptcy Code to
terminate the automatic stay in a chapter 7, 11 or 13 case of
an individual debtor within 60 days following a request for
relief from the stay, unless the bankruptcy court renders a
final decision prior to the expiration of the 60-day time
period, such period is extended pursuant to agreement of all
parties in interest, or a specific extension of time is
required for good cause as described in findings made by the
court.
Section 321. Chapter 11 cases filed by individuals
Section 321(a)(1) creates a new provision under chapter 11
of the Bankruptcy Code specifying that property of the estate
of an individual debtor includes, in addition to that
identified in section 541 of the Bankruptcy Code, all property
of the kind described in section 541 that the debtor acquires
after commencement of the case, but before the case is closed,
dismissed or converted to a case under chapter 7, 12 or 13
(whichever occurs first). In addition, it includes earnings
from services performed by the debtor after commencement of the
case, but before the case is closed, dismissed or converted to
a case under chapter 7, 12 or 13. Except as provided in section
1104 of the Bankruptcy Code or the order confirming a chapter
11 plan, section 321(a) provides that the debtor remains in
possession of all property of the estate.
Section 321(b) amends section 1123 to require the chapter
11 plan of an individual debtor to provide for the payment to
creditors of all or such portion of the debtor's earnings from
personal services performed after commencement of the case or
other future income that is necessary for the plan's execution.
Section 321(c) amends section 1129(a) to include an
additional requirement for confirmation in a chapter 11 case of
an individual debtor upon objection to confirmation by a holder
of an allowed unsecured claim. In such instance, the value of
property to be distributed under the plan (1) on account of
such claim, as of the plan's effective date, must not be less
than the amount of such claim; or (2) is not less than the
debtor's projected disposable income (as defined in section
1325(b)(2)) to be received during the 5-year period beginning
on the date that the first payment is due under the plan or
during the plan's term, whichever is longer. Section 321(c)
also amends section 1129(b)(2)(B)(ii) of the Bankruptcy Code to
provide that an individual chapter 11 debtor may retain
property included in the estate under section 1115 (as codified
by the Act), subject to section 1129(a)(14).
Section 321(d)(1) amends section 1141(d) to provide that
debts under section 523 of the Bankruptcy Code are
nondischargeable in a chapter 11 case. Section 321(d)(2)
provides that in the chapter 11 case of an individual debtor,
the debtor is not discharged until all plan payments have been
made. The court may grant a hardship discharge if the value of
property actually distributed under the plan--as of the plan's
effective date--is not less than the amount that would have
been available for distribution if the case was liquidated
under chapter 7 on such date, and modification of the plan is
not practicable.
Section 321(e) amends section 1127 to permit a plan in a
chapter 11 case of an individual debtor to be modified
postconfirmation for the purpose of increasing or reducing the
amount of payments, extending or reducing the time period for
such payments, or altering the amount of distribution to a
creditor whose claim is provided for by the plan. Such
modification may be made at any time on request of the debtor,
trustee, United States trustee, or holder of an allowed
unsecured claim, if the plan has not been substantially
consummated. The provision specifies that sections 1121 through
1129 apply to such modification. In addition, it provides that
the modified plan shall become the confirmed plan only if: (a)
there has been disclosure pursuant to section 1125 (as the
court directs); (b) notice and a hearing; and (c) such
modification is approved.
Section 322. Limitation
Section 322(a) amends section 522 of the Bankruptcy Code to
impose an aggregate monetary limitation of $100,000, subject to
sections 544 and 548, on the value of property that the debtor
may claim as exempt under State or local law pursuant to
section 522(b)(3)(A) under certain circumstances. The monetary
cap applies if the debtor acquired such property within the 2-
year period preceding the filing of the petition and the
property consists of any of the following: (a) real or personal
property of the debtor or that a dependent of the debtor uses
as a residence; (b) an interest in a cooperative that owns
property, which the debtor or the debtor's dependent uses as a
residence; or (c) a burial plot for the debtor or the debtor's
dependent. This limitation does not apply to a principal
residence claimed as exempt by a family farmer. In addition,
the limitation does not apply to any interest transferred from
a debtor's principal residence (which was acquired prior to the
beginning of the 2-year period) to the debtor's current
principal residence, if both the previous and current
residences are located in the same State.
Section 322(b) makes the monetary limitation set forth in
section 322(a) subject to automatic adjustment pursuant to
section 104 of the Bankruptcy Code.
Section 323. Excluding employee benefit plan participant
contributions and other property from the estate
Section 323(a) amends section 541(b) of the Bankruptcy Code
to exclude as property of the estate funds withheld or received
by an employer from its employees' wages for payment as
contributions to specified employee retirement plans, deferred
compensation plans, and tax-deferred annuities. Such
contributions do not constitute disposable income as defined in
section 1325(b)(2) of the Bankruptcy Code. Section 323(a) also
excludes as property of the estate funds withheld by an
employer from the wages of its employees for payment as
contributions to health insurance plans regulated by State law.
Section 323(b) specifies that the amendments made by this
provision do not apply to bankruptcy cases commenced prior to
the expiration of the 180-day period beginning on the Act's
enactment date.
Section 324. Exclusive jurisdiction in matters involving bankruptcy
professionals
Section 324 amends section 1334 of title 28 of the United
State Code to give a district court exclusive jurisdiction of
all claims or causes of action involving the construction of
section 327 of the Bankruptcy Code and rules relating to
disclosure requirements under such provision.
Section 325. United States Trustee Program filing fee increase
Section 325(a) amends section 1930(a) of title 28 of the
United States Code to increase the filing fees for chapter 7
and chapter 13 cases respectively to $160 and $150. Subsections
325(b) and (c) amend section 589a of title 28 of the United
States Code and section 406(b) of the Judiciary Appropriations
Act of 1990 to increase the percentage of the fees collected
under section 1930 of title 28 of the United States Code that
are paid to the United States Trustee System Fund.
Section 326. Sharing of compensation
Section 326 amends section 504 of the Bankruptcy Code to
create a limited exception to the prohibition against fee
sharing. The provision allows the sharing of compensation with
bona fide public service attorney referral programs that
operate in accordance with non-federal law regulating attorney
referral services and with professional responsibility rules
applicable to attorney acceptance of referrals.
Section 327. Fair valuation of collateral
Section 327 amends section 506(a) to provide that the value
of an allowed claim secured by personal property that is an
asset in an individual debtor's chapter 7 or chapter 13 case is
determined based on the replacement value of such property as
of the filing date of the bankruptcy case without deduction for
costs of sale or marketing. With respect to property acquired
for personal, family, or household purposes, replacement value
is the price a retail merchant would charge for property of
that kind considering the age and condition of the property at
the time its value is determined.
Section 328. Defaults based on nonmonetary obligations
Section 328(a)(1) amends section 365(b) to provide that a
trustee does not have to cure a default that is a breach of a
provision (other than a penalty rate or penalty provision)
relating to a default arising from any failure to perform a
nonmonetary obligation under an unexpired lease of real
property, if it is impossible for the trustee to cure the
default by performing such nonmonetary act at and after the
time of assumption. If the default arises from a failure to
operate in accordance with a nonresidential real property
lease, the default must be cured by performance at and after
the time of assumption in accordance with the lease. Pecuniary
losses resulting from such default must be compensated pursuant
to section 365(b)(1). In addition, section 328(a)(1) amends
section 365(b)(2)(D) to clarify that it applies to penalty
provisions.
Section 328(a)(2) through (4) make technical revisions to
section 365(c), (d) and (f) by deleting language that is no
longer effective pursuant to the Rail Safety Enforcement and
Review Act.\3\
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\3\ Pub. L. No. 102-365.
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Section 328(b) amends section 1124(2)(A) of the Bankruptcy
Code to clarify that a claim is not impaired if section
365(b)(2) (as amended by this Act) expressly does not require a
default with respect to such claim to be cured. In addition, it
provides that any claim or interest that arises from the
failure to perform a nonmonetary obligation (other than a
default arising from the failure to operate a nonresidential
real property lease subject to section 365(b)(1)(A)), is
impaired unless the holder of such claim or interest (other
than the debtor or an insider) is compensated for any actual
pecuniary loss incurred by the holder as a result of such
failure.
TITLE IV. GENERAL AND SMALL BUSINESS BANKRUPTCY PROVISIONS
SUBTITLE A. GENERAL BUSINESS BANKRUPTCY PROVISIONS
Section 401. Adequate protection for investors
Section 401(a) amends section 101 of the Bankruptcy Code to
define ``securities self regulatory organization'' as a
securities association or national securities exchange
registered with the Securities and Exchange Commission.
Section 401(b) amends section 362 of the Bankruptcy Code to
except from the automatic stay certain enforcement actions by a
securities self regulatory organization.
Section 402. Meetings of creditors and equity security holders
Section 402 amends section 341 of the Bankruptcy Code to
permit a court, on request of a party in interest and after
notice and a hearing, to order the United States trustee to not
convene a meeting of creditors or equity security holders if a
chapter 11 debtor has filed a plan for which the debtor
solicited acceptances prior to the commencement of the case.
Section 403. Protection of refinance of security interest
Section 403 amends section 547(e)(2) of the Bankruptcy Code
to increase the perfection period from 10 to 30 days for the
purpose of determining whether such transfer is an avoidable
preferential transfer.
Section 404. Executory contracts and unexpired leases
Section 404(a) amends section 365(d)(4) of the Bankruptcy
Code to establish more finite deadlines by which an unexpired
lease of nonresidential real property must be assumed or
rejected. It provides that such lease shall be deemed rejected
if the trustee fails to assume it by the earlier of 120 days
after the date of the order for relief or the date on which an
order of confirmation is entered. The court may extend this
time period for an additional 90 days on motion of the trustee
or lessor for cause. If such extension is granted, the court
may permit a subsequent extension only upon the lessor's
written consent.
Section 404(b) amends section 365(f)(1) to make a trustee's
authority to assign an executory contract or unexpired lease
subject to section 365(b), amended by the Act.
Section 405. Creditors and equity security holders committees
Section 405(a) amends section 1102(a)(2) to permit, after
notice and a hearing, a bankruptcy court, on its own motion or
on motion of a party in interest, to order a change in a
committee's membership to ensure adequate representation of
parties in a case. In addition, it specifies that the court may
direct the United States trustee to increase the membership of
a committee for the purpose of including a small business
concern if the court determines that such creditor's claim is
of the kind represented by the committee and that, in the
aggregate, is disproportionately large when compared to the
creditor's annual gross revenue.
Section 405(b) requires the committee to allow creditors
having claims of the kind represented by the committee access
to information. In addition, the committee must solicit and
receive comments from these creditors and, pursuant to court
order, make additional reports or disclosures available to
them.
Section 406. Amendment to section 546 of title 11, United States Code
Section 406(1) corrects an erroneous subsection designation
in section 546 of the Bankruptcy Code. Section 406(2) amends
section 546 to provide that a trustee may not avoid a warehouse
lien for storage, transportation, or other costs incidental to
the storage and handling of goods. In addition, it specifies
that this prohibition must be applied in a manner consistent
with any applicable State statute that is similar to section 7-
209 of the Uniform Commercial Code.
Section 407. Amendments to section 330(a) of title 11, United States
Code
Section 407 amends section 330(a)(3) of the Bankruptcy Code
to clarify that this provision applies to examiners, chapter 11
trustees, and professional persons. This section also amends
section 330(a) to add a provision that requires a court, in
determining the amount of reasonable compensation to award to a
trustee, to treat such compensation as a commission pursuant to
section 326 of the Bankruptcy Code.
Section 408. Postpetition disclosure and solicitation
Section 408 amends section 1125 of the Bankruptcy Code to
permit an acceptance or rejection of a chapter 11 plan to be
solicited from the holder of a claim or interest if the holder
was solicited before the commencement of the case in a manner
that complied with applicable nonbankruptcy law.
Section 409. Preferences
Section 409(1) amends section 547(c)(2) of the Bankruptcy
Code to provide that a trustee may not avoid a transfer to the
extent the transfer was in payment of a debt incurred by the
debtor in the ordinary course of the business or financial
affairs of the debtor and the transferee and such transfer was
either made (1) in the ordinary course of the debtor's
financial affairs or business, or (2) in accordance with
ordinary business terms. Present law requires the recipient of
a preferential transfer to establish both of these grounds in
order to sustain a defense to a preferential transfer
proceeding. In a case that does not have primarily consumer
debts, section 409 provides that a transfer may not be avoided
if the aggregate amount of all property constituting or
affected by the transfer is less than $5,000.
Section 410. Venue of certain proceedings
Section 410 amends section 1409(b) of title 28 of the
United States Code to provide that a preferential transfer
action in the amount of $10,000 or less must be filed in the
district where the defendant resides. This amount is presently
fixed at $1,000.
Section 411. Period for filing plan under chapter 11
Section 411 amends section 1121(d) of the Bankruptcy Code
to mandate that a chapter 11 debtor's exclusive period for
filing a plan may not be extended beyond a date that is 18
months after the order for relief. In addition, it provides
that the debtor's exclusive period for obtaining acceptances of
the plan may not be extended beyond 20 months after the order
for relief.
Section 412. Fees arising from certain ownership interests
Section 412 amends section 523(a)(16) of the Bankruptcy
Code to broaden the protections accorded to community
associations with respect to fees or assessments arising from
the debtor's interest in a condominium, cooperative or
homeowners' association. Irrespective of whether or not the
debtor physically occupies such property, any fees or
assessments that accrue during the period the debtor or the
trustee has a legal, equitable, or possessory ownership
interest in such property are nondischargeable.
Section 413. Creditor representation at first meeting of creditors
Section 413 amends section 341(c) of the Bankruptcy Code to
permit a creditor holding a consumer debt or any representative
of such creditor to appear and participate at the meeting of
creditors in chapter 7 and chapter 13 cases either alone or in
conjunction with an attorney. In addition, the provision
clarifies that it cannot be construed to require a creditor to
be represented by counsel at any meeting of creditors.
Section 414. Definition of disinterested person
Section 414 amends section 101(14) of the Bankruptcy Code
to eliminate the requirement that an investment banker be a
disinterested person.
Section 415. Factors for compensation of professional persons
Section 415 amends section 330(a)(3) of the Bankruptcy Code
to permit the court to consider, in awarding compensation,
whether the person is board certified or otherwise has
demonstrated skill and experience in the practice of bankruptcy
law.
Section 416. Appointment of elected trustee
Section 416 refines existing law by clarifying the
procedure for the election of a private trustee in a chapter 11
case. Section 1104(b) of the Bankruptcy Code permits creditors
to elect an eligible, disinterested person to serve as the
trustee in the case, provided certain conditions are met.
Section 416 adds a provision to section 1104(b) requiring the
United States trustee to file a report certifying the election
of a chapter 11 trustee. Upon the filing of the report, the
elected trustee is deemed to be selected and appointed for
purposes of section 1104 and the service of any prior trustee
appointed in the case is terminated. Section 416 also clarifies
that the court shall resolve any dispute arising out of a
chapter 11 trustee election.
Section 417. Utility service
Section 417 amends section 366 of the Bankruptcy Code to
provide that assurance of payment, for purposes of this
provision, includes a cash deposit, letter of credit,
certificate of deposit, surety bond, prepayment of utility
consumption, or other form of security that is mutually agreed
upon by the debtor or trustee and the utility. It also
specifies that an administrative expense priority does not
constitute an assurance of payment.
With respect to chapter 11 cases, section 417 permits a
utility to refuse or discontinue service if it does not receive
adequate assurance of payment within 30 days of the filing of
the petition that is satisfactory to the utility. The court,
upon request of a party in interest, may modify the amount of
this payment after notice and a hearing. In determining the
adequacy of such payment, section 417 prevents a court from
taking into consideration (1) the absence of security before
the case was filed; (2) the debtor's timely payment of utility
service charges before the case was filed; or (3) the
availability of an administrative expense priority.
Notwithstanding any other provision of law, section 417 permits
a utility to recover or set off against a security deposit
provided prepetition by the debtor to the utility without
notice or court order.
Section 418. Bankruptcy fees
Section 418 amends section 1930 of title 28 of the United
States Code to permit a district court or a bankruptcy court,
pursuant to procedures prescribed by the Judicial Conference of
the United States, to waive the chapter 7 filing fee for an
individual and certain other fees under subsections (b) and (c)
of section 1930 if such individual's income is less than 150
percent of the official poverty level (as defined by the Office
of Management and Budget) and the individual is unable to pay
such fee in installments. Section 418 also clarifies that
section 1930, as amended, does not prevent a district or
bankruptcy court from waiving other fees for creditors and
debtors, if in accordance with Judicial Conference policy.
Section 419. More complete information regarding assets of the estate
Section 419 requires the Advisory Committee on Bankruptcy
Rules, after consideration of the views of the Director of the
Executive Office for United States Trustees, to propose
official rules and forms directing chapter 11 debtors to
disclose information concerning the value, operations, and
profitability of any closely held corporation, partnership, or
other entity in which the debtor holds a substantial or
controlling interest. This provision is intended to ensure that
the debtor's interest in any of these entities is used for the
payment of allowed claims against the debtor.
SUBTITLE B. SMALL BUSINESS BANKRUPTCY PROVISIONS
Section 431. Flexible rules for disclosure statement and plan
Section 431 is intended to streamline the disclosure
statement process and to provide for more flexibility. Section
431(1) amends section 1125(a)(1) of the Bankruptcy Code to
require a bankruptcy court, in determining whether a disclosure
statement supplies adequate information, to consider the
complexity of the case, the benefit of additional information
to creditors and other parties in interest, and the cost of
providing such additional information.
With regard to a small business case, section 431(2) amends
section 1125(f) to provide that if the plan itself supplies
adequate information, a separate disclosure statement may not
be required. In addition, it provides that the court may
approve a disclosure statement submitted on standard forms
approved by the court or adopted under section 2075 of title 28
of the United States Code. Further, section 431(2) provides
that the court may conditionally approve a disclosure
statement, subject to final approval after notice and a
hearing, and allow the debtor to solicit acceptances of the
plan based on such disclosure statement. The hearing on the
disclosure statement may be combined with the confirmation
hearing.
Section 432. Definitions
Section 432 amends section 101 of the Bankruptcy Code to
define a ``small business case'' as a chapter 11 case in which
the debtor is a small business debtor. This provision, in turn,
defines a ``small business debtor'' as a person (including
affiliates that are also debtors, but excluding a person whose
primary activity is the business of owning or operating real
property or activities incidental thereto) having
noncontingent, liquidated secured and unsecured debts of less
than $3 million in the aggregate (excluding debts owed to
affiliates or insiders of the debtor) as of the commencement of
the case. This definition applies only in a case where the
United States trustee has not appointed a creditors' committee
or where the court has determined that the committee of
unsecured creditors is not sufficiently active and
representative to provide effective oversight of the debtor.
The definition does not apply to any member of a group of
affiliated debtors that has aggregate noncontingent, liquidated
secured and unsecured debts in excess of $3 million (excluding
debts owed to one or more affiliates or insiders).
Section 433. Standard form disclosure statement and plan
Section 433 requires the Advisory Committee on Bankruptcy
Rules of the Judicial Conference of the United States to
propose for adoption standard form disclosure statements and
plans for small business debtors. The provision directs that
the forms be designed to achieve a practical balance between
the needs of the court, case administrators, and other parties
in interest to have reasonably complete information as well as
the small business debtor's needs for economy and simplicity.
Section 434. Uniform national reporting requirements
Section 434(a) adds a new provision to the Bankruptcy Code
imposing additional reporting requirements for small business
debtors. It requires a small business debtor to file periodic
financial reports and other documents containing the following
information with respect to the debtor's business operations:
(a) profitability; (b) reasonable approximations of projected
cash receipts and disbursements; (c) comparisons of actual cash
receipts and disbursements with projections in prior reports;
(d) whether the debtor is complying with postpetition
requirements pursuant to the Bankruptcy Code and Federal Rules
of Bankruptcy Procedure; and (5) whether the debtor is timely
filing tax returns, paying taxes and other administrative
expenses when due, and making other required government
filings. In addition, the debtor must report on such other
matters that are in the best interests of the debtor and the
creditors and in the public interest.
If the debtor is not in compliance with any postpetition
requirements pursuant to the Bankruptcy Code and Federal Rules
of Bankruptcy Procedure, or is not filing tax returns, paying
taxes and other administrative expenses when due, or making
other required government filings, the debtor must report: (a)
what the failures are; (b) how they will be cured; (c) the cost
of their cure; and (d) when they will be cured.
Section 434(b) specifies that the effective date of this
provision is 60 days after the date on which the rules required
under this provision are promulgated.
Section 435. Uniform reporting rules and forms for small business cases
Section 435(a) mandates that the Advisory Committee on
Bankruptcy Rules of the Judicial Conference of the United
States propose official rules and forms with respect to the
periodic financial reports and other information that a small
business debtor must file concerning its profitability, cash
receipts and disbursements, filing of its tax returns, and
payment of its taxes and other administrative expenses.
Section 435(b) requires the rules and forms to achieve a
practical balance between the need for reasonably complete
information by the bankruptcy court, United States trustee,
creditors and other parties in interest; and the small business
debtor's interest in having such forms be easy and inexpensive
to complete. The forms should also be designed to help the
small business debtor to understand its financial condition and
plan its future.
Section 436. Duties in small business cases
Section 436 adds a provision to chapter 11 intended to
implement greater administrative controls over such cases. The
provision requires a chapter 11 trustee or debtor to:
(1) file with a voluntary petition (or in an
involuntary case, within 7 days from the date of the
order for relief) the debtor's most recent financial
statements (including a balance sheet, statement of
operations, cash flow statement, and Federal income tax
return) or a statement explaining why such information
is not available;
(2) attend, through its senior management personnel
and counsel, meetings scheduled by the bankruptcy court
or the United States trustee (including the initial
debtor interview and meeting of creditors pursuant to
section 341 of the Bankruptcy Code), unless the court
waives this requirement after notice and a hearing upon
a finding of extraordinary and compelling
circumstances;
(3) timely file all requisite schedules and the
statement of financial affairs, unless the court, after
notice and a hearing, grants an extension of up to 30
days from the order of relief, absent extraordinary and
compelling circumstances;
(4) file all postpetition financial and other reports
required by the Federal Rules of Bankruptcy Procedure
or by local rule of the district court;
(5) maintain insurance that is customary and
appropriate for the industry, subject to section
363(c)(2);
(6) timely file tax returns and make other required
government filings;
(7) timely pay all administrative expense taxes
(except for certain contested claims), subject to
section 363(c)(2); and
(8) permit the United States trustee to inspect the
debtor's business premises, books, and records at
reasonable hours after appropriate prior written
notice, unless notice is waived by the debtor.
Section 437. Plan filing and confirmation deadlines
Section 437 amends section 1121(e) of the Bankruptcy Code
with respect to the period of time within which a small
business debtor must file and confirm a plan of reorganization.
It provides that a small business debtor's exclusive period to
file a plan is 180 days from the date of the order for relief,
unless the period is extended after notice and a hearing, or
the court, for cause, orders otherwise. It further provides
that a small business debtor must file a plan and any
disclosure statement not later than 300 days after the order
for relief. These time periods may be extended only if (a) the
debtor, after providing notice to parties in interest,
demonstrates by a preponderance of the evidence that it is more
likely than not that the court will confirm a plan within a
reasonable period of time; (b) a new deadline is imposed at the
time the extension is granted; and (c) the order granting such
extension is signed before the expiration of the existing
deadline.
Section 438. Plan confirmation deadline
Section 438 amends section 1129 of the Bankruptcy Code to
require that a plan in a small business case be confirmed not
later than 175 days from the date of the order for relief,
unless this period is extended pursuant to section 1121(e)(3)
(as added by section 437 of the Act).
Section 439. Duties of the United States trustee
Section 439 amends section 586(a) of title 28 of the United
States Code to require the United States trustee to perform the
following additional duties with respect to small business
debtors:
(1) conduct an initial debtor interview before the
meeting of creditors for the purpose of (a)
investigating the debtor's viability, (b) inquiring
about the debtor's business plan, (c) explaining the
debtor's obligation to file monthly operating reports,
(d) attempting to obtain an agreed scheduling order
setting various time frames (such as the date for
filing a plan and effecting confirmation), and (e)
informing the debtor of other obligations;
(2) if determined to be appropriate and advisable,
inspect the debtor's business premises for the purpose
of reviewing the debtor's books and records and
verifying that the debtor has filed its tax returns;
(3) review and monitor diligently the debtor's
activities to determine as promptly as possible whether
the debtor will be unable to confirm a plan; and
(4) promptly apply to the court for relief in any case
in which the United States trustee finds material
grounds for dismissal or conversion of the case.
Section 440. Scheduling conferences
Section 440 amends section 105(d) to mandate that a
bankruptcy court hold status conferences as necessary to
further the expeditious and economical resolution of a
bankruptcy case.
Section 441. Serial filer provisions
Section 441(1) amends section 362 of the Bankruptcy Code to
provide that a court may award only actual damages for a
violation of the automatic stay committed by an entity in the
good faith belief that subsection (h) of section 362 (as added
by this Act) applies to the debtor.
Section 441(2) adds a new subsection to section 362 of the
Bankruptcy Code specifying that the automatic stay does not
apply where the chapter 11 debtor:
(1) is a debtor in a small business case pending at
the time the petition is filed;
(2) was a debtor in a small business case dismissed
for any reason pursuant to an order that became final
in the 2-year period ending on the date of the order
for relief entered in the pending case;
(3) was a debtor in small business case in which a
plan was confirmed in the 2-year period ending on the
date of the order for relief entered in the pending
case; or
(4) is an entity that has succeeded to substantially
all of the assets or business of a small business
debtor as described above.
An exception to this provision applies to a chapter 11 case
that is commenced involuntarily and involves no collusion
between the debtor and the petitioning creditors. Also, it does
not apply if the debtor proves by a preponderance of the
evidence that (a) the filing of the subsequent case resulted
from circumstances beyond the debtor's control and which were
not foreseeable at the time the prior case was filed; and (b)
it is more likely than not that the court will confirm a
feasible plan of reorganization (but not a liquidating plan)
within a reasonable time.
Section 442. Expanded grounds for dismissal or conversion and
appointment of trustee
Section 442(a) amends section 1112(b) of the Bankruptcy
Code to mandate that the court convert or dismiss a chapter 11
case or appoint a trustee (whichever is in the best interests
of creditors and the estate) if the movant establishes cause.
An exception applies if: (a) the debtor or a party in interest
objects and establishes by a preponderance of the evidence that
a plan having a reasonable possibility of being confirmed will
be filed within a reasonable period of time; and (b) the
grounds include an act or omission for which there exists a
reasonable justification for such act or omission and that will
be cured within a reasonable period of time. The court must
commence the hearing on a section 1112(b) motion within 30 days
of its filing and decide the motion not later than 15 days
after commencement of the hearing unless the movant expressly
consents to a continuance for a specified period of time or
compelling circumstances prevent the court from meeting these
time limits.
The term ``cause'' under section 1112(b), as amended by
this provision, includes the following:
(1) substantial or continuing loss to or diminution
of the estate;
(2) gross mismanagement of the estate;
(3) failure to maintain appropriate insurance that
poses a material risk to the estate or the public;
(4) unauthorized use of cash collateral that is
harmful to one or more creditors;
(5) failure to comply with a court order;
(6) repeated failure to timely satisfy any filing or
reporting requirement under the Bankruptcy Code or
applicable rule;
(7) failure to attend the section 341 meeting of
creditors or an examination pursuant to rule 2004 of
the Federal Rules of Bankruptcy Procedure;
(8) failure to timely provide information or to
attend meetings reasonably requested by the United
States trustee or bankruptcy administrator;
(9) failure to timely pay postpetition taxes or file
tax returns due postpetition;
(10) failure to file a disclosure statement or to
confirm a plan within the time fixed by the Bankruptcy
Code or pursuant to court order;
(11) failure to pay any requisite fees or charges
under chapter 123 of title 28 of the United States
Code;
(12) revocation of a confirmation order;
(13) inability to effectuate substantial consummation
of a confirmed plan;
(14) material default by the debtor with respect to a
confirmed plan;
(15) termination of a plan by reason of the occurrence
of a condition specified in the plan; and
(16) the debtor's failure to pay any domestic support
obligation that first becomes payable postpetition.
Section 442(a) requires the court to commence the hearing under
section 1112(b) within 30 days of the filing of the motion and
specifies that the court must decide the motion within 15 days
after commencement of the hearing, unless the movant consents
to a longer period or compelling circumstances prevent the
court from meeting the specified time limits.
Section 442(b) creates additional grounds for the
appointment of a chapter 11 trustee under section 1104(a). It
provides that should the bankruptcy court determine cause
exists to convert or dismiss a chapter 11 case, it may appoint
a trustee or examiner if in the best interests of creditors and
the bankruptcy estate.
Section 443. Study of operation of title 11, United States Code, with
respect to small businesses
Section 443 directs the Administrator of the Small Business
Administration, in consultation with the Attorney General, the
Director of the Executive Office for United States Trustees,
and the Director of the Administrative Office of the United
States Courts, to conduct a study to determine:
(1) the internal and external factors that cause small
businesses (particularly sole proprietorships) to seek
bankruptcy relief and the factors that cause small
businesses to successfully complete their chapter 11
cases; and
(2) how the bankruptcy laws may be made more effective
and efficient in assisting small business to remain
viable.
Section 444. Payment of interest
Section 444(1) amends section 362(d)(3) of the Bankruptcy
Code to require a court to grant relief from the automatic stay
within 30 days after it determines that a single asset real
estate debtor is subject to this provision. Section 444(2)
amends section 362(d)(3)(B) to specify that relief from the
automatic stay shall be granted unless the single asset real
estate debtor has commenced making monthly payments to each
creditor secured by the debtor's real property (other than a
claim secured by a judgment lien or unmatured statutory lien)
in an amount equal to the interest at the then applicable
nondefault contract rate of interest on the value of the
creditor's interest in the real estate. It allows a debtor in
its sole discretion to make the requisite interest payments out
of rents or other proceeds generated by the real property.
Section 445. Priority of administrative expenses
Section 445 amends section 503(b) of the Bankruptcy Code to
add a new administrative expense priority for a nonresidential
real property lease that is assumed under section 365 and then
subsequently rejected. The amount of the priority is the sum of
all monetary obligations due under the lease (excluding
penalties and obligations arising from or relating to a failure
to operate) for the 2-year period following the rejection date
or actual turnover of the premises (whichever is later),
without reduction or setoff for any reason, except for sums
actually received or to be received from a nondebtor. Any
remaining sums due for the balance of the term of the lease is
treated as a claim under section 502(b)(6) of the Bankruptcy
Code.
TITLE V. MUNICIPAL BANKRUPTCY PROVISIONS
Section 501. Petition and proceedings related to petition
Section 501 amends sections 921(d) and 301 of the
Bankruptcy Code to clarify that the court must enter the order
for relief in a chapter 9 case.
Section 502. Applicability of other sections to chapter 9
Section 502 amends section 901 of the Bankruptcy Code to
make the following sections applicable to chapter 9 cases:
(1) section 555 (contractual right to liquidate,
terminate or accelerate a securities contract);
(2) section 556 (contractual right to liquidate,
terminate or accelerate a commodities or forward
contract);
(3) section 559 (contractual right to liquidate,
terminate or accelerate a repurchase agreement);
(4) section 560 (contractual right to liquidate,
terminate or accelerate a swap agreement);
(5) section 561 (contractual right to liquidate,
terminate, accelerate, or offset under a master netting
agreement and across contracts); and
(6) section 562 (damage measure in connection with
swap agreements, securities contracts, forward
contracts, commodity contracts, repurchase agreements,
or master netting agreement).
TITLE VI. BANKRUPTCY DATA
Section 601. Improved bankruptcy statistics
Section 601 amends chapter 6 of title 28 of the United
States Code to require the clerk for each district to collect
certain statistics for chapter 7, 11, and 13 cases in a
standardized form prescribed by the Director of the
Administrative Office of the United States Courts and to make
this information available to the public. In addition, section
601 requires the Director to prepare an annual report and
analysis for Congress concerning the information collected. The
statistics must be itemized by chapter of the Bankruptcy Code
and be presented in the aggregate for each district. The
specific categories of information that must be gathered
include the following:
(1) scheduled total assets and liabilities by
category;
(2) the debtors' current monthly income, average
income, and average expenses;
(3) the aggregate amount of debts discharged during
the reporting period based on the difference between
the total amount of scheduled debts and by categories
that are predominantly nondischargeable;
(4) the average time between the filing of the
bankruptcy case and the closing of the case;
(5) the number of cases in which reaffirmation
agreements were filed, the total number of
reaffirmation agreements filed, the number of cases in
which the debtor was pro se and a reaffirmation
agreement was filed, and the number of cases in which
the reaffirmation agreement was approved by the court;
(6) for chapter 13 cases, information on the number of
(a) orders determining the value of secured property in
an amount less than the amount of the secured claim,
(b) final orders that determined the value of property
securing a claim, (c) cases dismissed, (d) cases
dismissed for failure to make payments under the plan,
(e) cases refiled after dismissal, (f) cases in which
the plan was completed (separately itemized with
respect to the number of modifications made before
completion of the plan, and (g) cases in which the
debtor had previously sought bankruptcy relief within
the 6 years preceding the filing of the present case;
(7) the number of cases in which creditors were fined
for misconduct and the amount of any punitive damages
awarded for creditor misconduct; and
(8) the number of cases in which sanctions under rule
9011 of the Federal Rules of Bankruptcy Procedure were
imposed against a debtor's counsel and the damages
awarded under this rule.
Section 601 provides that the amendments in this provision take
effect 18 months after the date of enactment of this Act.
Section 602. Uniform rules for the collection of bankruptcy data
Section 602 amends chapter 39 of title 28 of the United
States Code to add a provision requiring the Attorney General
to promulgate rules mandating the establishment of uniform
forms for final reports in chapter 7, 12 and 13 cases and
periodic reports in chapter 11 cases. It also specifies that
these reports be designed to facilitate compilation of data and
to provide maximum public access by physical inspection at one
or more central filing locations and by electronic access
through the Internet or other appropriate media. The
information should enable an evaluation of the efficiency and
practicality of the Federal bankruptcy system. In issuing
rules, the Attorney General must consider: (a) the reasonable
needs of the public for information about the Federal
bankruptcy system; (b) the economy, simplicity, and lack of
undue burden on persons obligated to file the reports; and (c)
appropriate privacy concerns and safeguards. Section 602
provides that final reports by trustees in chapter 7, 12, and
13 cases include the following information:
(1) the length of time the case was pending;
(2) assets abandoned;
(3) assets exempted;
(4) receipts and disbursements of the estate;
(5) administrative expenses, including those
associated with section 707(b) of the Bankruptcy Code,
and the actual costs of administering chapter 13 cases;
(6) claims asserted;
(7) claims allowed; and
(8) distributions to claimants and claims discharged
without payment.
With regard to chapter 11 cases, section 602 provides that
periodic reports include the following information regarding:
(1) the standard industry classification for
businesses conducted by the debtor, as published by the
Department of Commerce;
(2) the length of time that the case was pending;
(3) the number of full-time employees as of the date
of the order for relief and at the end of each
reporting period;
(4) cash receipts, cash disbursements, and
profitability of the debtor for the most recent period
and cumulatively from the date of the order for relief;
(5) the debtor's compliance with the Bankruptcy Code,
including whether tax returns have been filed and taxes
have been paid;
(6) professional fees approved by the court for the
most recent period and cumulatively from the date of
the order for relief; and
(7) plans filed and confirmed, including the aggregate
recoveries of holders by class and as a percentage of
total claims of an allowed class.
Section 603. Audit procedures
Section 603(a)(1) requires the Attorney General (for
judicial districts served by United States trustees) and the
Judicial Conference of the United States (for judicial
districts served by bankruptcy administrators) to establish
procedures to determine the accuracy, veracity, and
completeness of petitions, schedules and other information
filed by debtors pursuant to sections 111, 521 and 1322 of the
Bankruptcy Code. Section 603(a)(1) requires the audits to be
conducted in accordance with generally accepted auditing
standards and performed by independent certified public
accountants or independent licensed public accountants. It
permits the Attorney General and the Judicial Conference to
develop alternative auditing standards not later than 2 years
after the date of enactment of this Act.
Section 603(a)(2) requires these procedures to:
(1) establish a method of selecting appropriate
qualified contractors to perform these audits;
(2) establish a method of randomly selecting cases for
audit, and that a minimum of at least one case out of
every 250 cases be selected for audit;
(3) require audits in cases where the schedules of
income and expenses reflect greater than average
variances from the statistical norm for the district if
they occur by reason of higher income or higher
expenses than the statistical norm in which the
schedules were filed; and
(4) require the aggregate results of such audits,
including the percentage of cases by district in which
a material misstatement of income or expenditures is
reported, to be made available to the public on an
annual basis.
Section 603(b) amends section 586 of title 28 of the United
States Code to require the United States trustee to submit
reports as directed by the Attorney General, including the
results of audits performed under section 603(a). In addition,
it authorizes the United States trustee to contract with
auditors to perform the audits specified in this provision.
Further, it requires the report of each audit to be filed with
the court and transmitted to the United States trustee. The
report must specify material misstatements of income,
expenditures or assets. In a case where a material misstatement
has been reported, the clerk must provide notice of such
misstatement to creditors and the United States trustee must
report it to the United States Attorney, if appropriate, for
possible criminal prosecution. If advisable, the United States
trustee must also take appropriate action, such as revoking the
debtor's discharge.
Section 603(c) amends section 521 of the Bankruptcy Code to
make it a duty of the debtor to cooperate with an auditor.
Section 603(d) amends section 727 of the Bankruptcy Code to
add, as a ground for revocation of a chapter 7 discharge the
debtor's failure to: (a) satisfactorily explain a material
misstatement discovered as the result of an audit pursuant to
this provision; or (b) make available for inspection all
necessary documents or property belonging to the debtor that
are requested in connection with such audit.
Section 603(e) provides that the amendments made by this
provision take effect 18 months after the Act's enactment date.
Section 604. Sense of Congress regarding availability of bankruptcy
data
Section 604 expresses a sense of Congress that it is a
national policy of the United States that all data collected by
bankruptcy clerks in electronic form (to the extent such data
relates to public records pursuant to section 107 of the
Bankruptcy Code) should be made available to the public in a
useable electronic form in bulk, subject to appropriate privacy
concerns and safeguards as determined by the Judicial
Conference of the United States. It also states that a uniform
bankruptcy data system should be established that uses a single
set of data definitions and forms to collect such data and that
data for any particular bankruptcy case should be aggregated in
electronic format.
TITLE VII--BANKRUPTCY TAX PROVISIONS
Section 701. Treatment of certain tax liens
Section 701(a) makes several amendments to section 724 of
the Bankruptcy Code to provide greater protection for holders
of ad valorem tax liens on real or personal property of the
estate. Many school boards obtain liens on real property to
ensure collection of unpaid ad valorem taxes. Under current
law, local governments are sometimes unable to collect these
taxes despite the presence of a lien because they may be
subordinated to certain claims and expenses as a result of
section 724. Section 701(a) is intended to protect the holders
of these tax liens from, among other things, erosion of their
claims' status by expenses incurred under chapter 11 of the
Bankruptcy Code. Pursuant to section 701(a), subordination of
ad valorem tax liens is still possible under section 724(b),
but limited to the payment of: (a) claims incurred under
chapter 7 for wages, salaries, or commissions (but not expenses
incurred under chapter 11); (b) claims for wages, salaries, and
commissions entitled to priority under section 507(a)(4); and
(c)claims for contributions to employee benefit plans entitled
to priority under section 507(a)(5). Before a tax lien on real
or personal property may be subordinated pursuant to section
724, the chapter 7 trustee must exhaust all other unencumbered
estate assets and, consistent with section 506, recover
reasonably necessary costs and expenses of preserving or
disposing of such property.
Section 701(b) amends section 505(a)(2) of the Bankruptcy
Code to prevent a bankruptcy court from determining the amount
or legality of an ad valorem tax on real or personal property
if the applicable period for contesting or redetermining the
amount of the claim under nonbankruptcy law has expired.
Section 702. Treatment of fuel tax claims
Section 702 amends section 501 of the Bankruptcy Code to
simplify the process for filing of claims by States for certain
fuel taxes. Rather than requiring all States to file a claim
for these taxes (as is the case under current law), section 702
permits the designated ``base jurisdiction'' under the
International Fuel Tax Agreement to file a claim on behalf of
all States, which would then be allowed as a single claim.
Section 703. Notice of request for a determination of taxes
Under current law, debtors may request that the
governmental unit determine administrative tax liabilities in
order to receive a discharge of those liabilities. There are no
requirements as to the content or form of such notice to the
government. Section 703 amends section 505(b) of the Bankruptcy
Code to require bankruptcy court clerks to maintain a list of
addresses designated by governmental units for service of
section 505 requests. In addition, the list may also include
additional information concerning filing requires so specified
by such governmental units. If a governmental entity does not
designate an address and provide that address to the bankruptcy
court clerk, any request made under section 505(b) of the
Bankruptcy Code may be served at the address of the appropriate
taxing authority of that governmental unit.
Section 704. Rate of interest on tax claims
Under current law, there is no uniform rate of interest
applicable to tax claims. As a result, the bankruptcy courts
have used varying standards to determine the applicable rate.
Section 704 amends the Bankruptcy Code to add section 511 for
the purpose of simplifying the interest rate calculation. It
provides that for all tax claims (federal, State, and local),
including administrative expense taxes, the interest rate shall
be determined in accordance with applicable nonbankruptcy law.
With respect to taxes paid under a confirmed plan, the rate of
interest is determined as of the calendar month in which the
plan is confirmed.
Section 705. Priority of tax claims
Under current law, a tax claim is entitled to be treated as
a priority claim if it arises within certain specified time
periods. In the case of income taxes, a priority arises, among
other time periods, if the tax return was due within 3 years of
the filing of the bankruptcy petition or if the assessment of
the tax was made within 240 days of the filing of the petition.
The 240-day period is tolled during the time that an offer in
compromise is pending (plus 30 days). Though the statute is
silent, most courts have also held that the 3-year and 240-day
time periods are tolled during the pendency of a previous
bankruptcy case. Section 705 amends section 507(a)(8) of the
Bankruptcy Code to codify the rule tolling priority periods
during the pendency of a previous bankruptcy case during that
240-day period together with an additional 90 days. It also
includes tolling provisions to adjust for the collection due
process rights provided by the Internal Revenue Service
Restructuring and Reform Act of 1998. During any period in
which the government is prohibited from collecting a tax as a
result of a request by the debtor for a hearing and an appeal
of any collection action taken against the debtor, the priority
is tolled, plus 90 days. Also, during any time in which there
was a stay of proceedings in a prior bankruptcy case or
collection of an income tax was precluded by a confirmed
bankruptcy plan, the priority is tolled, plus 90 days.
Section 706. Priority property taxes incurred
Under current law, many provisions of the Bankruptcy Code
are keyed to the word ``assessed.'' While this term has an
accepted meaning in the Federal system, it is not used in many
State and local statutes and has created some confusion. To
eliminate this problem with respect to real property taxes,
section 706 amends section 507(a)(8)(B) of the Bankruptcy Code
by replacing the word ``assessed'' with ``incurred''.
Section 707. No discharge of fraudulent taxes in chapter 13
Under current law, a debtor's ability to discharge tax
debts varies depending on whether the debtor is in chapter 7 or
chapter 13. Under chapter 7, taxes from a return due within 3
years of the petition date, taxes assessed within 240 days, or
taxes related to an unfiled return or false return are not
dischargeable. Chapter 13, on the other hand, allows these
obligations to be discharged. Section 707 amends section
1328(a)(2) to prohibit the discharge of tax claims described in
section 523(a)(1)(B) and (C) as well as claims for a tax
required to be collected or withheld and for which the debtor
is liable in whatever capacity pursuant to section
507(a)(8)(C).
Section 708. No discharge of fraudulent taxes in chapter 11
Under current law, the confirmation of a chapter 11 plan
discharges the debtor from most debts. Section 708 amends
section 1141(d) of the Bankruptcy Code to except from discharge
in a corporate chapter 11 case a debt described in section
523(a)(2) of the Bankruptcy Code (e.g., debts for money,
property or services obtain by false pretenses, false
representation or actual fraud, other than a statement
respecting the debtor's or an insider's financial condition).
In addition, a tax or customs duty with respect to which the
debtor made a fraudulent tax return or willfully attempted in
any manner to evade or defeat such tax is rendered
nondischargeable in a chapter 11 case of a corporate debtor.
Section 709. Stay of tax proceedings limited to prepetition taxes
Under current law, the filing of a petition for relief
under the Bankruptcy Code activates an automatic stay that
enjoins the commencement or continuation of a case in the
Federal tax court. This rule was arguably extended in Halpern
v. Commissioner, 96 T.C. 895 (1991), which held that the tax
court did not have jurisdiction to hear a case involving a
postpetition year. To address this issue, section 709 amends
section 362(a)(8) of the Bankruptcy Code to specify that the
automatic stay is limited to an individual debtor's prepetition
taxes (taxes incurred before entering bankruptcy). The
amendment clarifies that the automatic stay does not apply to
an individual debtor's postpetition taxes. In addition, section
709 allows the bankruptcy court to determine whether the
automatic stay applies to the postpetition tax liabilities of a
corporate debtor.
Section 710. Periodic payment of taxes in chapter 11 cases
Section 710 amends section 1129(a)(9) of the Bankruptcy
Code to provide that the allowed amount of priority tax claims
(as of the plan's effective date) must be paid in regular cash
installments within 5 years from the entry of the order for
relief. The manner of payment may not be less favorable than
that accorded the most favored nonpriority unsecured class of
claims under section 1122(b).
Section 711. Avoidance of statutory liens prohibited
The Internal Revenue Code gives special protections to
certain purchasers of securities and motor vehicles
notwithstanding the existence of a filed tax lien. Section 711
amends section 545(2) of the Bankruptcy Code to prevent
trustees from using these special protections to avoid an
otherwise valid lien. Specifically, it prevents the avoidance
of unperfected liens against a bona fide purchaser, if the
purchaser qualifies as such under section 6323 of the Internal
Revenue Code or a similar provision under State or local law.
Section 712. Payment of taxes in the conduct of business
Although current law generally requires trustees and
receivers to pay taxes in the ordinary course of the debtor's
business, the payment of administrative expenses must first be
authorized by the court. Section 712(a) amends section 960 of
title 28 of the United States Code to clarify that postpetition
taxes in the ordinary course of business must be paid on or
before when such tax is due under applicable nonbankruptcy law,
with certain exceptions. This requirement does not apply if the
obligation is a property tax secured by a lien against property
that is abandoned under section 554 within a reasonable time
after the lien attaches. In addition, the requirement does not
pertain where the payment is excused under the Bankruptcy Code.
With respect to chapter 7 cases, section 712(a) provides that
the payment of a tax may be deferred until final distribution
pursuant to section 726 if the tax was not incurred by a
chapter 7 trustee or the court, prior to the due date of the
tax, finds that the estate has insufficient funds to pay all
administrative expenses in full.
Section 712(b) amends section 503(b)(1)(B)(i) of the
Bankruptcy Code to clarify that this provision applies to
secured as well as unsecured tax claims, including property
taxes based on liability that is in rem, in personam or both.
Section 712(c) amends section 503(b)(1) to exempt a
governmental unit from the requirement to file a request for
payment of an administrative expense.
Section 712(d)(1) amends section 506(b) to provide that to
the extent that an allowed claim is oversecured, the holder is
entitled to interest and any reasonable fees, costs, or charges
provided for under State law. Section 712(d)(2), in turn,
amends section 506(c) to permit a trustee to recover from a
secured creditor the payment of all ad valorem property taxes.
Section 713. Tardily filed priority tax claims
Section 713 amends section 726(a)(1) of the Bankruptcy Code
to require a tax claim to be filed either before the trustee
commences distribution or 10 days following the mailing to
creditors of the summary of the trustee's final report,
whichever is earlier, in order for the claim to be entitled to
distribution as an unsecured claim.
Section 714. Income tax returns prepared by tax authorities
Section 714 amends section 523(a) of the Bankruptcy Code to
provide that a return filed on behalf of a taxpayer who has
provided information sufficient to complete a return
constitutes filing a return (and the debt can be discharged),
but that a return filed on behalf of a taxpayer based on
information the Secretary obtains through testimony or
otherwise does not constitute filing a return (and the debt
cannot be discharged).
Section 715. Discharge of the estate's liability for unpaid taxes
Under the Bankruptcy Code, a debtor may request a prompt
audit to determine postpetition tax liabilities. If the
government does not make a determination or request an
extension of time to audit, then the debtor's determination of
taxes will be final. Several court cases have held that while
this protects the debtor and the trustee, it does not
necessarily protect the estate. Section 715 amends section
505(b) of the Bankruptcy Code to clarify that the estate is
also protected if the government does not request an audit of
the debtor's tax returns. Therefore, if the government does not
make a determination of the debtor's postpetition tax
liabilities or request extension of time to audit, then the
estate's liability for unpaid taxes is discharged.
Section 716. Requirement to file tax returns to confirm chapter 13
plans
Under current law, a debtor may enjoy the benefits of
chapter 13 even if delinquent in the filing of tax returns. In
response to this problem, section 716(a) amends section 1325(a)
of the Bankruptcy Code to require a chapter 13 debtor file all
applicable Federal, State, and local tax returns as a condition
of confirmation pursuant to section 1308, as added by section
716(b).
Section 716(b) adds a new provision to chapter 13 requiring
a chapter 13 debtor to be current on the filing of tax returns
for the 4-year period preceding the filing of the case. If the
returns are not filed by the date on which the meeting of
creditors is first scheduled, the trustee may hold open that
meeting for a reasonable period of time to allow the debtor to
file any unfiled returns. The additional period of time may not
extend beyond 120 days after the date of the meeting of the
creditors or beyond the date on which the return is due under
the last automatic extension of time for filing. The debtor,
however, may obtain an extension of time from the court if the
debtor demonstrates by a preponderance of the evidence that the
failure to file was attributable to circumstances beyond the
debtor's control.
Section 716(c) amends section 1307 of the Bankruptcy Code
to provide that if a chapter 13 debtor fails to file a tax
return as required by section 1308, the court must dismiss the
case or convert it to one under chapter 7 (whichever is in the
best interests of creditors and the estate) on request of a
party in interest or the United States trustee after notice and
a hearing.
Section 716(d) amends section 502(b)(9) of the Bankruptcy
Code to provide that in a chapter 13 case, a governmental
unit's tax claim based on a return filed under section 1308
shall be deemed to be timely filed if the claim is filed within
60 days from the date on which such return is filed.
Section 716(e) states the sense of the Congress that the
Advisory Committee on Bankruptcy Rules of the Judicial
Conference of the United States should propose for adoption
official rules with respect an objection by a governmental unit
to confirmation of a chapter 13 plan when such claim pertains
to a tax return filed pursuant section 1308.
Section 717. Standards for tax disclosure
Before a chapter 11 plan may be submitted to creditors and
stockholders for a vote, the plan proponent must file a
disclosure statement that provides adequate information to
holders of claims and interests so they can make a decision as
to whether or not to vote in favor of the plan. As the tax
consequences of a plan can have a significant impact on the
debtor's reorganization prospects, section 717 amends section
1125(a) of the Bankruptcy Code to require that a chapter 11
disclosure statement discuss the plan's potential material
Federal tax consequences to the debtor and to a hypothetical
investor that is representative of the claimants and interest
holders in the case.
Section 718. Setoff of tax refunds
Under current law, the filing of a bankruptcy petition
automatically stays the setoff of a prepetition tax refund
against a prepetition tax obligation unless the bankruptcy
court approves the setoff. Interest and penalties that may
continue to accrue may also be nondischargeable pursuant to
section 523(a)(1) of the Bankruptcy Code and cause individual
debtors undue hardship. Section 718 amends section 362(b) of
the Bankruptcy Code to create an exception to the automatic
stay whereby such setoff could occur without court order unless
it would not be permitted under applicable nonbankruptcy law
because of a pending action to determine the amount or legality
of the tax liability. In that circumstance, the governmental
authority may hold the refund pending resolution of the action,
unless the court, on motion of the trustee and after notice and
a hearing, grants the taxing authority adequate protection
pursuant to section 361.
Section 719. Special provisions related to the treatment of State and
local taxes
Section 719 conforms State and local income tax
administrative issues to the Internal Revenue Code. For
example, under Federal law, a bankruptcy petitioner filing on
March 5 has two tax years--January 1 to March 4, and March 5 to
December 31. Under the Bankruptcy Code, however, State and
local tax years are divided differently--January 1 to March 5,
and March 6 to December 31. Section 719 requires the States to
follow the Federal convention.
It conforms State and local tax administration to the
Internal Revenue Code in the following areas: division of tax
liabilities and responsibilities between the estate and the
debtor, tax consequences with respect to partnerships and
transfers of property, and the taxable period of a debtor.
Section 719 does not conform State and local tax rates to
Federal tax rates.
Section 720. Dismissal for failure to timely file tax returns
Under existing law, there is no definitive rule with
respect to whether a bankruptcy court may dismiss a bankruptcy
case if the debtor fails to file returns for taxes incurred
postpetition. Section 720 amends section 521 of the Bankruptcy
Code to allow a taxing authority to request that the court
dismiss or convert a bankruptcy case if the debtor fails to
file a postpetition tax return or obtain an extension. If the
debtor does not file the required return or obtain the
extension within 90 days from the time of the request by the
taxing authority to file the return, the court must convert or
dismiss the case, whichever is in the best interest of
creditors and the estate.
TITLE VIII--ANCILLARY AND OTHER CROSS-BORDER CASES
Title VIII of H.R. 833 adds a new chapter to the Bankruptcy
Code for transnational bankruptcy cases. This incorporates the
Model Law on Cross-Border Insolvency to encourage cooperation
between the United States and foreign countries with respect to
transnational insolvency cases. Title VIII is intended to
provide greater legal certainty for trade and investment as
well as to provide for the fair and efficient administration of
cross-border insolvencies, which protects the interests of
creditors and other interested parties, including the debtor.
In addition, it serves to protect and maximize the value of the
debtor's assets.
Section 801. Amendment to add chapter 15 to title 11, United States
Code
Section 801 introduces chapter 15 to the Bankruptcy Code,
which is the Model Law on Cross-Border Insolvency (``Model
Law'') promulgated by the United Nations Commission on
International Trade Law (``UNCITRAL'') at its Thirtieth Session
on May 12-30, 1997.\4\ Cases brought under chapter 15 are
intended to be ancillary to cases brought in a debtor's home
country, unless a full United States bankruptcy case is brought
under another chapter. Even if a full case is brought, the
court may decide under section 305 to stay or dismiss the
United States case under the other chapter and limit the United
States' role to an ancillary case under this chapter.\5\ If the
full case is not dismissed, it will be subject to the
provisions of this chapter governing cooperation, communication
and coordination with the foreign courts and representatives.
In any case, an order granting recognition is required as a
prerequisite to the use of sections 301 and 303 by a foreign
representative.
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\4\ The text of the Model Law and the Report of UNCITRAL on its
adoption are found at U.N. G.A., 52d Sess., Supp. No. 17 (A/52/17)
(``Report''). That Report and the Guide to Enactment of the UNCITRAL
Model Law on Cross-Border Insolvency, U.N. Gen. Ass., UNCITRAL 30th
Sess. U.N. Doc. A/CN.9/442 (1997) (``Guide''), which was discussed in
the negotiations leading to the Model Law and published by UNCITRAL as
an aid to enacting countries, should be consulted for guidance as to
the meaning and purpose of its provisions. The development of the
provisions in the negotiations at UNCITRAL, in which the United States
was an active participant, is recounted in the interim reports of the
Working Group that are cited in the Report.
\5\ See section 1529 and commentary.
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Section 1501. Purpose and scope of application
Section 1501 combines the Preamble to the Model Law
(subsection (1)) with its article 1 (subsections (2) and (3))
\6\. It largely follows the language of the Model Law and fills
in blanks with appropriate United States references. However,
it adds in subsection (3) an exclusion of certain natural
persons who may be considered ordinary consumers. Although the
consumer exclusion is not in the text of the Model Law, the
discussions at UNCITRAL recognized that some such exclusion
would be necessary in countries like the United States where
there are special provisions for consumer debtors in the
insolvency laws.\7\
---------------------------------------------------------------------------
\6\ Guide at 16-19.
\7\ See id. at 18, para. 60; 19 para. 66.
---------------------------------------------------------------------------
The reference to section 109(e) essentially defines
``consumer debtors'' for purposes of the exclusion by
incorporating the debt limitations of that section, but not its
requirement of regular income. The exclusion adds a requirement
that the debtor or debtor couple be citizens or long-term legal
residents of the United States. This ensures that residents of
other countries will not be able to manipulate this exclusion
to avoid recognition of foreign proceedings in their home
countries or elsewhere.
The first exclusion in subsection (c) constitutes, for the
United States, the exclusion provided in article 1, subsection
(2), of the Model Law.\8\ Foreign representatives of foreign
proceedings which are excluded from the scope of chapter 15 may
seek comity from courts other than the bankruptcy court since
the limitations of section 1509(b)(2) and (3) would not apply
to them.
---------------------------------------------------------------------------
\8\ Id. at 17.
---------------------------------------------------------------------------
The reference to section 109(b) interpolates into chapter
15 the entities governed by specialized insolvency regimes
under United States law which are currently excluded from
liquidation proceedings under title 11. Section 1501 contains
an exception to the section 109(b) exclusions so that foreign
proceedings of foreign insurance companies are eligible for
recognition and relief under chapter 15 as they had been under
section 304. However, section 1501(d) has the effect of leaving
to State regulation any deposit, escrow, trust fund or the like
posted by a foreign insurer under State law.
Section 1502. Definitions
``Debtor'' is given a special definition for this chapter.
That definition does not come from the Model Law but is
necessary to eliminate the need to refer repeatedly to ``the
same debtor as in the foreign proceeding.'' With certain
exceptions, the term ``person'' used in the Model Law has been
replaced with ``entity,'' which is defined broadly in section
101(15) to include natural persons and various legal entities,
thus matching the intended breadth of the term ``person'' in
the Model Law. The exceptions include contexts in which a
natural person is intended and those in which the Model Law
language already refers to both persons and entities other than
persons. The definition of ``trustee'' for this chapter ensures
that debtors in possession and debtors, as well as trustees,
are included in the term.\9\
---------------------------------------------------------------------------
\9\ See section 1505.
---------------------------------------------------------------------------
The definition of ``within the territorial jurisdiction of
the United States'' in subsection (7) is not taken from the
Model Law. It has been added because the United States, like
some other countries, asserts insolvency jurisdiction over
property outside its territorial limits under appropriate
circumstances. Thus a limiting phrase is useful where the Model
Law and this chapter intend to refer only to property within
the territory of the enacting State. In addition, a definition
of ``recognition'' supplements the Model Law definitions and
merely simplifies drafting of various other sections of chapter
15.
Two key definitions of ``foreign proceeding'' and ``foreign
representative,'' are found in sections 101(23) and (24), which
have been amended consistent with Model Law article 2.\10\ The
definitions of ``establishment,'' ``foreign court,'' ``foreign
main proceeding,'' and ``foreign non-main proceeding'' have
been taken from Model Law article 2, with only minor language
variations necessary to comport with United States terminology.
Additionally, defined terms have been placed in alphabetical
order.\11\ In order to be recognized as a foreign non-main
proceeding, the debtor must at least have an establishment in
that foreign country.\12\
---------------------------------------------------------------------------
\10\ Guide at 19-21, para.para. 67-68.
\11\ See Guide at 19, (Model Law) 21 para. 75 (concerning
establishment); 21 para. 74 (concerning foreign court); 21 para.para.
72, 73 and 75 (concerning foreign main and non-main proceedings).
\12\ See id. at 21, para. 75.
---------------------------------------------------------------------------
Section 1503. International obligations of the United States
This section is taken exactly from the Model Law with only
minor adaptations of terminology.\13\ Although this section
makes an international obligation prevail over chapter 15, the
courts will attempt to read the Model Law and the international
obligation so as not to conflict, especially if the
international obligation addresses a subject matter less
directly related than the Model Law to a case before the court.
---------------------------------------------------------------------------
\13\ See id. at 22, Art. 3.
---------------------------------------------------------------------------
Section 1504. Commencement of ancillary case
Article 4 of the Model Law is designed for designation of
the competent court which will exercise jurisdiction under the
Model Law. In United States law, section 1334(a) of title 28
gives exclusive jurisdiction to the district courts in a
``case'' under this title.\14\ Therefore, since the competent
court has been determined in title 28, this section instead
provides that a petition for recognition commences a ``case,''
an approach that also invokes a number of other useful
procedural provisions. In addition, a new subsection (P) to
section 157 of title 28 makes cases under this chapter part of
the core jurisdiction of bankruptcy courts when referred to
them by the district courts, thus completing the designation of
the competent court. Finally, the particular bankruptcy court
that will rule on the petition is determined pursuant to a
revised section 1410 of title 28 governing venue and
transfer.\15\
---------------------------------------------------------------------------
\14\ See id. at 23, Art. 4.
\15\ New section 1410 of title 28 provides as follows:
A case under chapter 15 of title 11 may be commenced in the
---------------------------------------------------------------------------
district court for the district----
(1) in which the debtor has its principal place of
business or principal assets in the United States;
(2) if the debtor does not have a place of business or
assets in the United States, in which there is pending
against the debtor an action or proceeding or enforcement
of judgment in a Federal or State court; or
(3) in a case other than those specified in paragraph (1)
or (2), in which venue will be consistent with the
interests of justice and the convenience of the parties
having regard to the relief sought by the foreign
representative.
The title ``ancillary'' in this section and in the title of
this chapter emphasizes the United States policy in favor of a
general rule that countries other than the home country of the
debtor, where a main proceeding would be brought, should
usually act through ancillary proceedings in aid of the main
proceedings, in preference to a system of full bankruptcies
(often called ``secondary'' proceedings) in each State where
assets are found. Under the Model Law, notwithstanding the
recognition of a foreign main proceeding, full bankruptcy cases
are permitted in each country (see sections 1528 and 1529). In
the United States, the court will have the power to suspend or
dismiss such cases where appropriate under section 305.
Section 1505. Authorization to act in a foreign country
The language in this section varies from the wording of
article 5 of the Model Law as necessary to comport with United
States law and terminology. The slight alteration to the
language in the last sentence is meant to emphasize that the
identification of the trustee or other entity entitled to act
is under United States law, while the scope of actions that may
be taken by the trustee or other entity under foreign law is
limited by the foreign law.\16\
---------------------------------------------------------------------------
\16\ See Guide at 24.
---------------------------------------------------------------------------
The related amendment to section 586(a)(3) of title 28
makes acting pursuant to authorization under this section an
additional power of a trustee or debtor in possession. While
the Model Law automatically authorizes an administrator to act
abroad, this section requires all trustees and debtors to
obtain court approval before acting abroad. That requirement is
a change from the language of the Model Law, but one that is
purely internal to United States law.\17\ Its main purpose is
to ensure that the court has knowledge and control of possibly
expensive activities, but it will have the collateral benefit
of providing further assurance to foreign courts that the
United States debtor or representative is under judicial
authority and supervision. This requirement means that the
first-day orders in reorganization cases should include
authorization to act under this section where appropriate.
---------------------------------------------------------------------------
\17\ See id. at 24, Art. 5.
---------------------------------------------------------------------------
This section also contemplates the designation of an
examiner or other natural person to act for the estate in one
or more foreign countries where appropriate. One instance might
be a case in which the designated person had a special
expertise relevant to that assignment. Another might be where
the foreign court would be more comfortable with a designated
person than with an entity like a debtor in possession. Either
are to be recognized under the Model Law.\18\
---------------------------------------------------------------------------
\18\ See id. at 23-24, para. 82.
---------------------------------------------------------------------------
Section 1506. Public policy exception
This provision follows the Model Law article 5 exactly, is
standard in UNCITRAL texts, and has been narrowly interpreted
on a consistent basis in courts around the world. The word
``manifestly'' in international usage restricts the public
policy exception to the most fundamental policies of the United
States.\19\
---------------------------------------------------------------------------
\19\ See id. at 25.
---------------------------------------------------------------------------
Section 1507. Additional assistance
Subsection (1) follows the language of Model Law article
7.\20\ Subsection (2) makes the authority for additional relief
(beyond that permitted under sections 1519-1521, below) subject
to the conditions for relief heretofore specified in United
States law under section 304, which is repealed. This section
is intended to permit the further development of international
cooperation begun under section 304, but is not to be the basis
for denying or limiting relief otherwise available under this
chapter. The additional assistance is made conditional upon the
court's consideration of the factors set forth in the current
subsection 304(c) in a context of a reasonable balancing of
interests following current case law. The references to
``estate'' in section 304 have been changed to refer to the
debtor's property, because many foreign systems do not create
an estate in insolvency proceedings of the sort recognized
under this chapter. Although the case law construing section
304 makes it clear that comity is the central consideration,
its physical placement as one of six factors in subsection (c)
of section 304 is misleading, since those factors are
essentially elements of the grounds for granting comity.
Therefore, in subsection (2) of this section, comity is raised
to the introductory language to make it clear that it is the
central concept to be addressed.\21\
---------------------------------------------------------------------------
\20\ Id. at 26.
\21\ Id.
---------------------------------------------------------------------------
Section 1508. Interpretation
This provision follows conceptually Model Law article 8 and
is a standard one in recent UNCITRAL treaties and model laws.
Language changes were made to express the concepts more clearly
in United States vernacular.\22\ Interpretation of this chapter
on a uniform basis will be aided by reference to the Guide and
the Reports cited therein, which explain the reasons for the
terms used and often cite their origins as well. Uniform
interpretation will also be aided by reference to CLOUT, the
UNCITRAL Case Law On Uniform Texts, which is a service of
UNCITRAL. CLOUT receives reports from national reporters all
over the world concerning court decisions interpreting
treaties, model laws, and other text promulgated by UNCITRAL.
Not only are these sources persuasive, but they are important
to the crucial goal of uniformity of interpretation. To the
extent that the United States courts rely on these sources,
their decisions will more likely be regarded as persuasive
elsewhere.
---------------------------------------------------------------------------
\22\ Id. at 26, para. 91.
---------------------------------------------------------------------------
Section 1509. Right of direct access
This section implements the purpose of article 9 of the
Model Law, enabling a foreign representative to commence a case
under this chapter by filing a petition directly with the court
without preliminary formalities that may delay or prevent
relief. It varies the language to fit United States procedural
requirements and it imposes recognition of the foreign
proceeding as a condition to further rights and duties of the
foreign representative. If recognition is granted, the foreign
representative will have full capacity under United States law
(subsection (b)(1)), may request such relief in a State or
Federal court other than the bankruptcy court (subsection
(b)(2)), and may be granted comity or cooperation by such non-
bankruptcy court (subsection (b)(3) and (c)). Subsections
(b)(2), (b)(3), and (c) make it clear that chapter 15 is
intended to be the exclusive door to ancillary assistance to
foreign proceedings. The goal is to concentrate control of
these questions in one court. That goal is important in a
Federal system like that of the United States with many
different courts, State and Federal, that may have pending
actions involving the debtor or the debtor's property. This
section, therefore, completes for the United States the work of
article 4 of the Model Law (``competent court'') as well as
article 9.\23\
---------------------------------------------------------------------------
\23\ See id. at 23, Art. 4, para.para. 79-83; 27 Art. 9, para. 93.
---------------------------------------------------------------------------
Although a petition under current section 304 is the proper
method for achieving deference by a United States court to a
foreign insolvency under present law, some cases in State and
Federal courts under current law have granted comity suspension
or dismissal of cases involving foreign proceedings without
requiring a section 304 petition or even referring to the
requirements of that section. Even if the result is correct in
a particular case, the procedure is undesirable, because there
is room for abuse of comity. Parties would be free to avoid the
requirements of this chapter and the expert scrutiny of the
bankruptcy court by applying directly to a State or Federal
court unfamiliar with the statutory requirements. Such an
application could be made after denial of a petition under this
chapter. This section concentrates the recognition and
deference process in one United States court, ensures against
abuse, and empowers a court that will be fully informed of the
current status of all foreign proceedings involving the
debtor.\24\
---------------------------------------------------------------------------
\24\ See id. at 27, Art. 9; 34-35, Art. 15 and para.para. 116-119;
39-40, Art. 18, para.para. 133-134; see also sections 1515(3), 1518.
---------------------------------------------------------------------------
Subsection (d) has been added to ensure that a foreign
representative cannot seek relief in courts in the United
States after being denied recognition by the court under this
chapter. Subsection (e) makes activities in the United States
by a foreign representative subject to applicable United States
law, just as 28 U.S.C. section 959 does for a domestic trustee
in bankruptcy.\25\ Subsection (f) provides a limited exception
to the prior recognition requirement so that collection of a
claim which is property of the debtor, for example an account
receivable, by a foreign representative may proceed without
commencement of a case or recognition under this chapter.
---------------------------------------------------------------------------
\25\ Id. at 27, para. 93.
---------------------------------------------------------------------------
Section 1510. Limited jurisdiction
Section 1510, article 10 of the Model Law, is modeled on
section 306 of the Bankruptcy Code. Although the language
referring to conditional relief in section 306 is not included,
the court has the power under section 1522 to attach
appropriate conditions to any relief it may grant.
Nevertheless, the authority in section 1522 is not intended to
permit the imposition of jurisdiction over the foreign
representative beyond the boundaries of the case under this
chapter and any related actions the foreign representative may
take, such as commencing a case under another chapter of this
title.
Section 1511. Commencement of case under section 301 or 303
This section follows the intent of article 11 of the Model
Law, but adds language that conforms to United States law or
that is otherwise necessary in the United States given its many
bankruptcy court districts and the importance of full
information and coordination among them.\26\ Article 11 does
not distinguish between voluntary and involuntary proceedings,
but seems to have implicitly assumed an involuntary
proceeding.\27\ Subsection 1(a)(2) goes farther and permits a
voluntary filing, with its much simpler requirements, if the
foreign proceeding that has been recognized is a main
proceeding.
---------------------------------------------------------------------------
\26\ See id. at 28, Art. 11.
\27\ Id. at 38, para.para. 97-99.
---------------------------------------------------------------------------
Section 1512. Participation of a foreign representative in a case under
this title
This section follows article 12 of the Model Law with a
slight alteration to tie into United States procedural
terminology.\28\ The effect of this section is to make the
recognized foreign representative a party in interest in any
pending or later commenced United States bankruptcy case.\29\
Throughout this chapter, the word ``case'' has been substituted
for the word ``proceeding'' in the Model Law when referring to
cases under the United States Bankruptcy Code, to conform to
United States usage.
---------------------------------------------------------------------------
\28\ Id. at 29, Art. 12.
\29\ Id. at 29, para.para. 10-102.
---------------------------------------------------------------------------
Section 1513. Access of foreign creditors to a case under this title
This section mandates nondiscriminatory or ``national''
treatment for foreign creditors, except as provided in
subsection (b) and section 1514. It follows the intent of Model
Law article 13, but the language required alteration to fit
into the Bankruptcy Code.\30\ The law as to priority for
foreign claims that fit within a class given priority treatment
under section 507 (for example, foreign employees or spouses)
is unsettled. This section permits the continued development of
case law on that subject and its general principle of national
treatment should be an important factor to be considered. At a
minimum, under this section, foreign claims must receive the
treatment given to general unsecured claims without priority,
unless they are in a class of claims in which domestic
creditors would also be subordinated.\31\ The Model Law allows
for an exception to the policy of nondiscrimination as to
foreign revenue and other public law claims.\32\ Such claims
(such as tax and Social Security claims) have been denied
enforcement in the United States traditionally, inside and
outside of bankruptcy. The Bankruptcy Code is silent on this
point, so the rule is purely a matter of traditional case law.
It is not clear if this policy should be maintained or
modified, so this section leaves it to developing case law. It
also allows the Department of the Treasury to negotiate
reciprocal arrangements with our tax treaty partners in this
regard, although it does not mandate any restriction of the
evolution of case law pending such negotiations.
---------------------------------------------------------------------------
\30\ Id. at 30, para. 103.
\31\ See id. at 30, para. 104.
\32\ See id. at 31, para. 105.
---------------------------------------------------------------------------
Section 1514. Notification of foreign creditors concerning a case under
title 11
This section ensures that foreign creditors receive proper
notice of cases in the United States.\33\ As a ``foreign
creditor'' is not a defined term, foreign addresses are used as
the distinguishing factor. The Federal Rules of Bankruptcy
Procedure (``Rules'') should be amended to conform to the
requirements of this section, including a special form for
initial notice to such creditors. In particular, the Rules must
provide for additional time for such creditors to file proofs
of claim where appropriate and must provide for the court to
make specific orders in that regard in proper circumstances.
The notice must specify that secured claims must be asserted,
because in many countries such claims are not affected by an
insolvency proceeding and need not be filed.\34\ Of course, if
a foreign creditor has made an appropriate request for notice,
it will receive notices in every instance where notices would
be sent to other creditors who have made such requests.
Subsection (d) replaces the reference to ``a reasonable time
period'' in Model Law article 14(3)(a).\35\ It makes clear that
the Rules, local rules, and court orders must make appropriate
adjustments in time periods and bar dates so that foreign
creditors have a reasonable time within which to receive notice
or take an action.
---------------------------------------------------------------------------
\33\ See Model Law, Art. 14; Guide at 31-32, para.para. 106-109.
\34\ Guide at 33, para. 111.
\35\ Id. at 31, Art. 14(3)(a).
---------------------------------------------------------------------------
Section 1515. Application for recognition of a foreign proceeding
This section follows article 15 of the Model Law with minor
changes.\36\ The rules will require amendment to provide forms
for some or all of the documents mentioned in this section, to
make necessary additions to rules 1000 and 2002 to facilitate
appropriate notices of the hearing on the petition for
recognition, and to require filing of lists of creditors and
other interested persons who should receive notices. Throughout
the Model Law, the question of notice procedure is left to the
law of the enacting State.\37\
---------------------------------------------------------------------------
\36\ Id. at 33.
\37\ See id. at 36, para. 121.
---------------------------------------------------------------------------
Section 1516. Presumptions concerning recognition
This section follows article 16 of the Model Law with minor
changes.\38\ Although sections 1515 and 1516 are designed to
make recognition as simple and expedient as possible, the court
may hear proof on any element stated. The ultimate burden as to
each element is on the foreign representative, although the
court is entitled to shift the burden to the extent indicated
in section 1516. The word ``proof'' in subsection (3) has been
changed to ``evidence'' to make it clearer using United States
terminology that the ultimate burden is on the foreign
representative.\39\ ``Registered office'' is the term used in
the Model Law to refer to the place of incorporation or the
equivalent for an entity that is not a natural person.\40\ The
presumption that the place of the registered office is also the
center of the debtor's main interest is included for speed and
convenience of proof where there is no serious controversy.
---------------------------------------------------------------------------
\38\ Id. at 36
\39\ Id. at 36, Art. 16(3).
\40\ Id.
---------------------------------------------------------------------------
Section 1517. Order granting recognition
This section closely follows article 17 of the Model Law,
with a few exceptions.\41\ The decision to grant recognition is
not dependent upon any findings about the nature of the foreign
proceedings of the sort previously mandated by section 304(c)
of the Bankruptcy Code. The requirements of this section, which
incorporates the definitions in section 1502 and sections
101(23) and (24), are all that must be fulfilled to attain
recognition. Reciprocity was specifically suggested as a
requirement for recognition on more than one occasion in the
negotiations that resulted in the Model Law. It was rejected by
overwhelming consensus each time. The United States was one of
the leading countries opposing the inclusion of a reciprocity
requirement.\42\ In this regard, the Model Law conforms to
section 304, which has no such requirement.
---------------------------------------------------------------------------
\41\ Id. at 37.
\42\ Report of the working group on Insolvency Law on the work of
its Twentieth Session (Vienna, 7-18 October 1996), at 6, para.para. 16-
20.
---------------------------------------------------------------------------
The drafters of the Model Law understood that only a main
proceeding or a non-main proceeding meeting the standards of
section 1502 (that is, one brought where the debtor has an
establishment) were entitled to recognition under this section.
The Model Law has been slightly modified to make this point
clear by referring to the section 1502 definition of main and
non-main proceedings, as well as to the general definition of a
foreign proceeding in section 101(23). Naturally, a petition
under section 1515 must show that proceeding is a main or a
qualifying non-main proceeding in order to win recognition
under this section.
Consistent with the position of various civil law
representatives in the drafting of the Model Law, recognition
creates a status with the effects set forth in section 1520, so
those effects are not viewed as orders to be modified, as are
orders granting relief under sections 1519 and 1521. Subsection
(4) states the grounds for modifying or terminating
recognition. On the other hand, the effects of recognition
(found in section 1520 and including an automatic stay) are
subject to modification under section 362(d), made applicable
by section 1520(2), which permits relief from the automatic
stay of section 1520 for cause.
Paragraph 1(d) of section 17 of the Model Law has been
omitted as an unnecessary requirement for United States
purposes, because a petition submitted to the wrong court will
be dismissed or transferred under other provisions of United
States law.\43\ The reference to section 350 refers to the
routine closing of a case that has been completed and will
invoke requirements including a final report from the foreign
representative in such form as the rules may provide or a court
may order.\44\
---------------------------------------------------------------------------
\43\ Guide at 37, Art. 17(1)(d).
\44\ Id.
---------------------------------------------------------------------------
Section 1518. Subsequent information
This section follows the Model Law, except to eliminate the
word ``same'' which is rendered unnecessary by the definition
of ``debtor'' in section 1502 and to provide for a formal
document to be filed with the court.\45\ Judges in several
jurisdictions, including the United States, have reported a
need for a requirement of complete and candid reports to the
court of all proceedings, worldwide, involving the debtor. This
section will ensure that such information is provided to the
court on a timely basis. Any failure to comply with this
section will be subject to the sanctions available to the court
for violations of the statute. The section leaves to the rules
the form of the required notice and related questions of notice
to parties in interest, the time for filing, and the like.
---------------------------------------------------------------------------
\45\ Id. at 39-40, para.para. 133, 134.
---------------------------------------------------------------------------
Section 1519. Relief may be granted upon petition for recognition of a
foreign proceeding
This section generally follows article 19 of the Model
Law.\46\ The bankruptcy court will have jurisdiction to grant
emergency relief under rule 7065 pending a hearing on the
petition for recognition. This section does not expand or
reduce the scope of section 105 as determined by cases under
section 105 nor does it modify the sweep of sections 555 to
560. Subsection (d) precludes injunctive relief against police
and regulatory action under section 1519, leaving section 105
as the only avenue to such relief. Subsection (e) makes clear
that this section contemplates injunctive relief and that such
relief is subject to specific rules and a body of
jurisprudence. Subsection (f) was added to complement
amendments to the Bankruptcy Code provisions dealing with
financial contracts.
---------------------------------------------------------------------------
\46\ Id. at 40.
---------------------------------------------------------------------------
Section 1520. Effects of recognition of a foreign main proceeding
In general, this chapter sets forth all the relief that is
available as a matter of right based upon recognition
hereunder, although additional assistance may be provided under
section 1507 and this chapter have no effect on any relief
currently available under section 105. The stay created by
article 20 of the Model Law is imported to chapter 15 from
existing provisions of the Code. Subsection (a)(1) combines
subsections 1(a) and (b) of article 20 of the Model Law,
because section 362 imposes the restrictions required by those
two subsections and additional restrictions as well.\47\
---------------------------------------------------------------------------
\47\ Id. at 42, Art. 20 1(a), (b).
---------------------------------------------------------------------------
Subsections (a)(2) and (4) apply the Bankruptcy Code
sections that impose the restrictions called for by subsection
1(c) of the Model Law. In both cases, the provisions are
broader and more complete than those contemplated by the Model
Law, but include all the restraints the Model Law provisions
would impose.\48\ As the foreign proceeding may or may not
create an ``estate'' similar to that created in cases under
this title, the restraints are applicable to actions against
the debtor under section 362(a) and with respect to the
property of the debtor under the remaining sections. The only
property covered by this section is property within the
territorial jurisdiction of the United States as defined in
section 1502. To achieve effects on property of the debtor
which is not within the territorial jurisdiction of the United
States, the foreign representative would have to commence a
case under another chapter of this title.
---------------------------------------------------------------------------
\48\ Id. at 42, 45.
---------------------------------------------------------------------------
By applying sections 361 and 362, subsection (a) makes
applicable the United States exceptions and limitations to the
restraints imposed on creditors, debtors, and other in a case
under this title, as stated in article 20(2) of the Model
Law.\49\ It also introduces the concept of adequate protection
provided in sections 362 and 363. These exceptions and
limitations include those set forth in sections 362(b), (c) and
(d). As one result, the court has the power to terminate the
stay pursuant to section 362(d), for cause, including a failure
of adequate protection.\50\
---------------------------------------------------------------------------
\49\ Id. at 42, Art. 20(2); 44, para.para. 148, 150.
\50\ Id. at 42, Art. 20(3); 44-45, para.para. 151 152.
---------------------------------------------------------------------------
Subsection (a)(2), by its reference to sections 363 and 552
adds to the powers of a foreign representative of a foreign
main proceeding an automatic right to operate the debtor's
business and exercise the power of a trustee under sections 363
and 542, unless the court orders otherwise. A foreign
representative of a foreign main proceeding may need to
continue a business operation to maintain value and granting
that authority automatically will eliminate the risk of delay.
If the court is uncomfortable about this authority in a
particular situation it can ``order otherwise'' as part of the
order granting recognition.
Two special exceptions to the automatic stay are embodied
in subsections (b) and (c). To preserve a claim in certain
foreign countries, it may be necessary to commence an action.
Subsection (b) permits the commencement of such an action, but
would not allow for its further prosecution. Subsection (c)
provides that there is no stay of the commencement of a full
United States bankruptcy case. This essentially provides an
escape hatch through which any entity, including the foreign
representative, can flee into a full case. The full case,
however, will remain subject to subchapters IV and V on
cooperation and coordination of proceedings and to section 305
providing for stay or dismissal. Section 108 of the Bankruptcy
Code provides the tolling protection intended by Model Law
article 20(3), so no exception is necessary as to claims that
might be extinguished under United States law.\51\
---------------------------------------------------------------------------
\51\ Id.
---------------------------------------------------------------------------
Section 1521. Relief that may be granted upon recognition of a foreign
proceeding
This section follows article 21 of the Model Law, with
detailed changes to fit United States law.\52\ The exceptions
in subsection (a)(7) relate to avoiding powers. The foreign
representative's status as to such powers is governed by
section 1523 below. The avoiding power in section 549 and the
exceptions to that power are covered by section 1520(a)(2). The
word ``adequately'' in the Model Law, articles 21(2) and 22(1),
has been changed to ``sufficiently'' in sections 1521(b) and
1522(a) to avoid confusion with a very specialized legal term
in United States bankruptcy, ``adequate protection.'' \53\
Subsection (c) is designed to limit relief to assets having
some direct connection with a non-main proceeding, for example
where they were part of an operating division in the
jurisdiction of the non-main proceeding when they were
fraudulently conveyed and then brought to the United
States.\54\ Subsections (d), (e) and (f) are identical to those
same subsections of section 1519. This section does not expand
or reduce the scope of relief currently available in ancillary
cases under sections 105 and 304 nor does it modify the sweep
of sections 555 through 560.
---------------------------------------------------------------------------
\52\ Id. at 45-46, Art. 21.
\53\ Id. at 46, Art. 21(2); 47, Art. 22(1).
\54\ See id. at 46-47, para.para. 158, 160.
---------------------------------------------------------------------------
Section 1522. Protection of creditors and other interested persons
This section follows article 22 of the Model Law with
changes for United States usage and references to relevant
Bankruptcy Code sections.\55\ It gives the bankruptcy court
broad latitude to mold relief to circumstances, including
appropriate responses if it is shown that the foreign
proceeding is seriously and unjustifiably injuring United
States creditors. For response to a showing that the conditions
necessary to recognition did not actually exist or have ceased
to exist, see section 1517. Concerning the change of
``adequately'' in the Model Law to ``sufficiently'' in this
section, see section 1521. Subsection (d) is new and simply
makes clear that an examiner appointed in a case under chapter
15 shall be subject to certain duties and bonding requirements
based on those imposed on trustees and examiners under other
chapters of this title.
---------------------------------------------------------------------------
\55\ Id. at 47.
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Section 1523. Actions to avoid acts detrimental to creditors
This section follows article 23 of the Model Law, with
wording to fit it within procedure under this title.\56\ It
confers standing on a recognized foreign representative to
assert an avoidance action but only in a pending case under
another chapter of this title. The Model Law is not clear about
whether it would grant standing in a recognized foreign
proceeding if no full case were pending. This limitation
reflects concerns raised by the United States delegation during
the UNCITRAL debates that a simple grant of standing to bring
avoidance actions neglects to address very difficult choice of
law and forum issues. This limited grant of standing in section
1523 does not create or establish any legal right of avoidance
nor does it create or imply any legal rules with respect to the
choice of applicable law as to the avoidance of any transfer of
obligation.\57\ The courts will determine the nature and extent
of any such action and what national law may be applicable to
such action.
---------------------------------------------------------------------------
\56\ Id. at 48-49.
\57\ See id. at 49, para. 166.
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Section 1524. Intervention by a foreign representative
The wording is the same as the Model Law, except for a few
clarifying words.\58\ This section gives the foreign
representative whose foreign proceeding has been recognized the
right to intervene in United States cases, State or Federal,
where the debtor is a party. Recognition being an act under
Federal bankruptcy law, it must take effect in State as well as
Federal courts. This section does not require substituting the
foreign representative for the debtor, although that result may
be appropriate in some circumstances.
---------------------------------------------------------------------------
\58\ Id. at 49.
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Section 1525. Cooperation and direct communication between the court
and foreign courts or foreign representatives
The wording is almost exactly that of the Model Law.\59\
The right of courts to communicate with other courts in
worldwide insolvency cases is of central importance. This
section authorizes courts to do so. This right must be
exercised, however, with due regard to the rights of the
parties. Guidelines for such communications are left to the
Federal rules of bankruptcy procedure.
---------------------------------------------------------------------------
\59\ Id. at 50.
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Section 1526. Cooperation and direct communication between the trustee
and foreign courts or foreign representatives
This section follows the Model Law almost exactly.\60\ The
language in Model Law article 26 concerning the trustee's
function was eliminated as unnecessary because always implied
under United States law. The section authorizes the trustee,
including a debtor in possession, to cooperate with other
proceedings. Subsection (3) is not taken from the Model Law but
is added so that any examiner appointed under this chapter will
be designated by the United States trustee and will be bonded.
---------------------------------------------------------------------------
\60\ Id. at 51.
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Section 1527. Forms of cooperation
This section follows the Model Law exactly.\61\ United
States bankruptcy courts have already engaged in most of the
forms of cooperation mentioned here, but they now have explicit
statutory authorization for acts like the approval of protocols
of the sort used in cases.\62\
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\61\ Guide at 51, 53.
\62\ See e.g., Gitlin v. Societe Generale, Barclays Bank (In re
Maxwell Communication Corp.), 93 F.2d 1036 (2d Cir. 1996).
---------------------------------------------------------------------------
Section 1528. Commencement of a case under title 11 after recognition
of a foreign main proceeding
This section follows the Model Law, with specifics of
United States law replacing the general clause at the end to
cover assets normally included within the jurisdiction of the
United States courts in bankruptcy cases, except where assets
are subject to the jurisdiction of another recognized
proceeding.\63\ In a full bankruptcy case, the United States
bankruptcy court generally has jurisdiction over assets outside
the United States. Here that jurisdiction is limited where
those assets are controlled by another recognized proceeding,
if it is a main proceeding.
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\63\ Guide at 54-55.
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The court may use section 305 of this title to dismiss,
stay, or limit a case as necessary to promote cooperation and
coordination in a cross-border case. In addition, although the
jurisdictional limitation applies only to United States
bankruptcy cases commenced after recognition of a foreign
proceeding, the court has ample authority under the next
section and section 305 to exercise its discretion to dismiss,
stay, or limit a United States case filed after a petition for
recognition of a foreign main proceeding has been filed but
before it has been approved, if recognition is ultimately
granted.
Section 1529. Coordination of a case under title 11 and a foreign
proceeding
This section follows the Model Law almost exactly, but
subsection (4) adds a reference to section 305 to make it clear
the bankruptcy court may continue to use that section, as under
present law, to dismiss or suspend a United States case as part
of coordination and cooperation with foreign proceedings.\64\
This provision is consistent with United States policy to act
ancillary to a foreign main proceeding whenever possible.
---------------------------------------------------------------------------
\64\ Id. at 55-56.
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Section 1530. Coordination of more than one foreign proceeding
This section follows exactly article 30 of the Model
Law.\65\ It ensures that a foreign main proceeding will be
given primacy in the United States, consistent with the overall
approach of the United States favoring assistance to foreign
main proceedings.
---------------------------------------------------------------------------
\65\ Id. at 57.
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Section 1531. Presumption of insolvency based on recognition of a
foreign main proceeding
This section follows the Model Law exactly, inserting a
reference to the standard for an involuntary case under this
title.\66\ Where an insolvency proceeding has begun in the home
country of the debtor, and in the absence of contrary evidence,
the foreign representative should not have to make a new
showing that the debtor is in the sort of financial distress
requiring a collective judicial remedy. The word ``proof'' here
means ``presumption.'' The presumption does not arise for any
purpose outside this section.
---------------------------------------------------------------------------
\66\ Id. at 58.
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Section 1532. Rule of payment in concurrent proceeding
This section follows the Model Law exactly and is very
similar to prior section 508(a), which is repealed. The Model
Law language is somewhat clearer and broader than the
equivalent language of prior section 508(a).\67\
---------------------------------------------------------------------------
\67\ Id. at 59.
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Section 802. Other amendments to titles 11 and 28, United States Code
Section 802(a) amends section 103 of the Bankruptcy Code to
clarify the provisions of the Code that apply to chapter 15 and
to specify which portions of chapter 15 apply in cases under
other chapters of title 11. Section 802(b) amends the
Bankruptcy Code's definitions of foreign proceeding and foreign
representative in section 101. The new definitions are nearly
identical to those contained in the Model Law but add to the
phrase ``under a law relating to insolvency'' the words ``or
debt adjustment.'' This addition emphasizes that the scope of
the Model Law and chapter 15 is not limited to proceedings
involving only debtors which are technically insolvent, but
broadly includes all proceedings involving debtors in severe
financial distress, so long as those proceedings also meet the
other criteria of section 101(24).\68\
---------------------------------------------------------------------------
\68\ Id. at 51-52, 71.
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Section 802(c) amends section 157(b)(2) of title 28 to
provide that proceedings under chapter 15 will be core
proceedings while other amendments to title 28 provide that the
United States trustee's standing extends to cases under chapter
15 and that the United States trustee's duties include acting
in chapter 15 cases. Although the United States will continue
to assert worldwide jurisdiction over property of a domestic or
foreign debtor in a full bankruptcy case under chapters 7 and
13 of this title, subject to deference to foreign proceedings
under chapter 15 and section 305, the situation is different in
a case commenced under chapter 15. There the United States is
acting solely in an ancillary position, so jurisdiction over
property is limited to that stated in chapter 15.
Section 802(d) amends section 109 of the Bankruptcy Code to
permit recognition of foreign proceedings involving foreign
insurance companies and involving foreign banks which do not
have a branch or agency in the United States (as defined in 12
U.S.C. Sec. 3101). While a foreign bank not subject to United
States regulation will be eligible for chapter 15 as a
consequence of the amendment to section 109, section 303
prohibits the commencement of a full involuntary case against
such a foreign bank unless the bank is a debtor in a foreign
proceeding.
While section 304 is repealed and replaced by chapter 15,
access to the jurisprudence which developed under section 304
is preserved in the context of new section 1507. On deciding
whether to grant the Additional Assistance contemplated by
section 1507, the court must consider the same factors that had
been imposed by former section 304. The venue provisions for
cases ancillary to foreign proceedings have been amended to
provide a hierarchy of choices beginning with principal place
of business in the United States, if any. If there is no
principal place of business in the United States, but there is
litigation against a debtor, then the district in which the
litigation is pending would be the appropriate venue. In any
other case, venue must be determined with reference to the
interests of justice and the convenience of the parties.
TITLE IX--FINANCIAL CONTRACT PROVISIONS \69\
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\69\ Title IX is substantively very similar to H.R. 1161, the
Financial Contract Netting Improvement Act of 1999, a bill that was
introduced in the 106th Congress. Accordingly, the text explaining
title IX is derived from the report accompanying this bill. See H.R.
Rep. No. 106-834, Pt.1 (2000).
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Section 901. Treatment of certain agreements by conservators or
receivers of insured depository institutions
Subsections (a) through (f) amend the Federal Deposit
Insurance Act's (FDIA) definitions of ``qualified financial
contract'' (QFC), ``securities contract,'' ``commodity
contract,'' ``forward contract,'' ``repurchase agreement'' and
``swap agreement'' to make them consistent with the definitions
in the Bankruptcy Code, as amended by this Act.
Subsection (b) amends the definition of ``securities
contract'' to encompass options on securities and margin loans.
The inclusion of ``margin loans'' in the definition is intended
to encompass only those loans commonly known in the securities
industry as ``margin loans'' and does not include other loans
utilizing securities as collateral, however documented.
Subsection (b) also specifies that purchase, sale and
repurchase obligations under a participation in a commercial
mortgage loan do not constitute ``securities contracts.'' While
a contract for the purchase or sale or a participation may
constitute a ``securities contract,'' the purchase, sale or
repurchase obligation embedded in a participation agreement
does not make that agreement a ``securities contract.''
Subsection (e) amends the definition of a ``repurchase
agreement'' to codify the substance of the Federal Deposit
Insurance Corporation's (FDIC) 1995 regulation defining
repurchase agreement to include those on qualified foreign
government securities.\70\ The term ``qualified foreign
government securities'' is defined to include those that are
direct obligations of, or fully guaranteed by, central
governments of members of the Organization for Economic
Cooperation and Development (OECD). Subsection (e) reflects
developments in the repurchase agreement markets, which
increasingly use foreign government securities as the
underlying asset. Any risk presented by this modification is
addressed by limiting it to those issued or guaranteed by OECD
member States. Subsection (e), like subsection (b) for
``securities contracts,'' specifies that repurchase obligations
under a participation in a commercial mortgage loan do not make
the participation agreement a ``repurchase agreement.'' Such
repurchase obligations embedded in participations in commercial
loans (such as recourse obligations) do not constitute a
``repurchase agreement.'' However, a repurchase agreement
involving the transfer of participations in commercial mortgage
loans with a simultaneous agreement to repurchase the
participation on demand or at a date certain 1 year or less
after such transfer would constitute a ``repurchase
agreement.''
---------------------------------------------------------------------------
\70\ See 12 C.F.R. ' 360.5.
---------------------------------------------------------------------------
Subsection (f) amends the definition of ``swap agreement''
to include an ``interest rate swap, option, future, or forward
agreement, including a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis swap; a spot, same day-
tomorrow, tomorrow-next, forward or other foreign exchange or
precious metals agreement; a currency swap, option, future, or
forward agreement; an equity index or equity swap, option,
spread, future, or forward agreement; a debt index or debt
swap, option, future, or forward agreement; a credit swap,
option, future, or forward agreement; a commodity index or
commodity swap, option, future, or forward agreement; or a
weather swap, weather derivative, or a weather option.'' This
amendment would achieve contractual netting across economically
similar over-the-counter products that can be terminated and
closed out on a mark-to-market basis.
Traditional commercial and lending arrangements, or other
non-financial market transactions, such as commercial,
residential or consumer loans, cannot be treated as ``swaps''
under either the FDIA or the Bankruptcy Code because the
parties purport to document or label the transactions as ``swap
agreements.'' In addition, these definitions apply only for
purposes of the FDIA and the Bankruptcy Code. These
definitions, and the characterization of a certain transaction
as a ``swap agreement,'' are not intended to effect the
characterization, definition, or treatment of any instruments
under any other statute, regulation, or rule including, but not
limited to, the statutes, regulations or rules enumerated in
subsection (f).
Subsection (g) amends the FDIA by adding a definition for
``transfer,'' which is a key term used in the FDIA, to ensure
that it is broadly construed to encompass dispositions of
property or interests in property. The definition tracks that
in section 101 of the Bankruptcy Code.
Subsection (h) makes clarifying technical changes to
conform the receivership and conservatorship provisions of the
FDIA. This subsection (h) also clarifies that the FDIA
expressly protects rights under security agreements,
arrangements or other credit enhancement related to one or more
qualified financial contracts (QFCs). An example of a security
arrangement is a right of set off, and examples of other credit
enhancements are letters of credit, guarantees, reimbursement
obligations and other similar agreements.
Subsection (i) clarifies that no provision of Federal or
State law relating to the avoidance of preferential or
fraudulent transfers (including the anti-preference provision
of the National Bank Act) can be invoked to avoid a transfer
made in connection with any QFC of an insured depository
institution in conservatorship or receivership, absent actual
fraudulent intent on the part of the transferee.
Section 902. Authority of the corporation with respect to failed and
failing institutions
Section 203 provides that no provision of law, including
the Federal Deposit Insurance Corporation Improvement Act
(FDICIA), shall be construed to limit the power of the FDIC to
transfer or to repudiate any QFC in accordance with its powers
under the FDIA. As discussed below, there has been some
uncertainty regarding whether or not FDICIA limits the
authority of the FDIC to transfer or to repudiate QFCs of an
insolvent financial institution. Section 902, as well as other
provisions in the Act, clarify that FDICIA does not limit the
transfer powers of the FDIC with respect to QFCs.
In addition, section 902 denies enforcement to ``walkaway''
clauses in QFCs. A walkaway clause is defined as a provision
that, after calculation of a value of a party's position or an
amount due to or from one of the parties upon termination,
liquidation or acceleration of the QFC, either does not create
a payment obligation of a party or extinguishes a payment
obligation of a party in whole or in part solely because of
such party's status as a non-defaulting party.
Section 903. Amendments relating to transfers of qualified financial
contracts
Subsection (a) amends the FDIA to expand the transfer
authority of the FDIC to permit transfers of QFCs to
``financial institutions'' as defined in FDICIA or in
regulations. This provision allows the FDIC to transfer QFCs to
a non-depository financial institution, provided the
institution is not subject to bankruptcy or insolvency
proceedings. The new FDIA provision specifies that when the
FDIC transfers QFCs that are subject to the rules of a
particular clearing organization, the transfer will not require
the clearing organization to accept the transferee as a member
of the organization. This provision gives the FDIC flexibility
in resolving QFCs subject to the rules of a clearing
organization, while preserving the ability of such
organizations to enforce appropriate risk reducing membership
requirements. The new FDIA provision also permits transfers to
an eligible financial institution that is a non-U.S. person, or
the branch or agency of a non-U.S. person if, following the
transfer, the contractual rights of the parties would be
enforceable substantially to the same extent as under the FDIA.
Subsection (b) amends the notification requirements
following a transfer of the QFCs of a failed depository
institution to require the FDIC to notify any party to a
transferred QFC of such transfer by 5:00 p.m. (Eastern Time) on
the business day following the date of the appointment of the
FDIC acting as receiver or following the date of such transfer
by the FDIC acting as a conservator. This amendment is
consistent with the policy statement on QFCs issued by the FDIC
on December 12, 1989.
Subsection (c) amends the FDIA to clarify the relationship
between the FDIA and FDICIA. There has been some uncertainty
whether FDICIA permits counterparties to terminate or liquidate
a QFC before the expiration of the time period provided by the
FDIA during which the FDIC may repudiate or transfer a QFC in a
conservatorship or receivership. Subsection (c) provides that a
party may not terminate a QFC based solely on the appointment
of the FDIC as receiver until 5:00 p.m. (Eastern Time) on the
business day following the appointment of the receiver or after
the person has received notice of a transfer under FDIA section
11(d)(9), or based solely on the appointment of the FDIC as
conservator, notwithstanding the provisions of FDICIA. This
provides the FDIC with an opportunity to undertake an orderly
resolution of the insured depository institution. The amendment
also prohibits the enforcement of rights of termination or
liquidation that are based solely on the ``financial
condition'' of the depository institution in receivership or
conservatorship. For example, termination based on a cross-
default provision in a QFC that is triggered upon a default
under another contract could be stayed if such other default
was caused by an acceleration of amounts due under that other
contract, and such acceleration was based solely on the
appointment of a conservator or receiver for that depository
institution. Similarly, a provision in a QFC permitting
termination of the QFC based solely on a downgraded credit
rating of a party will not be enforceable in an FDIC
receivership or conservatorship because the provision is based
solely on the financial condition of the depository institution
in default. However, any payment, delivery or other
performance-based default, or breach of a representation or
covenant putting in question the enforceability of the
agreement, will not be deemed to be based solely on financial
condition for purposes of this provision. The amendment is not
intended to prevent counterparties from taking all actions
permitted and recovering all damages authorized upon
repudiation of any QFC by a conservator or receiver. The
amendment allows the FDIC to meet its obligation to provide
notice to parties to transferred QFCs by taking steps
reasonably calculated to provide notice to such parties by the
required time. This is consistent with the existing policy
statement on QFCs issued by the FDIC on December 12, 1989.
Finally, the amendment permits the FDIC to transfer QFCs of
a failed depository institution to a bridge bank or a
depository institution organized by the FDIC for which a
conservator is appointed either (i) immediately upon the
organization of such institution or (ii) at the time of a
purchase and assumption transaction between the FDIC and the
institution. This provision clarifies that such institutions
are not to be considered financial institutions that are
ineligible to receive such transfers under FDIA section
11(e)(9). This is consistent with the existing policy statement
on QFCs issued by the FDIC on December 12, 1989.
Section 904. Amendments relating to disaffirmance or repudiation of
qualified financial contracts
Section 904 limits the disaffirmance and repudiation
authority of the FDIC with respect to QFCs so that such
authority is consistent with the FDIC's transfer authority
under FDIA section 11(e)(9). This ensures that no
disaffirmance, repudiation or transfer authority of the FDIC
may be exercised to ``cherry-pick'' or otherwise treat
independently all the QFCs between a depository institution in
default and a person or any affiliate of such person. The FDIC
has announced that its policy is not to repudiate or disaffirm
QFCs selectively. This unified treatment is fundamental to the
reduction of systemic risk.
Section 905. Clarifying amendment relating to master agreements
Section 905 states that a master agreement for one or more
securities contracts, commodity contracts, forward contracts,
repurchase agreements or swap agreements will be treated as a
single QFC under the FDIA. This provision ensures that cross-
product netting pursuant to a master agreement will be
enforceable under the FDIA. Cross-product netting permits a
wide variety of financial transactions between two parties to
be netted, thereby maximizing the present and potential future
risk-reducing benefits of the netting arrangement between the
parties. Express recognition of the enforceability of such
cross-product master agreements furthers the policy of
increasing legal certainty and reducing systemic risks in the
case of an insolvency of a large financial participant. Similar
Bankruptcy Code clarifications to recognize cross-product
netting both under a master agreement and in the absence of a
master agreement are described below.
Section 906. Federal Deposit Insurance Corporation Improvement Act of
1991.
Subsection (a)(1) amends the definition of ``clearing
organization'' to include clearinghouses that are subject to
exemptions pursuant to orders of the SEC or the CFTC.
The FDICIA provides that a netting arrangement will be
enforced pursuant to its terms, notwithstanding the failure of
a party to the agreement. However, the current netting
provisions of FDICIA limit this protection to ``financial
institutions,'' which include depository institutions.
Subsection (a)(2) amends the FDICIA definition of covered
institutions to include (i) uninsured national and State member
banks, irrespective of their eligibility for deposit insurance
and (ii) foreign banks (including the foreign bank and its
branches or agencies as a combined group, or only the foreign
bank parent of a branch or agency). The Federal Reserve Board
already has by regulation included certain foreign banks in the
definition of a ``financial institution'' for purposes of
FDICIA and the latter change will statutorily extend the
protections of FDICIA to ensure that U.S. financial
organizations participating in netting agreements with foreign
banks are covered by the Act, thereby enhancing the safety and
soundness of these arrangements.
Subsection (a)(3) amends FDICIA to provide that, for
purposes of FDICIA, two or more clearing organizations that
enter into a netting contract are considered ``members'' of
each other. This assures the enforceability of netting
arrangements involving two or more clearing organizations and a
member common to all such organizations, thus reducing systemic
risk in the event of the failure of such a member. Under the
current FDICIA provisions, the enforceability of such
arrangements depends on a case-by-case determination that
clearing organizations could be regarded as members of each
other for purposes of FDICIA.
Subsection (a)(4) amends the FDICIA definition of netting
contract and the general rules applicable to netting contracts.
The current FDICIA provisions require that the netting
agreement must be governed by the law of the United States or a
State to receive the protections of FDICIA. However, many of
these agreements, particularly netting arrangements covering
positions taken in foreign exchange dealings, are governed by
the laws of a foreign country. This subsection broadens the
definition of ``netting contract'' to include those agreements
governed by foreign law, and preserves the FDICIA requirement
that a netting contract is not invalid under or precluded by
Federal law.
Subsections (b) and (c) establish two exceptions to
FDICIA's protection of the enforceability of the provisions of
netting contracts between financial institutions and among
clearing organization members. First, the termination
provisions of netting contracts will not be enforceable based
solely on (i) the appointment of a conservator for an insolvent
depository institution under the FDIA or (ii) the appointment
of a receiver for such institution under the FDIA, if such
receiver transfers or repudiates QFCs in accordance with the
FDIA and gives notice of a transfer by 5:00 p.m. on the
business day following the appointment of a receiver. This
change is made to confirm the FDIC's flexibility to transfer or
repudiate the QFCs of an insolvent depository institution in
accordance with the terms of the FDIA. This modification also
provides important legal certainty regarding the treatment of
QFCs under the FDIA, because the current relationship between
the FDIA and FDICIA is unclear. The second exception provides
that FDICIA does not override a stay order under the Securities
Investor Protection Act (SIPA) with respect to foreclosure on
securities (but not cash) collateral of a debtor (section 911
makes a conforming change to SIPA). There is also an exception
relating to insolvent commodity brokers. Subsection (a)(5) adds
a new definition of ``payment'' to FDICIA.
Subsections (b) and (c) also clarify that a security
agreement or other credit enhancement related to a netting
contract is enforceable to the same extent as the underlying
netting contract.
Subsection (d) adds a new section 407 to FDICIA. This new
section provides that, notwithstanding any other law, QFCs with
uninsured national banks or uninsured Federal branches or
agencies that are placed in receivership or conservatorship
will be treated in the same manner as if the contract were with
an insured national bank or insured Federal branch for which a
receiver or conservator was appointed. This provision will
ensure that parties to QFCs with uninsured national banks or
uninsured Federal branches or agencies will have the same
rights and obligations as parties entering into the same
agreements with insured depository institutions. The new
section also specifically limits the powers of a receiver or
conservator for an uninsured national bank or uninsured Federal
branch or agency to those provisions that address QFCs in
section 1821(e)(8), (9), (10), and (11) of title 12 of the
United States Code.
While the amendment would apply the same rules to uninsured
national banks and Federal branches and agencies that apply to
insured institutions, the provision would not change the rules
that apply to insured institutions. Nothing in this section
would amend the International Banking Act, the Federal Deposit
Insurance Act, the National Bank Act, or other statutory
provisions with respect to receiverships of insured national
banks or Federal branches.
Section 907. Bankruptcy Code amendments
Subsection (a)(1) amends the Bankruptcy Code definitions of
``repurchase agreement'' and ``swap agreement'' to conform them
with the amendments to the FDIA contained in subsections (e)
and (f) of section 901. In connection with the definition of
``repurchase agreement,'' the term ``qualified foreign
government securities'' is defined to include securities that
are direct obligations of, or fully guaranteed by, central
governments of members of the Organization for Economic
Cooperation and Development (OECD). This language reflects
developments in the repurchase agreement markets, which
increasingly use foreign government securities as the
underlying asset. Any risk presented by this modification is
addressed by limiting it to those obligating or guaranteed by
OECD member States. Subsection (a)(1) specifies that repurchase
obligations under a participation in an commercial mortgage
loan do not make the participation agreement a ``repurchase
agreement.'' Such repurchase obligations embedded in
participations in commercial loans (such as recourse
obligations) do not constitute a ``repurchase agreement.''
However, a repurchase agreement involving the transfer of
participations in commercial mortgage loans with a simultaneous
agreement to repurchase the participation on demand or at a
date certain 1 year or less after such transfer would
constitute a ``repurchase agreement.'' The amendments to the
definition of ``repurchase agreement'' are not intended to
affect the interpretation of the definition of ``securities
contract.''
The definition of ``swap agreement,'' in conjunction with
the addition of ``spot foreign exchange transactions'' that was
added to the definition in 1994, will achieve contractual
netting across economically similar over-the-counter products
that can be terminated and closed out on a mark-to-market
basis. The definition of ``swap agreement'' originally was
intended to provide sufficient flexibility to avoid the need to
amend the definition as the nature and uses of swap
transactions matured. For that reason, the phrase ``or any
other similar agreement'' was included in the definition. To
clarify this, subsection (a)(1) expands the definition of
``swap agreement'' to include any agreement or transaction
similar to any other agreement or transaction referred to in
subsection (a)(1) that is presently, or in the future becomes,
regularly entered into in the swap market and is a forward,
swap, future, or option on one or more rates, currencies,
commodities, equity securities or other equity instruments,
debt securities or other debt instruments, or economic indices
or measures of economic risk or value. However, traditional
commercial and lending arrangements, or other non-financial
market transactions, such as commercial, residential or
consumer loans, cannot be treated as ``swaps'' under either the
FDIA or the Bankruptcy Code because the parties purport to
document or label the transactions as ``swap agreements.''
Subsection (a)(1) specifies that this definition of swap
agreement applies only for purposes of the Bankruptcy Code and
is inapplicable to the other statutes, rules and regulations
enumerated in that section. The definition also includes any
security agreement or arrangement, or other credit enhancement,
related to a swap agreement. This ensures that any such
agreement, arrangement or enhancement is itself deemed to be a
swap agreement, and therefore eligible for treatment as such
for purposes of termination, liquidation, acceleration, offset
and netting under the Bankruptcy Code and the FDIA. Similar
changes are made in the definitions of ``forward contract,''
``commodity contract'' and ``repurchase agreement.'' An example
of a security arrangement is a right of setoff; examples of
other credit enhancements are letters of credit, guarantees,
reimbursement obligations and other similar agreements.
Subsections (a)(2) and (a)(3) amend the Bankruptcy Code
definitions of ``securities contract'' and ``commodity
contract,'' respectively, to conform them to the definitions in
the FDIA, and also to include any security agreements or
arrangements or other credit enhancements related to one or
more such contracts. Subsection (a)(2), like the amendments to
the FDIA, amends the definition of ``securities contract'' to
encompass options on securities and margin loans. The inclusion
of ``margin loans'' in the definition is intended to encompass
only those loans commonly known in the securities industry as
``margin loans'' and does not include other loans utilizing
securities as collateral, however documented. Subsection (a)(2)
also specifies that purchase, sale and repurchase obligations
under a participation in a commercial mortgage loan do not
constitute ``securities contracts.'' While a contract for the
purchase or sale or a participation may constitute a
``securities contract,'' the purchase, sale or repurchase
obligation embedded in a participation agreement does not make
that agreement a ``securities contract.''
Subsection (b) amends the Bankruptcy Code definition of
``forward contract merchant'' and also adds a new definition of
``financial participant'' to limit the potential impact of
insolvencies upon other major market participants. These
definitions will allow such market participants to close-out
and net agreements with insolvent entities under sections
362(b)(6), 546, 548, 555, and 556 even if the creditor could
not qualify as, for example, a commodity broker. The new
subsection preserves the limitations of the right to close-out
and net such contracts, in most cases, to entities who qualify
under the Bankruptcy Code's counter party limitations. However,
where the counter party has transactions with a total gross
dollar value of at least $1 billion in notional principal
amount outstanding on any day during the previous 15-month
period, or has gross mark-to-market positions of at least $100
million (aggregated across counter parties) in one or more
agreements or transactions on any day during the previous 15-
month period, the new subsection and corresponding amendments
would permit it to exercise netting rights irrespective of its
inability otherwise to satisfy those counter party limitations.
This change will help prevent systemic impacts upon the markets
from a single failure.
Subsection (c) adds to the Bankruptcy Code new definitions
for the terms ``master netting agreement'' and ``master netting
agreement participant.'' The definition of ``master netting
agreement'' is designed to protect the termination and close-
out netting provisions of cross-product master agreements
between parties. Such an agreement may be used (i) to document
a wide variety of securities contracts, commodity contracts,
forward contracts, repurchase agreements and swap agreements or
(ii) as an umbrella agreement for separate master agreements
between the same parties, each of which is used to document a
discrete type of transaction. The definition includes security
agreements or arrangements or other credit enhancements related
to one or more such agreements and clarifies that a master
netting agreement will be treated as such even if it documents
transactions that are not within the enumerated categories of
qualifying transactions (but the provisions of the Bankruptcy
Code relating to master netting agreements and the other
categories of transactions will not apply to such other
transactions). A ``master netting agreement participant'' is
any entity that is a party to an outstanding master netting
agreement with a debtor before the filing of a bankruptcy
petition.
Subsection (d) amends section 362(b) of the Bankruptcy Code
to protect enforcement, free from the automatic stay, of setoff
or netting provisions in swap agreements and in master netting
agreements and security agreements or arrangements related to
one or more swap agreements or master netting agreements. This
provision parallels the other provisions of the Bankruptcy Code
that protect netting provisions of securities contracts,
commodity contracts, forward contracts, and repurchase
agreements. Because the relevant definitions include related
security agreements, the reference to ``setoff'' in this
provisions, as well as in section 362(b)(6) and (7) of the
Bankruptcy Code, are intended to refer also to rights to
foreclose on, and to set off against, obligations to return
collateral securing swap agreements, master netting
arrangements, repurchase agreements, securities contracts,
commodity contracts, or forward contracts. Collateral may be
pledged to cover the cost of replacing the defaulted
transactions in the relevant market, as well as other costs and
expenses incurred or estimated to be incurred for the purpose
of hedging or reducing the risks arising out of such
termination. Enforcement of these agreements and arrangements
is consistent with the policy goal of minimizing systemic risk.
Subsection (d) also clarifies that the provisions
protecting setoff and foreclosure in relation to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, and master netting agreements free
from the automatic stay apply to collateral pledged by the
debtor that is under the control of the creditor but that
cannot technically be ``held by'' the creditor, such as
receivables and book-entry securities, and to collateral that
has been repledged by the creditor.
Subsection (e) amends section 546 of the Bankruptcy Code to
provide that transfers made under or in connection with a
master netting agreement may not be avoided by a trustee except
where such transfer is made with actual intent to hinder, delay
or defraud. This section of the Act also clarifies the
limitations on a trustee's power to avoid transfers made under
swap agreements.
Subsection (f) amends section 548(d) of the Bankruptcy Code
to provide that transfers made under or in connection with a
master netting agreement may not be avoided by a trustee except
where such transfer is made with actual intent to hinder, delay
or defraud. This amendment provides the same protections for
transfers made under, or in connection with, master netting
agreements as currently is provided for margin payments and
settlement payments received by commodity brokers, forward
contract merchants, stockbrokers, financial institutions,
securities clearing agencies, repo participants, and swap
participants under sections 546 and 548(d).
Subsections (g), (h), (i), and (j) clarify that the
provisions of the Bankruptcy Code that protect (i) rights of
liquidation under securities contracts, commodity contracts,
forward contracts and repurchase agreements also protect rights
of termination or acceleration under such contracts, and (ii)
rights to terminate under swap agreements also protect rights
of liquidation and acceleration.
Subsection (k) adds a new section 561 to the Bankruptcy
Code to protect the contractual right of a master netting
agreement participant to enforce any rights of termination,
liquidation, acceleration, offset or netting under a master
netting agreement. Such rights include rights arising (i) from
the rules of a securities exchange or clearing organization,
(ii) under common law, law merchant or (iii) by reason of
normal business practice. This is consistent with the current
treatment of rights under swap agreements pursuant to section
560 of the Bankruptcy Code. With respect to sections 555, 556,
559, 560 and 561 of the Bankruptcy Code, it is intended that
the normal business practice in the event of a default of a
party based on bankruptcy or insolvency is to terminate,
liquidate or accelerate securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements and master netting agreements with the bankrupt or
insolvent party. The protection of netting and offset rights in
sections 560 and 561 is in addition to the protections afforded
in subsections 362(b)(6), (b)(7), (b)(17) and (b)(32). For
example, cross-product netting will be protected from the
automatic stay under section 561 even in the absence of a
master netting agreement. Sections 561(b)(2) and (3) limit the
exercise of contractual rights to net or to offset obligations
where one leg of the obligations sought to be netted relates to
commodity contracts. Under subsection (b)(2), netting or offset
is not permitted if the obligations are not mutual. This means,
for example, that proprietary obligations cannot be netted or
offset against obligations held for, or on behalf of, some
other party. Even if the obligations are mutual, under
subsection (b)(3) netting or offset is not permitted in a
commodity broker bankruptcy if the party seeking to net or to
offset has no positive net equity in the commodity account at
the debtor. Subsections (b)(2) and (b)(3) limit the depletion
of assets available for distribution to customers of commodity
brokers. This is consistent with the principle of subchapter IV
of chapter 7 of the Bankruptcy Code, which gives priority to
customer claims in the bankruptcy of a commodity broker.
Under this provision, the termination, liquidation or
acceleration rights of a master netting agreement participant
are subject to limitations contained in other provisions of the
Bankruptcy Code relating to securities contracts and repurchase
agreements. In particular, if a securities contract or
repurchase agreement is documented under a master netting
agreement, a party's termination, liquidation and acceleration
rights would be subject to the provisions of the Bankruptcy
Code relating to orders authorized under the provisions of SIPA
or any statute administered by the Section In addition, the
netting rights of a party to a master netting agreement would
be subject to any contractual terms between the parties
limiting or waiving netting or set off rights. Similarly, a
waiver by a bank or a counter party of netting or set off
rights in connection with QFCs would be enforceable under the
FDIA.
Subsection (l) clarifies that, with respect to municipal
bankruptcies, all the provisions of the Bankruptcy Code
relating to securities contracts, commodity contracts, forward
contracts, repurchase agreements, swap agreements and master
netting agreements (which by their terms are intended to apply
in all cases and proceedings under the Bankruptcy Code) will
apply in a chapter 9 case. Although sections 555, 556, 559, and
560 provide that they apply in any case or proceeding under the
Bankruptcy Code, this subsection makes a technical amendment in
chapter 9 to clarify the applicability of these provisions.
Subsection (m) clarifies that the provisions of the
Bankruptcy Code related to securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements and master netting agreements apply in a section 304
proceeding ancillary to a foreign insolvency proceeding.
Subsections (n) and (o) amend those provisions in the
Bankruptcy Code concerning the liquidation of commodity brokers
and stockbrokers. Subchapter III of chapter 7 of the Bankruptcy
Code details specific rules for the liquidation of
stockbrokers. Subchapter IV of chapter 7 of the Bankruptcy Code
and regulations of the CFTC detail specific rules for the
liquidation of commodity brokers. These authorities are
designed to protect customers and customer property of an
insolvent stockbroker or commodity broker.
Subsections (n) and (o) clarify the rights of parties to
commodity contracts, securities contracts, forward contracts,
swap agreements, repurchase agreements and master netting
agreements with an insolvent commodity broker or stockbroker.
They ensure that non-customers will not defeat the priority
scheme of subchapter III or IV priority by gaining access to
assets held in segregated customer accounts. The subsections
also clarify that the exercise of termination and netting
rights will not otherwise affect customer property or
distributions by the trustee of the insolvent commodity broker
or stockbroker after the exercise of such rights.
Subsection (p) amends section 553 of the Bankruptcy Code to
clarify that the acquisition by a creditor of setoff rights in
connection with swap agreements, repurchase agreements,
securities contracts, forward contracts, commodity contracts
and master netting agreements cannot be avoided as a
preference. This subsection also adds setoff of the kinds
described in sections 555, 556, 559, 560, and 561 of the
Bankruptcy Code to the types of set off excepted from section
553(b).
Section 908. Recordkeeping requirements
Section 908 amends section 11(e)(8) of the FDIA to
explicitly authorize the FDIC, in consultation with appropriate
Federal banking agencies, to prescribe regulations on
recordkeeping with respect to QFCs. Adequate recordkeeping for
such transactions is essential to effective risk management and
to the reduction of systemic risk permitted by the orderly
resolution of depository institutions utilizing QFCs.
Section 909. Exemptions from contemporaneous execution requirement
Section 909 amends section 13(e)(2) of the FDIA to provide
that an agreement for the collateralization of governmental
deposits, bankruptcy estate funds, Federal Reserve Bank or
Federal Home Loan Bank extensions of credit or one or more QFCs
shall not be deemed invalid solely because such agreement was
not entered into contemporaneously with the acquisition of the
collateral or because of pledges, delivery or substitution of
the collateral made in accordance with such agreement. The
amendment codifies portions of policy statements issued by the
FDIC regarding the application of section 13(e), which codifies
the ``Oench Duhme'' doctrine. With respect to QFCs, this
codification recognizes that QFCs often are subject to
collateral and other security arrangements that may require
posting and return of collateral on an ongoing basis based on
the mark-to-market values of the collateralized transactions.
The codification of only portions of the existing FDIC policy
statements on these and related issues should not give rise to
any negative implication regarding the continued validity of
these policy statements.
Section 910. Damage measure
Section 910 adds a new section 562 to the Bankruptcy Code
providing that damages under any swap agreement, securities
contract, forward contract, commodity contract, repurchase
agreement or master netting agreement be calculated as of the
earlier of (i) the date of rejection of such agreement by a
trustee or (ii) the date of liquidation, termination or
acceleration of such contract or agreement. New section 562
provides important legal certainty and makes the Bankruptcy
Code consistent with the current provisions related to the
timing of the calculation of damages under QFCs in the FDIA.
Section 911. SIPC stay
Section 911 amends SIPA to provide that an order or decree
issued pursuant to SIPA shall not operate as a stay of any
right of liquidation, termination, acceleration, offset or
netting under one or more securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements or master netting agreements (as defined in the
Bankruptcy Code and including rights of foreclosure on
collateral), except that such order or decree may stay any
right to foreclose on securities (but not cash) collateral
pledged by the debtor or sold by the debtor under a repurchase
agreement (a corresponding amendment to FDICIA is made by the
Act). A creditor that was stayed in exercising rights against
securities collateral would be entitled to post-insolvency
interest to the extent of the collateral.
Section 912. Asset-backed securitizations
Section 912 amends section 541 of the Bankruptcy Code to
provide that certain assets transferred to an eligible entity
in connection with an asset-backed securitization generally
will not be included within the bankruptcy estate of the
debtor. This provision recognizes that a valid transfer of such
assets to an ``eligible entity,'' generally eliminates the
debtor's legal or equitable interests in those assets.
Accordingly, subject to the avoidance powers in section 548(a),
the transfer will be treated as a sale of those assets not
subject to avoidance.
Section 913. Effective date; application of amendments
Section 913(a) provides that title IX become effective on
the Act's date of enactment. Section 913(b) provides that the
amendments made by the Act shall not apply with respect to
cases commenced, or to conservator and receiver appointments
made before the date of enactment.
TITLE X--PROTECTION OF FAMILY FARMERS
Section 1001. Permanent reenactment of chapter 12
Section 1001(a) reenacts chapter 12 of the Bankruptcy Code
and provides that such reenactment takes effect on July 1,
2000. Section 1001(b) makes a conforming amendment to section
302 of the Bankruptcy, Judges, United States Trustees, and
Family Farmer Bankruptcy Act of 1986.
Section 1002. Debt limit increase
Section 1002 amends section 104(b) of the Bankruptcy Code
to provide for annual or biannual adjustments of the debt limit
for family farmers beginning on April 1, 2004.
Section 1003. Certain claims owed to governmental units
Section 1003(a) amends section 1222(a) of the Bankruptcy
Code to require a chapter 12 plan provide for payment in full
of all claims entitled to priority under section 507, unless
the claim is owed to a governmental unit arising from the sale
or exchange of any farm asset. If the claim falls within this
exception, it is treated as an unsecured claim and the
underlying debt is treated the same if the debtor receives a
discharge or the holder of a claim agrees to a different
treatment of that claim. Section 1003(b) amends section 1231(b)
of the Bankruptcy Code to have it apply to any governmental
unit.
TITLE XI--HEATH CARE AND EMPLOYEE BENEFITS
Section 1101. Definitions
Section 1101(a) amends section 101 of the Bankruptcy Code
to add a definition of the term ``health care business.'' A
health care business is defined as any public or private entity
(without regard as to whether the entity is organized for
profit or not for profit) that is primarily engaged in offering
to the general public facilities and services for certain
specified purposes. Section 1101(b) amends section 101 of the
Bankruptcy Code to define ``patient'' and ``patient records.''
Section 1101(c) clarifies that the amendments implemented by
section 1101(a) are not intended to affect the interpretation
of section 109(b) of the Bankruptcy Code concerning an entity's
eligibility to be a chapter 7 debtor.
Section 1102. Disposal of patient records
Section 1102 adds a provision to chapter 3 of the
Bankruptcy Code specifying requirements for the disposal of
patient records in a chapter 7, 9, or 11 case of a health care
business where the trustee lacks sufficient funds to pay for
the storage of such records in accordance with applicable
Federal or State law. The requirements chiefly consist of
providing notice to the affected patients and specifying the
method of disposal for unclaimed records. These requirements
are intended to protect the privacy and confidentiality of a
patient's medical records when they are in the custody of a
health care business in bankruptcy.
Section 1103. Administrative expense claim for costs of closing a
health care business and other administrative expenses
Section 1103 amends section 503(b) of the Bankruptcy Code
to provide that the actual, necessary costs and expenses of
closing a health care business (including the disposal of
patient records or transferral of patients) incurred by a
trustee, Federal agency, or a department or agency of a State
are allowed administrative expenses.
With respect to a nonresidential real property lease
previously assumed under section 365 and then subsequently
rejected, section 1103 amends section 503(b) to provide that
the sum of all monetary obligations due (excluding those
arising from or related to a failure to operate or penalty
provisions) for the 2-year period following the later of the
rejection date or date of actual turnover of the premises
(without reduction or setoff for any reason, except for sums
actually received or to be received from a nondebtor) are
allowed administrative expenses under section 503(b) of the
Bankruptcy Code. The claim for remaining sums due for the
balance of the lease's term shall be treated as a claim under
section 502(b)(6).
Section 1104. Appointment of ombudsman to act as patient advocate
Section 1104(a) adds a provision to chapter 3 of the
Bankruptcy Code requiring the court to order the appointment of
an ombudsman within 30 days after the commencement of a chapter
7, 9 or 11 case by a health care provider, unless the court
finds that such appointment is not necessary for the protection
of patients under the specific facts of the case. Section
1104(a) requires the ombudsman to be a disinterested person.
Pursuant to this provision, the ombudsman is responsible for
monitoring the quality of patient care and to represent the
interests of the patients. Within 60 days after his or her
appointment, the ombudsman must report to the court at a
hearing or in writing on the quality of patient care at the
health care business. Subsequent reports are due not less
frequently than every 60 days thereafter. If the ombudsman
determines that the quality of patient care is declining
significantly or is otherwise being materially compromised, the
ombudsman must immediately notify the court by motion or
written report (on notice to appropriate parties in interest).
Section 1104(a) specifies that the ombudsman must maintain any
information he or she obtains relating to patients as
confidential. The ombudsman may not review confidential patient
records unless the court provides prior approval, with
restrictions to protect the confidentiality of such records.
Section 1104(b) amends section 330(a)(1) of the Bankruptcy
Code to authorize the payment of reasonable compensation to an
ombudsman.
Section 1105. Debtor in possession; duty of trustee to transfer
patients
Section 1105 amends section 704 of the Bankruptcy Code to
require a chapter 7 trustee, chapter 11 trustee, or a chapter
11 debtor in possession to use all reasonable and best efforts
to transfer patients from a health care business that is being
closed to an appropriate health care business. The transferee
health care business should be in the vicinity of the
transferor health care business, provide the patient with
services that are substantially similar to those provided by
the transferor health care business, and maintain a reasonable
quality of care.
Section 1106. Exclusion from program participation not subject to
automatic stay
Section 1106 amends section 362(b) of the Bankruptcy Code
to except from the automatic stay the exclusion by the
Secretary of Health and Human Services of a debtor from
participation in the Medicare program or other specified
Federal health care programs.
TITLE XII--TECHNICAL AMENDMENTS
Section 1201. Definitions
Section 1201 amends the definitions contained in section
101 of the Bankruptcy Code. Paragraphs (1), (2), (4), and (7)
of section 1201 make technical changes to section 101 to
convert each definition into a sentence (thereby facilitating
future amendments to the separate paragraphs) and to
redesignate the definitions in correct and completely numerical
sequence. Paragraph (3) of section 1101 makes necessary and
conforming amendments to cross references to the newly
redesignated definitions.
Paragraph (5) of section 1201 concerns single asset real
estate debtors. A single asset real estate chapter 11 case
presents special concerns. As the name implies, the principal
asset in this type of case consists of some form of real
estate, such as undeveloped land. Typically, the form of
ownership of a single asset real estate debtor is a corporation
or limited partnership. The largest creditor in a single asset
real estate case is typically the secured lender who advanced
the funds to the debtor to acquire the real property. Often, a
single asset real estate debtor resorts to filing for
bankruptcy relief for the sole purpose of staying an impending
foreclosure proceeding or sale commenced by the secured lender.
Foreclosure actions are filed when the debtor lacks sufficient
cash flow to service the debt and maintain the property. Taxing
authorities may also have liens against the property. Based on
the nature of its principal asset, a single asset real estate
debtor often has few, if any, unsecured creditors. If unsecured
creditors exist, they may have only nominal claims against the
single asset real estate debtor. Depending on the nature and
ownership of any business operating on the debtor's real
property, the debtor may have few, if any, employees.
Accordingly, there may be little interest on behalf of
unsecured creditors in a single asset real estate case to serve
on a creditors' committee.
In 1994, the Bankruptcy Code was amended to accord special
treatment for a single asset real estate debtor. It defined
this type of debtor as a bankruptcy estate comprised of a
single piece of real property or project, other than
residential real property with fewer than four residential
units. The property or project must generate substantially all
of the debtor's gross income. A debtor that conducts
substantial business on the property beyond that relating to
its operation is excluded from this definition. In addition,
the definition fixed a monetary cap. To qualify as a single
asset real estate debtor, the debtor could not have
noncontingent, liquidated secured debts in excess of $4
million.\71\ Subparagraph (5)(A) amends the definition of
``single asset real estate'' to exclude family farmers from
this definition. Paragraph (5)(B) amends section 101(51B) of
the Bankruptcy Code to eliminate the $4 million debt limitation
on single asset real estate. The present $4 million cap
prevents the use of the expedited relief procedure in many
commercial property reorganizations, and effectively provides
an opportunity for a number of debtors to abusively file for
bankruptcy in order to obtain the protection of the automatic
stay against their creditors. As a result of this amendment,
creditors in more cases will be able to obtain the expedited
relief from the automatic stay which is made available under
section 362(d)(3) of the Bankruptcy Code.
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\71\ See 11 U.S.C. Sec. 101(51B).
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Paragraph (6) of section 1201, together with section 1214,
respond to a 1997 Ninth Circuit case,\72\ in which two purchase
money lenders (without knowledge that the debtor had recently
filed an undisclosed chapter 11 case that was subsequently
converted to chapter 7), funded the debtor's acquisition of an
apartment complex and recorded their purchase-money deed of
trust immediately following recordation of the deed to the
debtors. Specifically, it amends the definition of ``transfer''
in section 101(54) of the Bankruptcy Code to include the
``creation of a lien.'' This amendment gives expression to a
widely held understanding since the enactment of the Bankruptcy
Reform Act of 1978,\73\ that is, a transfer includes the
creation of a lien.
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\72\ Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir.),
cert. denied 522 U.S. 966 (1997). The bankruptcy trustee sought to
avoid the lien created by the lenders' deed of trust by asserting that
the deed was an unauthorized, postpetition transfer under section
549(a) of the Bankruptcy Code. The lenders claimed that the voluntary
transfer to them was a transfer of real property to good faith
purchasers for value, which was thereby excepted it, under section
549(c) of the Bankruptcy Code, from avoidance. The bankruptcy court
held that the postpetition recordation of the lenders' deed of trust
was without authorization under the Bankruptcy Code or by the court and
was therefore avoidable under section 549(a), and that the lenders did
not qualify under the section 549(c) exception as good faith purchasers
of real property for value. The District Court subsequently affirmed
the bankruptcy court's ruling granting the trustee the authority to
avoid the lenders' lien. In re McConville, D.C. No. CV 94 03308 FMS
(N.D. Cal.1994). On appeal, the lower court's decision in McConville
was initially affirmed. The Ninth Circuit, however, subsequently issued
an amended opinion, also affirming the lower court, and finally issued
an opinion withdrawing its prior opinion and deciding the case on other
grounds. It held that by obtaining secured credit from the lenders,
after filing but before the appointment of a trustee, the debtors
violated their fiduciary responsibility to their creditors.
\73\ Pub. L. No. 95-598, 92 Stat. 2549 (1978).
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Section 1202. Adjustment of dollar amounts
Section 1202 corrects an omission in section 104(b) of the
Bankruptcy Code to include a reference to section 522(f)(3).
Section 1203. Extension of time
Section 1203 makes a technical amendment to correct a
reference error described in amendment notes contained in the
United States Code. As specified in the amendment note relating
to subsection (c)(2) of section 108 of the Bankruptcy Code, the
amendment made by section 257(b)(2)(B) of Public Law 99-554
could not be executed as stated.
Section 1204. Technical amendments
Section 1204 makes technical amendments to sections
109(b)(2) (to strike an statutory cross reference), 541(b)(2)
(to add ``or'' to the end of this provision), and 522(b)(1) (to
replace ``product'' with ``products'').
Section 1205. Penalty for persons who negligently or fraudulently
prepare bankruptcy petitions
Section 1205 amends section 110(j)(4) of the Bankruptcy
Code to change the reference to attorneys from the singular
possessive to the plural possessive.
Section 1206. Limitation on compensation of professional persons
Section 328(a) of the Bankruptcy Code provides that a
trustee or a creditors' and equity security holders' committee
may, with court approval, obtain the services of a professional
person on any reasonable terms and conditions of employment,
including on a retainer, on an hourly basis, or on a contingent
fee basis. Section 1206 amends section 328(a) to include
compensation ``on a fixed or percentage fee basis'' in addition
to the other specified forms of reimbursement.
Section 1207. Effect of conversion
Section 1207 makes a technical correction in section
348(f)(2) of the Bankruptcy Code to clarify that the first
reference to property, like the subsequent reference to
property, is a reference to property of the estate.
Section 1208. Allowance of administrative expenses
Section 1208 amends section 503(b)(4) of the Bankruptcy
Code to limit the types of compensable professional services
rendered by an attorney or accountant that can qualify as
administrative expenses in a bankruptcy case. Expenses for
attorneys or accountants incurred by individual members of
creditors' or equity security holders' committees are not
recoverable, but expenses incurred for such professional
services incurred by such committees themselves would be.
Section 1209. Exceptions to discharge
Section 1209 of the bill amends section 523(a) of the
Bankruptcy Code to correct a technical error in the placement
of paragraph (15), which was added to section 523 by section
304(e)(1) of the Bankruptcy Reform Act of 1994. This provision
also amends section 523(a)(9), which makes nondischargeable any
debt resulting from death or personal injury arising from the
debtor's unlawful operation of a motor vehicle while
intoxicated, to add ``watercraft, or aircraft'' after ``motor
vehicle.'' Neither additional term should be defined or
included as a ``motor vehicle'' in section 523(a)(9) and each
is intended to comprise unpowered as well as motor-powered
craft. Congress previously made the policy judgment that the
equities of persons injured by drunk drivers outweigh the
responsible debtor's interest in a fresh start, and here
clarifies that the policy applies not only on land but also on
the water and in the air. Viewed from a practical standpoint,
this provision closes a loophole that gives intoxicated
watercraft and aircraft operators preferred treatment over
intoxicated motor vehicle drivers and denies victims of alcohol
and drug related boat and plane accidents the same rights
accorded to automobile accident victims under current law.
Finally, this section amends corrects a grammatical error in
section 523(e).
Section 1210. Effect of discharge
Section 1210 makes technical amendments to correct errors
in section 524(a)(3) of the Bankruptcy Code caused by section
257(o)(2) of Public Law 99-554 and section 501(d)(14)(A) of
Public Law 103-394.\74\
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\74\ For a description of these errors, see the appropriate
footnote and amendment notes in the United States Code.
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Section 1211. Protection against discriminatory treatment
Section 1211 conforms a reference to its antecedent
reference in section 525(c) of the Bankruptcy Code. The
omission of ``student'' before ``grant'' in the second place it
appears in section 525(c) made possible the interpretation that
a broader limitation on lender discretion was intended, so that
no loan could be denied because of a prior bankruptcy if the
lending institution was in the business of making student
loans. Section 1211 is intended to make clear that lenders
involved in making government guaranteed or insured student
loans are not barred by this Bankruptcy Code provision from
denying other types of loans based on an applicant's bankruptcy
history; only student loans and grants, therefore, cannot be
denied under section 525(c) because of a prior bankruptcy.
Section 1212. Property of the estate
Production payments are royalties tied to the production of
a certain volume or value of oil or gas, determined without
regard to production costs. They typically would be paid by an
oil or gas operator to the owner of the underlying property on
which the oil or gas is found. Under section 541(b)(4)(B)(ii)
of the Bankruptcy Code, added by the Bankruptcy Reform Act of
1994, production payments are generally excluded from the
debtor's estate, provided they could be included only by virtue
of section 542 of the Bankruptcy Code, which relates generally
to the obligation of those holding property which belongs in
the estate to turn it over to the trustee. Section 1212 adds to
this proviso a reference to section 365 of the Bankruptcy Code,
which authorizes the trustee to assume or reject an executory
contract or unexpired lease. It thereby clarifies the original
Congressional intent to generally exclude production payments
from the debtor's estate.
Section 1213. Preferences
Section 547 of the Bankruptcy Code authorizes a trustee to
avoid a preferential payment made to a creditor by a debtor
within 90 days of filing, whether the creditor is an insider or
an outsider. Because of the concern that a corporate insider
(such as an officer or directors who is a creditor of his or
her own corporation has an unfair advantage over outside
creditors, section 547 also authorizes a trustee to avoid a
preferential payment made to an insider creditor between 90
days and 1 year before filing. Several recent cases, including
DePrizio,\75\ allowed the trustee to ``reach-back'' and avoid a
transfer to a noninsider creditor which fell within the 90-day
to 1-year time frame if an insider benefitted from the transfer
in some way. This had the effect of discouraging lenders from
obtaining loan guarantees, lest transfers to the lender be
vulnerable to recapture by reason of the debtor's insider
relationship with the loan guarantor. Section 202 of the
Bankruptcy Reform Act of 1994 addressed the DePrizio problem by
inserting a new section 550(c) into the Bankruptcy Code to
prevent avoidance or recovery from a noninsider creditor during
the 90-day to 1-year period even though the transfer to the
noninsider benefitted an insider creditor. The 1994 amendments,
however, failed to make a corresponding amendment to section
547, which deals with the avoidance of preferential transfers.
As a result, a trustee could still utilize section 547 to avoid
a preferential lien given to a noninsider bank, more than 90
days but less than 1 year before bankruptcy, if the transfer
benefitted an insider guarantor of the debtor's debt.
Accordingly, section 1213 makes a perfecting amendment to
section 547 to provide that if the trustee avoids a transfer
given by the debtor to a noninsider for the benefit of an
insider creditor between 90 days and 1 year before filing, that
avoidance is valid only with respect to the insider creditor.
Thus both the previous amendment to section 550 and the
perfecting amendment to section 547 protect the noninsider from
the avoiding powers of the trustee exercised with respect to
transfers made during the 90-day to 1 year pre-filing period.
---------------------------------------------------------------------------
\75\ Levit v. Ingersoll Rand Fin. Corp., 874 F.2d 1186 (7th Cir.
1989); see, e.g., Ray v. City Bank and Trust Co. (In re C-L Cartage
Co.), 899 F.2d 1490 (6th Cir. 1990); Manufacturers Hanover Leasing
Corp. v. Lowrey (In re Robinson Bros. Drilling, Inc.), 892 F.2d 850
(10th Cir. 1989).
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Section 1214. Postpetition transactions
Section 1214 amends section 549(c) of the Bankruptcy Code
to clarify its application to an interest in real property.
This amendment should be construed in conjunction with section
1201 of the Act.
Section 1215. Disposition of property of the estate
Section 1215 of the bill amends section 726(b) of the
Bankruptcy Code to strike an erroneous reference to a
nonexistent section.\76\
---------------------------------------------------------------------------
\76\ For a description of the error, see the appropriate footnote
and amendment notes in the United States Code.
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Section 1216. General provisions
Section 1216 amends section 901(a) of the Bankruptcy Code
to correct an omission in a list of sections applicable to
cases under chapter 9 of title 11 of the United States Code.
Section 1217. Abandonment of railroad line
Section 1217 amends section 1170(e)(1) of the Bankruptcy
Code to reflect the fact that section 11347 of title 49 of the
United States Code was repealed by section 102(a) of Public Law
104-88 and that provisions comparable to section 11347 appear
in section 11326(a) of title 49 of the United States Code.
Section 1218. Contents of plan
Section 1218 amends section 1172(c)(1) of the Bankruptcy
Code to reflect the fact that section 11347 of title 49 of the
United States Code was repealed by section 102(a) of Public Law
104-88 and that provisions comparable to section 11347 appear
in section 11326(a) of title 49 of the United States Code.
Section 1219. Discharge under chapter 12
Section 1219 amends section 1228 of the Bankruptcy Code,
dealing with discharge under chapter 12, to correct erroneous
references.
Section 1220. Bankruptcy cases and proceedings
Section 1220 amends section 1334(d) of title 28 of the
United States Code to correct erroneous references.\77\
---------------------------------------------------------------------------
\77\ For a description of the errors, see the appropriate footnote
and amendment notes in the United States Code.
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Section 1221. Knowing disregard of bankruptcy law or rule
This section amends section 156(a) of title 18 of the
United States Code to make stylistic changes and correct a
reference to the Bankruptcy Code.
Section 1222. Transfers made by nonprofit charitable corporations
Section 1222 amends section 363(d) of the Bankruptcy Code
to restrict the authority of a trustee to use, sell, or lease
property by a nonprofit corporation or trust. First, the use,
sell or lease must be in accordance with applicable
nonbankruptcy law and to the extent it is not inconsistent with
any relief granted under certain specified provisions of
section 362 of the Bankruptcy Code concerning the applicability
of the automatic stay. Second, section 1222 imposes similar
restrictions with regard to plan confirmation requirements for
chapter 11 cases. Third, it amends section 541 of the
Bankruptcy Code to provide that any property of a bankruptcy
estate in which the debtor is a nonprofit corporation (as
described in certain provisions of the Internal Revenue Code)
may not be transferred to an entity that is not a corporation,
but only under the same conditions that would apply if the
debtor was not in bankruptcy. The amendments made by this
section apply to cases pending on the date of enactment or to
cases filed after such date. Section 1222 provides that a court
may not confirm a plan without considering whether this
provision would substantially affect the rights of a party in
interest who first acquired rights with respect to the debtor
postpetition. Nothing in this provision may be construed to
require the court to remand or refer any proceeding, issue, or
controversy to any other court or to require the approval of
any other court for the transfer of property.
Section 1223. Protection of valid purchase money security interests
Section 1223 extends the applicable perfection period for a
security interest in property of the debtor in section
547(c)(3)(B) of the Bankruptcy Code from 20 to 30 days.
Section 1224. Bankruptcy judgeships
The substantial increase in bankruptcy case filings clearly
creates a need for additional bankruptcy judgeships. In the
105th Congress, the House responded to this need by passing
H.R. 1596, which would have created additional permanent and
temporary bankruptcy judgeships and extended an existing
temporary position. Section 1224 generally incorporates H.R.
1596 as it passed the House with provisions extending five
existing temporary judgeships.
Section 1225. Compensating trustees
Section 1225 amends section 1326 of the Bankruptcy Code to
provide that if a chapter 7 trustee has been allowed
compensation as a result of the conversion or dismissal of the
debtor's prior case pursuant to section 707(b) and some portion
of that compensation remains unpaid, the amount of any such
unpaid compensation must be repaid in the debtor's subsequent
chapter 13 case. This payment must be prorated over the term of
the plan and paid on a monthly basis. The amount of the monthly
payment may not to exceed the greater of $25 or the amount
payable to unsecured nonpriority creditors as provided by the
plan, multiplied by 5 percent and the result divided by the
number of months of the plan.
Section 1226. Amendment to section 362 of title 11, United States Code
Section 1226 amends section 362(b) of the Bankruptcy Code
to except from the automatic stay the creation or perfection of
a statutory lien for an ad valorem property tax or for a
special tax or special assessment on real property (whether or
not ad valorem) that is imposed by a governmental unit, if such
tax or assessment becomes due after the filing of the petition.
Section 1227. Judicial education
Section 1227 requires the Director of the Federal Judicial
Center, in consultation with the Director of the Executive
Office for United States Trustees, to develop materials and
conduct training as may be useful to the courts in implementing
this Act, including the needs-based reforms under section
707(b) (as amended by this Act) and amendments pertaining to
reaffirmation agreements.
Section 1228. Reclamation
Section 1228(a) amends section 546 of the Bankruptcy Code
to provide that the rights of a trustee under sections 544(a),
545, 547, and 549 are subject to the right of a seller of goods
to reclaim goods sold in the ordinary course of business to the
debtor if (1) the debtor received these goods while insolvent,
and (2) written demand for reclamation of the goods is made not
later than 45 days after their receipt by the debtor or within
20 days after the commencement of the bankruptcy case. This
provision specifies, however, that it is subject to sections
546(d) and 507(c) as well as the prior rights of holders of
security interests in such goods or the proceeds thereof. If
the seller fails to provide the notice described in this
provision, such seller may still assert the rights specified in
section 503(b)(7).
Section 1228(b) amends section 503(b) to provide that the
value of any goods received by a debtor not later than 20 days
after the commencement of a bankruptcy case in which the goods
have been sold to the debtor in the ordinary course of the
debtor's business is an allowed administrative expense.
Section 1229. Providing requested tax documents to the court
Section 1229(a) provides that the court may not grant a
discharge to an individual in a case under chapter 7 unless
requested tax documents have been provided to the court.
Section 1229(b) similarly provides that the court may not
confirm a chapter 11 or 13 plan unless requested tax documents
have been filed with the court. Section 1229(c) directs the
court to destroy documents submitted in support of a bankruptcy
claim not sooner than 3 years after the date of the conclusion
of a bankruptcy case filed by an individual debtor under
chapter 7, 11 or 13. In the event of a pending audit or
enforcement action, the court may extend the time for
destruction of such requested tax documents.
Section 1230. Encouraging creditworthiness
Section 1230(a) expresses the sense of the Congress that
lenders may sometimes offer credit to consumers
indiscriminately and that resulting consumer debt may be a
major contributing factor leading to consumer insolvency.
Section 1230(b) directs the Board of Governors of the
Federal Reserve System (Board) to study certain consumer credit
industry solicitation and credit granting practices as well as
the effect of such practices on consumer debt and insolvency.
The specified practices involve the solicitation and extension
of credit on an indiscriminate basis that encourages consumers
to accumulate additional debt and where the lender fails to
ensure that the consumer borrower is capable of repaying the
debt.
Section 1230(c) requires the study described in subsection
(b) to be prepared within 12 months from the date of the Act's
enactment. This provision authorizes the Board to issue
regulations requiring additional disclosures to consumers and
permits it to undertake any other actions consistent with its
statutory authority, which are necessary to ensure responsible
industry practices and to prevent resulting consumer debt and
insolvency.
Section 1231. Property no longer subject to redemption
Section 1231 amends section 541(b) of the Bankruptcy Code
to provide that, under certain circumstances, an interest of
the debtor in tangible personal property (other than
securities, or written or printed evidences of indebtedness or
title) that the debtor pledged or sold as collateral for a loan
or advance of money given by a person licensed under law to
make such loan or advance is not property of the estate.
Subject to subchapter III of chapter 5 of the Bankruptcy Code,
the provision applies where (a) the property is in the
possession of the pledgee or transferee; (b) the debtor has no
obligation to repay the money, redeem the collateral, or buy
back the property at a stipulated price; and (c) neither the
debtor nor the trustee have exercised any right to redeem
provided under the contract or State law in a timely manner as
provided under State law and section 108(b) of the Bankruptcy
Code.
Section 1232. Trustees
Section 1232 establishes a series of procedural protections
for chapter 7 and chapter 13 trustees concerning final agency
decisions relating to trustee appointments and future case
assignments. Section 1232(a) amends section 586(d) of title 28
of the United States Code to allow a chapter 7 or chapter 13
trustee to obtain judicial review of such decisions by
commencing an action in the United States district court after
the trustee exhausts all available administrative remedies.
Unless the trustee elects an administrative hearing on the
record, the trustee is deemed to have exhausted all
administrative remedies under this provision if the agency
fails to make a final agency decision within 90 days after the
trustee requests an administrative remedy. Section 1232(a)
requires the Attorney General to promulgate procedures to
implement this provision. It further provides that the agency's
decision must be affirmed by the district court unless it is
unreasonable and without cause based on the administrative
record before the agency.
Section 1232(b) amends section 586(e) of title 28 of the
United States Code to permit a chapter 13 trustee to obtain
judicial review of certain final agency actions relating to
claims for actual, necessary expenses under section 586(e). The
trustee may commence an action in the United States district
court where the trustee resides. The agency's decision must be
affirmed by the district court unless it is unreasonable and
without cause based on the administrative record before the
agency. It directs the Attorney General to prescribe procedures
to implement this provision.
Section 1233. Bankruptcy forms
Section 1233 amends section 2075 of title 28 of the United
States Code to require the bankruptcy rules promulgated under
this provision to prescribe a form for the statement specified
under section 707(b)(2)(C) of the Bankruptcy Code and to
provide general rules on the content of such statement.
Section 1234. Expedited appeals of bankruptcy cases to courts of
appeals
Currently, appeals from decisions rendered by the
bankruptcy court are either heard by the district court or a
bankruptcy appellate panel. In addition to the time and cost
factors attendant to the present appellate system, decisions
rendered by a district court as an appellate court are not
binding and lack stare decisis value.
To address these problems, section 1234(a) amends section
158(d) of title 28 of the United States Code to deem a
judgment, decision, order, or decree of a bankruptcy judge to
be a judgment, decision, order, or decree of the district court
entered 31 days after an appeal of such judgment, decision,
order or decree is filed with the district court, unless
certain factors apply. These factors are (a) the district court
issues a decision on the appeal within 30 days after such
appeal is filed or enters an order extending the 30-day period
for cause upon motion of a party or by the court sua sponte; or
(b) all parties to the appeal file written consent that the
district court may retain such appeal until it enters a
decision. For purposes of this provision, section 1234(a)
provides that an appeal is considered filed with the district
court on the date on which the notice of appeal is filed,
except in a case where a party has made an election that the
appeal be heard by the district court. If the appellant so
elects, then the appeal is considered filed with the district
court on the date such election is made.
Section 1234(a) provides that the courts of appeals shall
have jurisdiction of appeals from (1) all final judgments,
decisions, orders, and decrees of district courts entered under
section 158(a); (2) all final judgments, decisions, orders, and
decrees of bankruptcy appellate panels entered under section
158(b); (3) all judgments, decisions, orders, and decrees of
district courts entered under section 158(d) (as amended by
this Act) to the extent they are reviewable by a district court
pursuant to section 158(a). Section 1234(a) further provides
that the court of appeals may use its discretion, in accordance
with rules prescribed by the Supreme Court, to exercise
jurisdiction over an appeal from an interlocutory judgment,
decision, order, or decree under section 158(e)(3) (as added by
this Act).
Section 1234(b) makes technical and conforming amendments
to implement this provision.
Section 1235. Exemptions
Section 1235 makes a conforming amendment to section
522(g)(2) of the Bankruptcy Code.
TITLE XIII--CONSUMER CREDIT DISCLOSURE
Section 1301. Enhanced disclosures under an open end credit plan
Section 1301(a) amends section 127(b) of the Truth in
Lending Act to mandate the inclusion of certain specified
disclosures in billing statements with respect to various open
end credit plans. In general, these statements must contain an
example of the time it would take to repay a stated balance at
a specified interest rate. In addition, they must warn the
borrower that making only the minimum payment will increase the
amount of interest that must be paid and the time it takes to
repay the balance. Further, a toll-free telephone number must
be provided where the borrower can obtain an estimate of the
time it would take to repay the balance if only minimum
payments are made. With respect to a creditor whose compliance
with title 15 of the United States Code is enforced by the
Federal Trade Commission (FTC), the billing statement must
advise the borrower to contact the FTC at a toll-free telephone
number to obtain an estimate of the time it would take to repay
the borrower's balance. Section 1401(a) permits the creditor to
substitute an example based on a higher interest rate. As
necessary, the provision requires the Board of Governors of the
Federal Reserve System (``Board''), to periodically recalculate
by rule the interest rate and repayment periods specified in
Section 1401(a). With respect to the toll-free telephone
number, section 1401(a) permits a third party to establish and
maintain it. Under certain circumstances, the toll-free number
may connect callers to an automated device.
For a period not to exceed 24 months from the effective
date of the Act, the Board is required to establish and
maintain a toll-free telephone number (or provide a toll-free
telephone number established and maintained by a third party)
for use by creditors that are depository institutions (as
defined in section 3 of the Federal Deposit Insurance Act),
including a Federal or State credit union (as defined in
section 101 of the Federal Credit Union Act), with total assets
not exceeding $250 million. Not later than 6 months prior to
the expiration of the 24-month period, the Board must submit a
report on this program to the Committee on Banking, Housing,
and Urban Affairs of the Senate, and the Committee on Banking
and Financial Services of the House of Representatives.
In addition, section 1301(a) requires the Board to
establish a detailed table illustrating the approximate number
of months that it would take to repay an outstanding balance if
a consumer pays only the required minimum month payments and if
no other advances are made. The table should reflect a
significant number of different annual percentage rates, and
account balances, minimum payment amounts. The Board must also
promulgate regulations providing instructional guidance
regarding the manner in which the information contained in the
tables should be used to respond to a request by an obligor
under this provision. Section 1401(a) provides that the
disclosure requirements of this provision are inapplicable to
any charge card account where the primary purpose of which is
to require payment of charges in full each month.
Section 1301(b)(1) requires the Board to promulgate
regulations implementing section 1301(a)'s amendments to
section127. Section 1301(b)(2) specifies that the effective
date of the amendments under subsection (a) and the regulations
required under this provision shall not take effect until the
later of 18 months after the date of enactment of this Act or
12 months after the publication of final regulations by the
Board.
Section 1301(c) authorizes the Board to conduct a study to
determine the types of information available to potential
borrowers from consumer credit lending institutions regarding
factors qualifying potential borrowers for credit, repayment
requirements, and the consequences of default. The provision
specifies the factors that should be considered. The findings
of such study must be submitted to Congress and include
recommendations for legislative initiatives, based on the
Board's findings.
Section 1302. Enhanced disclosure for credit extensions secured by a
dwelling
Section 1302(a)(1) amends section 127A(a)(13) of the Truth
in Lending Act to require a statement in any case in which the
extension of credit exceeds the fair market value of a dwelling
specifying that the interest on the portion of the credit
extension that is greater than the fair market value of the
dwelling is not tax deductible for Federal income tax purposes.
Section 1302(a)(2) amends section 147(b) of the Truth in
Lending Act to require an advertisement relating to an
extension of credit that may exceed the fair market value of a
dwelling and such advertisement is disseminated in paper form
to the public or through the Internet (as opposed to
dissemination by radio or television) to include a specified
statement. The statement must disclose that the interest on the
portion of the credit extension that is greater than the fair
market value of the dwelling is not tax deductible for Federal
income tax purposes and that the consumer should consult a tax
advisor for further information regarding the deductibility of
interest and charges.
With respect to non-open end credit extensions, section
1302(b)(1) amends section 128 of the Truth in Lending Act to
require that a consumer receive a specified statement at the
time he or she applies for credit with respect to a consumer
credit transaction secured by the consumer's principal dwelling
and where the credit extension may exceed the fair market value
of the dwelling must contain a specified statement. The
statement must disclose that the interest on the portion of the
credit extension that exceeds the dwelling's fair market value
is not tax deductible for Federal income tax purposes and that
the consumer should consult a tax advisor for further
information regarding the deductibility of interest and
charges.
Section 1302(b)(2) requires certain advertisements
disseminated in paper form to the public or through the
Internet that relate to a consumer credit transaction secured
by a consumer's principal dwelling where the extension of
credit may exceed the dwelling's fair market value to contain
specified statements. These statements advise that the interest
on the portion of the credit extension that is greater than the
fair market value of the dwelling is not tax deductible for
Federal income tax purposes and that the consumer should
consult a tax advisor for further information regarding the
deductibility of interest and charges.
Section 1302(c)(1) requires the Board to promulgate
regulations implementing the amendments effectuated by section
1402. Section 1302(c)(2) provides that the these regulations
shall not take effect until the later of 12 months following
the Act's enactment date or 12 months after the date of
publication of such final regulations by the Board.
Section 1303. Disclosures related to ``introductory rates''
Section 1303(a) amends section 127(c) of the Truth in
Lending Act by adding a provision add further requirements for
applications, solicitations and related materials that are
subject to section 127(c)(1). With respect to an application or
solicitation to open a credit card account and all promotional
materials accompanying such application or solicitation
involving an ``introductory rate'' offer, such materials must
do the following if they offer a temporary annual percentage
rate of interest:
(1) use the term ``introductory'' in immediate
proximity to each listing of the temporary annual
percentage interest rate applicable to such account;
(2) if the annual percentage interest rate that will
apply after the end of the temporary rate period will
be a fixed rate, the time period in which the
introductory period will end and the annual percentage
rate that will apply after the end of the introductory
period must be clearly and conspicuously stated in a
prominent location closely proximate to the first
listing of the temporary annual percentage rate;
(3) if the annual percentage rate that will apply
after the end of the temporary rate period will vary in
accordance with an index, the time period in which the
introductory period will end and the rate that will
apply after that, based on an annual percentage rate
that was in effect 60 days before the date of mailing
of the application or solicitation must be clearly and
conspicuously stated in a prominent location closely
proximate to the first listing of the temporary annual
percentage rate.
The second and third provisions described above do not
apply with respect to any listing of a temporary annual
percentage rate on an envelope or other enclosure in which an
application or solicitation to open a credit card account is
mailed.
With respect to an application or solicitation to open a
credit card account for which disclosure is required pursuant
to section 127(c)(1), section 1303(a) specifies that certain
statements be made if the rate of interest is revocable under
any circumstance or upon any event. The statements must be
clearly and conspicuously appear in a prominent manner on or
with the application or solicitation. The disclosures include a
general description of the circumstances that may result in the
revocation of the temporary annual percentage rate and an
explanation of the type of interest rate that will apply upon
revocation of the temporary rate.
To implement this provision, section 1303(b) amends section
127(c) to define various relevant terms and requires the Board
to promulgate regulations. The provision does not become
effective until the earlier of 12 months after the Act's
enactment date or 12 months after the date of public of such
final regulations.
Section 1304. Internet-based credit card solicitations
Section 1304(a) amends section 127(c) of the Truth in
Lending Act to require any solicitation to open a credit card
account for an open end consumer credit plan through the
Internet or other interactive computer service to clearly and
conspicuously include the disclosures required under section
127(c)(1)(A) and (B). It also specifies that the disclosure
required pursuant to section 127(c)(1)(A) be readily accessible
to consumers in close proximity to the solicitation and be
updated regularly to reflect current policies, terms, and fee
amounts applicable to the credit card account. Section 1304(a)
defines terms relevant to the Internet.
Section 1304(b) requires the Board to promulgate
regulations implementing this provision. It also provides that
the amendments effectuated by section 1404 do not take effect
until the later of 12 months after the Act's enactment date or
12 months after the date of publication of such regulations.
Section 1305. Disclosures related to late payment deadlines and
penalties
Section 1305(a) amends section 127(b) of the Truth in
Lending Act to provide that if a late payment fee is to be
imposed due to the obligor's failure to make payment on or
before a required payment due date, the billing statement must
specify the date on which that payment is due (or if different
the earliest date on which a late payment fee may be charged)
and the amount of the late payment fee to be imposed if payment
is made after such date.
Section 1305(b) requires the Board to promulgate
regulations implementing this provision. The amendments
effectuated by this provision and the regulations promulgated
thereunder shall not take effect until the later of 12 months
after the Act's enactment date or 12 months after the date of
publication of the regulations.
Section 1306. Prohibition on certain actions for failure to incur
finance charges
Section 1306(a) amends section 127 to add a provision
prohibiting a creditor of an open end consumer credit plan from
terminating an account prior to its expiration date solely
because the consumer has not incurred finance charges on the
account. The provision does not prevent the creditor from
terminating such account for inactivity for three or more
consecutive months.
Section 1306(b) requires the Board to promulgate
regulations implementing the amendments effectuated by section
1306(a) and provides that they do not become effective until
the later of 12 months after the Act's enactment date or 12
months after the date of publication of such final regulations.
Section 1307. Dual use credit card
Section 1307(a) provides that the Board may conduct a study
and submit a report to Congress containing its analysis of
consumer protections under existing law to limit the liability
of consumers for unauthorized use of a debit card or similar
access device. The report must include recommendations for
legislative initiatives, if any, based on its findings.
Section 1307(b) provides that the Board, in preparing its
report, may include analysis of section 909 of the Electronic
Fund Transfer Act to the extent this provision is in effect at
the time of the report and the implementing regulations. In
addition, the analysis may pertain to whether any voluntary
industry rules have enhanced or may enhance the level of
protection afforded consumers in connection with such
unauthorized use liability and whether amendments to the
Electronic Fund Transfer Act or implementing regulations are
necessary to further address adequate protection for consumers
concerning unauthorized use liability.
Section 1308. Study of bankruptcy impact of credit extended to
dependent students
Section 1308 directs the Board of Governors of the Federal
Reserve to study the impact that the extension of credit to
dependents (defined under the Internal Revenue Code of 1986)
who are enrolled in postsecondary educational institutions has
on the rate of bankruptcy cases filed. The report must be
submitted to the Senate and House of Representatives no later
than 1 year from the Act's enactment date.
Section 1309. Clarification of clear and conspicuous
Section 1309(a) requires the Board (in consultation with
other Federal banking agencies, the National Credit Union
Administration Board, and the Federal Trade Commission) to
promulgate regulations not later than 6 months after the Act's
enactment date to provide guidance on the meaning of the term
``clear and conspicuous'' as it is used in section
127(b)(11)(A), (B) and (C) and section 127(c)(6)(A)(ii) and
(iii) of the Truth in Lending Act.
Section 1309(b) provides that regulations promulgated under
section 1309(a) shall include examples of clear and conspicuous
model disclosures for the purposes of disclosures required
under the Truth in Lending Act provisions set forth therein.
Section 1309(c) requires the Board, in promulgating
regulations under this provision, to ensure that the clear and
conspicuous standard required for disclosures made under the
Truth in Lending Act provisions set forth in section 1309(a)
can be implemented in a manner that results in disclosures
which are reasonably understandable and designed to call
attention to the nature and significance of the information in
the notice.
Section 1310. Enforcement of certain foreign judgements barred
Section 1310(a) provides that notwithstanding any other
provision of law or contract, a court within the United States
shall not recognize or enforce any judgment rendered in a
foreign court if, by clear and convincing evidence, the court
in which recognition or enforcement of the judgment is sought
determines that the judgment gives effect to any purported
right or interest derived, directly or indirectly, from any
fraudulent misrepresentation and fraudulent omission that
occurred in the United States during the period beginning on
January 1, 1975, and ending on December 31, 1993.
Section 1310(b) provides that section 1310(a) shall not
prevent recognition or enforcement of a judgment rendered in a
foreign court if the foreign tribunal rendering judgment giving
effect to the right or interest concerned determines that no
fraudulent misrepresentation or fraudulent omission described
in section 1310(a) occurred.
TITLE XIV. GENERAL EFFECTIVE DATE; APPLICATION OF AMENDMENTS
Section 1401. Effective date; application of amendments
Section 1401(a) states that the Act shall take effect 180
days after the date of enactment, unless otherwise specified in
this Act.
Section 1401(b) provides that the amendments made by this
Act shall not apply with respect to cases commenced under the
Bankruptcy Code before the Act's effective date, unless other
specified in this Act.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
TITLE 11, UNITED STATES CODE
TITLE 11--BANKRUPTCY
Chap. Sec.
General Provisions.............................................101
* * * * * * *
Ancillary and Other Cross-Border Cases........................1501
CHAPTER 1--GENERAL PROVISIONS
Sec.
101. Definitions.
* * * * * * *
111. Credit counseling services; financial management instructional
courses.
Sec. 101. Definitions
[In this title--] In this title the following definitions
shall apply:
(1) The term ``accountant'' means accountant
authorized under applicable law to practice public
accounting, and includes professional accounting
association, corporation, or partnership, if so
authorized[;].
(2) The term ``affiliate'' means--
(A) * * *
* * * * * * *
(D) entity that operates the business or
substantially all of the property of the debtor
under a lease or operating agreement[;].
(3) The term ``assisted person'' means any person
whose debts consist primarily of consumer debts and
whose non-exempt assets are less than $150,000.
(4) The term ``attorney'' means attorney,
professional law association, corporation, or
partnership, authorized under applicable law to
practice law[;].
(4A) The term ``bankruptcy assistance'' means any
goods or services sold or otherwise provided to an
assisted person with the express or implied purpose of
providing information, advice, counsel, document
preparation, or filing, or attendance at a creditors'
meeting or appearing in a proceeding on behalf of
another or providing legal representation with respect
to a case or proceeding under this title.
(5) The term ``claim'' means--
(A) * * *
(B) right to an equitable remedy for breach
of performance if such breach gives rise to a
right to payment, whether or not such right to
an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured,
disputed, undisputed, secured, or unsecured[;].
(6) The term ``commodity broker'' means futures
commission merchant, foreign futures commission
merchant, clearing organization, leverage transaction
merchant, or commodity options dealer, as defined in
section 761 of this title, with respect to which there
is a customer, as defined in section 761 of this
title[;].
(7) The term ``community claim'' means claim that
arose before the commencement of the case concerning
the debtor for which property of the kind specified in
section 541(a)(2) of this title is liable, whether or
not there is any such property at the time of the
commencement of the case[;].
(8) The term ``consumer debt'' means debt incurred
by an individual primarily for a personal, family, or
household purpose[;].
(9) The term ``corporation''--
(A) * * *
(B) does not include limited
partnership[;].
(10) The term ``creditor'' means--
(A) * * *
* * * * * * *
(C) entity that has a community claim[;].
(10A) The term ``current monthly income''--
(A) means the average monthly income from
all sources which the debtor, or in a joint
case, the debtor and the debtor's spouse,
receive without regard to whether the income is
taxable income, derived during the 6-month
period preceding the date of determination; and
(B) includes any amount paid by any entity
other than the debtor (or, in a joint case, the
debtor and the debtor's spouse), on a regular
basis to the household expenses of the debtor
or the debtor's dependents (and, in a joint
case, the debtor's spouse if not otherwise a
dependent), but excludes benefits received
under the Social Security Act and payments to
victims of war crimes or crimes against
humanity on account of their status as victims
of such crimes.
(11) The term ``custodian'' means--
(A) * * *
* * * * * * *
(C) trustee, receiver, or agent under
applicable law, or under a contract, that is
appointed or authorized to take charge of
property of the debtor for the purpose of
enforcing a lien against such property, or for
the purpose of general administration of such
property for the benefit of the debtor's
creditors[;].
(12) The term ``debt'' means liability on a
claim[;].
[(12A) ``debt for child support'' means a debt of a
kind specified in section 523(a)(5) of this title for
maintenance or support of a child of the debtor;]
(12A) The term ``debt relief agency'' means any
person who provides any bankruptcy assistance to an
assisted person in return for the payment of money or
other valuable consideration, or who is a bankruptcy
petition preparer under section 110, but does not
include--
(A) any person that is an officer,
director, employee or agent of that person;
(B) a nonprofit organization which is
exempt from taxation under section 501(c)(3) of
the Internal Revenue Code of 1986;
(C) a creditor of the person, to the extent
that the creditor is assisting the person to
restructure any debt owed by the person to the
creditor;
(D) a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act)
or any Federal credit union or State credit
union (as those terms are defined in section
101 of the Federal Credit Union Act), or any
affiliate or subsidiary of such a depository
institution or credit union; or
(E) an author, publisher, distributor, or
seller of works subject to copyright protection
under title 17, when acting in such capacity.
(13) The term ``debtor'' means person or
municipality concerning which a case under this title
has been commenced[;].
(13A) The term ``debtor's principal residence''--
(A) means a residential structure,
including incidental property, without regard
to whether that structure is attached to real
property; and
(B) includes an individual condominium or
cooperative unit, a mobile or manufactured
home, or trailer.
[(14) ``disinterested person'' means person that--
[(A) is not a creditor, an equity security
holder, or an insider;
[(B) is not and was not an investment
banker for any outstanding security of the
debtor;
[(C) has not been, within three years
before the date of the filing of the petition,
an investment banker for a security of the
debtor, or an attorney for such an investment
banker in connection with the offer, sale, or
issuance of a security of the debtor;
[(D) is not and was not, within two years
before the date of the filing of the petition,
a director, officer, or employee of the debtor
or of an investment banker specified in
subparagraph (B) or (C) of this paragraph; and
[(E) does not have an interest materially
adverse to the interest of the estate or of any
class of creditors or equity security holders,
by reason of any direct or indirect
relationship to, connection with, or interest
in, the debtor or an investment banker
specified in subparagraph (B) or (C) of this
paragraph, or for any other reason;]
(14) The term ``disinterested person'' means a
person that--
(A) is not a creditor, an equity security
holder, or an insider;
(B) is not and was not, within 2 years
before the date of the filing of the petition,
a director, officer, or employee of the debtor;
and
(C) does not have an interest materially
adverse to the interest of the estate or of any
class of creditors or equity security holders,
by reason of any direct or indirect
relationship to, connection with, or interest
in, the debtor, or for any other reason.
(14A) The term ``domestic support obligation''
means a debt that accrues before or after the entry of
an order for relief under this title, including
interest that accrues on that debt as provided under
applicable nonbankruptcy law notwithstanding any other
provision of this title, that is--
(A) owed to or recoverable by--
(i) a spouse, former spouse, or
child of the debtor or such child's
parent, legal guardian, or responsible
relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance,
or support (including assistance provided by a
governmental unit) of such spouse, former
spouse, or child of the debtor or such child's
parent, without regard to whether such debt is
expressly so designated;
(C) established or subject to establishment
before or after entry of an order for relief
under this title, by reason of applicable
provisions of--
(i) a separation agreement, divorce
decree, or property settlement
agreement;
(ii) an order of a court of record;
or
(iii) a determination made in
accordance with applicable
nonbankruptcy law by a governmental
unit; and
(D) not assigned to a nongovernmental
entity, unless that obligation is assigned
voluntarily by the spouse, former spouse,
child, or parent, legal guardian, or
responsible relative of the child for the
purpose of collecting the debt.
(15) The term ``entity'' includes person, estate,
trust, governmental unit, and United States trustee[;].
(16) The term ``equity security'' means--
(A) * * *
* * * * * * *
(C) warrant or right, other than a right to
convert, to purchase, sell, or subscribe to a
share, security, or interest of a kind
specified in subparagraph (A) or (B) of this
paragraph[;].
(17) The term ``equity security holder'' means
holder of an equity security of the debtor[;].
(18) The term ``family farmer'' means--
(A) * * *
(B) corporation or partnership in which
more than 50 percent of the outstanding stock
or equity is held by one family, or by one
family and the relatives of the members of such
family, and such family or such relatives
conduct the farming operation, and
(i) * * *
* * * * * * *
(iii) if such corporation issues
stock, such stock is not publicly
traded[;].
(19) The term ``family farmer with regular annual
income'' means family farmer whose annual income is
sufficiently stable and regular to enable such family
farmer to make payments under a plan under chapter 12
of this title[;].
(20) The term ``farmer'' means (except when such
term appears in the term ``family farmer'') person that
received more than 80 percent of such person's gross
income during the taxable year of such person
immediately preceding the taxable year of such person
during which the case under this title concerning such
person was commenced from a farming operation owned or
operated by such person[;].
(21) The term ``farming operation'' includes
farming, tillage of the soil, dairy farming, ranching,
production or raising of crops, poultry, or livestock,
and production of poultry or livestock products in an
unmanufactured state[;].
(21A) The term ``farmout agreement'' means a
written agreement in which--
(A) * * *
(B) such other entity (either directly or
through its agents or its assigns), as
consideration, agrees to perform drilling,
reworking, recompleting, testing, or similar or
related operations, to develop or produce
liquid or gaseous hydrocarbons on the
property[;].
(21B) The term ``Federal depository institutions
regulatory agency'' means--
(A) * * *
* * * * * * *
(D) with respect to any insured depository
institution for which the Federal Deposit
Insurance Corporation has been appointed
conservator or receiver, the Federal Deposit
Insurance Corporation[;].
(22) The term the term ``financial institution''--
(A) * * *
(B) includes any person described in
subparagraph (A) which operates, or operates
as, a multilateral clearing organization
pursuant to section 409 of the Federal Deposit
Insurance Corporation Improvement Act of
1991[;].
(22A) The term ``financial participant'' means an
entity that, at the time it enters into a securities
contract, commodity contract, or forward contract, or
at the time of the filing of the petition, has one or
more agreements or transactions described in paragraph
(1), (2), (3), (4), (5), or (6) of section 561(a) with
the debtor or any other entity (other than an
affiliate) of a total gross dollar value of not less
than $1,000,000,000 in notional or actual principal
amount outstanding on any day during the previous 15-
month period, or has gross mark-to-market positions of
not less than $100,000,000 (aggregated across
counterparties) in one or more such agreements or
transactions with the debtor or any other entity (other
than an affiliate) on any day during the previous 15-
month period.
[(23) ``foreign proceeding'' means proceeding,
whether judicial or administrative and whether or not
under bankruptcy law, in a foreign country in which the
debtor's domicile, residence, principal place of
business, or principal assets were located at the
commencement of such proceeding, for the purpose of
liquidating an estate, adjusting debts by composition,
extension, or discharge, or effecting a reorganization;
[(24) ``foreign representative'' means duly
selected trustee, administrator, or other
representative of an estate in a foreign proceeding;]
(23) The term ``foreign proceeding'' means a
collective judicial or administrative proceeding in a
foreign country, including an interim proceeding, under
a law relating to insolvency or adjustment of debt in
which proceeding the assets and affairs of the debtor
are subject to control or supervision by a foreign
court, for the purpose of reorganization or
liquidation.
(24) The term ``foreign representative'' means a
person or body, including a person or body appointed on
an interim basis, authorized in a foreign proceeding to
administer the reorganization or the liquidation of the
debtor's assets or affairs or to act as a
representative of the foreign proceeding.
(25) The term ``forward contract'' [means a
contract] means--
(A) a contract (other than a commodity
contract) for the purchase, sale, or transfer
of a commodity, as defined in section 761(8) of
this title, or any similar good, article,
service, right, or interest which is presently
or in the future becomes the subject of dealing
in the forward contract trade, or product or
byproduct thereof, with a maturity date more
than two days after the date the contract is
entered into, including, but not limited to, a
repurchase transaction, reverse repurchase
transaction, consignment, lease, swap, hedge
transaction, deposit, loan, option, allocated
transaction, unallocated transaction[, or any
combination thereof or option thereon;], or any
other similar agreement;
(B) any combination of agreements or
transactions referred to in subparagraphs (A)
and (C);
(C) any option to enter into an agreement
or transaction referred to in subparagraph (A)
or (B);
(D) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B), or (C), together with
all supplements to any such master agreement,
without regard to whether such master agreement
provides for an agreement or transaction that
is not a forward contract under this paragraph,
except that such master agreement shall be
considered to be a forward contract under this
paragraph only with respect to each agreement
or transaction under such master agreement that
is referred to in subparagraph (A), (B), or
(C); or
(E) any security agreement or arrangement,
or other credit enhancement related to any
agreement or transaction referred to in
subparagraph (A), (B), (C), or (D), but not to
exceed the actual value of such contract on the
date of the filing of the petition.
[(26) ``forward contract merchant'' means a person
whose business consists in whole or in part of entering
into forward contracts as or with merchants in a
commodity, as defined in section 761(8) of this title,
or any similar good, article, service, right, or
interest which is presently or in the future becomes
the subject of dealing in the forward contract trade;]
(26) The term ``forward contract merchant'' means a
Federal reserve bank, or an entity, the business of
which consists in whole or in part of entering into
forward contracts as or with merchants or in a
commodity, as defined or in section 761 or any similar
good, article, service, right, or interest which is
presently or in the future becomes the subject of
dealing in the forward contract trade.
(27) The term ``governmental unit'' means United
States; State; Commonwealth; District; Territory;
municipality; foreign state; department, agency, or
instrumentality of the United States (but not a United
States trustee while serving as a trustee in a case
under this title), a State, a Commonwealth, a District,
a Territory, a municipality, or a foreign state; or
other foreign or domestic government[;].
(27A) The term ``health care business''--
(A) means any public or private entity
(without regard to whether that entity is
organized for profit or not for profit) that is
primarily engaged in offering to the general
public facilities and services for--
(i) the diagnosis or treatment of
injury, deformity, or disease; and
(ii) surgical, drug treatment,
psychiatric, or obstetric care; and
(B) includes--
(i) any--
(I) general or specialized
hospital;
(II) ancillary ambulatory,
emergency, or surgical
treatment facility;
(III) hospice;
(IV) home health agency;
and
(V) other health care
institution that is similar to
an entity referred to in
subclause (I), (II), (III), or
(IV); and
(ii) any long-term care facility,
including any--
(I) skilled nursing
facility;
(II) intermediate care
facility;
(III) assisted living
facility;
(IV) home for the aged;
(V) domiciliary care
facility; and
(VI) health care
institution that is related to
a facility referred to in
subclause (I), (II), (III),
(IV), or (V), if that
institution is primarily
engaged in offering room,
board, laundry, or personal
assistance with activities of
daily living and incidentals to
activities of daily living.
(27B) The term ``incidental property'' means, with
respect to a debtor's principal residence--
(A) property commonly conveyed with a
principal residence in the area where the real
estate is located;
(B) all easements, rights, appurtenances,
fixtures, rents, royalties, mineral rights, oil
or gas rights or profits, water rights, escrow
funds, or insurance proceeds; and
(C) all replacements or additions.
(28) The term ``indenture'' means mortgage, deed of
trust, or indenture, under which there is outstanding a
security, other than a voting-trust certificate,
constituting a claim against the debtor, a claim
secured by a lien on any of the debtor's property, or
an equity security of the debtor[;].
(29) The term ``indenture trustee'' means trustee
under an indenture[;].
(30) The term ``individual with regular income''
means individual whose income is sufficiently stable
and regular to enable such individual to make payments
under a plan under chapter 13 of this title, other than
a stockbroker or a commodity broker[;].
(31) The term ``insider'' includes--
(A) * * *
* * * * * * *
(F) managing agent of the debtor[;].
(32) The term ``insolvent'' means--
(A) * * *
* * * * * * *
(C) with reference to a municipality,
financial condition such that the municipality
is--
(i) generally not paying its debts
as they become due unless such debts
are the subject of a bona fide dispute;
or
(ii) unable to pay its debts as
they become due[;].
(33) The term ``institution-affiliated party''--
(A) * * *
(B) with respect to an insured credit
union, has the meaning given it in section
206(r) of the Federal Credit Union Act[;].
(34) The term ``insured credit union'' has the
meaning given it in section 101(7) of the Federal
Credit Union Act[;].
(35) The term ``insured depository institution''--
(A) has the meaning given it in section
3(c)(2) of the Federal Deposit Insurance Act;
and
(B) includes an insured credit union
(except in the case of [paragraphs (21B) and
(33)(A)] paragraphs (23) and (35) of this
subsection)[;].
(35A) The term ``intellectual property'' means--
(A) * * *
* * * * * * *
(F) mask work protected under chapter 9 of
title 17;
to the extent protected by applicable nonbankruptcy
law[; and].
(36) The term ``judicial lien'' means lien obtained
by judgment, levy, sequestration, or other legal or
equitable process or proceeding[;].
(37) The term ``lien'' means charge against or
interest in property to secure payment of a debt or
performance of an obligation[;].
(38) The term ``margin payment'' means, for
purposes of the forward contract provisions of this
title, payment or deposit of cash, a security or other
property, that is commonly known in the forward
contract trade as original margin, initial margin,
maintenance margin, or variation margin, including
mark-to-market payments, or variation payments[; and].
(38A) The term ``master netting agreement''--
(A) means an agreement providing for the
exercise of rights, including rights of
netting, setoff, liquidation, termination,
acceleration, or closeout, under or in
connection with one or more contracts that are
described in any one or more of paragraphs (1)
through (5) of section 561(a), or any security
agreement or arrangement or other credit
enhancement related to one or more of the
foregoing; and
(B) if the agreement contains provisions
relating to agreements or transactions that are
not contracts described in paragraphs (1)
through (5) of section 561(a), shall be deemed
to be a master netting agreement only with
respect to those agreements or transactions
that are described in any one or more of
paragraphs (1) through (5) of section 561(a);
(38B) The term ``master netting agreement
participant'' means an entity that, at any time before
the filing of the petition, is a party to an
outstanding master netting agreement with the debtor;
(39) The term ``mask work'' has the meaning given
it in section 901(a)(2) of title 17.
(40) The term ``municipality'' means political
subdivision or public agency or instrumentality of a
State[;].
(40A) The term ``patient'' means any person who
obtains or receives services from a health care
business.
(40B) The term ``patient records'' means any
written document relating to a patient or a record
recorded in a magnetic, optical, or other form of
electronic medium.
(41) The term ``person'' includes individual,
partnership, and corporation, but does not include
governmental unit, except that a governmental unit
that--
(A) * * *
* * * * * * *
(C) is the legal or beneficial owner of an
asset of--
(i) an employee pension benefit
plan that is a governmental plan, as
defined in section 414(d) of the
Internal Revenue Code of 1986; or
(ii) an eligible deferred
compensation plan, as defined in
section 457(b) of the Internal Revenue
Code of 1986;
shall be considered, for purposes of section 1102 of
this title, to be a person with respect to such asset
or such benefit[;].
(42) The term ``petition'' means petition filed
under section 301, 302, 303, or 304 of this title, as
the case may be, commencing a case under this title[;].
(42A) The term ``production payment'' means a term
overriding royalty satisfiable in cash or in kind--
(A) contingent on the production of a
liquid or gaseous hydrocarbon from particular
real property; and
(B) from a specified volume, or a specified
value, from the liquid or gaseous hydrocarbon
produced from such property, and determined
without regard to production costs[;].
(43) The term ``purchaser'' means transferee of a
voluntary transfer, and includes immediate or mediate
transferee of such a transferee[;].
(44) The term ``railroad'' means common carrier by
railroad engaged in the transportation of individuals
or property or owner of trackage facilities leased by
such a common carrier[;].
(45) The term ``relative'' means individual related
by affinity or consanguinity within the third degree as
determined by the common law, or individual in a step
or adoptive relationship within such third degree[;].
(46) The term ``repo participant'' means an entity
that, [on any day during the period beginning 90 days
before the date of] at any time before the filing of
the petition, has an outstanding repurchase agreement
with the debtor[;].
[(47) ``repurchase agreement'' (which definition
also applies to a reverse repurchase agreement) means
an agreement, including related terms, which provides
for the transfer of certificates of deposit, eligible
bankers' acceptances, or securities that are direct
obligations of, or that are fully guaranteed as to
principal and interest by, the United States or any
agency of the United States against the transfer of
funds by the transferee of such certificates of
deposit, eligible bankers' acceptances, or securities
with a simultaneous agreement by such transferee to
transfer to the transferor thereof certificates of
deposit, eligible bankers' acceptances, or securities
as described above, at a date certain not later than
one year after such transfers or on demand, against the
transfer of funds;]
(47) The term ``repurchase agreement'' (which
definition also applies to a reverse repurchase
agreement)--
(A) means--
(i) an agreement, including related
terms, which provides for the transfer
of one or more certificates of deposit,
mortgage related securities (as defined
in section 3 of the Securities Exchange
Act of 1934), mortgage loans, interests
in mortgage related securities or
mortgage loans, eligible bankers'
acceptances, qualified foreign
government securities (defined as a
security that is a direct obligation
of, or that is fully guaranteed by, the
central government of a member of the
Organization for Economic Cooperation
and Development), or securities that
are direct obligations of, or that are
fully guaranteed by, the United States
or any agency of the United States
against the transfer of funds by the
transferee of such certificates of
deposit, eligible bankers' acceptances,
securities, loans, or interests, with a
simultaneous agreement by such
transferee to transfer to the
transferor thereof certificates of
deposit, eligible bankers' acceptance,
securities, loans, or interests of the
kind described in this clause, at a
date certain not later than 1 year
after such transfer or on demand,
against the transfer of funds;
(ii) any combination of agreements
or transactions referred to in clauses
(i) and (iii);
(iii) an option to enter into an
agreement or transaction referred to in
clause (i) or (ii);
(iv) a master agreement that
provides for an agreement or
transaction referred to in clause (i),
(ii), or (iii), together with all
supplements to any such master
agreement, without regard to whether
such master agreement provides for an
agreement or transaction that is not a
repurchase agreement under this
paragraph, except that such master
agreement shall be considered to be a
repurchase agreement under this
paragraph only with respect to each
agreement or transaction under the
master agreement that is referred to in
clause (i), (ii), or (iii); or
(v) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in clause (i), (ii), (iii),
or (iv), but not to exceed the actual
value of such contract on the date of
the filing of the petition; and
(B) does not include a repurchase
obligation under a participation in a
commercial mortgage loan.
(48) The term ``securities clearing agency'' means
person that is registered as a clearing agency under
section 17A of the Securities Exchange Act of 1934 or
exempt from such registration under such section
pursuant to an order of the Securities and Exchange
Commission, or whose business is confined to the
performance of functions of a clearing agency with
respect to exempted securities, as defined in section
3(a)(12) of such Act for the purposes of such section
17A[;].
(48A) The term ``securities self regulatory
organization'' means either a securities association
registered with the Securities and Exchange Commission
under section 15A of the Securities Exchange Act of
1934 (15 U.S.C. 78o-3) or a national securities
exchange registered with the Securities and Exchange
Commission under section 6 of the Securities Exchange
Act of 1934 (15 U.S.C. 78f).
(49) The term ``security''--
(A) * * *
* * * * * * *
(B) does not include--
(i) * * *
* * * * * * *
(vii) debt or evidence of
indebtedness for goods sold and
delivered or services rendered[;].
(50) The term ``security agreement'' means
agreement that creates or provides for a security
interest[;].
(51) The term ``security interest'' means lien
created by an agreement[;].
(51A) The term ``settlement payment'' means, for
purposes of the forward contract provisions of this
title, a preliminary settlement payment, a partial
settlement payment, an interim settlement payment, a
settlement payment on account, a final settlement
payment, a net settlement payment, or any other similar
payment commonly used in the forward contract trade[;].
(51B) The term ``single asset real estate'' means
real property constituting a single property or
project, other than residential real property with
fewer than 4 residential units, which generates
substantially all of the gross income of a debtor who
is not a family farmer and on which no substantial
business is being conducted by a debtor other than the
business of operating the real property and activities
incidental [thereto having aggregate noncontingent,
liquidated secured debts in an amount no more than
$4,000,000;]
[(51C) ``small business'' means a person engaged in
commercial or business activities (but does not include
a person whose primary activity is the business of
owning or operating real property and activities
incidental thereto) whose aggregate noncontingent
liquidated secured and unsecured debts as of the date
of the petition do not exceed $2,000,000;]
(51C) The term ``small business case'' means a case
filed under chapter 11 of this title in which the
debtor is a small business debtor.
(51D) The term ``small business debtor''--
(A) subject to subparagraph (B), means a
person engaged in commercial or business
activities (including any affiliate of such
person that is also a debtor under this title
and excluding a person whose primary activity
is the business of owning or operating real
property or activities incidental thereto) that
has aggregate noncontingent, liquidated secured
and unsecured debts as of the date of the
petition or the order for relief in an amount
not more than $3,000,000 (excluding debts owed
to 1 or more affiliates or insiders) for a case
in which the United States trustee has not
appointed under section 1102(a)(1) a committee
of unsecured creditors or where the court has
determined that the committee of unsecured
creditors is not sufficiently active and
representative to provide effective oversight
of the debtor; and
(B) does not include any member of a group
of affiliated debtors that has aggregate
noncontingent liquidated secured and unsecured
debts in an amount greater than $3,000,000
(excluding debt owed to 1 or more affiliates or
insiders).
(52) The term ``State'' includes the District of
Columbia and Puerto Rico, except for the purpose of
defining who may be a debtor under chapter 9 of this
title[;].
(53) The term ``statutory lien'' means lien arising
solely by force of a statute on specified circumstances
or conditions, or lien of distress for rent, whether or
not statutory, but does not include security interest
or judicial lien, whether or not such interest or lien
is provided by or is dependent on a statute and whether
or not such interest or lien is made fully effective by
statute[;].
(53A) The term ``stockbroker'' means person--
(A) * * *
(B) that is engaged in the business of
effecting transactions in securities--
(i) * * *
(ii) with members of the general
public, from or for such person's own
account[;].
[(53B) ``swap agreement'' means--
[(A) an agreement (including terms and
conditions incorporated by reference therein)
which is a rate swap agreement, basis swap,
forward rate agreement, commodity swap,
interest rate option, forward foreign exchange
agreement, spot foreign exchange agreement,
rate cap agreement, rate floor agreement, rate
collar agreement, currency swap agreement,
cross-currency rate swap agreement, currency
option, any other similar agreement (including
any option to enter into any of the foregoing);
[(B) any combination of the foregoing; or
[(C) a master agreement for any of the
foregoing together with all supplements;]
(53B) The term ``swap agreement''--
(A) means--
(i) any agreement, including the
terms and conditions incorporated by
reference in such agreement, which is
an interest rate swap, option, future,
or forward agreement, including--
(I) a rate floor, rate cap,
rate collar, cross-currency
rate swap, and basis swap;
(II) a spot, same day-
tomorrow, tomorrow-next,
forward, or other foreign
exchange or precious metals
agreement;
(III) a currency swap,
option, future, or forward
agreement;
(IV) an equity index or an
equity swap, option, future, or
forward agreement;
(V) a debt index or a debt
swap, option, future, or
forward agreement;
(VI) a credit spread or a
credit swap, option, future, or
forward agreement;
(VII) a commodity index or
a commodity swap, option,
future, or forward agreement;
or
(VIII) a weather swap,
weather derivative, or weather
option;
(ii) any agreement or transaction
similar to any other agreement or
transaction referred to in this
paragraph that--
(I) is presently, or in the
future becomes, regularly
entered into in the swap market
(including terms and conditions
incorporated by reference
therein); and
(II) is a forward, swap,
future, or option on one or
more rates, currencies,
commodities, equity securities,
or other equity instruments,
debt securities or other debt
instruments, or economic
indices or measures of economic
risk or value;
(iii) any combination of agreements
or transactions referred to in this
subparagraph;
(iv) any option to enter into an
agreement or transaction referred to in
this subparagraph;
(v) a master agreement that
provides for an agreement or
transaction referred to in clause (i),
(ii), (iii), or (iv), together with all
supplements to any such master
agreement, and without regard to
whether the master agreement contains
an agreement or transaction that is not
a swap agreement under this paragraph,
except that the master agreement shall
be considered to be a swap agreement
under this paragraph only with respect
to each agreement or transaction under
the master agreement that is referred
to in clause (i), (ii), (iii), or (iv);
or
(vi) any security agreement or
arrangement or other credit enhancement
related to any agreements or
transactions referred to in clause (i)
through (v), but not to exceed the
actual value of such contract on the
date of the filing of the petition; and
(B) is applicable for purposes of this
title only, and shall not be construed or
applied so as to challenge or affect the
characterization, definition, or treatment of
any swap agreement under any other statute,
regulation, or rule, including the Securities
Act of 1933, the Securities Exchange Act of
1934, the Public Utility Holding Company Act of
1935, the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the Investment
Advisers Act of 1940, the Securities Investor
Protection Act of 1970, the Commodity Exchange
Act, and the regulations prescribed by the
Securities and Exchange Commission or the
Commodity Futures Trading Commission.
(53C) The term ``swap participant'' means an entity
that, at any time before the filing of the petition,
has an outstanding swap a greement with the debtor[;].
(56A) The term ``term overriding royalty'' means an
interest in liquid or gaseous hydrocarbons in place or
to be produced from particular real property that
entitles the owner thereof to a share of production, or
the value thereof, for a term limited by time,
quantity, or value realized[;].
(53D) The term ``timeshare plan'' means and shall
include that interest purchased in any arrangement,
plan, scheme, or similar device, but not including
exchange programs, whether by membership, agreement,
tenancy in common, sale, lease, deed, rental agreement,
license, right to use agreement, or by any other means,
whereby a purchaser, in exchange for consideration,
receives a right to use accommodations, facilities, or
recreational sites, whether improved or unimproved, for
a specific period of time less than a full year during
any given year, but not necessarily for consecutive
years, and which extends for a period of more than
three years. A ``timeshare interest'' is that interest
purchased in a timeshare plan which grants the
purchaser the right to use and occupy accommodations,
facilities, or recreational sites, whether improved or
unimproved, pursuant to a timeshare plan[;].
[(54) ``transfer'' means every mode, direct or
indirect, absolute or conditional, voluntary or
involuntary, of disposing of or parting with property
or with an interest in property, including retention of
title as a security interest and foreclosure of the
debtor's equity of redemption;]
(54) The term ``transfer'' means--
(A) the creation of a lien;
(B) the retention of title as a security
interest;
(C) the foreclosure of a debtor's equity of
redemption; or
(D) each mode, direct or indirect, absolute
or conditional, voluntary or involuntary, of
disposing of or parting with--
(i) property; or
(ii) an interest in property.
(54A) The term the term ``uninsured State member bank''
means a State member bank (as defined in section 3 of the
Federal Deposit Insurance Act) the deposits of which are not
insured by the Federal Deposit Insurance Corporation[; and].
(55) The term ``United States'', when used in a
geographical sense, includes all locations where the
judicial jurisdiction of the United States extends,
including territories and possessions of the United
States[;].
* * * * * * *
Sec. 103. Applicability of chapters
(a) Except as provided in section 1161 of this title,
chapters 1, 3, and 5 of this title apply in a case under
chapter 7, 11, 12, or 13 of this title, and this chapter,
sections 307, 362(l), 555 through 557, and 559 through 562
apply in a case under chapter 15.
* * * * * * *
(j) Chapter 15 applies only in a case under such chapter,
except that--
(1) sections 1505, 1513, and 1514 apply in all
cases under this title; and
(2) section 1509 applies whether or not a case
under this title is pending.
Sec. 104. Adjustment of dollar amounts
(a) * * *
(b)(1) On April 1, 1998, and at each 3-year interval ending
on April 1 thereafter, each dollar amount in effect under
sections 101(3), 109(e), 303(b), 507(a), 522(d), 522(f)(3),
522(n), 522(p), and 523(a)(2)(C) immediately before such April
1 shall be adjusted--
(A) * * *
* * * * * * *
(2) Not later than March 1, 1998, and at each 3-year
interval ending on March 1 thereafter, the Judicial Conference
of the United States shall publish in the Federal Register the
dollar amounts that will become effective on such April 1 under
sections 109(e), 303(b), 507(a), 522(d), 522(f)(3), and
523(a)(2)(C) of this title.
* * * * * * *
(4) The dollar amount in section 101(18) shall be adjusted
at the same times and in the same manner as the dollar amounts
in paragraph (1) of this subsection, beginning with the
adjustment to be made on April 1, 2004.
Sec. 105. Power of court
(a) * * *
* * * * * * *
(d) The court, on its own motion or on the request of a
party in interest[, may]--
[(1) hold a status conference regarding any case or
proceeding under this title after notice to the parties
in interest; and]
(1) shall hold such status conferences as are
necessary to further the expeditious and economical
resolution of the case; and
* * * * * * *
Sec. 108. Extension of time
(a) * * *
* * * * * * *
(c) Except as provided in section 524 of this title, if
applicable nonbankruptcy law, an order entered in a
nonbankruptcy proceeding, or an agreement fixes a period for
commencing or continuing a civil action in a court other than a
bankruptcy court on a claim against the debtor, or against an
individual with respect to which such individual is protected
under section 1201 or 1301 of this title, and such period has
not expired before the date of the filing of the petition, then
such period does not expire until the later of--
(1) * * *
(2) 30 days after notice of the termination or
expiration of the stay under section 362, [922, or]
922, 1201, or 1301 of this title, as the case may be,
with respect to such claim.
Sec. 109. Who may be a debtor
(a) * * *
(b) A person may be a debtor under chapter 7 of this title
only if such person is not--
(1) * * *
(2) a domestic insurance company, bank, savings
bank, cooperative bank, savings and loan association,
building and loan association, homestead association, a
small business investment company licensed by the Small
Business Administration under [subsection (c) or (d)
of] section 301 of the Small Business Investment Act of
1958, credit union, or industrial bank or similar
institution which is an insured bank as defined in
section 3(h) of the Federal Deposit Insurance Act; or
[(3) a foreign insurance company, bank, savings
bank, cooperative bank, savings and loan association,
building and loan association, homestead association,
or credit union, engaged in such business in the United
States.]
(3)(A) a foreign insurance company, engaged in such
business in the United States; or
(B) a foreign bank, savings bank, cooperative bank,
savings and loan association, building and loan
association, or credit union, that has a branch or
agency (as defined in section 1(b) of the International
Banking Act of 1978 (12 U.S.C. 3101) in the United
States.
* * * * * * *
(h)(1) Subject to paragraphs (2) and (3), and
notwithstanding any other provision of this section, an
individual may not be a debtor under this title unless that
individual has, during the 180-day period preceding the date of
filing of the petition of that individual, received from an
approved nonprofit budget and credit counseling agency
described in section 111(a) an individual or group briefing
(including a briefing conducted by telephone or on the
Internet) that outlined the opportunities for available credit
counseling and assisted that individual in performing a related
budget analysis.
(2)(A) Paragraph (1) shall not apply with respect to a
debtor who resides in a district for which the United States
trustee or bankruptcy administrator of the bankruptcy court of
that district determines that the approved nonprofit budget and
credit counseling agencies for that district are not reasonably
able to provide adequate services to the additional individuals
who would otherwise seek credit counseling from that agency by
reason of the requirements of paragraph (1).
(B) Each United States trustee or bankruptcy administrator
that makes a determination described in subparagraph (A) shall
review that determination not later than 1 year after the date
of that determination, and not less frequently than every year
thereafter. Notwithstanding the preceding sentence, a nonprofit
budget and credit counseling service may be disapproved by the
United States trustee or bankruptcy administrator at any time.
(3)(A) Subject to subparagraph (B), the requirements of
paragraph (1) shall not apply with respect to a debtor who
submits to the court a certification that--
(i) describes exigent circumstances that merit a
waiver of the requirements of paragraph (1);
(ii) states that the debtor requested credit
counseling services from an approved nonprofit budget
and credit counseling agency, but was unable to obtain
the services referred to in paragraph (1) during the 5-
day period beginning on the date on which the debtor
made that request; and
(iii) is satisfactory to the court.
(B) With respect to a debtor, an exemption under
subparagraph (A) shall cease to apply to that debtor on the
date on which the debtor meets the requirements of paragraph
(1), but in no case may the exemption apply to that debtor
after the date that is 30 days after the debtor files a
petition, except that the court, for cause, may order an
additional 15 days.
Sec. 110. Penalty for persons who negligently or fraudulently prepare
bankruptcy petitions
(a) In this section--
(1) ``bankruptcy petition preparer'' means [a
person, other than an attorney or an employee of an
attorney] the attorney for the debtor or an employee of
such attorney under the direct supervision of such
attorney, who prepares for compensation a document for
filing; and
* * * * * * *
(b)(1) A bankruptcy petition preparer who prepares a
document for filing shall sign the document and print on the
document the preparer's name and address. If a bankruptcy
petition preparer is not an individual, then an officer,
principal, responsible person, or partner of the preparer shall
be required to--
(A) sign the document for filing; and
(B) print on the document the name and address of
that officer, principal, responsible person or partner.
[(2) A bankruptcy petition preparer who fails to comply
with paragraph (1) may be fined not more than $500 for each
such failure unless the failure is due to reasonable cause.]
(2)(A) Before preparing any document for filing or
accepting any fees from a debtor, the bankruptcy petition
preparer shall provide to the debtor a written notice to
debtors concerning bankruptcy petition preparers, which shall
be on an official form issued by the Judicial Conference of the
United States.
(B) The notice under subparagraph (A)--
(i) shall inform the debtor in simple language that
a bankruptcy petition preparer is not an attorney and
may not practice law or give legal advice;
(ii) may contain a description of examples of legal
advice that a bankruptcy petition preparer is not
authorized to give, in addition to any advice that the
preparer may not give by reason of subsection (e)(2);
and
(iii) shall--
(I) be signed by--
(aa) the debtor; and
(bb) the bankruptcy petition
preparer, under penalty of perjury; and
(II) be filed with any document for filing.
(c)(1) * * *
[(2) For purposes] (2)(A) Subject to subparagraph (B), for
purposes of this section, the identifying number of a
bankruptcy petition preparer shall be the Social Security
account number of each individual who prepared the document or
assisted in its preparation.
(B) If a bankruptcy petition preparer is not an individual,
the identifying number of the bankruptcy petition preparer
shall be the Social Security account number of the officer,
principal, responsible person, or partner of the preparer.
[(3) A bankruptcy petition preparer who fails to comply
with paragraph (1) may be fined not more than $500 for each
such failure unless the failure is due to reasonable cause.]
[(d)(1)] (d) A bankruptcy petition preparer shall, not
later than the time at which a document for filing is presented
for the debtor's signature, furnish to the debtor a copy of the
document.
[(2) A bankruptcy petition preparer who fails to comply
with paragraph (1) may be fined not more than $500 for each
such failure unless the failure is due to reasonable cause.]
(e)(1) A bankruptcy petition preparer shall not execute any
document on behalf of a debtor.
[(2) A bankruptcy petition preparer may be fined not more
than $500 for each document executed in violation of paragraph
(1).]
(2)(A) A bankruptcy petition preparer may not offer a
potential bankruptcy debtor any legal advice, including any
legal advice described in subparagraph (B).
(B) The legal advice referred to in subparagraph (A)
includes advising the debtor--
(i) whether--
(I) to file a petition under this title; or
(II) commencing a case under chapter 7, 11,
12, or 13 is appropriate;
(ii) whether the debtor's debts will be eliminated
or discharged in a case under this title;
(iii) whether the debtor will be able to retain the
debtor's home, car, or other property after commencing
a case under this title;
(iv) concerning--
(I) the tax consequences of a case brought
under this title; or
(II) the dischargeability of tax claims;
(v) whether the debtor may or should promise to
repay debts to a creditor or enter into a reaffirmation
agreement with a creditor to reaffirm a debt;
(vi) concerning how to characterize the nature of
the debtor's interests in property or the debtor's
debts; or
(vii) concerning bankruptcy procedures and rights.
[(f)(1)] (f) A bankruptcy petition preparer shall not use
the word ``legal'' or any similar term in any advertisements,
or advertise under any category that includes the word
``legal'' or any similar term.
[(2) A bankruptcy petition preparer shall be fined not more
than $500 for each violation of paragraph (1).]
[(g)(1)] (g) A bankruptcy petition preparer shall not
collect or receive any payment from the debtor or on behalf of
the debtor for the court fees in connection with filing the
petition.
[(2) A bankruptcy petition preparer shall be fined not more
than $500 for each violation of paragraph (1).]
(h)(1) The Supreme Court may promulgate rules under section
2075 of title 28, or the Judicial Conference of the United
States may prescribe guidelines, for setting a maximum
allowable fee chargeable by a bankruptcy petition preparer. A
bankruptcy petition preparer shall notify the debtor of any
such maximum amount before preparing any document for filing
for a debtor or accepting any fee from the debtor.
[(1)] (2) Within 10 days after the date of the filing of a
petition, a bankruptcy petition preparer shall file a
declaration under penalty of perjury by the bankruptcy petition
preparer shall be filed together with the petition, disclosing
any fee received from or on behalf of the debtor within 12
months immediately prior to the filing of the case, and any
unpaid fee charged to the debtor. If rules or guidelines
setting a maximum fee for services have been promulgated or
prescribed under paragraph (1), the declaration under this
paragraph shall include a certification that the bankruptcy
petition preparer complied with the notification requirement
under paragraph (1).
[(2) The court shall disallow and order the immediate
turnover to the bankruptcy trustee of any fee referred to in
paragraph (1) found to be in excess of the value of services
rendered for the documents prepared. An individual debtor may
exempt any funds so recovered under section 522(b).]
(3)(A) The court shall disallow and order the
immediate turnover to the bankruptcy trustee any fee
referred to in paragraph (2) found to be in excess of
the value of any services--
(i) rendered by the preparer during the 12-
month period immediately preceding the date of
filing of the petition; or
(ii) found to be in violation of any rule
or guideline promulgated or prescribed under
paragraph (1).
(B) All fees charged by a bankruptcy petition
preparer may be forfeited in any case in which the
bankruptcy petition preparer fails to comply with this
subsection or subsection (b), (c), (d), (e), (f), or
(g).
(C) An individual may exempt any funds recovered
under this paragraph under section 522(b).
[(3)] (4) The debtor, the trustee, a creditor, [or the
United States trustee] the United States trustee, the
bankruptcy administrator, or the court, on the initiative of
the court, may file a motion for an order under paragraph (2).
[(4)] (5) A bankruptcy petition preparer shall be fined not
more than $500 for each failure to comply with a court order to
turn over funds within 30 days of service of such order.
[(i)(1) If a bankruptcy case or related proceeding is
dismissed because of the failure to file bankruptcy papers,
including papers specified in section 521(1) of this title, the
negligence or intentional disregard of this title or the
Federal Rules of Bankruptcy Procedure by a bankruptcy petition
preparer, or if a bankruptcy petition preparer violates this
section or commits any fraudulent, unfair, or deceptive act,
the bankruptcy court shall certify that fact to the district
court, and the district court, on motion of the debtor, the
trustee, or a creditor and after a hearing, shall order the
bankruptcy petition preparer to pay to the debtor--]
(i)(1) If a bankruptcy petition preparer violates this
section or commits any act that the court finds to be
fraudulent, unfair, or deceptive, on motion of the debtor,
trustee, United States trustee, or bankruptcy administrator,
and after the court holds a hearing with respect to that
violation or act, the court shall order the bankruptcy petition
preparer to pay to the debtor--
(A) * * *
* * * * * * *
(j)(1) * * *
(2)(A) In an action under paragraph (1), if the court finds
that--
(i) a bankruptcy petition preparer has--
(I) engaged in conduct in violation of this
section or of any provision of this title [a
violation of which subjects a person to
criminal penalty];
* * * * * * *
(B) If the court finds that a bankruptcy petition preparer
has continually engaged in conduct described in subclause (I),
(II), or (III) of clause (i) and that an injunction prohibiting
such conduct would not be sufficient to prevent such person's
interference with the proper administration of this title, [or]
has not paid a penalty imposed under this section, or failed to
disgorge all fees ordered by the court the court may enjoin the
person from acting as a bankruptcy petition preparer.
(3) The court, as part of its contempt power, may enjoin a
bankruptcy petition preparer that has failed to comply with a
previous order issued under this section. The injunction under
this paragraph may be issued upon motion of the court, the
trustee, the United States trustee, or the bankruptcy
administrator.
[(3)] (4) The court shall award to a debtor, trustee, or
creditor that brings a successful action under this subsection
reasonable [attorney's] attorneys' fees and costs of the
action, to be paid by the bankruptcy petition preparer.
* * * * * * *
(l)(1) A bankruptcy petition preparer who fails to comply
with any provision of subsection (b), (c), (d), (e), (f), (g),
or (h) may be fined not more than $500 for each such failure.
(2) The court shall triple the amount of a fine assessed
under paragraph (1) in any case in which the court finds that a
bankruptcy petition preparer--
(A) advised the debtor to exclude assets or income
that should have been included on applicable schedules;
(B) advised the debtor to use a false Social
Security account number;
(C) failed to inform the debtor that the debtor was
filing for relief under this title; or
(D) prepared a document for filing in a manner that
failed to disclose the identity of the preparer.
(3) The debtor, the trustee, a creditor, the United States
trustee, or the bankruptcy administrator may file a motion for
an order imposing a fine on the bankruptcy petition preparer
for each violation of this section.
(4)(A) Fines imposed under this subsection in judicial
districts served by United States trustees shall be paid to the
United States trustee, who shall deposit an amount equal to
such fines in a special account of the United States Trustee
System Fund referred to in section 586(e)(2) of title 28.
Amounts deposited under this subparagraph shall be available to
fund the enforcement of this section on a national basis.
(B) Fines imposed under this subsection in judicial
districts served by bankruptcy administrators shall be
deposited as offsetting receipts to the fund established under
section 1931 of title 28, and shall remain available until
expended to reimburse any appropriation for the amount paid out
of such appropriation for expenses of the operation and
maintenance of the courts of the United States.
Sec. 111. Credit counseling services; financial management
instructional courses
(a) The clerk of each district shall maintain a publicly
available list of--
(1) credit counseling agencies that provide 1 or
more programs described in section 109(h) currently
approved by the United States trustee or the bankruptcy
administrator for the district, as applicable; and
(2) instructional courses concerning personal
financial management currently approved by the United
States trustee or the bankruptcy administrator for the
district, as applicable.
(b) The United States trustee or bankruptcy administrator
shall only approve a credit counseling agency or instructional
course concerning personal financial management as follows:
(1) The United States trustee or bankruptcy
administrator shall have thoroughly reviewed the
qualifications of the credit counseling agency or of
the provider of the instructional course under the
standards set forth in this section, and the programs
or instructional courses which will be offered by such
agency or provider, and may require an agency or
provider of an instructional course which has sought
approval to provide information with respect to such
review.
(2) The United States trustee or bankruptcy
administrator shall have determined that the credit
counseling agency or course of instruction fully
satisfies the applicable standards set forth in this
section.
(3) When an agency or course of instruction is
initially approved, such approval shall be for a
probationary period not to exceed 6 months. An agency
or course of instruction is initially approved if it
did not appear on the approved list for the district
under subsection (a) immediately prior to approval.
(4) At the conclusion of the probationary period
under paragraph (3), the United States trustee or
bankruptcy administrator may only approve for an
additional 1-year period, and for successive 1-year
periods thereafter, any agency or course of instruction
which has demonstrated during the probationary or
subsequent period that such agency or course of
instruction--
(A) has met the standards set forth under
this section during such period; and
(B) can satisfy such standards in the
future.
(5) Not later than 30 days after any final decision
under paragraph (4), that occurs either after the
expiration of the initial probationary period, or after
any 2-year period thereafter, an interested person may
seek judicial review of such decision in the
appropriate United States District Court.
(c)(1) The United States trustee or bankruptcy
administrator shall only approve a credit counseling agency
that demonstrates that it will provide qualified counselors,
maintain adequate provision for safekeeping and payment of
client funds, provide adequate counseling with respect to
client credit problems, and deal responsibly and effectively
with other matters as relate to the quality, effectiveness, and
financial security of such programs.
(2) To be approved by the United States trustee or
bankruptcy administrator, a credit counseling agency shall, at
a minimum--
(A) be a nonprofit budget and credit counseling
agency, the majority of the board of directors of
which--
(i) are not employed by the agency; and
(ii) will not directly or indirectly
benefit financially from the outcome of a
credit counseling session;
(B) if a fee is charged for counseling services,
charge a reasonable fee, and provide services without
regard to ability to pay the fee;
(C) provide for safekeeping and payment of client
funds, including an annual audit of the trust accounts
and appropriate employee bonding;
(D) provide full disclosures to clients, including
funding sources, counselor qualifications, possible
impact on credit reports, and any costs of such program
that will be paid by the debtor and how such costs will
be paid;
(E) provide adequate counseling with respect to
client credit problems that includes an analysis of
their current situation, what brought them to that
financial status, and how they can develop a plan to
handle the problem without incurring negative
amortization of their debts;
(F) provide trained counselors who receive no
commissions or bonuses based on the counseling session
outcome, and who have adequate experience, and have
been adequately trained to provide counseling services
to individuals in financial difficulty, including the
matters described in subparagraph (E);
(G) demonstrate adequate experience and background
in providing credit counseling; and
(H) have adequate financial resources to provide
continuing support services for budgeting plans over
the life of any repayment plan.
(d) The United States trustee or bankruptcy administrator
shall only approve an instructional course concerning personal
financial management--
(1) for an initial probationary period under
subsection (b)(3) if the course will provide at a
minimum--
(A) trained personnel with adequate
experience and training in providing effective
instruction and services;
(B) learning materials and teaching
methodologies designed to assist debtors in
understanding personal financial management and
that are consistent with stated objectives
directly related to the goals of such course of
instruction;
(C) adequate facilities situated in
reasonably convenient locations at which such
course of instruction is offered, except that
such facilities may include the provision of
such course of instruction or program by
telephone or through the Internet, if the
course of instruction or program is effective;
and
(D) the preparation and retention of
reasonable records (which shall include the
debtor's bankruptcy case number) to permit
evaluation of the effectiveness of such course
of instruction or program, including any
evaluation of satisfaction of course of
instruction or program requirements for each
debtor attending such course of instruction or
program, which shall be available for
inspection and evaluation by the Executive
Office for United States Trustees, the United
States trustee, bankruptcy administrator, or
chief bankruptcy judge for the district in
which such course of instruction or program is
offered; and
(2) for any 1-year period if the provider thereof
has demonstrated that the course meets the standards of
paragraph (1) and, in addition--
(A) has been effective in assisting a
substantial number of debtors to understand
personal financial management; and
(B) is otherwise likely to increase
substantially debtor understanding of personal
financial management.
(e) The District Court may, at any time, investigate the
qualifications of a credit counseling agency referred to in
subsection (a), and request production of documents to ensure
the integrity and effectiveness of such credit counseling
agencies. The District Court may, at any time, remove from the
approved list under subsection (a) a credit counseling agency
upon finding such agency does not meet the qualifications of
subsection (b).
(f) The United States trustee or bankruptcy administrator
shall notify the clerk that a credit counseling agency or an
instructional course is no longer approved, in which case the
clerk shall remove it from the list maintained under subsection
(a).
(g)(1) No credit counseling service may provide to a credit
reporting agency information concerning whether an individual
debtor has received or sought instruction concerning personal
financial management from the credit counseling service.
(2) A credit counseling service that willfully or
negligently fails to comply with any requirement under this
title with respect to a debtor shall be liable for damages in
an amount equal to the sum of--
(A) any actual damages sustained by the debtor as a
result of the violation; and
(B) any court costs or reasonable attorneys' fees
(as determined by the court) incurred in an action to
recover those damages.
* * * * * * *
CHAPTER 3--CASE ADMINISTRATION
SUBCHAPTER I--COMMENCEMENT OF A CASE
Sec.
301. Voluntary cases.
* * * * * * *
[304. Cases ancillary to foreign proceedings.]
* * * * * * *
308. Debtor reporting requirements.
* * * * * * *
SUBCHAPTER II--OFFICERS
321. Eligibility to serve as trustee.
* * * * * * *
332. Appointment of ombudsman.
* * * * * * *
SUBCHAPTER III--ADMINISTRATION
341. Meetings of creditors and equity security holders.
* * * * * * *
351. Disposal of patient records.
* * * * * * *
SUBCHAPTER I--COMMENCEMENT OF A CASE
Sec. 301. Voluntary cases
(a) A voluntary case under a chapter of this title is
commenced by the filing with the bankruptcy court of a petition
under such chapter by an entity that may be a debtor under such
chapter. [The commencement of a voluntary case under a chapter
of this title constitutes an order for relief under such
chapter.]
(b) The commencement of a voluntary case under a chapter of
this title constitutes an order for relief under such chapter.
* * * * * * *
Sec. 303. Involuntary cases
(a) * * *
* * * * * * *
[(k) Notwithstanding subsection (a) of this section, an
involuntary case may be commenced against a foreign bank that
is not engaged in such business in the United States only under
chapter 7 of this title and only if a foreign proceeding
concerning such bank is pending.]
[Sec. 304. Cases ancillary to foreign proceedings
[(a) A case ancillary to a foreign proceeding is commenced
by the filing with the bankruptcy court of a petition under
this section by a foreign representative.
[(b) Subject to the provisions of subsection (c) of this
section, if a party in interest does not timely controvert the
petition, or after trial, the court may--
[(1) enjoin the commencement or continuation of--
[(A) any action against--
[(i) a debtor with respect to
property involved in such foreign
proceeding; or
[(ii) such property; or
[(B) the enforcement of any judgment
against the debtor with respect to such
property, or any act or the commencement or
continuation of any judicial proceeding to
create or enforce a lien against the property
of such estate;
[(2) order turnover of the property of such estate,
or the proceeds of such property, to such foreign
representative; or
[(3) order other appropriate relief.
[(c) In determining whether to grant relief under
subsection (b) of this section, the court shall be guided by
what will best assure an economical and expeditious
administration of such estate, consistent with--
[(1) just treatment of all holders of claims
against or interests in such estate;
[(2) protection of claim holders in the United
States against prejudice and inconvenience in the
processing of claims in such foreign proceeding;
[(3) prevention of preferential or fraudulent
dispositions of property of such estate;
[(4) distribution of proceeds of such estate
substantially in accordance with the order prescribed
by this title;
[(5) comity; and
[(6) if appropriate, the provision of an
opportunity for a fresh start for the individual that
such foreign proceeding concerns.]
Sec. 305. Abstention
(a) The court, after notice and a hearing, may dismiss a
case under this title, or may suspend all proceedings in a case
under this title, at any time if--
[(2)(A) there is pending a foreign proceeding; and
[(B) the factors specified in section 304(c) of
this title warrant such dismissal or suspension.]
(2)(A) a petition under section 1515 of this title
for recognition of a foreign proceeding has been
granted; and
(B) the purposes of chapter 15 of this title would
be best served by such dismissal or suspension.
* * * * * * *
(c) An order under subsection (a) of this section
dismissing a case or suspending all proceedings in a case, or a
decision not so to dismiss or suspend, is not reviewable by
appeal or otherwise by the court of appeals under [section
158(d)] subsection (e) or (f) of section 158, 1291, or 1292 of
title 28 or by the Supreme Court of the United States under
section 1254 of title 28.
Sec. 306. Limited appearance
An appearance in a bankruptcy court by a foreign
representative in connection with a petition or request under
section 303[, 304,] or 305 of this title does not submit such
foreign representative to the jurisdiction of any court in the
United States for any other purpose, but the bankruptcy court
may condition any order under section 303[, 304,] or 305 of
this title on compliance by such foreign representative with
the orders of such bankruptcy court.
* * * * * * *
Sec. 308. Debtor reporting requirements
(a) For purposes of this section, the term
``profitability'' means, with respect to a debtor, the amount
of money that the debtor has earned or lost during current and
recent fiscal periods.
(b) A small business debtor shall file periodic financial
and other reports containing information including--
(1) the debtor's profitability;
(2) reasonable approximations of the debtor's
projected cash receipts and cash disbursements over a
reasonable period;
(3) comparisons of actual cash receipts and
disbursements with projections in prior reports;
(4)(A) whether the debtor is--
(i) in compliance in all material respects
with postpetition requirements imposed by this
title and the Federal Rules of Bankruptcy
Procedure; and
(ii) timely filing tax returns and other
required government filings and paying taxes
and other administrative claims when due;
(B) if the debtor is not in compliance with the
requirements referred to in subparagraph (A)(i) or
filing tax returns and other required government
filings and making the payments referred to in
subparagraph (A)(ii), what the failures are and how, at
what cost, and when the debtor intends to remedy such
failures; and
(C) such other matters as are in the best interests
of the debtor and creditors, and in the public interest
in fair and efficient procedures under chapter 11 of
this title.
* * * * * * *
SUBCHAPTER II--OFFICERS
* * * * * * *
Sec. 328. Limitation on compensation of professional persons
(a) The trustee, or a committee appointed under section
1102 of this title, with the court's approval, may employ or
authorize the employment of a professional person under section
327 or 1103 of this title, as the case may be, on any
reasonable terms and conditions of employment, including on a
retainer, on an hourly basis, on a fixed or percentage fee
basis, or on a contingent fee basis. Notwithstanding such terms
and conditions, the court may allow compensation different from
the compensation provided under such terms and conditions after
the conclusion of such employment, if such terms and conditions
prove to have been improvident in light of developments not
capable of being anticipated at the time of the fixing of such
terms and conditions.
* * * * * * *
Sec. 330. Compensation of officers
(a)(1) After notice to the parties in interest and the
United States Trustee and a hearing, and subject to sections
326, 328, and 329, the court may award to a trustee, an
examiner, an ombudsman appointed under section 331, or a
professional person employed under section 327 or 1103--
(A) reasonable compensation for actual, necessary
services rendered by the trustee, examiner, ombudsman,
professional person, or attorney and by any
paraprofessional person employed by any such person;
and
* * * * * * *
(3)[(A) In] In determining the amount of reasonable
compensation to be awarded to an examiner, trustee under
chapter 11, or professional person, the court shall consider
the nature, the extent, and the value of such services, taking
into account all relevant factors, including--
(A) * * *
* * * * * * *
(D) whether the services were performed within a
reasonable amount of time commensurate with the
complexity, importance, and nature of the problem,
issue, or task addressed; [and]
(E) with respect to a professional person,
whether the person is board certified or
otherwise has demonstrated skill and experience
in the bankruptcy field; and
[(E)] (F) whether the compensation is reasonable
based on the customary compensation charged by
comparably skilled practitioners in cases other than
cases under this title.
* * * * * * *
(7) In determining the amount of reasonable
compensation to be awarded to a trustee, the court
shall treat such compensation as a commission, based on
section 326 of this title.
* * * * * * *
Sec. 332. Appointment of ombudsman
(a) In General.--
(1) Authority to appoint.--Not later than 30 days
after a case is commenced by a health care business
under chapter 7, 9, or 11, the court shall order the
appointment of an ombudsman to monitor the quality of
patient care to represent the interests of the patients
of the health care business, unless the court finds
that the appointment of the ombudsman is not necessary
for the protection of patients under the specific facts
of the case.
(2) Qualifications.--If the court orders the
appointment of an ombudsman, the United States trustee
shall appoint 1 disinterested person, other than the
United States trustee, to serve as an ombudsman,
including a person who is serving as a State Long-Term
Care Ombudsman appointed under title III or VII of the
Older Americans Act of 1965 (42 U.S.C. 3021 et seq.,
3058 et seq.).
(b) Duties.--An ombudsman appointed under subsection (a)
shall--
(1) monitor the quality of patient care, to the
extent necessary under the circumstances, including
interviewing patients and physicians;
(2) not later than 60 days after the date of
appointment, and not less frequently than every 60 days
thereafter, report to the court, at a hearing or in
writing, regarding the quality of patient care at the
health care business involved; and
(3) if the ombudsman determines that the quality of
patient care is declining significantly or is otherwise
being materially compromised, notify the court by
motion or written report, with notice to appropriate
parties in interest, immediately upon making that
determination.
(c) Confidentiality.--An ombudsman shall maintain any
information obtained by the ombudsman under this section that
relates to patients (including information relating to patient
records) as confidential information. The ombudsman may not
review confidential patient records, unless the court provides
prior approval, with restrictions on the ombudsman to protect
the confidentiality of patient records.
* * * * * * *
SUBCHAPTER III--ADMINISTRATION
Sec. 341. Meetings of creditors and equity security holders
(a) * * *
* * * * * * *
(c) The court may not preside at, and may not attend, any
meeting under this section including any final meeting of
creditors. Notwithstanding any local court rule, provision of a
State constitution, any other Federal or State law that is not
a bankruptcy law, or other requirement that representation at
the meeting of creditors under subsection (a) be by an
attorney, a creditor holding a consumer debt or any
representative of the creditor (which may include an entity or
an employee of an entity and may be a representative for more
than 1 creditor) shall be permitted to appear at and
participate in the meeting of creditors in a case under chapter
7 or 13, either alone or in conjunction with an attorney for
the creditor. Nothing in this subsection shall be construed to
require any creditor to be represented by an attorney at any
meeting of creditors.
* * * * * * *
(e) Notwithstanding subsections (a) and (b), the court, on
the request of a party in interest and after notice and a
hearing, for cause may order that the United States trustee not
convene a meeting of creditors or equity security holders if
the debtor has filed a plan as to which the debtor solicited
acceptances prior to the commencement of the case.
* * * * * * *
Sec. 342. Notice
(a) * * *
[(b) Prior to the commencement of a case under this title
by an individual whose debts are primarily consumer debts, the
clerk shall give written notice to such individual that
indicates each chapter of this title under which such
individual may proceed.]
(b) Before the commencement of a case under this title by
an individual whose debts are primarily consumer debts, the
clerk shall give to such individual written notice containing--
(1) a brief description of--
(A) chapters 7, 11, 12, and 13 and the
general purpose, benefits, and costs of
proceeding under each of those chapters; and
(B) the types of services available from
credit counseling agencies; and
(2) statements specifying that--
(A) a person who knowingly and fraudulently
conceals assets or makes a false oath or
statement under penalty of perjury in
connection with a bankruptcy case shall be
subject to fine, imprisonment, or both; and
(B) all information supplied by a debtor in
connection with a bankruptcy case is subject to
examination by the Attorney General.
(c)(1) If notice is required to be given by the debtor to a
creditor under this title, any rule, any applicable law, or any
order of the court, such notice shall contain the name,
address, and taxpayer identification number of the debtor[, but
the failure of such notice to contain such information shall
not invalidate the legal effect of such notice].
(2) If, within the 90 days prior to the date of the
filing of a petition in a voluntary case, the creditor
supplied the debtor in at least 2 communications sent
to the debtor with the current account number of the
debtor and the address at which the creditor wishes to
receive correspondence, then the debtor shall send any
notice required under this title to the address
provided by the creditor and such notice shall include
the account number. In the event the creditor would be
in violation of applicable nonbankruptcy law by sending
any such communication within such 90-day period and if
the creditor supplied the debtor in the last 2
communications with the current account number of the
debtor and the address at which the creditor wishes to
receive correspondence, then the debtor shall send any
notice required under this title to the address
provided by the creditor and such notice shall include
the account number.
(d) In an individual case under chapter 7 in which the
presumption of abuse is triggered under section 707(b), the
clerk shall give written notice to all creditors not later than
10 days after the date of the filing of the petition that the
presumption of abuse has been triggered.
(e) At any time, a creditor, in a case of an individual
debtor under chapter 7 or 13, may file with the court and serve
on the debtor a notice of the address to be used to notify the
creditor in that case. Five days after receipt of such notice,
if the court or the debtor is required to give the creditor
notice, such notice shall be given at that address.
(f) An entity may file with the court a notice stating its
address for notice in cases under chapters 7 and 13. After 30
days following the filing of such notice, any notice in any
case filed under chapter 7 or 13 given by the court shall be to
that address unless specific notice is given under subsection
(e) with respect to a particular case.
(g)(1) Notice given to a creditor other than as provided in
this section shall not be effective notice until that notice
has been brought to the attention of the creditor. If the
creditor designates a person or department to be responsible
for receiving notices concerning bankruptcy cases and
establishes reasonable procedures so that bankruptcy notices
received by the creditor are to be delivered to such department
or person, notice shall not be considered to have been brought
to the attention of the creditor until received by such person
or department.
(2) No sanction under section 362(k) or any other sanction
that a court may impose on account of violations of the stay
under section 362(a) or failure to comply with section 542 or
543 may be imposed on any action of the creditor unless the
action takes place after the creditor has received notice of
the commencement of the case effective under this section.
* * * * * * *
[Sec. 346. Special tax provisions
[(a) Except to the extent otherwise provided in this
section, subsections (b), (c), (d), (e), (g), (h), (i), and (j)
of this section apply notwithstanding any State or local law
imposing a tax, but subject to the Internal Revenue Code of
1986.
[(b)(1) In a case under chapter 7, 12, or 11 of this title
concerning an individual, any income of the estate may be taxed
under a State or local law imposing a tax on or measured by
income only to the estate, and may not be taxed to such
individual. Except as provided in section 728 of this title, if
such individual is a partner in a partnership, any gain or loss
resulting from a distribution of property from such
partnership, or any distributive share of income, gain, loss,
deduction, or credit of such individual that is distributed, or
considered distributed, from such partnership, after the
commencement of the case is gain, loss, income, deduction, or
credit, as the case may be, of the estate.
[(2) Except as otherwise provided in this section and in
section 728 of this title, any income of the estate in such a
case, and any State or local tax on or measured by such income,
shall be computed in the same manner as the income and the tax
of an estate.
[(3) The estate in such a case shall use the same
accounting method as the debtor used immediately before the
commencement of the case.
[(c)(1) The commencement of a case under this title
concerning a corporation or a partnership does not effect a
change in the status of such corporation or partnership for the
purposes of any State or local law imposing a tax on or
measured by income. Except as otherwise provided in this
section and in section 728 of this title, any income of the
estate in such case may be taxed only as though such case had
not been commenced.
[(2) In such a case, except as provided in section 728 of
this title, the trustee shall make any tax return otherwise
required by State or local law to be filed by or on behalf of
such corporation or partnership in the same manner and form as
such corporation or partnership, as the case may be, is
required to make such return.
[(d) In a case under chapter 13 of this title, any income
of the estate or the debtor may be taxed under a State or local
law imposing a tax on or measured by income only to the debtor,
and may not be taxed to the estate.
[(e) A claim allowed under section 502(f) or 503 of this
title, other than a claim for a tax that is not otherwise
deductible or a capital expenditure that is not otherwise
deductible, is deductible by the entity to which income of the
estate is taxed unless such claim was deducted by another
entity, and a deduction for such a claim is deemed to be a
deduction attributable to a business.
[(f) The trustee shall withhold from any payment of claims
for wages, salaries, commissions, dividends, interest, or other
payments, or collect, any amount required to be withheld or
collected under applicable State or local tax law, and shall
pay such withheld or collected amount to the appropriate
governmental unit at the time and in the manner required by
such tax law, and with the same priority as the claim from
which such amount was withheld was paid.
[(g)(1) Neither gain nor loss shall be recognized on a
transfer--
[(A) by operation of law, of property to the
estate;
[(B) other than a sale, of property from the estate
to the debtor; or
[(C) in a case under chapter 11 or 12 of this title
concerning a corporation, of property from the estate
to a corporation that is an affiliate participating in
a joint plan with the debtor, or that is a successor to
the debtor under the plan, except that gain or loss may
be recognized to the same extent that such transfer
results in the recognition of gain or loss under
section 371 of the Internal Revenue Code of 1986.
[(2) The transferee of a transfer of a kind specified in
this subsection shall take the property transferred with the
same character, and with the transferor's basis, as adjusted
under subsection (j)(5) of this section, and holding period.
[(h) Notwithstanding sections 728(a) and 1146(a) of this
title, for the purpose of determining the number of taxable
periods during which the debtor or the estate may use a loss
carryover or a loss carryback, the taxable period of the debtor
during which the case is commenced is deemed not to have been
terminated by such commencement.
[(i)(1) In a case under chapter 7, 12, or 11 of this title
concerning an individual, the estate shall succeed to the
debtor's tax attributes, including--
[(A) any investment credit carryover;
[(B) any recovery exclusion;
[(C) any loss carryover;
[(D) any foreign tax credit carryover;
[(E) any capital loss carryover; and
[(F) any claim of right.
[(2) After such a case is closed or dismissed, the debtor
shall succeed to any tax attribute to which the estate
succeeded under paragraph (1) of this subsection but that was
not utilized by the estate. The debtor may utilize such tax
attributes as though any applicable time limitations on such
utilization by the debtor were suspended during the time during
which the case was pending.
[(3) In such a case, the estate may carry back any loss of
the estate to a taxable period of the debtor that ended before
the order for relief under such chapter the same as the debtor
could have carried back such loss had the debtor incurred such
loss and the case under this title had not been commenced, but
the debtor may not carry back any loss of the debtor from a
taxable period that ends after such order to any taxable period
of the debtor that ended before such order until after the case
is closed.
[(j)(1) Except as otherwise provided in this subsection,
income is not realized by the estate, the debtor, or a
successor to the debtor by reason of forgiveness or discharge
of indebtedness in a case under this title.
[(2) For the purposes of any State or local law imposing a
tax on or measured by income, a deduction with respect to a
liability may not be allowed for any taxable period during or
after which such liability is forgiven or discharged under this
title. In this paragraph, ``a deduction with respect to a
liability'' includes a capital loss incurred on the disposition
of a capital asset with respect to a liability that was
incurred in connection with the acquisition of such asset.
[(3) Except as provided in paragraph (4) of this
subsection, for the purpose of any State or local law imposing
a tax on or measured by income, any net operating loss of an
individual or corporate debtor, including a net operating loss
carryover to such debtor, shall be reduced by the amount of
indebtedness forgiven or discharged in a case under this title,
except to the extent that such forgiveness or discharge
resulted in a disallowance under paragraph (2) of this
subsection.
[(4) A reduction of a net operating loss or a net operating
loss carryover under paragraph (3) of this subsection or of
basis under paragraph (5) of this subsection is not required to
the extent that the indebtedness of an individual or corporate
debtor forgiven or discharged--
[(A) consisted of items of a deductible nature that
were not deducted by such debtor; or
[(B) resulted in an expired net operating loss
carryover or other deduction that--
[(i) did not offset income for any taxable
period; and
[(ii) did not contribute to a net operating
loss in or a net operating loss carryover to
the taxable period during or after which such
indebtedness was discharged.
[(5) For the purposes of a State or local law imposing a
tax on or measured by income, the basis of the debtor's
property or of property transferred to an entity required to
use the debtor's basis in whole or in part shall be reduced by
the lesser of--
[(A)(i) the amount by which the indebtedness of the
debtor has been forgiven or discharged in a case under
this title; minus
[(ii) the total amount of adjustments made under
paragraphs (2) and (3) of this subsection; and
[(B) the amount by which the total basis of the
debtor's assets that were property of the estate before
such forgiveness or discharge exceeds the debtor's
total liabilities that were liabilities both before and
after such forgiveness or discharge.
[(6) Notwithstanding paragraph (5) of this subsection,
basis is not required to be reduced to the extent that the
debtor elects to treat as taxable income, of the taxable period
in which indebtedness is forgiven or discharged, the amount of
indebtedness forgiven or discharged that otherwise would be
applied in reduction of basis under paragraph (5) of this
subsection.
[(7) For the purposes of this subsection, indebtedness with
respect to which an equity security, other than an interest of
a limited partner in a limited partnership, is issued to the
creditor to whom such indebtedness was owed, or that is
forgiven as a contribution to capital by an equity security
holder other than a limited partner in the debtor, is not
forgiven or discharged in a case under this title--
[(A) to any extent that such indebtedness did not
consist of items of a deductible nature; or
[(B) if the issuance of such equity security has
the same consequences under a law imposing a tax on or
measured by income to such creditor as a payment in
cash to such creditor in an amount equal to the fair
market value of such equity security, then to the
lesser of--
[(i) the extent that such issuance has the
same such consequences; and
[(ii) the extent of such fair market
value.]
Sec. 346. Special provisions related to the treatment of state and
local taxes
(a) Whenever the Internal Revenue Code of 1986 provides
that a separate taxable estate or entity is created in a case
concerning a debtor under this title, and the income, gain,
loss, deductions, and credits of such estate shall be taxed to
or claimed by the estate, a separate taxable estate is also
created for purposes of any State and local law imposing a tax
on or measured by income and such income, gain, loss,
deductions, and credits shall be taxed to or claimed by the
estate and may not be taxed to or claimed by the debtor. The
preceding sentence shall not apply if the case is dismissed.
The trustee shall make tax returns of income required under any
such State or local law.
(b) Whenever the Internal Revenue Code of 1986 provides
that no separate taxable estate shall be created in a case
concerning a debtor under this title, and the income, gain,
loss, deductions, and credits of an estate shall be taxed to or
claimed by the debtor, such income, gain, loss, deductions, and
credits shall be taxed to or claimed by the debtor under a
State or local law imposing a tax on or measured by income and
may not be taxed to or claimed by the estate. The trustee shall
make such tax returns of income of corporations and of
partnerships as are required under any State or local law, but
with respect to partnerships, shall make said returns only to
the extent such returns are also required to be made under such
Code. The estate shall be liable for any tax imposed on such
corporation or partnership, but not for any tax imposed on
partners or members.
(c) With respect to a partnership or any entity treated as
a partnership under a State or local law imposing a tax on or
measured by income that is a debtor in a case under this title,
any gain or loss resulting from a distribution of property from
such partnership, or any distributive share of any income,
gain, loss, deduction, or credit of a partner or member that is
distributed, or considered distributed, from such partnership,
after the commencement of the case, is gain, loss, income,
deduction, or credit, as the case may be, of the partner or
member, and if such partner or member is a debtor in a case
under this title, shall be subject to tax in accordance with
subsection (a) or (b).
(d) For purposes of any State or local law imposing a tax
on or measured by income, the taxable period of a debtor in a
case under this title shall terminate only if and to the extent
that the taxable period of such debtor terminates under the
Internal Revenue Code of 1986.
(e) The estate in any case described in subsection (a)
shall use the same accounting method as the debtor used
immediately before the commencement of the case, if such method
of accounting complies with applicable nonbankruptcy tax law.
(f) For purposes of any State or local law imposing a tax
on or measured by income, a transfer of property from the
debtor to the estate or from the estate to the debtor shall not
be treated as a disposition for purposes of any provision
assigning tax consequences to a disposition, except to the
extent that such transfer is treated as a disposition under the
Internal Revenue Code of 1986.
(g) Whenever a tax is imposed pursuant to a State or local
law imposing a tax on or measured by income pursuant to
subsection (a) or (b), such tax shall be imposed at rates
generally applicable to the same types of entities under such
State or local law.
(h) The trustee shall withhold from any payment of claims
for wages, salaries, commissions, dividends, interest, or other
payments, or collect, any amount required to be withheld or
collected under applicable State or local tax law, and shall
pay such withheld or collected amount to the appropriate
governmental unit at the time and in the manner required by
such tax law, and with the same priority as the claim from
which such amount was withheld or collected was paid.
(i)(1) To the extent that any State or local law imposing a
tax on or measured by income provides for the carryover of any
tax attribute from one taxable period to a subsequent taxable
period, the estate shall succeed to such tax attribute in any
case in which such estate is subject to tax under subsection
(a).
(2) After such a case is closed or dismissed, the debtor
shall succeed to any tax attribute to which the estate
succeeded under paragraph (1) to the extent consistent with the
Internal Revenue Code of 1986.
(3) The estate may carry back any loss or tax attribute to
a taxable period of the debtor that ended before the order for
relief under this title to the extent that--
(A) applicable State or local tax law provides for
a carryback in the case of the debtor; and
(B) the same or a similar tax attribute may be
carried back by the estate to such a taxable period of
the debtor under the Internal Revenue Code of 1986.
(j)(1) For purposes of any State or local law imposing a
tax on or measured by income, income is not realized by the
estate, the debtor, or a successor to the debtor by reason of
discharge of indebtedness in a case under this title, except to
the extent, if any, that such income is subject to tax under
the Internal Revenue Code of 1986.
(2) Whenever the Internal Revenue Code of 1986 provides
that the amount excluded from gross income in respect of the
discharge of indebtedness in a case under this title shall be
applied to reduce the tax attributes of the debtor or the
estate, a similar reduction shall be made under any State or
local law imposing a tax on or measured by income to the extent
such State or local law recognizes such attributes. Such State
or local law may also provide for the reduction of other
attributes to the extent that the full amount of income from
the discharge of indebtedness has not been applied.
(k)(1) Except as provided in this section and section 505,
the time and manner of filing tax returns and the items of
income, gain, loss, deduction, and credit of any taxpayer shall
be determined under applicable nonbankruptcy law.
(2) For Federal tax purposes, the provisions of this
section are subject to the Internal Revenue Code of 1986 and
other applicable Federal nonbankruptcy law.
* * * * * * *
Sec. 348. Effect of conversion
(a) * * *
* * * * * * *
(f)(1) Except as provided in paragraph (2), when a case
under chapter 13 of this title is converted to a case under
another chapter under this title--
(A) property of the estate in the converted case
shall consist of property of the estate, as of the date
of filing of the petition, that remains in the
possession of or is under the control of the debtor on
the date of conversion; [and]
(B) valuations of property and of allowed secured
claims in the chapter 13 case shall apply [in the
converted case, with allowed secured claims] only in a
case converted to a case under chapter 11 or 12, but
not in a case converted to a case under chapter 7, with
allowed secured claims in cases under chapters 11 and
12 reduced to the extent that they have been paid in
accordance with the chapter 13 plan[.]; and
(C) with respect to cases converted from chapter
13--
(i) the claim of any creditor holding
security as of the date of the petition shall
continue to be secured by that security unless
the full amount of such claim determined under
applicable nonbankruptcy law has been paid in
full as of the date of conversion,
notwithstanding any valuation or determination
of the amount of an allowed secured claim made
for the purposes of the chapter 13 proceeding;
and
(ii) unless a prebankruptcy default has
been fully cured under the plan at the time of
conversion, in any proceeding under this title
or otherwise, the default shall have the effect
given under applicable nonbankruptcy law.
(2) If the debtor converts a case under chapter 13 of this
title to a case under another chapter under this title in bad
faith, the property of the estate in the converted case shall
consist of the property of the estate as of the date of
conversion.
* * * * * * *
Sec. 351. Disposal of patient records
If a health care business commences a case under chapter 7,
9, or 11, and the trustee does not have a sufficient amount of
funds to pay for the storage of patient records in the manner
required under applicable Federal or State law, the following
requirements shall apply:
(1) The trustee shall--
(A) promptly publish notice, in 1 or more
appropriate newspapers, that if patient records
are not claimed by the patient or an insurance
provider (if applicable law permits the
insurance provider to make that claim) by the
date that is 365 days after the date of that
notification, the trustee will destroy the
patient records; and
(B) during the first 180 days of the 365-
day period described in subparagraph (A),
promptly attempt to notify directly each
patient that is the subject of the patient
records and appropriate insurance carrier
concerning the patient records by mailing to
the last known address of that patient, or a
family member or contact person for that
patient, and to the appropriate insurance
carrier an appropriate notice regarding the
claiming or disposing of patient records.
(2) If, after providing the notification under
paragraph (1), patient records are not claimed during
the 365-day period described under that paragraph, the
trustee shall mail, by certified mail, at the end of
such 365-day period a written request to each
appropriate Federal agency to request permission from
that agency to deposit the patient records with that
agency, except that no Federal agency is required to
accept patient records under this paragraph.
(3) If, following the 365-day period described in
paragraph (2) and after providing the notification
under paragraph (1), patient records are not claimed by
a patient or insurance provider, or request is not
granted by a Federal agency to deposit such records
with that agency, the trustee shall destroy those
records by--
(A) if the records are written, shredding
or burning the records; or
(B) if the records are magnetic, optical,
or other electronic records, by otherwise
destroying those records so that those records
cannot be retrieved.
SUBCHAPTER IV--ADMINISTRATIVE POWERS
* * * * * * *
Sec. 362. Automatic stay
(a) Except as provided in subsection (b) of this section, a
petition filed under section 301, 302, or 303 of this title, or
an application filed under section 5(a)(3) of the Securities
Investor Protection Act of 1970, operates as a stay, applicable
to all entities, of--
(1) * * *
* * * * * * *
(8) the commencement or continuation of a
proceeding before the United States Tax Court
concerning [the debtor] a corporate debtor's tax
liability for a taxable period the bankruptcy court may
determine or concerning an individual debtor's tax
liability for a taxable period ending before the order
for relief under this title.
(b) The filing of a petition under section 301, 302, or 303
of this title, or of an application under section 5(a)(3) of
the Securities Investor Protection Act of 1970, does not
operate as a stay--
(1) * * *
[(2) under subsection (a) of this section--
[(A) of the commencement or continuation of
an action or proceeding for--
[(i) the establishment of
paternity; or
[(ii) the establishment or
modification of an order for alimony,
maintenance, or support; or
[(B) of the collection of alimony,
maintenance, or support from property that is
not property of the estate;]
(2) under subsection (a)--
(A) of the commencement or continuation of
a civil action or proceeding--
(i) for the establishment of
paternity;
(ii) for the establishment or
modification of an order for domestic
support obligations;
(iii) concerning child custody or
visitation;
(iv) for the dissolution of a
marriage, except to the extent that
such proceeding seeks to determine the
division of property that is property
of the estate; or
(v) regarding domestic violence;
(B) the collection of a domestic support
obligation from property that is not property
of the estate;
(C) with respect to the withholding of
income that is property of the estate or
property of the debtor for payment of a
domestic support obligation under a judicial or
administrative order;
(D) the withholding, suspension, or
restriction of drivers' licenses, professional
and occupational licenses, and recreational
licenses under State law, as specified in
section 466(a)(16) of the Social Security Act
(42 U.S.C. 666(a)(16));
(E) the reporting of overdue support owed
by a parent to any consumer reporting agency as
specified in section 466(a)(7) of the Social
Security Act (42 U.S.C. 666(a)(7));
(F) the interception of tax refunds, as
specified in sections 464 and 466(a)(3) of the
Social Security Act (42 U.S.C. 664 and
666(a)(3)) or under an analogous State law; or
(G) the enforcement of medical obligations
as specified under title IV of the Social
Security Act (42 U.S.C. 601 et seq.);
* * * * * * *
(6) under subsection (a) of this section, of the
setoff by a commodity broker, forward contract
merchant, stockbroker, [financial institutions,]
financial institution, financial participant, or
securities clearing agency of any mutual debt and claim
under or in connection with commodity contracts, as
defined in section 761 of this title, forward
contracts, or securities contracts, as defined in
section 741 of this title, that constitutes the setoff
of a claim against the debtor for a margin payment, as
defined in section 101, 741, or 761 of this title, or
settlement payment, as defined in section 101 or 741 of
this title, arising out of commodity contracts, forward
contracts, or securities contracts against cash,
securities, or other property held by, pledged to, and
under the control of, or due from such commodity
broker, forward contract merchant, stockbroker,
[financial institutions,] financial institution,
financial participant, or securities clearing agency to
margin, guarantee, secure, or settle commodity
contracts, forward contracts, or securities contracts;
(7) under subsection (a) of this section, of the
setoff by a repo participant, of any mutual debt and
claim under or in connection with repurchase agreements
that constitutes the setoff of a claim against the
debtor for a margin payment, as defined in section 741
or 761 of this title, or settlement payment, as defined
in section 741 of this title, arising out of repurchase
agreements against cash, securities, or other property
held by, pledged to, and under the control of, or due
from such repo participant to margin, guarantee, secure
or settle repurchase agreements;
* * * * * * *
[(17) under subsection (a) of this section, of the
setoff by a swap participant, of any mutual debt and
claim under or in connection with any swap agreement
that constitutes the setoff of a claim against the
debtor for any payment due from the debtor under or in
connection with any swap agreement against any payment
due to the debtor from the swap participant under or in
connection with any swap agreement or against cash,
securities, or other property of the debtor held by or
due from such swap participant to guarantee, secure or
settle any swap agreement; or
[(18) under subsection (a) of the creation or
perfection of a statutory lien for an ad valorem
property tax imposed by the District of Columbia, or a
political subdivision of a State, if such tax comes due
after the filing of the petition.]
(17) under subsection (a), of the setoff by a swap
participant of a mutual debt and claim under or in
connection with one or more swap agreements that
constitutes the setoff of a claim against the debtor
for any payment or other transfer of property due from
the debtor under or in connection with any swap
agreement against any payment due to the debtor from
the swap participant under or in connection with any
swap agreement or against cash, securities, or other
property held by, pledged to, and under the control of,
or due from such swap participant to margin, guarantee,
secure, or settle any swap agreement;
(18) under subsection (a) of the creation or
perfection of a statutory lien for an ad valorem
property tax, or a special tax or special assessment on
real property whether or not ad valorem, imposed by a
governmental unit, if such tax or assessment comes due
after the filing of the petition;
(19) under subsection (a), of withholding of income
from a debtor's wages and collection of amounts
withheld, under the debtor's agreement authorizing that
withholding and collection for the benefit of a
pension, profit-sharing, stock bonus, or other plan
established under section 401, 403, 408, 408A, 414,
457, or 501(a) of the Internal Revenue Code of 1986,
that is sponsored by the employer of the debtor, or an
affiliate, successor, or predecessor of such employer--
(A) to the extent that the amounts withheld
and collected are used solely for payments
relating to a loan from a plan that satisfies
the requirements of section 408(b)(1) of the
Employee Retirement Income Security Act of 1974
or is subject to section 72(p) of the Internal
Revenue Code of 1986; or
(B) in the case of a loan from a thrift
savings plan described in subchapter III of
chapter 84 of title 5, that satisfies the
requirements of section 8433(g) of such title;
(20) under subsection (a), of any act to enforce
any lien against or security interest in real property
following the entry of an order under section 362(d)(4)
as to that property in any prior bankruptcy case for a
period of 2 years after entry of such an order, except
that the debtor, in a subsequent case, may move the
court for relief from such order based upon changed
circumstances or for other good cause shown, after
notice and a hearing;
(21) under subsection (a), of any act to enforce
any lien against or security interest in real
property--
(A) if the debtor is ineligible under
section 109(g) to be a debtor in a bankruptcy
case; or
(B) if the bankruptcy case was filed in
violation of a bankruptcy court order in a
prior bankruptcy case prohibiting the debtor
from being a debtor in another bankruptcy case;
(22) under subsection (a)(3), of the continuation
of any eviction, unlawful detainer action, or similar
proceeding by a lessor against a debtor involving
residential real property in which the debtor resides
as a tenant under a rental agreement;
(23) under subsection (a)(3), of the commencement
of any eviction, unlawful detainer action, or similar
proceeding by a lessor against a debtor involving
residential real property in which the debtor resides
as a tenant under a rental agreement that has
terminated under the lease agreement or applicable
State law;
(24) under subsection (a)(3), of eviction actions
based on endangerment to property or person or the use
of illegal drugs;
(25) under subsection (a) of any transfer that is
not avoidable under section 544 and that is not
avoidable under section 549;
(26) under subsection (a), of--
(A) the commencement or continuation of an
investigation or action by a securities self
regulatory organization to enforce such
organization's regulatory power;
(B) the enforcement of an order or
decision, other than for monetary sanctions,
obtained in an action by the securities self
regulatory organization to enforce such
organization's regulatory power; or
(C) any act taken by the securities self
regulatory organization to delist, delete, or
refuse to permit quotation of any stock that
does not meet applicable regulatory
requirements;
(27) under subsection (a), of the setoff under
applicable nonbankruptcy law of an income tax refund,
by a governmental unit, with respect to a taxable
period that ended before the order for relief against
an income tax liability for a taxable period that also
ended before the order for relief, except that in any
case in which the setoff of an income tax refund is not
permitted under applicable nonbankruptcy law because of
a pending action to determine the amount or legality of
a tax liability, the governmental unit may hold the
refund pending the resolution of the action, unless the
court, upon motion of the trustee and after notice and
hearing, grants the taxing authority adequate
protection (within the meaning of section 361) for the
secured claim of that authority in the setoff under
section 506(a);
(28) under subsection (a), of the setoff by a
master netting agreement participant of a mutual debt
and claim under or in connection with one or more
master netting agreements or any contract or agreement
subject to such agreements that constitutes the setoff
of a claim against the debtor for any payment or other
transfer of property due from the debtor under or in
connection with such agreements or any contract or
agreement subject to such agreements against any
payment due to the debtor from such master netting
agreement participant under or in connection with such
agreements or any contract or agreement subject to such
agreements or against cash, securities, or other
property held by, pledged to, and under the control of,
or due from such master netting agreement participant
to margin, guarantee, secure, or settle such agreements
or any contract or agreement subject to such
agreements, to the extent that such participant is
eligible to exercise such offset rights under paragraph
(6), (7), or (17) for each individual contract covered
by the master netting agreement in issue; or
(29) under subsection (a), of the exclusion by the
Secretary of Health and Human Services of the debtor
from participation in the medicare program or any other
Federal health care program (as defined in section
1128B(f) of the Social Security Act (42 U.S.C. 1320a-
7b(f)) pursuant to title XI of such Act (42 U.S.C. 1301
et seq.) or title XVIII of such Act (42 U.S.C. 1395 et
seq.).
The provisions of paragraphs (12) and (13) of this subsection
shall apply with respect to any such petition filed on or
before December 31, 1989. Nothing in paragraph (19) may be
construed to provide that any loan made under a governmental
plan under section 414(d), or a contract or account under
section 403(b) of the Internal Revenue Code of 1986 constitutes
a claim or a debt under this title.
(c) Except as provided in subsections (d), [(e), and (f)]
(e), (f), and (h) of this section--
(1) the stay of an act against property of the
estate under subsection (a) of this section continues
until such property is no longer property of the
estate; [and]
(2) the stay of any other act under subsection (a)
of this section continues until the earliest of--
(A) * * *
* * * * * * *
(C) if the case is a case under chapter 7
of this title concerning an individual or a
case under chapter 9, 11, 12, or 13 of this
title, the time a discharge is granted or
denied[.];
(3) if a single or joint case is filed by or
against an individual debtor under chapter 7, 11, or
13, and if a single or joint case of the debtor was
pending within the preceding 1-year period but was
dismissed, other than a case refiled under a chapter
other than chapter 7 after dismissal under section
707(b)--
(A) the stay under subsection (a) with
respect to any action taken with respect to a
debt or property securing such debt or with
respect to any lease shall terminate with
respect to the debtor on the 30th day after the
filing of the later case;
(B) upon motion by a party in interest for
continuation of the automatic stay and upon
notice and a hearing, the court may extend the
stay in particular cases as to any or all
creditors (subject to such conditions or
limitations as the court may then impose) after
notice and a hearing completed before the
expiration of the 30-day period only if the
party in interest demonstrates that the filing
of the later case is in good faith as to the
creditors to be stayed; and
(C) for purposes of subparagraph (B), a
case is presumptively filed not in good faith
(but such presumption may be rebutted by clear
and convincing evidence to the contrary)--
(i) as to all creditors, if--
(I) more than 1 previous
case under any of chapter 7,
11, or 13 in which the
individual was a debtor was
pending within the preceding 1-
year period;
(II) a previous case under
any of chapter 7, 11, or 13 in
which the individual was a
debtor was dismissed within
such 1-year period, after the
debtor failed to--
(aa) file or amend
the petition or other
documents as required
by this title or the
court without
substantial excuse (but
mere inadvertence or
negligence shall not be
a substantial excuse
unless the dismissal
was caused by the
negligence of the
debtor's attorney);
(bb) provide
adequate protection as
ordered by the court;
or
(cc) perform the
terms of a plan
confirmed by the court;
or
(III) there has not been a
substantial change in the
financial or personal affairs
of the debtor since the
dismissal of the next most
previous case under chapter 7,
11, or 13 or any other reason
to conclude that the later case
will be concluded--
(aa) if a case
under chapter 7, with a
discharge; or
(bb) if a case
under chapter 11 or 13,
with a confirmed plan
which will be fully
performed; and
(ii) as to any creditor that
commenced an action under subsection
(d) in a previous case in which the
individual was a debtor if, as of the
date of dismissal of such case, that
action was still pending or had been
resolved by terminating, conditioning,
or limiting the stay as to actions of
such creditor; and
(4)(A)(i) if a single or joint case is filed by or
against an individual debtor under this title, and if 2
or more single or joint cases of the debtor were
pending within the previous year but were dismissed,
other than a case refiled under section 707(b), the
stay under subsection (a) shall not go into effect upon
the filing of the later case; and
(ii) on request of a party in interest, the court
shall promptly enter an order confirming that no stay
is in effect;
(B) if, within 30 days after the filing of the
later case, a party in interest requests the court may
order the stay to take effect in the case as to any or
all creditors (subject to such conditions or
limitations as the court may impose), after notice and
hearing, only if the party in interest demonstrates
that the filing of the later case is in good faith as
to the creditors to be stayed;
(C) a stay imposed under subparagraph (B) shall be
effective on the date of entry of the order allowing
the stay to go into effect; and
(D) for purposes of subparagraph (B), a case is
presumptively not filed in good faith (but such
presumption may be rebutted by clear and convincing
evidence to the contrary)--
(i) as to all creditors if--
(I) 2 or more previous cases under
this title in which the individual was
a debtor were pending within the 1-year
period;
(II) a previous case under this
title in which the individual was a
debtor was dismissed within the time
period stated in this paragraph after
the debtor failed to file or amend the
petition or other documents as required
by this title or the court without
substantial excuse (but mere
inadvertence or negligence shall not be
substantial excuse unless the dismissal
was caused by the negligence of the
debtor's attorney), failed to pay
adequate protection as ordered by the
court, or failed to perform the terms
of a plan confirmed by the court; or
(III) there has not been a
substantial change in the financial or
personal affairs of the debtor since
the dismissal of the next most previous
case under this title, or any other
reason to conclude that the later case
will not be concluded, if a case under
chapter 7, with a discharge, and if a
case under chapter 11 or 13, with a
confirmed plan that will be fully
performed; or
(ii) as to any creditor that commenced an
action under subsection (d) in a previous case
in which the individual was a debtor if, as of
the date of dismissal of such case, such action
was still pending or had been resolved by
terminating, conditioning, or limiting the stay
as to action of such creditor.
(d) On request of a party in interest and after notice and
a hearing, the court shall grant relief from the stay provided
under subsection (a) of this section, such as by terminating,
annulling, modifying, or conditioning such stay--
(1) * * *
(2) with respect to a stay of an act against
property under subsection (a) of this section, if--
(A) the debtor does not have an equity in
such property; and
(B) such property is not necessary to an
effective reorganization; [or]
(3) with respect to a stay of an act against single
asset real estate under subsection (a), by a creditor
whose claim is secured by an interest in such real
estate, unless, not later than the date that is 90 days
after the entry of the order for relief (or such later
date as the court may determine for cause by order
entered within that 90-day period) or 30 days after the
court determines that the debtor is subject to this
paragraph, whichever is later--
(A) the debtor has filed a plan of
reorganization that has a reasonable
possibility of being confirmed within a
reasonable time; or
[(B) the debtor has commenced monthly
payments to each creditor whose claim is
secured by such real estate (other than a claim
secured by a judgment lien or by an unmatured
statutory lien), which payments are in an
amount equal to interest at a current fair
market rate on the value of the creditor's
interest in the real estate.]
(B) the debtor has commenced monthly
payments that--
(i) may, in the debtor's sole
discretion, notwithstanding section
363(c)(2), be made from rents or other
income generated before or after the
commencement of the case by or from the
property to each creditor whose claim
is secured by such real estate (other
than a claim secured by a judgment lien
or by an unmatured statutory lien); and
(ii) are in an amount equal to
interest at the then applicable
nondefault contract rate of interest on
the value of the creditor's interest in
the real estate; or
(4) with respect to a stay of an act against real
property under subsection (a), by a creditor whose
claim is secured by an interest in such real estate, if
the court finds that the filing of the bankruptcy
petition was part of a scheme to delay, hinder, and
defraud creditors that involved either--
(A) transfer of all or part ownership of,
or other interest in, the real property without
the consent of the secured creditor or court
approval; or
(B) multiple bankruptcy filings affecting
the real property.
If recorded in compliance with applicable State laws governing
notices of interests or liens in real property, an order
entered under this subsection shall be binding in any other
case under this title purporting to affect the real property
filed not later than 2 years after the date of entry of such
order by the court, except that a debtor in a subsequent case
may move for relief from such order based upon changed
circumstances or for good cause shown, after notice and a
hearing. Any Federal, State, or local governmental unit that
accepts notices of interests or liens in real property shall
accept any certified copy of an order described in this
subsection for indexing and recording.
(e)(1) Thirty days after a request under subsection (d) of
this section for relief from the stay of any act against
property of the estate under subsection (a) of this section,
such stay is terminated with respect to the party in interest
making such request, unless the court, after notice and a
hearing, orders such stay continued in effect pending the
conclusion of, or as a result of, a final hearing and
determination under subsection (d) of this section. A hearing
under this subsection may be a preliminary hearing, or may be
consolidated with the final hearing under subsection (d) of
this section. The court shall order such stay continued in
effect pending the conclusion of the final hearing under
subsection (d) of this section if there is a reasonable
likelihood that the party opposing relief from such stay will
prevail at the conclusion of such final hearing. If the hearing
under this subsection is a preliminary hearing, then such final
hearing shall be concluded not later than thirty days after the
conclusion of such preliminary hearing, unless the 30-day
period is extended with the consent of the parties in interest
or for a specific time which the court finds is required by
compelling circumstances.
(2) Notwithstanding paragraph (1), in the case of an
individual filing under chapter 7, 11, or 13, the stay under
subsection (a) shall terminate on the date that is 60 days
after a request is made by a party in interest under subsection
(d), unless--
(A) a final decision is rendered by the court
during the 60-day period beginning on the date of the
request; or
(B) that 60-day period is extended--
(i) by agreement of all parties in
interest; or
(ii) by the court for such specific period
of time as the court finds is required for good
cause, as described in findings made by the
court.
* * * * * * *
(h)(1) In an individual case under chapter 7, 11, or 13,
the stay provided by subsection (a) is terminated with respect
to personal property of the estate or of the debtor securing in
whole or in part a claim, or subject to an unexpired lease, and
such personal property shall no longer be property of the
estate if the debtor fails within the applicable time set by
section 521(a)(2) of this title--
(A) to file timely any statement of intention
required under section 521(a)(2) of this title with
respect to that property or to indicate in that
statement that the debtor will either surrender the
property or retain it and, if retaining it, either
redeem the property pursuant to section 722 of this
title, reaffirm the debt it secures pursuant to section
524(c) of this title, or assume the unexpired lease
pursuant to section 365(p) of this title if the trustee
does not do so, as applicable; and
(B) to take timely the action specified in that
statement of intention, as it may be amended before
expiration of the period for taking action, unless the
statement of intention specifies reaffirmation and the
creditor refuses to reaffirm on the original contract
terms.
(2) Paragraph (1) does not apply if the court determines,
on the motion of the trustee filed before the expiration of the
applicable time set by section 521(a)(2), after notice and a
hearing, that such property is of consequential value or
benefit to the estate, and orders appropriate adequate
protection of the creditor's interest, and orders the debtor to
deliver any collateral in the debtor's possession to the
trustee. If the court does not so determine, the stay provided
by subsection (a) shall terminate upon the conclusion of the
proceeding on the motion.
(i) If a case commenced under chapter 7, 11, or 13 is
dismissed due to the creation of a debt repayment plan, for
purposes of subsection (c)(3), any subsequent case commenced by
the debtor under any such chapter shall not be presumed to be
filed not in good faith.
(j) On request of a party in interest, the court shall
issue an order under subsection (c) confirming that the
automatic stay has been terminated.
[(h) An] (k)(1) Except as provided in paragraph (2), an
individual injured by any willful violation of a stay provided
by this section shall recover actual damages, including costs
and attorneys' fees, and, in appropriate circumstances, may
recover punitive damages.
(2) If such violation is based on an action taken by an
entity in the good faith belief that subsection (h) applies to
the debtor, the recovery under paragraph (1) of this subsection
against such entity shall be limited to actual damages.
(l)(1) Except as provided in paragraph (2) of this
subsection, the provisions of subsection (a) do not apply in a
case in which the debtor--
(A) is a debtor in a small business case pending at
the time the petition is filed;
(B) was a debtor in a small business case that was
dismissed for any reason by an order that became final
in the 2-year period ending on the date of the order
for relief entered with respect to the petition;
(C) was a debtor in a small business case in which
a plan was confirmed in the 2-year period ending on the
date of the order for relief entered with respect to
the petition; or
(D) is an entity that has succeeded to
substantially all of the assets or business of a small
business debtor described in subparagraph (A), (B), or
(C).
(2) This subsection does not apply--
(A) to an involuntary case involving no collusion
by the debtor with creditors; or
(B) to the filing of a petition if--
(i) the debtor proves by a preponderance of
the evidence that the filing of that petition
resulted from circumstances beyond the control
of the debtor not foreseeable at the time the
case then pending was filed; and
(ii) it is more likely than not that the
court will confirm a feasible plan, but not a
liquidating plan, within a reasonable period of
time.
(l) Limitation.--The exercise of rights not subject to the
stay arising under subsection (a) pursuant to paragraph (6),
(7), (17), or (28) of subsection (b) shall not be stayed by any
order of a court or administrative agency in any proceeding
under this title.
Sec. 363. Use, sale, or lease of property
(a) * * *
* * * * * * *
(d) The trustee may use, sell, or lease property under
subsection (b) or (c) of this section [only to the extent not
inconsistent with any relief granted under section 362(c),
362(d), 362(e), or 362(f) of this title.] only--
(1) in accordance with applicable nonbankruptcy law
that governs the transfer of property by a corporation
or trust that is not a moneyed, business, or commercial
corporation or trust; and
(2) to the extent not inconsistent with any relief
granted under subsection (c), (d), (e), or (f) of
section 362.
* * * * * * *
Sec. 365. Executory contracts and unexpired leases
(a) * * *
(b)(1) If there has been a default in an executory contract
or unexpired lease of the debtor, the trustee may not assume
such contract or lease unless, at the time of assumption of
such contract or lease, the trustee--
(A) cures, or provides adequate assurance that the
trustee will promptly cure, such default[;] other than
a default that is a breach of a provision relating to
the satisfaction of any provision (other than a penalty
rate or penalty provision) relating to a default
arising from any failure to perform nonmonetary
obligations under an unexpired lease of real property,
if it is impossible for the trustee to cure such
default by performing nonmonetary acts at and after the
time of assumption, except that if such default arises
from a failure to operate in accordance with a
nonresidential real property lease, then such default
shall be cured by performance at and after the time of
assumption in accordance with such lease, and pecuniary
losses resulting from such default shall be compensated
in accordance with the provisions of paragraph (b)(l);
* * * * * * *
(2) Paragraph (1) of this subsection does not apply to a
default that is a breach of a provision relating to--
(A) * * *
* * * * * * *
(D) the satisfaction of any penalty rate or penalty
provision relating to a default arising from any
failure by the debtor to perform nonmonetary
obligations under the executory contract or unexpired
lease.
* * * * * * *
(c) The trustee may not assume or assign any executory
contract or unexpired lease of the debtor, whether or not such
contract or lease prohibits or restricts assignment of rights
or delegation of duties, if--
(1) * * *
(2) such contract is a contract to make a loan, or
extend other debt financing or financial
accommodations, to or for the benefit of the debtor, or
to issue a security of the debtor; or
(3) such lease is of nonresidential real property
and has been terminated under applicable nonbankruptcy
law prior to the order for relief[; or].
[(4) such lease is of nonresidential real property
under which the debtor is the lessee of an aircraft
terminal or aircraft gate at an airport at which the
debtor is the lessee under one or more additional
nonresidential leases of an aircraft terminal or
aircraft gate and the trustee, in connection with such
assumption or assignment, does not assume all such
leases or does not assume and assign all of such leases
to the same person, except that the trustee may assume
or assign less than all of such leases with the airport
operator's written consent.]
(d)(1) * * *
* * * * * * *
[(4) Notwithstanding paragraphs (1) and (2), in a case
under any chapter of this title, if the trustee does not assume
or reject an unexpired lease of nonresidential real property
under which the debtor is the lessee within 60 days after the
date of the order for relief, or within such additional time as
the court, for cause, within such 60-day period, fixes, then
such lease is deemed rejected, and the trustee shall
immediately surrender such nonresidential real property to the
lessor.]
(4)(A) Subject to subparagraph (B), in any case under any
chapter of this title, an unexpired lease of nonresidential
real property under which the debtor is the lessee shall be
deemed rejected, and the trustee shall immediately surrender
that nonresidential real property to the lessor, if the trustee
does not assume or reject the unexpired lease by the earlier
of--
(i) the date that is 120 days after the date of the
order for relief; or
(ii) the date of the entry of an order confirming a
plan.
(B)(i) The court may extend the period determined under
subparagraph (A), prior to the expiration of the 120-day
period, for 90 days upon motion of the trustee or lessor for
cause.
(ii) If the court grants an extension under clause (i), the
court may grant a subsequent extension only upon prior written
consent of the lessor in each instance.
[(5) Notwithstanding paragraphs (1) and (4) of this
subsection, in a case under any chapter of this title, if the
trustee does not assume or reject an unexpired lease of
nonresidential real property under which the debtor is an
affected air carrier that is the lessee of an aircraft terminal
or aircraft gate before the occurrence of a termination event,
then (unless the court orders the trustee to assume such
unexpired leases within 5 days after the termination event), at
the option of the airport operator, such lease is deemed
rejected 5 days after the occurrence of a termination event and
the trustee shall immediately surrender possession of the
premises to the airport operator; except that the lease shall
not be deemed to be rejected unless the airport operator first
waives the right to damages related to the rejection. In the
event that the lease is deemed to be rejected under this
paragraph, the airport operator shall provide the affected air
carrier adequate opportunity after the surrender of the
premises to remove the fixtures and equipment installed by the
affected air carrier.
[(6) For the purpose of paragraph (5) of this subsection
and paragraph (f)(1) of this section, the occurrence of a
termination event means, with respect to a debtor which is an
affected air carrier that is the lessee of an aircraft terminal
or aircraft gate--
[(A) the entry under section 301 or 302 of this
title of an order for relief under chapter 7 of this
title;
[(B) the conversion of a case under any chapter of
this title to a case under chapter 7 of this title; or
[(C) the granting of relief from the stay provided
under section 362(a) of this title with respect to
aircraft, aircraft engines, propellers, appliances, or
spare parts, as defined in section 40102(a) of title
49, except for property of the debtor found by the
court not to be necessary to an effective
reorganization.
[(7) Any order entered by the court pursuant to paragraph
(4) extending the period within which the trustee of an
affected air carrier must assume or reject an unexpired lease
of nonresidential real property shall be without prejudice to--
[(A) the right of the trustee to seek further
extensions within such additional time period granted
by the court pursuant to paragraph (4); and
[(B) the right of any lessor or any other party in
interest to request, at any time, a shortening or
termination of the period within which the trustee must
assume or reject an unexpired lease of nonresidential
real property.
[(8) The burden of proof for establishing cause for an
extension by an affected air carrier under paragraph (4) or the
maintenance of a previously granted extension under paragraph
(7)(A) and (B) shall at all times remain with the trustee.
[(9) For purposes of determining cause under paragraph (7)
with respect to an unexpired lease of nonresidential real
property between the debtor that is an affected air carrier and
an airport operator under which such debtor is the lessee of an
airport terminal or an airport gate, the court shall consider,
among other relevant factors, whether substantial harm will
result to the airport operator or airline passengers as a
result of the extension or the maintenance of a previously
granted extension. In making the determination of substantial
harm, the court shall consider, among other relevant factors,
the level of actual use of the terminals or gates which are the
subject of the lease, the public interest in actual use of such
terminals or gates, the existence of competing demands for the
use of such terminals or gates, the effect of the court's
extension or termination of the period of time to assume or
reject the lease on such debtor's ability to successfully
reorganize under chapter 11 of this title, and whether the
trustee of the affected air carrier is capable of continuing to
comply with its obligations under section 365(d)(3) of this
title.]
[(10)] (5) The trustee shall timely perform all of the
obligations of the debtor, except those specified in section
365(b)(2), first arising from or after 60 days after the order
for relief in a case under chapter 11 of this title under an
unexpired lease of personal property (other than personal
property leased to an individual primarily for personal,
family, or household purposes), until such lease is assumed or
rejected notwithstanding section 503(b)(1) of this title,
unless the court, after notice and a hearing and based on the
equities of the case, orders otherwise with respect to the
obligations or timely performance thereof. This subsection
shall not be deemed to affect the trustee's obligations under
the provisions of subsection (b) or (f). Acceptance of any such
performance does not constitute waiver or relinquishment of the
lessor's rights under such lease or under this title.
* * * * * * *
(f)(1) Except as provided in [subsection] subsections (b)
and (c) of this section, notwithstanding a provision in an
executory contract or unexpired lease of the debtor, or in
applicable law, that prohibits, restricts, or conditions the
assignment of such contract or lease, the trustee may assign
such contract or lease under paragraph (2) of this subsection[;
except that the trustee may not assign an unexpired lease of
nonresidential real property under which the debtor is an
affected air carrier that is the lessee of an aircraft terminal
or aircraft gate if there has occurred a termination event.].
* * * * * * *
(p)(1) If a lease of personal property is rejected or not
timely assumed by the trustee under subsection (d), the leased
property is no longer property of the estate and the stay under
section 362(a) is automatically terminated.
(2)(A) In the case of an individual under chapter 7, the
debtor may notify the creditor in writing that the debtor
desires to assume the lease. Upon being so notified, the
creditor may, at its option, notify the debtor that it is
willing to have the lease assumed by the debtor and may
condition such assumption on cure of any outstanding default on
terms set by the contract.
(B) If, not later than 30 days after notice is provided
under subparagraph (A), the debtor notifies the lessor in
writing that the lease is assumed, the liability under the
lease will be assumed by the debtor and not by the estate.
(C) The stay under section 362 and the injunction under
section 524(a)(2) shall not be violated by notification of the
debtor and negotiation of cure under this subsection.
(3) In a case under chapter 11 in which the debtor is an
individual and in a case under chapter 13, if the debtor is the
lessee with respect to personal property and the lease is not
assumed in the plan confirmed by the court, the lease is deemed
rejected as of the conclusion of the hearing on confirmation.
If the lease is rejected, the stay under section 362 and any
stay under section 1301 is automatically terminated with
respect to the property subject to the lease.
Sec. 366. Utility service
(a) Except as provided in [subsection (b)] subsections (b)
and (c) of this section, a utility may not alter, refuse, or
discontinue service to, or discriminate against, the trustee or
the debtor solely on the basis of the commencement of a case
under this title or that a debt owed by the debtor to such
utility for service rendered before the order for relief was
not paid when due.
* * * * * * *
(c)(1)(A) For purposes of this subsection, the term
``assurance of payment'' means--
(i) a cash deposit;
(ii) a letter of credit;
(iii) a certificate of deposit;
(iv) a surety bond;
(v) a prepayment of utility consumption; or
(vi) another form of security that is mutually
agreed on between the utility and the debtor or the
trustee.
(B) For purposes of this subsection an administrative
expense priority shall not constitute an assurance of payment.
(2) Subject to paragraphs (3) through (5), with respect to
a case filed under chapter 11, a utility referred to in
subsection (a) may alter, refuse, or discontinue utility
service, if during the 30-day period beginning on the date of
filing of the petition, the utility does not receive from the
debtor or the trustee adequate assurance of payment for utility
service that is satisfactory to the utility.
(3)(A) On request of a party in interest and after notice
and a hearing, the court may order modification of the amount
of an assurance of payment under paragraph (2).
(B) In making a determination under this paragraph whether
an assurance of payment is adequate, the court may not
consider--
(i) the absence of security before the date of
filing of the petition;
(ii) the payment by the debtor of charges for
utility service in a timely manner before the date of
filing of the petition; or
(iii) the availability of an administrative expense
priority.
(4) Notwithstanding any other provision of law, with
respect to a case subject to this subsection, a utility may
recover or set off against a security deposit provided to the
utility by the debtor before the date of filing of the petition
without notice or order of the court.
CHAPTER 5--CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I--CREDITORS AND CLAIMS
Sec.
501. Filing of proofs of claims or interests.
* * * * * * *
511. Rate of interest on tax claims.
SUBCHAPTER II--DEBTOR'S DUTIES AND BENEFITS
521. Debtor's duties.
* * * * * * *
526. Debt relief enforcement.
527. Disclosures.
528. Debtor's bill of rights.
SUBCHAPTER III--THE ESTATE
541. Property of the estate.
* * * * * * *
[555. Contractual right to liquidate a securities contract.
[556. Contractual right to liquidate a commodity contract or forward
contract.]
555. Contractual right to liquidate, terminate, or accelerate a
securities contract.
556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract.
* * * * * * *
[559. Contractual right to liquidate a repurchase agreement.
[560. Contractual right to terminate a swap agreement.]
559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement.
560. Contractual right to liquidate, terminate, or accelerate a swap
agreement.
561. Contractual right to terminate, liquidate, accelerate, or offset
under a master netting agreement and across contracts.
562. Damage measure in connection with swap agreements, securities
contracts, forward contracts, commodity contracts, repurchase
agreements, or master netting agreements.
SUBCHAPTER I--CREDITORS AND CLAIMS
Sec. 501. Filing of proofs of claims or interests
(a) * * *
* * * * * * *
(e) A claim arising from the liability of a debtor for fuel
use tax assessed consistent with the requirements of section
31705 of title 49 may be filed by the base jurisdiction
designated pursuant to the International Fuel Tax Agreement
and, if so filed, shall be allowed as a single claim.
Sec. 502. Allowance of claims or interests
(a) * * *
(b) Except as provided in subsections (e)(2), (f), (g), (h)
and (i) of this section, if such objection to a claim is made,
the court, after notice and a hearing, shall determine the
amount of such claim in lawful currency of the United States as
of the date of the filing of the petition, and shall allow such
claim in such amount, except to the extent that--
(1) * * *
* * * * * * *
(9) proof of such claim is not timely filed, except
to the extent tardily filed as permitted under
paragraph (1), (2), or (3) of section 726(a) of this
title or under the Federal Rules of Bankruptcy
Procedure, except that a claim of a governmental unit
shall be timely filed if it is filed before 180 days
after the date of the order for relief or such later
time as the Federal Rules of Bankruptcy Procedure may
provide, and except that in a case under chapter 13, a
claim of a governmental unit for a tax with respect to
a return filed under section 1308 shall be timely if
the claim is filed on or before the date that is 60
days after the date on which such return was filed as
required.
* * * * * * *
(g)(1) A claim arising from the rejection, under section
365 of this title or under a plan under chapter 9, 11, 12, or
13 of this title, of an executory contract or unexpired lease
of the debtor that has not been assumed shall be determined,
and shall be allowed under subsection (a), (b), or (c) of this
section or disallowed under subsection (d) or (e) of this
section, the same as if such claim had arisen before the date
of the filing of the petition.
(2) A claim for damages calculated in accordance with
section 562 of this title shall be allowed under subsection
(a), (b), or (c), or disallowed under subsection (d) or (e), as
if such claim had arisen before the date of the filing of the
petition.
* * * * * * *
(k)(1) The court, on the motion of the debtor and after a
hearing, may reduce a claim filed under this section based in
whole on unsecured consumer debts by not more than 20 percent
of the claim, if--
(A) the claim was filed by a creditor who
unreasonably refused to negotiate a reasonable
alternative repayment schedule proposed by an approved
credit counseling agency described in section 111
acting on behalf of the debtor;
(B) the offer of the debtor under subparagraph
(A)--
(i) was made at least 60 days before the
filing of the petition; and
(ii) provided for payment of at least 60
percent of the amount of the debt over a period
not to exceed the repayment period of the loan,
or a reasonable extension thereof; and
(C) no part of the debt under the alternative
repayment schedule is nondischargeable.
(2) The debtor shall have the burden of proving, by clear
and convincing evidence, that--
(A) the creditor unreasonably refused to consider
the debtor's proposal; and
(B) the proposed alternative repayment schedule was
made prior to expiration of the 60-day period specified
in paragraph (1)(B)(i).
Sec. 503. Allowance of administrative expenses
(a) * * *
(b) After notice and a hearing, there shall be allowed
administrative expenses, other than claims allowed under
section 502(f) of this title, including--
(1)(A) * * *
(B) any tax--
(i) incurred by the estate, whether secured
or unsecured, including property taxes for
which liability is in rem, in personam, or
both, except a tax of a kind specified in
section 507(a)(8) of this title; or
(ii) attributable to an excessive allowance
of a tentative carryback adjustment that the
estate received, whether the taxable year to
which such adjustment relates ended before or
after the commencement of the case; [and]
(C) any fine, penalty, or reduction in credit
relating to a tax of a kind specified in subparagraph
(B) of this paragraph; and
(D) notwithstanding the requirements of subsection
(a), a governmental unit shall not be required to file
a request for the payment of an expense described in
subparagraph (B) or (C), as a condition of its being an
allowed administrative expense;
* * * * * * *
(4) reasonable compensation for professional
services rendered by an attorney or an accountant of an
entity whose expense is allowable under subparagraph
(A), (B), (C), (D), or (E) of paragraph (3) of this
subsection, based on the time, the nature, the extent,
and the value of such services, and the cost of
comparable services other than in a case under this
title, and reimbursement for actual, necessary expenses
incurred by such attorney or accountant;
(5) reasonable compensation for services rendered
by an indenture trustee in making a substantial
contribution in a case under chapter 9 or 11 of this
title, based on the time, the nature, the extent, and
the value of such services, and the cost of comparable
services other than in a case under this title; [and]
(6) the fees and mileage payable under chapter 119
of title 28[.];
(7) with respect to a nonresidential real property
lease previously assumed under section 365, and
subsequently rejected, a sum equal to all monetary
obligations due, excluding those arising from or
relating to a failure to operate or penalty provisions,
for the period of 2 years following the later of the
rejection date or the date of actual turnover of the
premises, without reduction or setoff for any reason
whatsoever except for sums actually received or to be
received from a nondebtor, and the claim for remaining
sums due for the balance of the term of the lease shall
be a claim under section 502(b)(6);
(8) the actual, necessary costs and expenses of
closing a health care business incurred by a trustee or
by a Federal agency (as that term is defined in section
551(1) of title 5) or a department or agency of a State
or political subdivision thereof, including any cost or
expense incurred--
(A) in disposing of patient records in
accordance with section 351; or
(B) in connection with transferring
patients from the health care business that is
in the process of being closed to another
health care business;
(9) with respect to a nonresidential real property
lease previously assumed under section 365, and
subsequently rejected, a sum equal to all monetary
obligations due, excluding those arising from or
related to a failure to operate or penalty provisions,
for the period of 2 years following the later of the
rejection date or date of actual turnover of the
premises, without reduction or setoff for any reason
whatsoever except for sums actually received or to be
received from a nondebtor, and the claim for remaining
sums due for the balance of the term of the lease shall
be a claim under section 502(b)(6); and
(10) the value of any goods received by the debtor
not later than 20 days after the date of commencement
of a case under this title in which the goods have been
sold to the debtor in the ordinary course of such
debtor's business.
* * * * * * *
Sec. 504. Sharing of compensation
(a) * * *
* * * * * * *
(c) This section shall not apply with respect to sharing,
or agreeing to share, compensation with a bona fide public
service attorney referral program that operates in accordance
with non-Federal law regulating attorney referral services and
with rules of professional responsibility applicable to
attorney acceptance of referrals.
Sec. 505. Determination of tax liability
(a)(1) * * *
(2) The court may not so determine--
(A) the amount or legality of a tax, fine, penalty,
or addition to tax if such amount or legality was
contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction
before the commencement of the case under this title;
[or]
(B) any right of the estate to a tax refund, before
the earlier of--
(i) 120 days after the trustee properly
requests such refund from the governmental unit
from which such refund is claimed; or
(ii) a determination by such governmental
unit of such request[.]; or
(C) the amount or legality of any amount arising in
connection with an ad valorem tax on real or personal
property of the estate, if the applicable period for
contesting or redetermining that amount under any law
(other than a bankruptcy law) has expired.
(b)(1)(A) The clerk of each district shall maintain a
listing under which a Federal, State, or local governmental
unit responsible for the collection of taxes within the
district may--
(i) designate an address for service of requests
under this subsection; and
(ii) describe where further information concerning
additional requirements for filing such requests may be
found.
(B) If a governmental unit referred to in subparagraph (A)
does not designate an address and provide that address to the
clerk under that subparagraph, any request made under this
subsection may be served at the address for the filing of a tax
return or protest with the appropriate taxing authority of that
governmental unit.
[(b)] (2) A trustee may request a determination of any
unpaid liability of the estate for any tax incurred during the
administration of the case by submitting a tax return for such
tax and a request for such a determination to the governmental
unit charged with responsibility for collection or
determination of such tax at the address and in the manner
designated in paragraph (1). Unless such return is fraudulent,
or contains a material misrepresentation, the estate, the
trustee, the debtor, and any successor to the debtor are
discharged from any liability for such tax--
[(1)] (A) upon payment of the tax shown on such
return, if--
[(A)] (i) such governmental unit does not
notify the trustee, within 60 days after such
request, that such return has been selected for
examination; or
[(B)] (ii) such governmental unit does not
complete such an examination and notify the
trustee of any tax due, within 180 days after
such request or within such additional time as
the court, for cause, permits;
[(2)] (B) upon payment of the tax determined by the
court, after notice and a hearing, after completion by
such governmental unit of such examination; or
[(3)] (C) upon payment of the tax determined by
such governmental unit to be due.
* * * * * * *
Sec. 506. Determination of secured status
(a)(1) An allowed claim of a creditor secured by a lien on
property in which the estate has an interest, or that is
subject to setoff under section 553 of this title, is a secured
claim to the extent of the value of such creditor's interest in
the estate's interest in such property, or to the extent of the
amount subject to setoff, as the case may be, and is an
unsecured claim to the extent that the value of such creditor's
interest or the amount so subject to setoff is less than the
amount of such allowed claim. Such value shall be determined in
light of the purpose of the valuation and of the proposed
disposition or use of such property, and in conjunction with
any hearing on such disposition or use or on a plan affecting
such creditor's interest.
(2) In the case of an individual debtor under chapters 7
and 13, such value with respect to personal property securing
an allowed claim shall be determined based on the replacement
value of such property as of the date of filing the petition
without deduction for costs of sale or marketing. With respect
to property acquired for personal, family, or household
purpose, replacement value shall mean the price a retail
merchant would charge for property of that kind considering the
age and condition of the property at the time value is
determined.
(b) To the extent that an allowed secured claim is secured
by property the value of which, after any recovery under
subsection (c) of this section, is greater than the amount of
such claim, there shall be allowed to the holder of such claim,
interest on such claim, and any reasonable fees, costs, or
charges provided for under the agreement or State statute under
which such claim arose.
(c) The trustee may recover from property securing an
allowed secured claim the reasonable, necessary costs and
expenses of preserving, or disposing of, such property to the
extent of any benefit to the holder of such claim, including
the payment of all ad valorem property taxes with respect to
the property.
* * * * * * *
Sec. 507. Priorities
(a) The following expenses and claims have priority in the
following order:
(1) First:
(A) Allowed unsecured claims for domestic
support obligations that, as of the date of the
filing of the petition, are owed to or
recoverable by a spouse, former spouse, or
child of the debtor, or the parent, legal
guardian, or responsible relative of such
child, without regard to whether the claim is
filed by such person or is filed by a
governmental unit on behalf of that person, on
the condition that funds received under this
paragraph by a governmental unit under this
title after the date of filing of the petition
shall be applied and distributed in accordance
with applicable nonbankruptcy law.
(B) Subject to claims under subparagraph
(A), allowed unsecured claims for domestic
support obligations that, as of the date the
petition was filed are assigned by a spouse,
former spouse, child of the debtor, or such
child's parent, legal guardian, or responsible
relative to a governmental unit (unless such
obligation is assigned voluntarily by the
spouse, former spouse, child, parent, legal
guardian, or responsible relative of the child
for the purpose of collecting the debt) or are
owed directly to or recoverable by a government
unit under applicable nonbankruptcy law, on the
condition that funds received under this
paragraph by a governmental unit under this
title after the date of filing of the petition
be applied and distributed in accordance with
applicable nonbankruptcy law.
[(1) First] (2) Second, administrative expenses
allowed under section 503(b) of this title, and any
fees and charges assessed against the estate under
chapter 123 of title 28.
[(2) Second] (3) Third, unsecured claims allowed
under section 502(f) of this title.
[(3) Third] (4) Fourth, allowed unsecured claims,
but only to the extent of $4,000 for each individual or
corporation, as the case may be, earned within 90 days
before the date of the filing of the petition or the
date of the cessation of the debtor's business,
whichever occurs first, for--
(A) wages, salaries, or commissions,
including vacation, severance, and sick leave
pay earned by an individual; or
(B) sales commissions earned by an
individual or by a corporation with only 1
employee, acting as an independent contractor
in the sale of goods or services for the debtor
in the ordinary course of the debtor's business
if, and only if, during the 12 months preceding
that date, at least 75 percent of the amount
that the individual or corporation earned by
acting as an independent contractor in the sale
of goods or services was earned from the
debtor[;].
[(4) Fourth] (5) Fifth, allowed unsecured claims
for contributions to an employee benefit plan--
(A) * * *
* * * * * * *
[(5) Fifth] (6) Sixth, allowed unsecured claims of
persons--
(A) * * *
* * * * * * *
[(6) Sixth] (7) Seventh, allowed unsecured claims
of individuals, to the extent of $1,800 for each such
individual, arising from the deposit, before the
commencement of the case, of money in connection with
the purchase, lease, or rental of property, or the
purchase of services, for the personal, family, or
household use of such individuals, that were not
delivered or provided.
[(7) Seventh, allowed claims for debts to a spouse,
former spouse, or child of the debtor, for alimony to,
maintenance for, or support of such spouse or child, in
connection with a separation agreement, divorce decree
or other order of a court of record, determination made
in accordance with State or territorial law by a
governmental unit, or property settlement agreement,
but not to the extent that such debt--
[(A) is assigned to another entity,
voluntarily, by operation of law, or otherwise;
or
[(B) includes a liability designated as
alimony, maintenance, or support, unless such
liability is actually in the nature of alimony,
maintenance or support.]
(8) Eighth, allowed unsecured claims of
governmental units, only to the extent that such claims
are for--
(A) a tax on or measured by income or gross
receipts for a taxable year ending on or before
the date of filing of the petition--
(i) * * *
[(ii) assessed within 240 days,
plus any time plus 30 days during which
an offer in compromise with respect to
such tax that was made within 240 days
after such assessment was pending,
before the date of the filing of the
petition; or]
(ii) assessed within 240 days
before the date of the filing of the
petition, exclusive of--
(I) any time during which
an offer in compromise with
respect to that tax was pending
or in effect during that 240-
day period, plus 30 days; and
(II) any time during which
a stay of proceedings against
collections was in effect in a
prior case under this title
during that 240-day period;
plus 90 days.
* * * * * * *
(B) a property tax [assessed] incurred
before the commencement of the case and last
payable without penalty after one year before
the date of the filing of the petition;
* * * * * * *
An otherwise applicable time period specified in this
paragraph shall be suspended for (i) any period during
which a governmental unit is prohibited under
applicable nonbankruptcy law from collecting a tax as a
result of a request by the debtor for a hearing and an
appeal of any collection action taken or proposed
against the debtor, plus 90 days; plus (ii) any time
during which the stay of proceedings was in effect in a
prior case under this title or during which collection
was precluded by the existence of 1 or more confirmed
plans under this title, plus 90 days.
* * * * * * *
(10) Tenth, allowed claims for death or personal
injuries resulting from the operation of a motor
vehicle or vessel if such operation was unlawful
because the debtor was intoxicated from using alcohol,
a drug, or another substance.
* * * * * * *
Sec. 508. Effect of distribution other than under this title
[(a) If a creditor receives, in a foreign proceeding,
payment of, or a transfer of property on account of, a claim
that is allowed under this title, such creditor may not receive
any payment under this title on account of such claim until
each of the other holders of claims on account of which such
holders are entitled to share equally with such creditor under
this title has received payment under this title equal in value
to the consideration received by such creditor in such foreign
proceeding.]
[(b)] If a creditor of a partnership debtor receives, from
a general partner that is not a debtor in a case under chapter
7 of this title, payment of, or a transfer of property on
account of, a claim that is allowed under this title and that
is not secured by a lien on property of such partner, such
creditor may not receive any payment under this title on
account of such claim until each of the other holders of claims
on account of which such holders are entitled to share equally
with such creditor under this title has received payment under
this title equal in value to the consideration received by such
creditor from such general partner.
* * * * * * *
Sec. 511. Rate of interest on tax claims
(a) If any provision of this title requires the payment of
interest on a tax claim or on an administrative expense tax, or
the payment of interest to enable a creditor to receive the
present value of the allowed amount of a tax claim, the rate of
interest shall be the rate determined under applicable
nonbankruptcy law.
(b) In the case of taxes paid under a confirmed plan under
this title, the rate of interest shall be determined as of the
calendar month in which the plan is confirmed.
SUBCHAPTER II--DEBTOR'S DUTIES AND BENEFITS
Sec. 521. Debtor's duties
(a) The debtor shall--
[(1) file a list of creditors, and unless the court
orders otherwise, a schedule of assets and liabilities,
a schedule of current income and current expenditures,
and a statement of the debtor's financial affairs;]
(1) file--
(A) a list of creditors; and
(B) unless the court orders otherwise--
(i) a schedule of assets and
liabilities;
(ii) a schedule of current income
and current expenditures;
(iii) a statement of the debtor's
financial affairs and, if applicable, a
certificate--
(I) of an attorney whose
name is on the petition as the
attorney for the debtor or any
bankruptcy petition preparer
signing the petition under
section 110(b)(1) indicating
that such attorney or
bankruptcy petition preparer
delivered to the debtor any
notice required by section
342(b); or
(II) if no attorney for the
debtor is indicated and no
bankruptcy petition preparer
signed the petition, of the
debtor that such notice was
obtained and read by the
debtor;
(iv) copies of all payment advices
or other evidence of payment, if any,
received by the debtor from any
employer of the debtor in the period 60
days before the filing of the petition;
(v) a statement of the amount of
monthly net income, itemized to show
how the amount is calculated; and
(vi) a statement disclosing any
reasonably anticipated increase in
income or expenditures over the 12-
month period following the date of
filing;
(2) if an individual debtor's schedule of assets
and liabilities includes [consumer] debts which are
secured by property of the estate--
(A) * * *
(B) within [forty-five days after the
filing of a notice of intent under this
section] 30 days after the first date set for
the meeting of creditors under section 341(a)
of this title, or within such additional time
as the court, for cause, within such [forty-
five day] 30-day period fixes, the debtor shall
perform his intention with respect to such
property, as specified by subparagraph (A) of
this paragraph; and
(C) nothing in subparagraphs (A) and (B) of
this paragraph shall alter the debtor's or the
trustee's rights with regard to such property
under this title, except as provided in section
362(h) of this title;
(3) if a trustee is serving in the case or an
auditor appointed under section 586(f) of title 28,
cooperate with the trustee as necessary to enable the
trustee to perform the trustee's duties under this
title;
(4) if a trustee is serving in the case or an
auditor appointed under section 586(f) of title 28,
surrender to the trustee all property of the estate and
any recorded information, including books, documents,
records, and papers, relating to property of the
estate, whether or not immunity is granted under
section 344 of this title[, and];
(5) appear at the hearing required under section
524(d) of this title[.]; and
(6) in an individual case under chapter 7 of this
title, not retain possession of personal property as to
which a creditor has an allowed claim for the purchase
price secured in whole or in part by an interest in
that personal property unless, in the case of an
individual debtor, the debtor, not later than 45 days
after the first meeting of creditors under section
341(a), either--
(A) enters into an agreement with the
creditor pursuant to section 524(c) of this
title with respect to the claim secured by such
property; or
(B) redeems such property from the security
interest pursuant to section 722 of this title.
If the debtor fails to so act within the 45-day period referred
to in paragraph (6), the stay under section 362(a) of this
title is terminated with respect to the personal property of
the estate or of the debtor which is affected, such property
shall no longer be property of the estate, and the creditor may
take whatever action as to such property as is permitted by
applicable nonbankruptcy law, unless the court determines on
the motion of the trustee brought before the expiration of such
45-day period, and after notice and a hearing, that such
property is of consequential value or benefit to the estate,
orders appropriate adequate protection of the creditor's
interest, and orders the debtor to deliver any collateral in
the debtor's possession to the trustee.
(b) In addition to the requirements under subsection (a),
an individual debtor shall file with the court--
(1) a certificate from the approved nonprofit
budget and credit counseling agency that provided the
debtor services under section 109(h) describing the
services provided to the debtor; and
(2) a copy of the debt repayment plan, if any,
developed under section 109(h) through the approved
nonprofit budget and credit counseling agency referred
to in paragraph (1).
(c) In addition to meeting the requirements under
subsection (a), a debtor shall file with the court a record of
any interest that a debtor has in an education individual
retirement account (as defined in section 530(b)(1) of the
Internal Revenue Code of 1986) or under a qualified State
tuition program (as defined in section 529(b)(1) of such Code).
(d) If the debtor fails timely to take the action specified
in subsection (a)(6) of this section, or in paragraphs (1) and
(2) of section 362(h) of this title, with respect to property
which a lessor or bailor owns and has leased, rented, or bailed
to the debtor or as to which a creditor holds a security
interest not otherwise voidable under section 522(f), 544, 545,
547, 548, or 549 of this title, nothing in this title shall
prevent or limit the operation of a provision in the underlying
lease or agreement which has the effect of placing the debtor
in default under such lease or agreement by reason of the
occurrence, pendency, or existence of a proceeding under this
title or the insolvency of the debtor. Nothing in this
subsection shall be deemed to justify limiting such a provision
in any other circumstance.
(e)(1) At any time, a creditor, in the case of an
individual under chapter 7 or 13, may file with the court
notice that the creditor requests the petition, schedules, and
a statement of affairs filed by the debtor in the case, and the
court shall make those documents available to the creditor who
requests those documents.
(2)(A) The debtor shall provide either a tax return or
transcript at the election of the debtor, for the latest
taxable period prior to filing for which a tax return has been
or should have been filed, to the trustee, not later than 7
days before the date first set for the first meeting of
creditors, or the case shall be dismissed, unless the debtor
demonstrates that the failure to file a return as required is
due to circumstances beyond the control of the debtor.
(B) If a creditor has requested a tax return or transcript
referred to in subparagraph (A), the debtor shall provide such
tax return or transcript to the requesting creditor at the time
the debtor provides the tax return or transcript to the
trustee, or the case shall be dismissed, unless the debtor
demonstrates that the debtor is unable to provide such
information due to circumstances beyond the control of the
debtor.
(3)(A) At any time, a creditor in a case under chapter 13
may file with the court notice that the creditor requests the
plan filed by the debtor in the case.
(B) The court shall make such plan available to the
creditor who request such plan--
(i) at a reasonable cost; and
(ii) not later than 5 days after such request.
(f) An individual debtor in a case under chapter 7, 11, or
13 shall file with the court at the request of any party in
interest--
(1) at the time filed with the taxing authority,
all tax returns required under applicable law,
including any schedules or attachments, with respect to
the period from the commencement of the case until such
time as the case is closed;
(2) at the time filed with the taxing authority,
all tax returns required under applicable law,
including any schedules or attachments, that were not
filed with the taxing authority when the schedules
under subsection (a)(1) were filed with respect to the
period that is 3 years before the order of relief;
(3) any amendments to any of the tax returns,
including schedules or attachments, described in
paragraph (1) or (2); and
(4) in a case under chapter 13, a statement subject
to the penalties of perjury by the debtor of the
debtor's income and expenditures in the preceding tax
year and monthly income, that shows how the amounts are
calculated--
(A) beginning on the date that is the later
of 90 days after the close of the debtor's tax
year or 1 year after the order for relief,
unless a plan has been confirmed; and
(B) thereafter, on or before the date that
is 45 days before each anniversary of the
confirmation of the plan until the case is
closed.
(g)(1) A statement referred to in subsection (f)(4) shall
disclose--
(A) the amount and sources of income of the debtor;
(B) the identity of any person responsible with the
debtor for the support of any dependent of the debtor;
and
(C) the identity of any person who contributed, and
the amount contributed, to the household in which the
debtor resides.
(2) The tax returns, amendments, and statement of income
and expenditures described in subsection (e)(2)(A) and
subsection (f) shall be available to the United States trustee,
any bankruptcy administrator, any trustee, and any party in
interest for inspection and copying, subject to the
requirements of subsection (h).
(h)(1) Not later than 180 days after the date of enactment
of the Bankruptcy Abuse Prevention and Consumer Protection Act
of 2001, the Director of the Administrative Office of the
United States Courts shall establish procedures for
safeguarding the confidentiality of any tax information
required to be provided under this section.
(2) The procedures under paragraph (1) shall include
restrictions on creditor access to tax information that is
required to be provided under this section.
(3) Not later than 1 year and 180 days after the date of
enactment of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2001, the Director of the Administrative
Office of the United States Courts shall prepare and submit to
Congress a report that--
(A) assesses the effectiveness of the procedures
under paragraph (1); and
(B) if appropriate, includes proposed legislation
to--
(i) further protect the confidentiality of
tax information; and
(ii) provide penalties for the improper use
by any person of the tax information required
to be provided under this section.
(i) If requested by the United States trustee or a trustee
serving in the case, the debtor shall provide--
(1) a document that establishes the identity of the
debtor, including a driver's license, passport, or
other document that contains a photograph of the
debtor; and
(2) such other personal identifying information
relating to the debtor that establishes the identity of
the debtor.
(j)(1) Notwithstanding section 707(a), and subject to
paragraph (2), if an individual debtor in a voluntary case
under chapter 7 or 13 fails to file all of the information
required under subsection (a)(1) within 45 days after the
filing of the petition commencing the case, the case shall be
automatically dismissed effective on the 46th day after the
filing of the petition.
(2) With respect to a case described in paragraph (1), any
party in interest may request the court to enter an order
dismissing the case. If requested, the court shall enter an
order of dismissal not later than 5 days after such request.
(3) Upon request of the debtor made within 45 days after
the filing of the petition commencing a case described in
paragraph (1), the court may allow the debtor an additional
period of not to exceed 45 days to file the information
required under subsection (a)(1) if the court finds
justification for extending the period for the filing.
(k)(1) Notwithstanding any other provision of this title,
if the debtor fails to file a tax return that becomes due after
the commencement of the case or to properly obtain an extension
of the due date for filing such return, the taxing authority
may request that the court enter an order converting or
dismissing the case.
(2) If the debtor does not file the required return or
obtain the extension referred to in paragraph (1) within 90
days after a request is filed by the taxing authority under
that paragraph, the court shall convert or dismiss the case,
whichever is in the best interests of creditors and the estate.
Sec. 522. Exemptions
(a) * * *
(b)(1) Notwithstanding section 541 of this title, an
individual debtor may exempt from property of the estate the
property listed in either paragraph [(1)] (2) or, in the
alternative, paragraph [(2)] (3) of this subsection. In joint
cases filed under section 302 of this title and individual
cases filed under section 301 or 303 of this title by or
against debtors who are husband and wife, and whose estates are
ordered to be jointly administered under Rule 1015(b) of the
Federal Rules of Bankruptcy Procedure, one debtor may not elect
to exempt property listed in paragraph [(1)] (2) and the other
debtor elect to exempt property listed in paragraph [(2)] (3)
of this subsection. If the parties cannot agree on the
alternative to be elected, they shall be deemed to elect
paragraph [(1)] (2), where such election is permitted under the
law of the jurisdiction where the case is filed. [Such property
is--
[(1) property that is specified under subsection
(d) of this section, unless the State law that is
applicable to the debtor under paragraph (2)(A) of this
subsection specifically does not so authorize; or, in
the alternative,]
(2) Property listed in this paragraph is property that is
specified under subsection (d), unless the State law that is
applicable to the debtor under paragraph (3)(A) specifically
does not so authorize.
[(2)(A)] (3) Property listed in this paragraph is--
(A) subject to subsections (o) and (p), any
property that is exempt under Federal law, other than
subsection (d) of this section, or State or local law
that is applicable on the date of the filing of the
petition at the place in which the debtor's domicile
has been located for the [180] 730 days immediately
preceding the date of the filing of the petition[, or
for a longer portion of such 180-day period than in any
other place] or if the debtor's domicile has not been
located at a single State for such 730-day period, the
place in which the debtor's domicile was located for
180 days immediately preceding the 730-day period or
for a longer portion of such 180-day period than in any
other place; [and]
(B) any interest in property in which the debtor
had, immediately before the commencement of the case,
an interest as a tenant by the entirety or joint tenant
to the extent that such interest as a tenant by the
entirety or joint tenant is exempt from process under
applicable nonbankruptcy law[.]; and
(C) retirement funds to the extent that those funds
are in a fund or account that is exempt from taxation
under section 401, 403, 408, 408A, 414, 457, or 501(a)
of the Internal Revenue Code of 1986.
(4) For purposes of paragraph (3)(C) and subsection
(d)(12), the following shall apply:
(A) If the retirement funds are in a retirement
fund that has received a favorable determination under
section 7805 of the Internal Revenue Code of 1986, and
that determination is in effect as of the date of the
commencement of the case under section 301, 302, or 303
of this title, those funds shall be presumed to be
exempt from the estate.
(B) If the retirement funds are in a retirement
fund that has not received a favorable determination
under such section 7805, those funds are exempt from
the estate if the debtor demonstrates that--
(i) no prior determination to the contrary
has been made by a court or the Internal
Revenue Service; and
(ii)(I) the retirement fund is in
substantial compliance with the applicable
requirements of the Internal Revenue Code of
1986; or
(II) the retirement fund fails to be in
substantial compliance with the applicable
requirements of the Internal Revenue Code of
1986 and the debtor is not materially
responsible for that failure.
(C) A direct transfer of retirement funds from 1
fund or account that is exempt from taxation under
section 401, 403, 408, 408A, 414, 457, or 501(a) of the
Internal Revenue Code of 1986, under section 401(a)(31)
of the Internal Revenue Code of 1986, or otherwise,
shall not cease to qualify for exemption under
paragraph (3)(C) or subsection (d)(12) by reason of
that direct transfer.
(D)(i) Any distribution that qualifies as an
eligible rollover distribution within the meaning of
section 402(c) of the Internal Revenue Code of 1986 or
that is described in clause (ii) shall not cease to
qualify for exemption under paragraph (3)(C) or
subsection (d)(12) by reason of that distribution.
(ii) A distribution described in this clause is an
amount that--
(I) has been distributed from a fund or
account that is exempt from taxation under
section 401, 403, 408, 408A, 414, 457, or
501(a) of the Internal Revenue Code of 1986;
and
(II) to the extent allowed by law, is
deposited in such a fund or account not later
than 60 days after the distribution of that
amount.
(c) Unless the case is dismissed, property exempted under
this section is not liable during or after the case for any
debt of the debtor that arose, or that is determined under
section 502 of this title as if such debt had arisen, before
the commencement of the case, except--
[(1) a debt of a kind specified in section
523(a)(1) or 523(a)(5) of this title;]
(1) a debt of a kind specified in paragraph (1) or
(5) of section 523(a) (in which case, notwithstanding
any provision of applicable nonbankruptcy law to the
contrary, such property shall be liable for a debt of a
kind specified in section 523(a)(5));
* * * * * * *
(d) The following property may be exempted under subsection
[(b)(1)] (b)(2) of this section:
(1) * * *
* * * * * * *
(12) Retirement funds to the extent that those funds are in
a fund or account that is exempt from taxation under section
401, 403, 408, 408A, 414, 457, or 501(a) of the Internal
Revenue Code of 1986.
* * * * * * *
(f)(1) Notwithstanding any waiver of exemptions but subject
to paragraph (3), the debtor may avoid the fixing of a lien on
an interest of the debtor in property to the extent that such
lien impairs an exemption to which the debtor would have been
entitled under subsection (b) of this section, if such lien
is--
(A) a judicial lien, other than a judicial lien
that secures a debt[--
[(i) to a spouse, former spouse, or child
of the debtor, for alimony to, maintenance for,
or support of such spouse or child, in
connection with a separation agreement, divorce
decree or other order of a court of record,
determination made in accordance with State or
territorial law by a governmental unit, or
property settlement agreement; and
[(ii) to the extent that such debt--
[(I) is not assigned to another
entity, voluntarily, by operation of
law, or otherwise; and
[(II) includes a liability
designated as alimony, maintenance, or
support, unless such liability is
actually in the nature of alimony,
maintenance or support.; or] of a kind
that is specified in section 523(a)(5);
or
* * * * * * *
(4)(A) Subject to subparagraph (B), for purposes of
paragraph (1)(B), the term ``household goods'' means--
(i) clothing;
(ii) furniture;
(iii) appliances;
(iv) 1 radio;
(v) 1 television;
(vi) 1 VCR;
(vii) linens;
(viii) china;
(ix) crockery;
(x) kitchenware;
(xi) educational materials and educational
equipment primarily for the use of minor dependent
children of the debtor, but only 1 personal computer
only if used primarily for the education or
entertainment of such minor children;
(xii) medical equipment and supplies;
(xiii) furniture exclusively for the use of minor
children, or elderly or disabled dependents of the
debtor; and
(xiv) personal effects (including the toys and
hobby equipment of minor dependent children and wedding
rings) of the debtor and the dependents of the debtor.
(B) The term ``household goods'' does not include--
(i) works of art (unless by or of the debtor or the
dependents of the debtor);
(ii) electronic entertainment equipment (except 1
television, 1 radio, and 1 VCR);
(iii) items acquired as antiques;
(iv) jewelry (except wedding rings); and
(v) a computer (except as otherwise provided for in
this section), motor vehicle (including a tractor or
lawn tractor), boat, or a motorized recreational
device, conveyance, vehicle, watercraft, or aircraft.
(g) Notwithstanding sections 550 and 551 of this title, the
debtor may exempt under subsection (b) of this section property
that the trustee recovers under section 510(c)(2), 542, 543,
550, 551, or 553 of this title, to the extent that the debtor
could have exempted such property under subsection (b) of this
section if such property had not been transferred, if--
(1) * * *
(2) the debtor could have avoided such transfer
under subsection [(f)(2)] (f)(1)(B) of this section.
* * * * * * *
(n) For assets in individual retirement accounts described
in section 408 or 408A of the Internal Revenue Code of 1986,
other than a simplified employee pension under section 408(k)
of that Code or a simple retirement account under section
408(p) of that Code, the aggregate value of such assets
exempted under this section, without regard to amounts
attributable to rollover contributions under section 402(c),
402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal
Revenue Code of 1986, and earnings thereon, shall not exceed
$1,000,000 (which amount shall be adjusted as provided in
section 104 of this title) in a case filed by an individual
debtor, except that such amount may be increased if the
interests of justice so require.
(o) For purposes of subsection (b)(3)(A), and
notwithstanding subsection (a), the value of an interest in--
(1) real or personal property that the debtor or a
dependent of the debtor uses as a residence;
(2) a cooperative that owns property that the
debtor or a dependent of the debtor uses as a
residence; or
(3) a burial plot for the debtor or a dependent of
the debtor;
shall be reduced to the extent that such value is attributable
to any portion of any property that the debtor disposed of in
the 7-year period ending on the date of the filing of the
petition with the intent to hinder, delay, or defraud a
creditor and that the debtor could not exempt, or that portion
that the debtor could not exempt, under subsection (b), if on
such date the debtor had held the property so disposed of.
(p)(1) Except as provided in paragraph (2) of this
subsection and sections 544 and 548 of this title, as a result
of electing under subsection (b)(3)(A) to exempt property under
State or local law, a debtor may not exempt any amount of
interest that was acquired by the debtor during the 2-year
period preceding the filing of the petition which exceeds in
the aggregate $100,000 in value in--
(A) real or personal property that the debtor or a
dependent of the debtor uses as a residence;
(B) a cooperative that owns property that the
debtor or a dependent of the debtor uses as a
residence; or
(C) a burial plot for the debtor or a dependent of
the debtor.
(2)(A) The limitation under paragraph (1) shall not apply
to an exemption claimed under subsection (b)(3)(A) by a family
farmer for the principal residence of that farmer.
(B) For purposes of paragraph (1), any amount of such
interest does not include any interest transferred from a
debtor's previous principal residence (which was acquired prior
to the beginning of the 2-year period) into the debtor's
current principal residence, where the debtor's previous and
current residences are located in the same State.
Sec. 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b),
or 1328(b) of this title does not discharge an individual
debtor from any debt--
(1) for a tax or a customs duty--
(A) * * *
(B) with respect to which a return, or
equivalent report or notice, if required--
(i) was not filed or given; or
(ii) was filed or given after the
date on which such return, report, or
notice was last due, under applicable
law or under any extension, and after
two years before the date of the filing
of the petition; or
* * * * * * *
(2) for money, property, services, or an extension,
renewal, or refinancing of credit, to the extent
obtained by--
(A) * * *
* * * * * * *
[(C) for purposes of subparagraph (A) of
this paragraph, consumer debts owed to a single
creditor and aggregating more than $1,000 for
``luxury goods or services'' incurred by an
individual debtor on or within 60 days before
the order for relief under this title, or cash
advances aggregating more than $1,000 that are
extensions of consumer credit under an open end
credit plan obtained by an individual debtor on
or within 60 days before the order for relief
under this title, are presumed to be
nondischargeable; ``luxury goods or services''
do not include goods or services reasonably
acquired for the support or maintenance of the
debtor or a dependent of the debtor; an
extension of consumer credit under an open end
credit plan is to be defined for purposes of
this subparagraph as it is defined in the
Consumer Credit Protection Act;]
(C)(i) for purposes of subparagraph (A)--
(I) consumer debts owed to a single
creditor and aggregating more than $250 for
luxury goods or services incurred by an
individual debtor on or within 90 days before
the order for relief under this title are
presumed to be nondischargeable; and
(II) cash advances aggregating more than
$750 that are extensions of consumer credit
under an open end credit plan obtained by an
individual debtor on or within 70 days before
the order for relief under this title, are
presumed to be nondischargeable; and
(ii) for purposes of this subparagraph--
(I) the term ``extension of credit under an
open end credit plan'' means an extension of
credit under an open end credit plan, within
the meaning of the Consumer Credit Protection
Act (15 U.S.C. 1601 et seq.);
(II) the term ``open end credit plan'' has
the meaning given that term under section 103
of Consumer Credit Protection Act (15 U.S.C.
1602); and
(III) the term ``luxury goods or services''
does not include goods or services reasonably
necessary for the support or maintenance of the
debtor or a dependent of the debtor.
* * * * * * *
[(5) to a spouse, former spouse, or child of the
debtor, for alimony to, maintenance for, or support of
such spouse or child, in connection with a separation
agreement, divorce decree or other order of a court of
record, determination made in accordance with State or
territorial law by a governmental unit, or property
settlement agreement, but not to the extent that--
[(A) such debt is assigned to another
entity, voluntarily, by operation of law, or
otherwise (other than debts assigned pursuant
to section 408(a)(3) of the Social Security
Act, or any such debt which has been assigned
to the Federal Government or to a State or any
political subdivision of such State); or
[(B) such debt includes a liability
designated as alimony, maintenance, or support,
unless such liability is actually in the nature
of alimony, maintenance, or support;]
(5) for a domestic support obligation;
* * * * * * *
[(8) for an educational benefit overpayment or loan
made, insured or guaranteed by a governmental unit, or
made under any program funded in whole or in part by a
governmental unit or nonprofit institution, or for an
obligation to repay funds received as an educational
benefit, scholarship or stipend, unless excepting such
debt from discharge under this paragraph will impose an
undue hardship on the debtor and the debtor's
dependents;]
(8) unless excepting such debt from discharge under
this paragraph would impose an undue hardship on the
debtor and the debtor's dependents, for--
(A)(i) an educational benefit overpayment
or loan made, insured, or guaranteed by a
governmental unit, or made under any program
funded in whole or in part by a governmental
unit or nonprofit institution; or
(ii) an obligation to repay funds received
as an educational benefit, scholarship, or
stipend; or
(B) any other educational loan that is a
qualified education loan, as that term is
defined in section 221(e)(1) of the Internal
Revenue Code of 1986, incurred by an individual
debtor;
(9) for death or personal injury caused by the
debtor's no, operation of a motor vehicle, vessel, or
aircraft if such operation was unlawful because the
debtor was intoxicated from using alcohol, a drug, or
another substance;
* * * * * * *
(14A) incurred to pay a tax to a governmental unit,
other than the United States, that would be
nondischargeable under paragraph (1);
(15) not of the kind described in paragraph (5)
that is incurred by the debtor in the course of a
divorce or separation or in connection with a
separation agreement, divorce decree or other order of
a court of record, a determination made in accordance
with State or territorial law by a governmental unit
unless--
(A) the debtor does not have the ability to
pay such debt from income or property of the
debtor not reasonably necessary to be expended
for the maintenance or support of the debtor or
a dependent of the debtor and, if the debtor is
engaged in a business, for the payment of
expenditures necessary for the continuation,
preservation, and operation of such business;
or
(B) discharging such debt would result in a
benefit to the debtor that outweighs the
detrimental consequences to a spouse, former
spouse, or child of the debtor;
(16) for a fee or assessment that becomes due and
payable after the order for relief to a membership
association with respect to the debtor's interest in a
[dwelling] unit that has condominium [ownership or]
ownership, in a share of a cooperative [housing]
corporation, [but only if such fee or assessment is
payable for a period during which--
[(A) the debtor physically occupied a
dwelling unit in the condominium or cooperative
project; or
[(B) the debtor rented the dwelling unit to
a tenant and received payments from the tenant
for such period] or a lot in a homeowners
association, for as long as the debtor or the
trustee has a legal, equitable, or possessory
ownership interest in such unit, such
corporation, or such lot,,
but nothing in this paragraph shall except from
discharge the debt of a debtor for a membership
association fee or assessment for a period arising
before entry of the order for relief in a pending or
subsequent bankruptcy case;
(17) for a fee imposed [by a court] on a prisoner
by any court for the filing of a case, motion,
complaint, or appeal, or for other costs and expenses
assessed with respect to such filing, regardless of an
assertion of poverty by the debtor under [section
1915(b) or (f)] subsection (b) or (f)(2) of section
1915 of title 28 (or a similar non-Federal law), or the
debtor's status as a prisoner, as defined in section
1915(h) of title 28 (or a similar non-Federal law); or
[(18) owed under State law to a State or
municipality that is--
[(A) in the nature of support, and
[(B) enforceable under part D of title IV
of the Social Security Act (42 U.S.C. 601 et
seq.).]
(18) owed to a pension, profit-sharing, stock
bonus, or other plan established under section 401,
403, 408, 408A, 414, 457, or 501(c) of the Internal
Revenue Code of 1986, under--
(A) a loan permitted under section
408(b)(1) of the Employee Retirement Income
Security Act of 1974, or subject to section
72(p) of the Internal Revenue Code of 1986; or
(B) a loan from the thrift savings plan
described in subchapter III of chapter 84 of
title 5, that satisfies the requirements of
section 8433(g) of such title.
Nothing in paragraph (18) may be construed to provide
that any loan made under a governmental plan under
section 414(d), or a contract or account under section
403(b), of the Internal Revenue Code of 1986
constitutes a claim or a debt under this title.
For purposes of this subsection, the term ``return'' means a
return that satisfies the requirements of applicable
nonbankruptcy law (including applicable filing requirements).
Such term includes a return prepared pursuant to section
6020(a) of the Internal Revenue Code of 1986, or similar State
or local law, or a written stipulation to a judgment or a final
order entered by a nonbankruptcy tribunal, but does not include
a return made pursuant to section 6020(b) of the Internal
Revenue Code of 1986, or a similar State or local law.
* * * * * * *
(c)(1) Except as provided in subsection (a)(3)(B) of this
section, the debtor shall be discharged from a debt of a kind
specified in paragraph (2), (4), [(6), or (15)] or (6) of
subsection (a) of this section, unless, on request of the
creditor to whom such debt is owed, and after notice and a
hearing, the court determines such debt to be excepted from
discharge under paragraph (2), (4), [(6), or (15)] or (6), as
the case may be, of subsection (a) of this section.
* * * * * * *
(e) Any institution-affiliated party of [a] an insured
depository institution shall be considered to be acting in a
fiduciary capacity with respect to the purposes of subsection
(a)(4) or (11).
[(15) not of the kind described in paragraph (5)
that is incurred by the debtor in the course of a
divorce or separation or in connection with a
separation agreement, divorce decree or other order of
a court of record, a determination made in accordance
with State or territorial law by a governmental unit
unless--
[(A) the debtor does not have the ability
to pay such debt from income or property of the
debtor not reasonably necessary to be expended
for the maintenance or support of the debtor or
a dependent of the debtor and, if the debtor is
engaged in a business, for the payment of
expenditures necessary for the continuation,
preservation, and operation of such business;
or
[(B) discharging such debt would result in
a benefit to the debtor that outweighs the
detrimental consequences to a spouse, former
spouse, or child of the debtor;]
Sec. 524. Effect of discharge
(a) A discharge in a case under this title--
(1) * * *
* * * * * * *
(3) operates as an injunction against the
commencement or continuation of an action, the
employment of process, or an act, to collect or recover
from, or offset against, property of the debtor of the
kind specified in section 541(a)(2) of this title that
is acquired after the commencement of the case, on
account of any allowable community claim, except a
community claim that is excepted from discharge under
[section 523, 1228(a)(1), or 1328(a)(1) of this title,
or that] section 523, 1228(a)(1), or 1328(a)(1), or
that would be so excepted, determined in accordance
with the provisions of sections 523(c) and 523(d) of
this title, in a case concerning the debtor's spouse
commenced on the date of the filing of the petition in
the case concerning the debtor, whether or not
discharge of the debt based on such community claim is
waived.
* * * * * * *
(c) An agreement between a holder of a claim and the
debtor, the consideration for which, in whole or in part, is
based on a debt that is dischargeable in a case under this
title is enforceable only to any extent enforceable under
applicable nonbankruptcy law, whether or not discharge of such
debt is waived, only if--
(1) * * *
[(2)(A) such agreement contains a clear and
conspicuous statement which advises the debtor that the
agreement may be rescinded at any time prior to
discharge or within sixty days after such agreement is
filed with the court, whichever occurs later, by giving
notice of rescission to the holder of such claim; and
[(B) such agreement contains a clear and
conspicuous statement which advises the debtor that
such agreement is not required under this title, under
nonbankruptcy law, or under any agreement not in
accordance with the provisions of this subsection;]
(2) the debtor received the disclosures described
in subsection (k) at or before the time at which the
debtor signed the agreement;
* * * * * * *
(i) The willful failure of a creditor to credit payments
received under a plan confirmed under this title (including a
plan of reorganization confirmed under chapter 11 of this
title), unless the plan is dismissed, in default, or the
creditor has not received payments required to be made under
the plan in the manner required by the plan (including
crediting the amounts required under the plan), shall
constitute a violation of an injunction under subsection (a)(2)
if the act of the creditor to collect and failure to credit
payments in the manner required by the plan caused material
injury to the debtor.
(j) Subsection (a)(2) does not operate as an injunction
against an act by a creditor that is the holder of a secured
claim, if--
(1) such creditor retains a security interest in
real property that is the principal residence of the
debtor;
(2) such act is in the ordinary course of business
between the creditor and the debtor; and
(3) such act is limited to seeking or obtaining
periodic payments associated with a valid security
interest in lieu of pursuit of in rem relief to enforce
the lien.
(k)(1) The disclosures required under subsection (c)(2)
shall consist of the disclosure statement described in
paragraph (3), completed as required in that paragraph,
together with the agreement, statement, declaration, motion and
order described, respectively, in paragraphs (4) through (8),
and shall be the only disclosures required in connection with
the reaffirmation.
(2) Disclosures made under paragraph (1) shall be made
clearly and conspicuously and in writing. The terms ``Amount
Reaffirmed'' and ``Annual Percentage Rate'' shall be disclosed
more conspicuously than other terms, data or information
provided in connection with this disclosure, except that the
phrases ``Before agreeing to reaffirm a debt, review these
important disclosures'' and ``Summary of Reaffirmation
Agreement'' may be equally conspicuous. Disclosures may be made
in a different order and may use terminology different from
that set forth in paragraphs (2) through (8), except that the
terms ``Amount Reaffirmed'' and ``Annual Percentage Rate'' must
be used where indicated.
(3) The disclosure statement required under this paragraph
shall consist of the following:
(A) The statement: ``Part A: Before agreeing to
reaffirm a debt, review these important disclosures:'';
(B) Under the heading ``Summary of Reaffirmation
Agreement'', the statement: ``This Summary is made
pursuant to the requirements of the Bankruptcy Code'';
(C) The ``Amount Reaffirmed'', using that term,
which shall be--
(i) the total amount which the debtor
agrees to reaffirm, and
(ii) the total of any other fees or cost
accrued as of the date of the disclosure
statement.
(D) In conjunction with the disclosure of the
``Amount Reaffirmed'', the statements--
(i) ``The amount of debt you have agreed to
reaffirm''; and
(ii) ``Your credit agreement may obligate
you to pay additional amounts which may come
due after the date of this disclosure. Consult
your credit agreement.''.
(E) The ``Annual Percentage Rate'', using that
term, which shall be disclosed as--
(i) if, at the time the petition is filed,
the debt is open end credit as defined under
the Truth in Lending Act (15 U.S.C. 1601 et
seq.), then--
(I) the annual percentage rate
determined under paragraphs (5) and (6)
of section 127(b) of the Truth in
Lending Act (15 U.S.C. 1637(b)(5) and
(6)), as applicable, as disclosed to
the debtor in the most recent periodic
statement prior to the agreement or, if
no such periodic statement has been
provided the debtor during the prior 6
months, the annual percentage rate as
it would have been so disclosed at the
time the disclosure statement is given
the debtor, or to the extent this
annual percentage rate is not readily
available or not applicable, then
(II) the simple interest rate
applicable to the amount reaffirmed as
of the date the disclosure statement is
given to the debtor, or if different
simple interest rates apply to
different balances, the simple interest
rate applicable to each such balance,
identifying the amount of each such
balance included in the amount
reaffirmed, or
(III) if the entity making the
disclosure elects, to disclose the
annual percentage rate under subclause
(I) and the simple interest rate under
subclause (II);
(ii) if, at the time the petition is filed,
the debt is closed end credit as defined under
the Truth in Lending Act (15 U.S.C. 1601 et
seq.), then--
(I) the annual percentage rate
under section 128(a)(4) of the Truth in
Lending Act (15 U.S.C. 1638(a)(4)), as
disclosed to the debtor in the most
recent disclosure statement given the
debtor prior to the reaffirmation
agreement with respect to the debt, or,
if no such disclosure statement was
provided the debtor, the annual
percentage rate as it would have been
so disclosed at the time the disclosure
statement is given the debtor, or to
the extent this annual percentage rate
is not readily available or not
applicable, then
(II) the simple interest rate
applicable to the amount reaffirmed as
of the date the disclosure statement is
given the debtor, or if different
simple interest rates apply to
different balances, the simple interest
rate applicable to each such balance,
identifying the amount of such balance
included in the amount reaffirmed, or
(III) if the entity making the
disclosure elects, to disclose the
annual percentage rate under (I) and
the simple interest rate under (II).
(F) If the underlying debt transaction was
disclosed as a variable rate transaction on the most
recent disclosure given under the Truth in Lending Act
(15 U.S.C. 1601 et seq.), by stating ``The interest
rate on your loan may be a variable interest rate which
changes from time to time, so that the annual
percentage rate disclosed here may be higher or
lower.''.
(G) If the debt is secured by a security interest
which has not been waived in whole or in part or
determined to be void by a final order of the court at
the time of the disclosure, by disclosing that a
security interest or lien in goods or property is
asserted over some or all of the obligations you are
reaffirming and listing the items and their original
purchase price that are subject to the asserted
security interest, or if not a purchase-money security
interest then listing by items or types and the
original amount of the loan.
(H) At the election of the creditor, a statement of
the repayment schedule using 1 or a combination of the
following--
(i) by making the statement: ``Your first
payment in the amount of $______ is due on
______ but the future payment amount may be
different. Consult your reaffirmation or credit
agreement, as applicable.'', and stating the
amount of the first payment and the due date of
that payment in the places provided;
(ii) by making the statement: ``Your
payment schedule will be:'', and describing the
repayment schedule with the number, amount and
due dates or period of payments scheduled to
repay the obligations reaffirmed to the extent
then known by the disclosing party; or
(iii) by describing the debtor's repayment
obligations with reasonable specificity to the
extent then known by the disclosing party.
(I) The following statement: ``Note: When this
disclosure refers to what a creditor `may' do, it does
not use the word `may' to give the creditor specific
permission. The word `may' is used to tell you what
might occur if the law permits the creditor to take the
action. If you have questions about your reaffirmation
or what the law requires, talk to the attorney who
helped you negotiate this agreement. If you don't have
an attorney helping you, the judge will explain the
effect of your reaffirmation when the reaffirmation
hearing is held.''.
(J)(i) The following additional statements:
``Reaffirming a debt is a serious financial decision. The
law requires you to take certain steps to make sure the
decision is in your best interest. If these steps are not
completed, the reaffirmation agreement is not effective, even
though you have signed it.
``1. Read the disclosures in this Part A carefully.
Consider the decision to reaffirm carefully. Then, if
you want to reaffirm, sign the reaffirmation agreement
in Part B (or you may use a separate agreement you and
your creditor agree on).
``2. Complete and sign Part D and be sure you can
afford to make the payments you are agreeing to make
and have received a copy of the disclosure statement
and a completed and signed reaffirmation agreement.
``3. If you were represented by an attorney during
the negotiation of the reaffirmation agreement, the
attorney must have signed the certification in Part C.
``4. If you were not represented by an attorney
during the negotiation of the reaffirmation agreement,
you must have completed and signed Part E.
``5. The original of this disclosure must be filed
with the court by you or your creditor. If a separate
reaffirmation agreement (other than the one in Part B)
has been signed, it must be attached.
``6. If you were represented by an attorney during
the negotiation of the reaffirmation agreement, your
reaffirmation agreement becomes effective upon filing
with the court unless the reaffirmation is presumed to
be an undue hardship as explained in Part D.
``7. If you were not represented by an attorney
during the negotiation of the reaffirmation agreement,
it will not be effective unless the court approves it.
The court will notify you of the hearing on your
reaffirmation agreement. You must attend this hearing
in bankruptcy court where the judge will review your
agreement. The bankruptcy court must approve the
agreement as consistent with your best interests,
except that no court approval is required if the
agreement is for a consumer debt secured by a mortgage,
deed of trust, security deed or other lien on your real
property, like your home.
``Your right to rescind a reaffirmation. You may rescind
(cancel) your reaffirmation at any time before the bankruptcy
court enters a discharge order or within 60 days after the
agreement is filed with the court, whichever is longer. To
rescind or cancel, you must notify the creditor that the
agreement is canceled.
``What are your obligations if you reaffirm the debt? A
reaffirmed debt remains your personal legal obligation. It is
not discharged in your bankruptcy. That means that if you
default on your reaffirmed debt after your bankruptcy is over,
your creditor may be able to take your property or your wages.
Otherwise, your obligations will be determined by the
reaffirmation agreement which may have changed the terms of the
original agreement. For example, if you are reaffirming an open
end credit agreement, the creditor may be permitted by that
agreement or applicable law to change the terms of the
agreement in the future under certain conditions.
``Are you required to enter into a reaffirmation agreement
by any law? No, you are not required to reaffirm a debt by any
law. Only agree to reaffirm a debt if it is in your best
interest. Be sure you can afford the payments you agree to
make.
``What if your creditor has a security interest or lien?
Your bankruptcy discharge does not eliminate any lien on your
property. A `lien' is often referred to as a security interest,
deed of trust, mortgage or security deed. Even if you do not
reaffirm and your personal liability on the debt is discharged,
because of the lien your creditor may still have the right to
take the security property if you do not pay the debt or
default on it. If the lien is on an item of personal property
that is exempt under your State's law or that the trustee has
abandoned, you may be able to redeem the item rather than
reaffirm the debt. To redeem, you make a single payment to the
creditor equal to the current value of the security property,
as agreed by the parties or determined by the court.''.
(ii) In the case of a reaffirmation under
subsection (m)(2), numbered paragraph 6 in the
disclosures required by clause (i) of this subparagraph
shall read as follows:
``6. If you were represented by an attorney during
the negotiation of the reaffirmation agreement, your
reaffirmation agreement becomes effective upon filing
with the court.''.
(4) The form of reaffirmation agreement required under this
paragraph shall consist of the following:
``Part B: Reaffirmation Agreement. I/we agree to reaffirm
the obligations arising under the credit agreement described
below.
``Brief description of credit agreement:
``Description of any changes to the credit agreement made
as part of this reaffirmation agreement:
``Signature: Date:
``Borrower:
``Co-borrower, if also reaffirming:
``Accepted by creditor:
``Date of creditor acceptance:''.
(5)(A) The declaration shall consist of the following:
``Part C: Certification by Debtor's Attorney (If Any).
``I hereby certify that (1) this agreement represents a
fully informed and voluntary agreement by the debtor(s); (2)
this agreement does not impose an undue hardship on the debtor
or any dependent of the debtor; and (3) I have fully advised
the debtor of the legal effect and consequences of this
agreement and any default under this agreement.
``Signature of Debtor's Attorney: Date:''.
(B) In the case of reaffirmations in which a presumption of
undue hardship has been established, the certification shall
state that in the opinion of the attorney, the debtor is able
to make the payment.
(C) In the case of a reaffirmation agreement under
subsection (m)(2), subparagraph (B) is not applicable.
(6)(A) The statement in support of reaffirmation agreement,
which the debtor shall sign and date prior to filing with the
court, shall consist of the following:
``Part D: Debtor's Statement in Support of Reaffirmation
Agreement.
``1. I believe this agreement will not impose an undue
hardship on my dependents or me. I can afford to make the
payments on the reaffirmed debt because my monthly income (take
home pay plus any other income received) is $______, and my
actual current monthly expenses including monthly payments on
post-bankruptcy debt and other reaffirmation agreements total
$______, leaving $______ to make the required payments on this
reaffirmed debt. I understand that if my income less my monthly
expenses does not leave enough to make the payments, this
reaffirmation agreement is presumed to be an undue hardship on
me and must be reviewed by the court. However, this presumption
may be overcome if I explain to the satisfaction of the court
how I can afford to make the payments here: ______.
``2. I received a copy of the Reaffirmation Disclosure
Statement in Part A and a completed and signed reaffirmation
agreement.''.
(B) Where the debtor is represented by counsel and is
reaffirming a debt owed to a creditor defined in section
19(b)(1)(A)(iv) of the Federal Reserve Act (12 U.S.C.
461(b)(1)(A)(iv)), the statement of support of the
reaffirmation agreement, which the debtor shall sign and date
prior to filing with the court, shall consist of the following:
``I believe this agreement is in my financial interest. I
can afford to make the payments on the reaffirmed debt. I
received a copy of the Reaffirmation Disclosure Statement in
Part A and a completed and signed reaffirmation agreement.''
(7) The motion, which may be used if approval of the
agreement by the court is required in order for it to be
effective and shall be signed and dated by the moving party,
shall consist of the following:
``Part E: Motion for Court Approval (To be completed only
where debtor is not represented by an attorney.). I (we), the
debtor, affirm the following to be true and correct:
``I am not represented by an attorney in connection with
this reaffirmation agreement.
``I believe this agreement is in my best interest based on
the income and expenses I have disclosed in my Statement in
Support of this reaffirmation agreement above, and because
(provide any additional relevant reasons the court should
consider):
``Therefore, I ask the court for an order approving this
reaffirmation agreement.''.
(8) The court order, which may be used to approve a
reaffirmation, shall consist of the following:
``Court Order: The court grants the debtor's motion and
approves the reaffirmation agreement described above.''.
(9) Subsection (a)(2) does not operate as an injunction
against an act by a creditor that is the holder of a secured
claim, if--
(A) such creditor retains a security interest in
real property that is the debtor's principal residence;
(B) such act is in the ordinary course of business
between the creditor and the debtor; and
(C) such act is limited to seeking or obtaining
periodic payments associated with a valid security
interest in lieu of pursuit of in rem relief to enforce
the lien.
(l) Notwithstanding any other provision of this title:
(1) A creditor may accept payments from a debtor
before and after the filing of a reaffirmation
agreement with the court.
(2) A creditor may accept payments from a debtor
under a reaffirmation agreement which the creditor
believes in good faith to be effective.
(3) The requirements of subsections (c)(2) and (k)
shall be satisfied if disclosures required under those
subsections are given in good faith.
(m)(1) Until 60 days after a reaffirmation agreement is
filed with the court (or such additional period as the court,
after notice and hearing and for cause, orders before the
expiration of such period), it shall be presumed that the
reaffirmation agreement is an undue hardship on the debtor if
the debtor's monthly income less the debtor's monthly expenses
as shown on the debtor's completed and signed statement in
support of the reaffirmation agreement required under
subsection (k)(6)(A) is less than the scheduled payments on the
reaffirmed debt. This presumption shall be reviewed by the
court. The presumption may be rebutted in writing by the debtor
if the statement includes an explanation which identifies
additional sources of funds to make the payments as agreed upon
under the terms of the reaffirmation agreement. If the
presumption is not rebutted to the satisfaction of the court,
the court may disapprove the agreement. No agreement shall be
disapproved without notice and hearing to the debtor and
creditor and such hearing shall be concluded before the entry
of the debtor's discharge.
(2) This subsection does not apply to reaffirmation
agreements where the creditor is a credit union, as defined in
section 19(b)(1)(A)(iv) of the Federal Reserve Act (12 U.S.C.
461(b)(1)(A)(iv)).
Sec. 525. Protection against discriminatory treatment
(a) * * *
* * * * * * *
(c)(1) A governmental unit that operates a student grant or
loan program and a person engaged in a business that includes
the making of loans guaranteed or insured under a student loan
program may not deny a student grant, loan, loan guarantee, or
loan insurance to a person that is or has been a debtor under
this title or a bankrupt or debtor under the Bankruptcy Act, or
another person with whom the debtor or bankrupt has been
associated, because the debtor or bankrupt is or has been a
debtor under this title or a bankrupt or debtor under the
Bankruptcy Act, has been insolvent before the commencement of a
case under this title or during the pendency of the case but
before the debtor is granted or denied a discharge, or has not
paid a debt that is dischargeable in the case under this title
or that was discharged under the Bankruptcy Act.
(2) In this section, ``student loan program'' means [the
program operated under part B, D, or E of] any program operated
under title IV of the Higher Education Act of 1965 or a similar
program operated under State or local law.
Sec. 526. Restrictions on debt relief agencies
(a) A debt relief agency shall not--
(1) fail to perform any service that such agency
informed an assisted person or prospective assisted
person it would provide in connection with a case or
proceeding under this title;
(2) make any statement, or counsel or advise any
assisted person or prospective assisted person to make
a statement in a document filed in a case or proceeding
under this title, that is untrue and misleading, or
that upon the exercise of reasonable care, should have
been known by such agency to be untrue or misleading;
(3) misrepresent to any assisted person or
prospective assisted person, directly or indirectly,
affirmatively or by material omission, with respect
to--
(i) the services that such agency will
provide to such person; or
(ii) the benefits and risks that may result
if such person becomes a debtor in a case under
this title; or
(4) advise an assisted person or prospective
assisted person to incur more debt in contemplation of
such person filing a case under this title or to pay an
attorney or bankruptcy petition preparer fee or charge
for services performed as part of preparing for or
representing a debtor in a case under this title.
(b) Any waiver by any assisted person of any protection or
right provided under this section shall not be enforceable
against the debtor by any Federal or State court or any other
person, but may be enforced against a debt relief agency.
(c)(1) Any contract for bankruptcy assistance between a
debt relief agency and an assisted person that does not comply
with the material requirements of this section, section 527, or
section 528 shall be void and may not be enforced by any
Federal or State court or by any other person, other than such
assisted person.
(2) Any debt relief agency shall be liable to an assisted
person in the amount of any fees or charges in connection with
providing bankruptcy assistance to such person that such debt
relief agency has received, for actual damages, and for
reasonable attorneys' fees and costs if such agency is found,
after notice and hearing, to have--
(A) intentionally or negligently failed to comply
with any provision of this section, section 527, or
section 528 with respect to a case or proceeding under
this title for such assisted person;
(B) provided bankruptcy assistance to an assisted
person in a case or proceeding under this title that is
dismissed or converted to a case under another chapter
of this title because of such agency's intentional or
negligent failure to file any required document
including those specified in section 521; or
(C) intentionally or negligently disregarded the
material requirements of this title or the Federal
Rules of Bankruptcy Procedure applicable to such
agency.
(3) In addition to such other remedies as are provided
under State law, whenever the chief law enforcement officer of
a State, or an official or agency designated by a State, has
reason to believe that any person has violated or is violating
this section, the State--
(A) may bring an action to enjoin such violation;
(B) may bring an action on behalf of its residents
to recover the actual damages of assisted persons
arising from such violation, including any liability
under paragraph (2); and
(C) in the case of any successful action under
subparagraph (A) or (B), shall be awarded the costs of
the action and reasonable attorney fees as determined
by the court.
(4) The United States District Court for any district
located in the State shall have concurrent jurisdiction of any
action under subparagraph (A) or (B) of paragraph (3).
(5) Notwithstanding any other provision of Federal law and
in addition to any other remedy provided under Federal or State
law, if the court, on its own motion or on motion of the United
States trustee or the debtor, finds that a person intentionally
violated this section, or engaged in a clear and consistent
pattern or practice of violating this section, the court may--
(A) enjoin the violation of such section; or
(B) impose an appropriate civil penalty against
such person.
(d) No provision of this section, section 527, or section
528 shall--
(1) annul, alter, affect, or exempt any person
subject to such sections from complying with any law of
any State except to the extent that such law is
inconsistent with those sections, and then only to the
extent of the inconsistency; or
(2) be deemed to limit or curtail the authority or
ability--
(A) of a State or subdivision or
instrumentality thereof, to determine and
enforce qualifications for the practice of law
under the laws of that State; or
(B) of a Federal court to determine and
enforce the qualifications for the practice of
law before that court.
Sec. 527. Disclosures
(a) A debt relief agency providing bankruptcy assistance to
an assisted person shall provide--
(1) the written notice required under section
342(b)(1) of this title; and
(2) to the extent not covered in the written notice
described in paragraph (1), and not later than 3
business days after the first date on which a debt
relief agency first offers to provide any bankruptcy
assistance services to an assisted person, a clear and
conspicuous written notice advising assisted persons
that--
(A) all information that the assisted
person is required to provide with a petition
and thereafter during a case under this title
is required to be complete, accurate, and
truthful;
(B) all assets and all liabilities are
required to be completely and accurately
disclosed in the documents filed to commence
the case, and the replacement value of each
asset as defined in section 506 of this title
must be stated in those documents where
requested after reasonable inquiry to establish
such value;
(C) current monthly income, the amounts
specified in section 707(b)(2), and, in a case
under chapter 13, disposable income (determined
in accordance with section 707(b)(2)), are
required to be stated after reasonable inquiry;
and
(D) information that an assisted person
provides during their case may be audited
pursuant to this title, and that failure to
provide such information may result in
dismissal of the proceeding under this title or
other sanction including, in some instances,
criminal sanctions.
(b) A debt relief agency providing bankruptcy assistance to
an assisted person shall provide each assisted person at the
same time as the notices required under subsection (a)(1) with
the following statement, to the extent applicable, or one
substantially similar. The statement shall be clear and
conspicuous and shall be in a single document separate from
other documents or notices provided to the assisted person:
``IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE
SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER.
``If you decide to seek bankruptcy relief, you can
represent yourself, you can hire an attorney to represent you,
or you can get help in some localities from a bankruptcy
petition preparer who is not an attorney. THE LAW REQUIRES AN
ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN
CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION
PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see
the contract before you hire anyone.
``The following information helps you understand what must
be done in a routine bankruptcy case to help you evaluate how
much service you need. Although bankruptcy can be complex, many
cases are routine.
``Before filing a bankruptcy case, either you or your
attorney should analyze your eligibility for different forms of
debt relief made available by the Bankruptcy Code and which
form of relief is most likely to be beneficial for you. Be sure
you understand the relief you can obtain and its limitations.
To file a bankruptcy case, documents called a Petition,
Schedules and Statement of Financial Affairs, as well as in
some cases a Statement of Intention need to be prepared
correctly and filed with the bankruptcy court. You will have to
pay a filing fee to the bankruptcy court. Once your case
starts, you will have to attend the required first meeting of
creditors where you may be questioned by a court official
called a `trustee' and by creditors.
``If you choose to file a chapter 7 case, you may be asked
by a creditor to reaffirm a debt. You may want help deciding
whether to do so and a creditor is not permitted to coerce you
into reaffirming your debts.
``If you choose to file a chapter 13 case in which you
repay your creditors what you can afford over 3 to 5 years, you
may also want help with preparing your chapter 13 plan and with
the confirmation hearing on your plan which will be before a
bankruptcy judge.
``If you select another type of relief under the Bankruptcy
Code other than chapter 7 or chapter 13, you will want to find
out what needs to be done from someone familiar with that type
of relief.
``Your bankruptcy case may also involve litigation. You are
generally permitted to represent yourself in litigation in
bankruptcy court, but only attorneys, not bankruptcy petition
preparers, can give you legal advice.''.
(c) Except to the extent the debt relief agency provides
the required information itself after reasonably diligent
inquiry of the assisted person or others so as to obtain such
information reasonably accurately for inclusion on the
petition, schedules or statement of financial affairs, a debt
relief agency providing bankruptcy assistance to an assisted
person, to the extent permitted by nonbankruptcy law, shall
provide each assisted person at the time required for the
notice required under subsection (a)(1) reasonably sufficient
information (which shall be provided in a clear and conspicuous
writing) to the assisted person on how to provide all the
information the assisted person is required to provide under
this title pursuant to section 521, including--
(1) how to value assets at replacement value,
determine current monthly income, the amounts specified
in section 707(b)(2)) and, in a chapter 13 case, how to
determine disposable income in accordance with section
707(b)(2) and related calculations;
(2) how to complete the list of creditors,
including how to determine what amount is owed and what
address for the creditor should be shown; and
(3) how to determine what property is exempt and
how to value exempt property at replacement value as
defined in section 506 of this title.
(d) A debt relief agency shall maintain a copy of the
notices required under subsection (a) of this section for 2
years after the date on which the notice is given the assisted
person.
Sec. 528. Requirements for debt relief agencies
(a) A debt relief agency shall--
(1) not later than 5 business days after the first
date such agency provides any bankruptcy assistance
services to an assisted person, but prior to such
assisted person's petition under this title being
filed, execute a written contract with such assisted
person that explains clearly and conspicuously--
(A) the services such agency will provide
to such assisted person; and
(B) the fees or charges for such services,
and the terms of payment;
(2) provide the assisted person with a copy of the
fully executed and completed contract;
(3) clearly and conspicuously disclose in any
advertisement of bankruptcy assistance services or of
the benefits of bankruptcy directed to the general
public (whether in general media, seminars or specific
mailings, telephonic or electronic messages, or
otherwise) that the services or benefits are with
respect to bankruptcy relief under this title; and
(4) clearly and conspicuously using the following
statement: ``We are a debt relief agency. We help
people file for bankruptcy relief under the Bankruptcy
Code.'' or a substantially similar statement.
(b)(1) An advertisement of bankruptcy assistance services
or of the benefits of bankruptcy directed to the general public
includes--
(A) descriptions of bankruptcy assistance in
connection with a chapter 13 plan whether or not
chapter 13 is specifically mentioned in such
advertisement; and
(B) statements such as ``federally supervised
repayment plan'' or ``Federal debt restructuring help''
or other similar statements that could lead a
reasonable consumer to believe that debt counseling was
being offered when in fact the services were directed
to providing bankruptcy assistance with a chapter 13
plan or other form of bankruptcy relief under this
title.
(2) An advertisement, directed to the general public,
indicating that the debt relief agency provides assistance with
respect to credit defaults, mortgage foreclosures, eviction
proceedings, excessive debt, debt collection pressure, or
inability to pay any consumer debt shall--
(A) disclose clearly and conspicuously in such
advertisement that the assistance may involve
bankruptcy relief under this title; and
(B) include the following statement: ``We are a
debt relief agency. We help people file for bankruptcy
relief under the Bankruptcy Code,'' or a substantially
similar statement.
SUBCHAPTER III--THE ESTATE
Sec. 541. Property of the estate
(a) * * *
(b) Property of the estate does not include--
(1) * * *
* * * * * * *
(4) any interest of the debtor in liquid or gaseous
hydrocarbons to the extent that--
(A) * * *
(B)(i) the debtor has transferred such
interest pursuant to a written conveyance of a
production payment to an entity that does not
participate in the operation of the property
from which such production payment is
transferred; and
(ii) but for the operation of this
paragraph, the estate could include the
interest referred to in clause (i) only by
virtue of section 365 or 542 of this title;
[or]
(5) funds placed in an education individual
retirement account (as defined in section 530(b)(1) of
the Internal Revenue Code of 1986) not later than 365
days before the date of filing of the petition, but--
(A) only if the designated beneficiary of
such account was a son, daughter, stepson,
stepdaughter, grandchild, or step-grandchild of
the debtor for the taxable year for which funds
were placed in such account;
(B) only to the extent that such funds--
(i) are not pledged or promised to
any entity in connection with any
extension of credit; and
(ii) are not excess contributions
(as described in section 4973(e) of the
Internal Revenue Code of 1986); and
(C) in the case of funds placed in all such
accounts having the same designated beneficiary
not earlier than 720 days nor later than 365
days before such date, only so much of such
funds as does not exceed $5,000;
(6) funds used to purchase a tuition credit or
certificate or contributed to an account in accordance
with section 529(b)(1)(A) of the Internal Revenue Code
of 1986 under a qualified State tuition program (as
defined in section 529(b)(1) of such Code) not later
than 365 days before the date of filing of the
petition, but--
(A) only if the designated beneficiary of
the amounts paid or contributed to such tuition
program was a son, daughter, stepson,
stepdaughter, grandchild, or step-grandchild of
the debtor for the taxable year for which funds
were paid or contributed;
(B) with respect to the aggregate amount
paid or contributed to such program having the
same designated beneficiary, only so much of
such amount as does not exceed the total
contributions permitted under section 529(b)(7)
of such Code with respect to such beneficiary,
as adjusted beginning on the date of the filing
of the petition by the annual increase or
decrease (rounded to the nearest tenth of 1
percent) in the education expenditure category
of the Consumer Price Index prepared by the
Department of Labor; and
(C) in the case of funds paid or
contributed to such program having the same
designated beneficiary not earlier than 720
days nor later than 365 days before such date,
only so much of such funds as does not exceed
$5,000;
(7) any amount--
(A) withheld by an employer from the wages
of employees for payment as contributions to--
(i) an employee benefit plan
subject to title I of the Employee
Retirement Income Security Act of 1974
(29 U.S.C. 1001 et seq.) or under an
employee benefit plan which is a
governmental plan under section 414(d)
of the Internal Revenue Code of 1986, a
deferred compensation plan under
section 457 of the Internal Revenue
Code of 1986, or a tax-deferred annuity
under section 403(b) of the Internal
Revenue Code of 1986, except that
amount shall not constitute disposable
income, as defined in section
1325(b)(2) of this title; or
(ii) a health insurance plan
regulated by State law whether or not
subject to such title; or
(B) received by the employer from employees
for payment as contributions to--
(i) an employee benefit plan
subject to title I of the Employee
Retirement Income Security Act of 1974
(29 U.S.C. 1001 et seq.) or under an
employee benefit plan which is a
governmental plan under section 414(d)
of the Internal Revenue Code of 1986, a
deferred compensation plan under
section 457 of the Internal Revenue
Code of 1986, or a tax-deferred annuity
under section 403(b) of the Internal
Revenue Code of 1986, except that
amount shall not constitute disposable
income, as defined in section
1325(b)(2) of this title; or
(ii) a health insurance plan
regulated by State law whether or not
subject to such title;
(8) any eligible asset (or proceeds thereof), to
the extent that such eligible asset was transferred by
the debtor, before the date of commencement of the
case, to an eligible entity in connection with an
asset-backed securitization, except to the extent such
asset (or proceeds or value thereof) may be recovered
by the trustee under section 550 by virtue of avoidance
under section 548(a);
(9) subject to subchapter III of chapter 5, any
interest of the debtor in property where the debtor
pledged or sold tangible personal property (other than
securities or written or printed evidences of
indebtedness or title) as collateral for a loan or
advance of money given by a person licensed under law
to make such loans or advances, where--
(A) the tangible personal property is in
the possession of the pledgee or transferee;
(B) the debtor has no obligation to repay
the money, redeem the collateral, or buy back
the property at a stipulated price; and
(C) neither the debtor nor the trustee have
exercised any right to redeem provided under
the contract or State law, in a timely manner
as provided under State law and section 108(b)
of this title; or
[(5)] (10) any interest in cash or cash equivalents
that constitute proceeds of a sale by the debtor of a
money order that is made--
(A) * * *
* * * * * * *
(e) In determining whether any of the relationships
specified in paragraph (5)(A) or (6)(A) of subsection (b)
exists, a legally adopted child of an individual (and a child
who is a member of an individual's household, if placed with
such individual by an authorized placement agency for legal
adoption by such individual), or a foster child of an
individual (if such child has as the child's principal place of
abode the home of the debtor and is a member of the debtor's
household) shall be treated as a child of such individual by
blood.
(f) For purposes of this section--
(1) the term ``asset-backed securitization'' means
a transaction in which eligible assets transferred to
an eligible entity are used as the source of payment on
securities, including, without limitation, all
securities issued by governmental units, at least one
class or tranche of which was rated investment grade by
one or more nationally recognized securities rating
organizations, when the securities were initially
issued by an issuer;
(2) the term ``eligible asset'' means--
(A) financial assets (including interests
therein and proceeds thereof), either fixed or
revolving, whether or not the same are in
existence as of the date of the transfer,
including residential and commercial mortgage
loans, consumer receivables, trade receivables,
assets of governmental units, including payment
obligations relating to taxes, receipts, fines,
tickets, and other sources of revenue, and
lease receivables, that, by their terms,
convert into cash within a finite time period,
plus any residual interest in property subject
to receivables included in such financial
assets plus any rights or other assets designed
to assure the servicing or timely distribution
of proceeds to security holders;
(B) cash; and
(C) securities, including without
limitation, all securities issued by
governmental units;
(3) the term ``eligible entity'' means--
(A) an issuer; or
(B) a trust, corporation, partnership,
governmental unit, limited liability company
(including a single member limited liability
company), or other entity engaged exclusively
in the business of acquiring and transferring
eligible assets directly or indirectly to an
issuer and taking actions ancillary thereto;
(4) the term ``issuer'' means a trust, corporation,
partnership, or other entity engaged exclusively in the
business of acquiring and holding eligible assets,
issuing securities backed by eligible assets, and
taking actions ancillary thereto; and
(5) the term ``transferred'' means the debtor,
under a written agreement, represented and warranted
that eligible assets were sold, contributed, or
otherwise conveyed with the intention of removing them
from the estate of the debtor pursuant to subsection
(b)(8) (whether or not reference is made to this title
or any section hereof), irrespective and without
limitation of--
(A) whether the debtor directly or
indirectly obtained or held an interest in the
issuer or in any securities issued by the
issuer;
(B) whether the debtor had an obligation to
repurchase or to service or supervise the
servicing of all or any portion of such
eligible assets; or
(C) the characterization of such sale,
contribution, or other conveyance for tax,
accounting, regulatory reporting, or other
purposes.
(g) Notwithstanding any other provision of this title,
property that is held by a debtor that is a corporation
described in section 501(c)(3) of the Internal Revenue Code of
1986 and exempt from tax under section 501(a) of such Code may
be transferred to an entity that is not such a corporation, but
only under the same conditions as would apply if the debtor had
not filed a case under this title.
* * * * * * *
Sec. 545. Statutory liens
The trustee may avoid the fixing of a statutory lien on
property of the debtor to the extent that such lien--
(1) * * *
(2) is not perfected or enforceable at the time of
the commencement of the case against a bona fide
purchaser that purchases such property at the time of
the commencement of the case, whether or not such a
purchaser exists, except in any case in which a
purchaser is a purchaser described in section 6323 of
the Internal Revenue Code of 1986, or in any other
similar provision of State or local law;
* * * * * * *
Sec. 546. Limitations on avoiding powers
(a) * * *
* * * * * * *
[(c) Except as provided in subsection (d) of this section,
the rights and powers of a trustee under sections 544(a), 545,
547, and 549 of this title are subject to any statutory or
common-law right of a seller of goods that has sold goods to
the debtor, in the ordinary course of such seller's business,
to reclaim such goods if the debtor has received such goods
while insolvent, but--
[(1) such a seller may not reclaim any such goods
unless such seller demands in writing reclamation of
such goods--
[(A) before 10 days after receipt of such
goods by the debtor; or
[(B) if such 10-day period expires after
the commencement of the case, before 20 days
after receipt of such goods by the debtor; and
[(2) the court may deny reclamation to a seller
with such a right of reclamation that has made such a
demand only if the court--
[(A) grants the claim of such a seller
priority as a claim of a kind specified in
section 503(b) of this title; or
[(B) secures such claim by a lien.]
(c)(1) Except as provided in subsection (d) of this section
and subsection (c) of section 507, and subject to the prior
rights of holders of security interests in such goods or the
proceeds thereof, the rights and powers of the trustee under
sections 544(a), 545, 547, and 549 are subject to the right of
a seller of goods that has sold goods to the debtor, in the
ordinary course of such seller's business, to reclaim such
goods if the debtor has received such goods while insolvent,
not later than 45 days after the date of the commencement of a
case under this title, but such seller may not reclaim such
goods unless such seller demands in writing reclamation of such
goods--
(A) not later than 45 days after the date of
receipt of such goods by the debtor; or
(B) not later than 20 days after the date of
commencement of the case, if the 45-day period expires
after the commencement of the case.
(2) If a seller of goods fails to provide notice in the
manner described in paragraph (1), the seller still may assert
the rights contained in section 503(b)(7).
* * * * * * *
(e) Notwithstanding sections 544, 545, 547, 548(a)(1)(B),
and 548(b) of this title, the trustee may not avoid a transfer
that is a margin payment, as defined in section 101, 741, or
761 of this title, or settlement payment, as defined in section
101 or 741 of this title, made by or to a commodity broker,
forward contract merchant, stockbroker, financial institution,
financial participant, or securities clearing agency, that is
made before the commencement of the case, except under section
548(a)(1)(A) of this title.
* * * * * * *
(g) Notwithstanding sections 544, 545, 547, 548(a)(1)(B)
and 548(b) of this title, the trustee may not avoid a transfer
[under a swap agreement], made by or to a swap participant, [in
connection with a swap agreement] under or in connection with
any swap agreement and that is made before the commencement of
the case, except under section 548(a)(1)(A) of this title.
[(g)] (i) Notwithstanding the rights and powers of a
trustee under sections 544(a), 545, 547, 549, and 553, if the
court determines on a motion by the trustee made not later than
120 days after the date of the order for relief in a case under
chapter 11 of this title and after notice and a hearing, that a
return is in the best interests of the estate, the debtor, with
the consent of a creditor, may return goods shipped to the
debtor by the creditor before the commencement of the case, and
the creditor may offset the purchase price of such goods
against any claim of the creditor against the debtor that arose
before the commencement of the case.
(j)(1) Notwithstanding paragraphs (2) and (3) of section
545, the trustee may not avoid a warehouseman's lien for
storage, transportation, or other costs incidental to the
storage and handling of goods.
(2) The prohibition under paragraph (1) shall be applied in
a manner consistent with any applicable State statute that is
similar to section 7-209 of the Uniform Commercial Code, as in
effect on the date of enactment of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2001, or any
successor thereto.
(k) Notwithstanding sections 544, 545, 547, 548(a)(1)(B),
and 548(b) the trustee may not avoid a transfer made by or to a
master netting agreement participant under or in connection
with any master netting agreement or any individual contract
covered thereby that is made before the commencement of the
case, except under section 548(a)(1)(A) and except to the
extent that the trustee could otherwise avoid such a transfer
made under an individual contract covered by such master
netting agreement.
Sec. 547. Preferences
(a) * * *
(b) Except as provided in [subsection (c)] subsections (c)
and (i) of this section, the trustee may avoid any transfer of
an interest of the debtor in property--
(1) * * *
* * * * * * *
(c) The trustee may not avoid under this section a
transfer--
(1) * * *
[(2) to the extent that such transfer was--
[(A) in payment of a debt incurred by the
debtor in the ordinary course of business or
financial affairs of the debtor and the
transferee;
[(B) made in the ordinary course of
business or financial affairs of the debtor and
the transferee; and
[(C) made according to ordinary business
terms;]
(2) to the extent that such transfer was in payment
of a debt incurred by the debtor in the ordinary course
of business or financial affairs of the debtor and the
transferee, and such transfer was--
(A) made in the ordinary course of business
or financial affairs of the debtor and the
transferee; or
(B) made according to ordinary business
terms;
(3) that creates a security interest in property
acquired by the debtor--
(A) * * *
(B) that is perfected on or before [20] 30
days after the debtor receives possession of
such property;
* * * * * * *
[(7) to the extent such transfer was a bona fide
payment of a debt to a spouse, former spouse, or child
of the debtor, for alimony to, maintenance for, or
support of such spouse or child, in connection with a
separation agreement, divorce decree or other order of
a court of record, determination made in accordance
with State or territorial law by a governmental unit,
or property settlement agreement, but not to the extent
that such debt--
[(A) is assigned to another entity,
voluntarily, by operation of law, or otherwise;
or
[(B) includes a liability designated as
alimony, maintenance, or support, unless such
liability is actually in the nature of alimony,
maintenance or support; or]
(7) to the extent such transfer was a bona fide
payment of a debt for a domestic support obligation;
(8) if, in a case filed by an individual debtor
whose debts are primarily consumer debts, the aggregate
value of all property that constitutes or is affected
by such transfer is less than $600[.]; or
(9) if, in a case filed by a debtor whose debts are
not primarily consumer debts, the aggregate value of
all property that constitutes or is affected by such
transfer is less than $5,000.
* * * * * * *
(e)(1) * * *
(2) For the purposes of this section, except as provided in
paragraph (3) of this subsection, a transfer is made--
(A) at the time such transfer takes effect between
the transferor and the transferee, if such transfer is
perfected at, or within [10] 30 days after, such time,
except as provided in subsection (c)(3)(B);
(B) at the time such transfer is perfected, if such
transfer is perfected after such [10] 30 days; or
(C) immediately before the date of the filing of
the petition, if such transfer is not perfected at the
later of--
(i) * * *
(ii) [10] 30 days after such transfer takes
effect between the transferor and the
transferee.
* * * * * * *
(h) The trustee may not avoid a transfer if such transfer
was made as a part of an alternative repayment plan between the
debtor and any creditor of the debtor created by an approved
credit counseling agency.
(i) If the trustee avoids under subsection (b) a transfer
made between 90 days and 1 year before the date of the filing
of the petition, by the debtor to an entity that is not an
insider for the benefit of a creditor that is an insider, such
transfer shall be considered to be avoided under this section
only with respect to the creditor that is an insider.
* * * * * * *
Sec. 548. Fraudulent transfers and obligations
(a) * * *
* * * * * * *
(d)(1) * * *
(2) In this section--
(A) * * *
(B) a commodity broker, forward contract merchant,
stockbroker, financial institution, financial
participant, or securities clearing agency that
receives a margin payment, as defined in section 101,
741, or 761 of this title, or settlement payment, as
defined in section 101 or 741 of this title, takes for
value to the extent of such payment;
(C) a repo participant that receives a margin
payment, as defined in section 741 or 761 of this
title, or settlement payment, as defined in section 741
of this title, in connection with a repurchase
agreement, takes for value to the extent of such
payment; [and]
(D) a swap participant that receives a transfer in
connection with a swap agreement takes for value to the
extent of such transfer[.]; and
(E) a master netting agreement participant that
receives a transfer in connection with a master netting
agreement or any individual contract covered thereby
takes for value to the extent of such transfer, except
that, with respect to a transfer under any individual
contract covered thereby, to the extent that such
master netting agreement participant otherwise did not
take (or is otherwise not deemed to have taken) such
transfer for value.
* * * * * * *
Sec. 549. Postpetition transactions
(a) * * *
* * * * * * *
(c) The trustee may not avoid under subsection (a) of this
section a transfer of an interest in real property to a good
faith purchaser without knowledge of the commencement of the
case and for present fair equivalent value unless a copy or
notice of the petition was filed, where a transfer of an
interest in such real property may be recorded to perfect such
transfer, before such transfer is so perfected that a bona fide
purchaser of such real property, against whom applicable law
permits such transfer to be perfected, could not acquire an
interest that is superior to [the interest] such interest of
such good faith purchaser. A good faith purchaser without
knowledge of the commencement of the case and for less than
present fair equivalent value has a lien on the property
transferred to the extent of any present value given, unless a
copy or notice of the petition was so filed before such
transfer was so perfected.
* * * * * * *
Sec. 552. Postpetition effect of security interest
(a) * * *
(b)(1) Except as provided in sections 363, 506(c), 522,
544, 545, 547, and 548 of this title, if the debtor and an
entity entered into a security agreement before the
commencement of the case and if the security interest created
by such security agreement extends to property of the debtor
acquired before the commencement of the case and to proceeds,
[product] products, offspring, or profits of such property,
then such security interest extends to such proceeds, [product]
products, offspring, or profits acquired by the estate after
the commencement of the case to the extent provided by such
security agreement and by applicable nonbankruptcy law, except
to any extent that the court, after notice and a hearing and
based on the equities of the case, orders otherwise.
* * * * * * *
Sec. 553. Setoff
(a) Except as otherwise provided in this section and in
sections 362 and 363 of this title, this title does not affect
any right of a creditor to offset a mutual debt owing by such
creditor to the debtor that arose before the commencement of
the case under this title against a claim of such creditor
against the debtor that arose before the commencement of the
case, except to the extent that--
(1) * * *
* * * * * * *
(3) the debt owed to the debtor by such creditor
was incurred by such creditor--
(A) * * *
* * * * * * *
(C) for the purpose of obtaining a right of
setoff against the debtor (except for a setoff
of a kind described in section 362(b)(6),
362(b)(7), 362(b)(17), 362(b)(28), 555, 556,
559, 560, or 561 of this title).
(b)(1) Except with respect to a setoff of a kind described
in section 362(b)(6), 362(b)(7), [362(b)(14),] 362(b)(17),
362(b)(28), 555, 556, 559, 560, 561 365(h), 546(h), or
365(i)(2) of this title, if a creditor offsets a mutual debt
owing to the debtor against a claim against the debtor on or
within 90 days before the date of the filing of the petition,
then the trustee may recover from such creditor the amount so
offset to the extent that any insufficiency on the date of such
setoff is less than the insufficiency on the later of--
(A) * * *
* * * * * * *
[Sec. 555. Contractual right to liquidate a securities contract]
Sec. 555. Contractual right to liquidate, terminate, or accelerate a
securities contract
The exercise of a contractual right of a stockbroker,
financial institution, financial participant, or securities
clearing agency to cause the liquidation, termination, or
acceleration of a securities contract, as defined in section
741 of this title, because of a condition of the kind specified
in section 365(e)(1) of this title shall not be stayed,
avoided, or otherwise limited by operation of any provision of
this title or by order of a court or administrative agency in
any proceeding under this title unless such order is authorized
under the provisions of the Securities Investor Protection Act
of 1970 or any statute administered by the Securities and
Exchange Commission. As used in this section, the term
``contractual right'' includes a right set forth in a rule or
bylaw of a national securities exchange, a national securities
association, or a securities clearing agency, a right set forth
in a bylaw of a clearing organization or contract market or in
a resolution of the governing board thereof, and a right,
whether or not in writing, arising under common law, under law
merchant, or by reason of normal business practice.
[Sec. 556. Contractual right to liquidate a commodities contract or
forward contract]
Sec. 556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract
The contractual right of a commodity broker, financial
participant, or forward contract merchant to cause the
liquidation, termination, or acceleration of a commodity
contract, as defined in section 761 of this title, or forward
contract because of a condition of the kind specified in
section 365(e)(1) of this title, and the right to a variation
or maintenance margin payment received from a trustee with
respect to open commodity contracts or forward contracts, shall
not be stayed, avoided, or otherwise limited by operation of
any provision of this title or by the order of a court in any
proceeding under this title. As used in this section, the term
``contractual right'' includes a right set forth in a rule or
bylaw of a clearing organization or contract market or in a
resolution of the governing board thereof and a right, whether
or not evidenced in writing, arising under common law, under
law merchant or by reason of normal business practice.
* * * * * * *
[Sec. 559. Contractual right to liquidate a repurchase agreement]
Sec. 559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement
The exercise of a contractual right of a repo participant
to cause the liquidation, termination, or acceleration of a
repurchase agreement because of a condition of the kind
specified in section 365(e)(1) of this title shall not be
stayed, avoided, or otherwise limited by operation of any
provision of this title or by order of a court or
administrative agency in any proceeding under this title,
unless, where the debtor is a stockbroker or securities
clearing agency, such order is authorized under the provisions
of the Securities Investor Protection Act of 1970 or any
statute administered by the Securities and Exchange Commission.
In the event that a repo participant liquidates one or more
repurchase agreements with a debtor and under the terms of one
or more such agreements has agreed to deliver assets subject to
repurchase agreements to the debtor, any excess of the market
prices received on liquidation of such assets (or if any such
assets are not disposed of on the date of liquidation of such
repurchase agreements, at the prices available at the time of
liquidation of such repurchase agreements from a generally
recognized source or the most recent closing bid quotation from
such a source) over the sum of the stated repurchase prices and
all expenses in connection with the liquidation of such
repurchase agreements shall be deemed property of the estate,
subject to the available rights of setoff. As used in this
section, the term ``contractual right'' includes a right set
forth in a rule or bylaw, applicable to each party to the
repurchase agreement, of a national securities exchange, a
national securities association, or a securities clearing
agency, and a right, whether or not evidenced in writing,
arising under common law, under law merchant or by reason of
normal business practice.
[Sec. 560. Contractual right to terminate a swap agreement]
Sec. 560. Contractual right to liquidate, terminate, or accelerate a
swap agreement
The exercise of any contractual right of any swap
participant to cause the [termination of a swap agreement]
liquidation, termination, or acceleration of one or more swap
agreements because of a condition of the kind specified in
section 365(e)(1) of this title or to offset or net out any
termination values or payment amounts arising under or [in
connection with any swap agreement] in connection with the
termination, liquidation, or acceleration of one or more swap
agreements shall not be stayed, avoided, or otherwise limited
by operation of any provision of this title or by order of a
court or administrative agency in any proceeding under this
title. As used in this section, the term ``contractual right''
includes a right, whether or not evidenced in writing, arising
under common law, under law merchant, or by reason of normal
business practice.
Sec. 561. Contractual right to terminate, liquidate, accelerate, or
offset under a master netting agreement and across
contracts
(a) In General.--Subject to subsection (b), the exercise of
any contractual right, because of a condition of the kind
specified in section 365(e)(1), to cause the termination,
liquidation, or acceleration of or to offset or net termination
values, payment amounts, or other transfer obligations arising
under or in connection with one or more (or the termination,
liquidation, or acceleration of one or more)--
(1) securities contracts, as defined in section
741(7);
(2) commodity contracts, as defined in section
761(4);
(3) forward contracts;
(4) repurchase agreements;
(5) swap agreements; or
(6) master netting agreements,
shall not be stayed, avoided, or otherwise limited by operation
of any provision of this title or by any order of a court or
administrative agency in any proceeding under this title.
(b) Exception.--
(1) In general.--A party may exercise a contractual
right described in subsection (a) to terminate,
liquidate, or accelerate only to the extent that such
party could exercise such a right under section 555,
556, 559, or 560 for each individual contract covered
by the master netting agreement in issue.
(2) Commodity brokers.--If a debtor is a commodity
broker subject to subchapter IV of chapter 7--
(A) a party may not net or offset an
obligation to the debtor arising under, or in
connection with, a commodity contract against
any claim arising under, or in connection with,
other instruments, contracts, or agreements
listed in subsection (a) except to the extent
that the party has positive net equity in the
commodity accounts at the debtor, as calculated
under that subchapter IV; and
(B) another commodity broker may not net or
offset an obligation to the debtor arising
under, or in connection with, a commodity
contract entered into or held on behalf of a
customer of the debtor against any claim
arising under, or in connection with, other
instruments, contracts, or agreements listed in
subsection (a).
(3) Construction.--No provision of subparagraph (A)
or (B) of paragraph (2) shall prohibit the offset of
claims and obligations that arise under--
(A) a cross-margining agreement that has
been approved by the Commodity Futures Trading
Commission or submitted to the Commodity
Futures Trading Commission under section
5(a)(12)(A) of the Commodity Exchange Act and
has been approved; or
(B) any other netting agreement between a
clearing organization, as defined in section
761, and another entity that has been approved
by the Commodity Futures Trading Commission.
(c) Definition.--As used in this section, the term
``contractual right'' includes a right set forth in a rule or
bylaw of a national securities exchange, a national securities
association, or a securities clearing agency, a right set forth
in a bylaw of a clearing organization or contract market or in
a resolution of the governing board thereof, and a right,
whether or not evidenced in writing, arising under common law,
under law merchant, or by reason of normal business practice.
(d) Cases Ancillary to Foreign Proceedings.--Any provisions
of this title relating to securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements, or master netting agreements shall apply in a case
under chapter 15 of this title, so that enforcement of
contractual provisions of such contracts and agreements in
accordance with their terms will not be stayed or otherwise
limited by operation of any provision of this title or by order
of a court in any case under this title, and to limit avoidance
powers to the same extent as in a proceeding under chapter 7 or
11 of this title (such enforcement not to be limited based on
the presence or absence of assets of the debtor in the United
States).
Sec. 562. Damage measure in connection with swap agreements, securities
contracts, forward contracts, commodity contracts,
repurchase agreements, or master netting agreements
If the trustee rejects a swap agreement, securities
contract (as defined in section 741), forward contract,
commodity contract (as defined in section 761), repurchase
agreement, or master netting agreement pursuant to section
365(a), or if a forward contract merchant, stockbroker,
financial institution, securities clearing agency, repo
participant, financial participant, master netting agreement
participant, or swap participant liquidates, terminates, or
accelerates such contract or agreement, damages shall be
measured as of the earlier of--
(1) the date of such rejection; or
(2) the date of such liquidation, termination, or
acceleration.
CHAPTER 7--LIQUIDATION
SUBCHAPTER I--OFFICERS AND ADMINISTRATION
Sec.
701. Interim trustee.
* * * * * * *
[707. Dismissal.]
707. Dismissal of a case or conversion to a case under chapter 11 or
13.
* * * * * * *
SUBCHAPTER III--STOCKBROKER LIQUIDATION
741. Definitions for this subchapter.
* * * * * * *
753. Stockbroker liquidation and forward contract merchants, commodity
brokers, stockbrokers, financial institutions, securities
clearing agencies, swap participants, repo participants, and
master netting agreement participants.
SUBCHAPTER IV--COMMODITY BROKER LIQUIDATION
761. Definitions for this subchapter.
* * * * * * *
767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial institutions,
securities clearing agencies, swap participants, repo
participants, and master netting agreement participants.
* * * * * * *
SUBCHAPTER I--OFFICERS AND ADMINISTRATION
* * * * * * *
Sec. 704. Duties of trustee
(a) The trustee shall--
(1) * * *
* * * * * * *
(8) if the business of the debtor is authorized to
be operated, file with the court, with the United
States trustee, and with any governmental unit charged
with responsibility for collection or determination of
any tax arising out of such operation, periodic reports
and summaries of the operation of such business,
including a statement of receipts and disbursements,
and such other information as the United States trustee
or the court requires; [and]
(9) make a final report and file a final account of
the administration of the estate with the court and
with the United States trustee[.];
(10) if, with respect to an individual debtor,
there is a claim for a domestic support obligation,
provide the applicable notification specified in
subsection (c); and
(11) use all reasonable and best efforts to
transfer patients from a health care business that is
in the process of being closed to an appropriate health
care business that--
(A) is in the vicinity of the health care
business that is closing;
(B) provides the patient with services that
are substantially similar to those provided by
the health care business that is in the process
of being closed; and
(C) maintains a reasonable quality of care.
(b)(1) With respect to an individual debtor under this
chapter--
(A) the United States trustee or bankruptcy
administrator shall review all materials filed by the
debtor and, not later than 10 days after the date of
the first meeting of creditors, file with the court a
statement as to whether the debtor's case would be
presumed to be an abuse under section 707(b); and
(B) not later than 5 days after receiving a
statement under subparagraph (A), the court shall
provide a copy of the statement to all creditors.
(2) The United States trustee or bankruptcy administrator
shall, not later than 30 days after the date of filing a
statement under paragraph (1), either file a motion to dismiss
or convert under section 707(b) or file a statement setting
forth the reasons the United States trustee or bankruptcy
administrator does not believe that such a motion would be
appropriate, if the United States trustee or bankruptcy
administrator determines that the debtor's case should be
presumed to be an abuse under section 707(b) and the product of
the debtor's current monthly income, multiplied by 12 is not
less than--
(A) in the case of a debtor in a household of 1
person, the median family income of the applicable
State for 1 earner last reported by the Bureau of the
Census; or
(B) in the case of a debtor in a household of 2 or
more individuals, the highest median family income of
the applicable State for a family of the same number or
fewer individuals last reported by the Bureau of the
Census.
(3) In any case in which a motion to dismiss or convert, or
a statement is required to be filed by this subsection, the
United States trustee or bankruptcy administrator may decline
to file a motion to dismiss or convert pursuant to section
704(b)(2) if the product of the debtor's current monthly income
multiplied by 12 exceeds 100 percent, but does not exceed 150
percent of--
(A)(i) in the case of a debtor in a household of 1
person, the median family income of the applicable
State for 1 earner last reported by the Bureau of the
Census; or
(ii) in the case of a debtor in a household of 2 or
more individuals, the highest median family income of
the applicable State for a family of the same number or
fewer individuals last reported by the Bureau of the
Census; and
(B) the product of the debtor's current monthly
income, reduced by the amounts determined under section
707(b)(2)(A)(ii) (except for the amount calculated
under the other necessary expenses standard issued by
the Internal Revenue Service) and clauses (iii) and
(iv) of section 707(b)(2)(A), multiplied by 60 is less
than the lesser of--
(i) 25 percent of the debtor's nonpriority
unsecured claims in the case or $6,000,
whichever is greater; or
(ii) $10,000.
(c)(1) In any case described in subsection (a)(10), the
trustee shall--
(A)(i) notify in writing the holder of the claim of
the right of that holder to use the services of a State
child support enforcement agency established under
sections 464 and 466 of the Social Security Act (42
U.S.C. 664, 666) for the State in which the holder
resides for assistance in collecting child support
during and after the bankruptcy procedures;
(ii) include in the notice under this paragraph the
address and telephone number of the child support
enforcement agency; and
(iii) include in the notice an explanation of the
rights of the holder of the claim to payment of the
claim under this chapter; and
(B)(i) notify in writing the State child support
agency of the State in which the holder of the claim
resides of the claim;
(ii) include in the notice under this paragraph the
name, address, and telephone number of the holder of
the claim; and
(iii) at such time as the debtor is granted a
discharge under section 727, notify the holder of that
claim and the State child support agency of the State
in which that holder resides of--
(I) the granting of the discharge;
(II) the last recent known address of the
debtor;
(III) the last recent known name and
address of the debtor's employer; and
(IV) with respect to the debtor's case, the
name of each creditor that holds a claim that--
(aa) is not discharged under
paragraph (2), (4), or (14A) of section
523(a); or
(bb) was reaffirmed by the debtor
under section 524(c).
(2)(A) A holder of a claim or a State child support agency
may request from a creditor described in paragraph
(1)(B)(iii)(IV) the last known address of the debtor.
(B) Notwithstanding any other provision of law, a creditor
that makes a disclosure of a last known address of a debtor in
connection with a request made under subparagraph (A) shall not
be liable to the debtor or any other person by reason of making
that disclosure.
* * * * * * *
Sec. 706. Conversion
(a) * * *
* * * * * * *
(c) The court may not convert a case under this chapter to
a case under chapter 12 or 13 of this title unless the debtor
requests or consents to such conversion.
* * * * * * *
[Sec. 707. Dismissal]
Sec. 707. Dismissal of a case or conversion to a case under chapter 11
or 13
(a) * * *
(b)(1) After notice and a hearing, the court, on its own
motion or on a motion by the United States trustee, [but not at
the request or suggestion of] trustee, bankruptcy
administrator, or any party in interest, may dismiss a case
filed by an individual debtor under this chapter whose debts
are primarily consumer debts, or, with the debtor's consent,
convert such a case to a case under chapter 11 or 13 of this
title, if it finds that the granting of relief would be [a
substantial abuse] an abuse of the provisions of this chapter.
[There shall be a presumption in favor of granting the relief
requested by the debtor.] In making a determination whether to
dismiss a case under this section, the court may not take into
consideration whether a debtor has made, or continues to make,
charitable contributions (that meet the definition of
``charitable contribution'' under section 548(d)(3)) to any
qualified religious or charitable entity or organization (as
that term is defined in section 548(d)(4)).
(2)(A)(i) In considering under paragraph (1) whether the
granting of relief would be an abuse of the provisions of this
chapter, the court shall presume abuse exists if the debtor's
current monthly income reduced by the amounts determined under
clauses (ii), (iii), and (iv), and multiplied by 60 is not less
than the lesser of--
(I) 25 percent of the debtor's nonpriority
unsecured claims in the case, or $6,000, whichever is
greater; or
(II) $10,000.
(ii)(I) The debtor's monthly expenses shall be the debtor's
applicable monthly expense amounts specified under the National
Standards and Local Standards, and the debtor's actual monthly
expenses for the categories specified as Other Necessary
Expenses issued by the Internal Revenue Service for the area in
which the debtor resides, as in effect on the date of the entry
of the order for relief, for the debtor, the dependents of the
debtor, and the spouse of the debtor in a joint case, if the
spouse is not otherwise a dependent. Notwithstanding any other
provision of this clause, the monthly expenses of the debtor
shall not include any payments for debts. In addition, the
debtor's monthly expenses shall include the debtor's reasonably
necessary expenses incurred to maintain the safety of the
debtor and the family of the debtor from family violence as
identified under section 309 of the Family Violence Prevention
and Services Act (42 U.S.C. 10408), or other applicable Federal
law. The expenses included in the debtor's monthly expenses
described in the preceding sentence shall be kept confidential
by the court. In addition, if it is demonstrated that it is
reasonable and necessary, the debtor's monthly expenses may
also include an additional allowance for food and clothing of
up to 5 percent of the food and clothing categories as
specified by the National Standards issued by the Internal
Revenue Service.
(II) In addition, the debtor's monthly expenses may
include, if applicable, the continuation of actual expenses
paid by the debtor that are reasonable and necessary for care
and support of an elderly, chronically ill, or disabled
household member or member of the debtor's immediate family
(including parents, grandparents, and siblings of the debtor,
the dependents of the debtor, and the spouse of the debtor in a
joint case) who is not a dependent and who is unable to pay for
such reasonable and necessary expenses.
(III) In addition, for a debtor eligible for chapter 13,
the debtor's monthly expenses may include the actual
administrative expenses of administering a chapter 13 plan for
the district in which the debtor resides, up to an amount of 10
percent of the projected plan payments, as determined under
schedules issued by the Executive Office for United States
Trustees.
(IV) In addition, the debtor's monthly expenses may include
the actual expenses for each dependent child under the age of
18 years up to $1,500 per year per child to attend a private
elementary or secondary school, if the debtor provides
documentation of such expenses and a detailed explanation of
why such expenses are reasonable and necessary.
(iii) The debtor's average monthly payments on account of
secured debts shall be calculated as--
(I) the sum of--
(aa) the total of all amounts scheduled as
contractually due to secured creditors in each
month of the 60 months following the date of
the petition; and
(bb) any additional payments to secured
creditors necessary for the debtor, in filing a
plan under chapter 13 of this title, to
maintain possession of the debtor's primary
residence, motor vehicle, or other property
necessary for the support of the debtor and the
debtor's dependents, that serves as collateral
for secured debts; divided by
(II) 60.
(iv) The debtor's expenses for payment of all priority
claims (including priority child support and alimony claims)
shall be calculated as--
(I) the total amount of debts entitled to priority;
divided by
(II) 60.
(B)(i) In any proceeding brought under this subsection, the
presumption of abuse may only be rebutted by demonstrating
special circumstances that justify additional expenses or
adjustments of current monthly income for which there is no
reasonable alternative.
(ii) In order to establish special circumstances, the
debtor shall be required to--
(I) itemize each additional expense or adjustment
of income; and
(II) provide--
(aa) documentation for such expense or
adjustment to income; and
(bb) a detailed explanation of the special
circumstances that make such expenses or
adjustment to income necessary and reasonable.
(iii) The debtor shall attest under oath to the accuracy of
any information provided to demonstrate that additional
expenses or adjustments to income are required.
(iv) The presumption of abuse may only be rebutted if the
additional expenses or adjustments to income referred to in
clause (i) cause the product of the debtor's current monthly
income reduced by the amounts determined under clauses (ii),
(iii), and (iv) of subparagraph (A) when multiplied by 60 to be
less than the lesser of--
(I) 25 percent of the debtor's nonpriority
unsecured claims, or $6,000, whichever is greater; or
(II) $10,000.
(C) As part of the schedule of current income and
expenditures required under section 521, the debtor shall
include a statement of the debtor's current monthly income, and
the calculations that determine whether a presumption arises
under subparagraph (A)(i), that shows how each such amount is
calculated.
(3) In considering under paragraph (1) whether the granting
of relief would be an abuse of the provisions of this chapter
in a case in which the presumption in subparagraph (A)(i) of
such paragraph does not apply or has been rebutted, the court
shall consider--
(A) whether the debtor filed the petition in bad
faith; or
(B) the totality of the circumstances (including
whether the debtor seeks to reject a personal services
contract and the financial need for such rejection as
sought by the debtor) of the debtor's financial
situation demonstrates abuse.
(4)(A) The court shall order the counsel for the debtor to
reimburse the trustee for all reasonable costs in prosecuting a
motion brought under section 707(b), including reasonable
attorneys' fees, if--
(i) a trustee appointed under section 586(a)(1) of
title 28 or from a panel of private trustees maintained
by the bankruptcy administrator brings a motion for
dismissal or conversion under this subsection; and
(ii) the court--
(I) grants that motion; and
(II) finds that the action of the counsel
for the debtor in filing under this chapter
violated rule 9011 of the Federal Rules of
Bankruptcy Procedure.
(B) If the court finds that the attorney for the debtor
violated rule 9011 of the Federal Rules of Bankruptcy
Procedure, at a minimum, the court shall order--
(i) the assessment of an appropriate civil penalty
against the counsel for the debtor; and
(ii) the payment of the civil penalty to the
trustee, the United States trustee, or the bankruptcy
administrator.
(C) In the case of a petition, pleading, or written motion,
the signature of an attorney shall constitute a certification
that the attorney has--
(i) performed a reasonable investigation into the
circumstances that gave rise to the petition, pleading,
or written motion; and
(ii) determined that the petition, pleading, or
written motion--
(I) is well grounded in fact; and
(II) is warranted by existing law or a good
faith argument for the extension, modification,
or reversal of existing law and does not
constitute an abuse under paragraph (1).
(D) The signature of an attorney on the petition shall
constitute a certification that the attorney has no knowledge
after an inquiry that the information in the schedules filed
with such petition is incorrect.
(5)(A) Except as provided in subparagraph (B) and subject
to paragraph (6), the court may award a debtor all reasonable
costs (including reasonable attorneys' fees) in contesting a
motion brought by a party in interest (other than a trustee,
United States trustee, or bankruptcy administrator) under this
subsection if--
(i) the court does not grant the motion; and
(ii) the court finds that--
(I) the position of the party that brought
the motion violated rule 9011 of the Federal
Rules of Bankruptcy Procedure; or
(II) the party brought the motion solely
for the purpose of coercing a debtor into
waiving a right guaranteed to the debtor under
this title.
(B) A small business that has a claim of an aggregate
amount less than $1,000 shall not be subject to subparagraph
(A)(ii)(I).
(C) For purposes of this paragraph--
(i) the term ``small business'' means an
unincorporated business, partnership, corporation,
association, or organization that--
(I) has less than 25 full-time employees as
determined on the date the motion is filed; and
(II) is engaged in commercial or business
activity; and
(ii) the number of employees of a wholly owned
subsidiary of a corporation includes the employees of--
(I) a parent corporation; and
(II) any other subsidiary corporation of
the parent corporation.
(6) Only the judge, United States trustee, or bankruptcy
administrator may bring a motion under section 707(b), if the
current monthly income of the debtor, or in a joint case, the
debtor and the debtor's spouse, as of the date of the order for
relief, when multiplied by 12, is equal to or less than--
(A) in the case of a debtor in a household of 1
person, the median family income of the applicable
State for 1 earner last reported by the Bureau of the
Census;
(B) in the case of a debtor in a household of 2, 3,
or 4 individuals, the highest median family income of
the applicable State for a family of the same number or
fewer individuals last reported by the Bureau of the
Census; or
(C) in the case of a debtor in a household
exceeding 4 individuals, the highest median family
income of the applicable State for a family of 4 or
fewer individuals last reported by the Bureau of the
Census, plus $525 per month for each individual in
excess of 4.
(7) No judge, United States trustee, panel trustee,
bankruptcy administrator or other party in interest may bring a
motion under paragraph (2), if the current monthly income of
the debtor and the debtor's spouse combined, as of the date of
the order for relief when multiplied by 12, is equal to or less
than--
(A) in the case of a debtor in a household of 1
person, the median family income of the applicable
State for 1 earner last reported by the Bureau of the
Census;
(B) in the case of a debtor in a household of 2, 3,
or 4 individuals, the highest median family income of
the applicable State for a family of the same number or
fewer individuals last reported by the Bureau of the
Census; or
(C) in the case of a debtor in a household
exceeding 4 individuals, the highest median family
income of the applicable State for a family of 4 or
fewer individuals last reported by the Bureau of the
Census, plus $525 per month for each individual in
excess of 4.
(c)(1) In this subsection--
(A) the term ``crime of violence'' has the meaning
given that term in section 16 of title 18; and
(B) the term ``drug trafficking crime'' has the
meaning given that term in section 924(c)(2) of title
18.
(2) Except as provided in paragraph (3), after notice and a
hearing, the court, on a motion by the victim of a crime of
violence or a drug trafficking crime, may when it is in the
best interest of the victims dismiss a voluntary case filed by
an individual debtor under this chapter if that individual was
convicted of that crime.
(3) The court may not dismiss a case under paragraph (2) if
the debtor establishes by a preponderance of the evidence that
the filing of a case under this chapter is necessary to satisfy
a claim for a domestic support obligation.
* * * * * * *
SUBCHAPTER II--COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE
* * * * * * *
Sec. 722. Redemption
An individual debtor may, whether or not the debtor has
waived the right to redeem under this section, redeem tangible
personal property intended primarily for personal, family, or
household use, from a lien securing a dischargeable consumer
debt, if such property is exempted under section 522 of this
title or has been abandoned under section 554 of this title, by
paying the holder of such lien the amount of the allowed
secured claim of such holder that is secured by such lien in
full at the time of redemption.
* * * * * * *
Sec. 724. Treatment of certain liens
(a) The trustee may avoid a lien that secures a claim of a
kind specified in section 726(a)(4) of this title.
(b) Property in which the estate has an interest and that
is subject to a lien that is not avoidable under this title
(other than to the extent that there is a properly perfected
unavoidable tax lien arising in connection with an ad valorem
tax on real or personal property of the estate) and that
secures an allowed claim for a tax, or proceeds of such
property, shall be distributed--
(1) first, to any holder of an allowed claim
secured by a lien on such property that is not
avoidable under this title and that is senior to such
tax lien;
(2) second, to any holder of a claim of a kind
specified in section 507(a)(1) (except that such
expenses, other than claims for wages, salaries, or
commissions which arise after the filing of a petition,
shall be limited to expenses incurred under chapter 7
of this title and shall not include expenses incurred
under chapter 11 of this title), 507(a)(2), 507(a)(3),
507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this
title, to the extent of the amount of such allowed tax
claim that is secured by such tax lien;
* * * * * * *
(e) Before subordinating a tax lien on real or personal
property of the estate, the trustee shall--
(1) exhaust the unencumbered assets of the estate;
and
(2) in a manner consistent with section 506(c),
recover from property securing an allowed secured claim
the reasonable, necessary costs and expenses of
preserving or disposing of that property.
(f) Notwithstanding the exclusion of ad valorem tax liens
under this section and subject to the requirements of
subsection (e), the following may be paid from property of the
estate which secures a tax lien, or the proceeds of such
property:
(1) Claims for wages, salaries, and commissions
that are entitled to priority under section 507(a)(4).
(2) Claims for contributions to an employee benefit
plan entitled to priority under section 507(a)(5).
* * * * * * *
Sec. 726. Distribution of property of the estate
(a) Except as provided in section 510 of this title,
property of the estate shall be distributed--
(1) first, in payment of claims of the kind
specified in, and in the order specified in, section
507 of this title, proof of which is timely filed under
section 501 of this title or tardily filed [before the
date on which the trustee commences distribution under
this section;] on or before the earlier of--
(A) the date that is 10 days after the
mailing to creditors of the summary of the
trustee's final report; or
(B) the date on which the trustee commences
final distribution under this section;
* * * * * * *
(b) Payment on claims of a kind specified in paragraph (1),
(2), (3), (4), (5), (6), (7), or (8) of section 507(a) of this
title, or in paragraph (2), (3), (4), or (5) of subsection (a)
of this section, shall be made pro rata among claims of the
kind specified in each such particular paragraph, except that
in a case that has been converted to this chapter under section
[1009,] 1112, 1208, or 1307 of this title, a claim allowed
under section 503(b) of this title incurred under this chapter
after such conversion has priority over a claim allowed under
section 503(b) of this title incurred under any other chapter
of this title or under this chapter before such conversion and
over any expenses of a custodian superseded under section 543
of this title.
* * * * * * *
Sec. 727. Discharge
(a) The court shall grant the debtor a discharge, unless--
(1) * * *
* * * * * * *
(8) the debtor has been granted a discharge under
this section, under section 1141 of this title, or
under section 14, 371, or 476 of the Bankruptcy Act, in
a case commenced within [six] 8 years before the date
of the filing of the petition;
(9) the debtor has been granted a discharge under
section 1228 or 1328 of this title, or under section
660 or 661 of the Bankruptcy Act, in a case commenced
within six years before the date of the filing of the
petition, unless payments under the plan in such case
totaled at least--
(A) 100 percent of the allowed unsecured
claims in such case;
(B)(i) 70 percent of such claims; and
(ii) the plan was proposed by the debtor in
good faith, and was the debtor's best effort;
[or]
(10) the court approves a written waiver of
discharge executed by the debtor after the order for
relief under this chapter[.]; or
(11) after the filing of the petition, the debtor
failed to complete an instructional course concerning
personal financial management described in section 111.
(12)(A) Paragraph (11) shall not apply with respect
to a debtor who resides in a district for which the
United States trustee or bankruptcy administrator of
that district determines that the approved
instructional courses are not adequate to service the
additional individuals required to complete such
instructional courses under this section.
(B) Each United States trustee or bankruptcy
administrator that makes a determination described in
subparagraph (A) shall review that determination not
later than 1 year after the date of that determination,
and not less frequently than every year thereafter.
* * * * * * *
(d) On request of the trustee, a creditor, or the United
States trustee, and after notice and a hearing, the court shall
revoke a discharge granted under subsection (a) of this section
if--
(1) * * *
(2) the debtor acquired property that is property
of the estate, or became entitled to acquire property
that would be property of the estate, and knowingly and
fraudulently failed to report the acquisition of or
entitlement to such property, or to deliver or
surrender such property to the trustee; [or]
(3) the debtor committed an act specified in
subsection (a)(6) of this section[.]; or
(4) the debtor has failed to explain
satisfactorily--
(A) a material misstatement in an audit
referred to in section 586(f) of title 28; or
(B) a failure to make available for
inspection all necessary accounts, papers,
documents, financial records, files, and all
other papers, things, or property belonging to
the debtor that are requested for an audit
referred to in section 586(f) of title 28.
[Sec. 728. Special tax provisions
[(a) For the purposes of any State or local law imposing a
tax on or measured by income, the taxable period of a debtor
that is an individual shall terminate on the date of the order
for relief under this chapter, unless the case was converted
under section 1112 or 1208 of this title.
[(b) Notwithstanding any State or local law imposing a tax
on or measured by income, the trustee shall make tax returns of
income for the estate of an individual debtor in a case under
this chapter or for a debtor that is a corporation in a case
under this chapter only if such estate or corporation has net
taxable income for the entire period after the order for relief
under this chapter during which the case is pending. If such
entity has such income, or if the debtor is a partnership, then
the trustee shall make and file a return of income for each
taxable period during which the case was pending after the
order for relief under this chapter.
[(c) If there are pending a case under this chapter
concerning a partnership and a case under this chapter
concerning a partner in such partnership, a governmental unit's
claim for any unpaid liability of such partner for a State or
local tax on or measured by income, to the extent that such
liability arose from the inclusion in such partner's taxable
income of earnings of such partnership that were not withdrawn
by such partner, is a claim only against such partnership.
[(d) Notwithstanding section 541 of this title, if there
are pending a case under this chapter concerning a partnership
and a case under this chapter concerning a partner in such
partnership, then any State or local tax refund or reduction of
tax of such partner that would have otherwise been property of
the estate of such partner under section 541 of this title--
[(1) is property of the estate of such partnership
to the extent that such tax refund or reduction of tax
is fairly apportionable to losses sustained by such
partnership and not reimbursed by such partner; and
[(2) is otherwise property of the estate of such
partner.]
SUBCHAPTER III--STOCKBROKER LIQUIDATION
Sec. 741. Definitions for this subchapter
In this subchapter--
(1) * * *
* * * * * * *
[(7) ``securities contract'' means contract for the
purchase, sale, or loan of a security, including an
option for the purchase or sale of a security,
certificate of deposit, or group or index of securities
(including any interest therein or based on the value
thereof), or any option entered into on a national
securities exchange relating to foreign currencies, or
the guarantee of any settlement of cash or securities
by or to a securities clearing agency;]
(7) ``securities contract''--
(A) means--
(i) a contract for the purchase,
sale, or loan of a security, a
certificate of deposit, a mortgage loan
or any interest in a mortgage loan, a
group or index of securities,
certificates of deposit, or mortgage
loans or interests therein (including
an interest therein or based on the
value thereof), or option on any of the
foregoing, including an option to
purchase or sell any such security,
certificate of deposit, loan, interest,
group or index, or option;
(ii) any option entered into on a
national securities exchange relating
to foreign currencies;
(iii) the guarantee by or to any
securities clearing agency of a
settlement of cash, securities,
certificates of deposit, mortgage loans
or interests therein, group or index of
securities, or mortgage loans or
interests therein (including any
interest therein or based on the value
thereof), or option on any of the
foregoing, including an option to
purchase or sell any such security,
certificate of deposit, loan, interest,
group or index, or option;
(iv) any margin loan;
(v) any other agreement or
transaction that is similar to an
agreement or transaction referred to in
this subparagraph;
(vi) any combination of the
agreements or transactions referred to
in this subparagraph;
(vii) any option to enter into any
agreement or transaction referred to in
this subparagraph;
(viii) a master agreement that
provides for an agreement or
transaction referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii),
together with all supplements to any
such master agreement, without regard
to whether the master agreement
provides for an agreement or
transaction that is not a securities
contract under this subparagraph,
except that such master agreement shall
be considered to be a securities
contract under this subparagraph only
with respect to each agreement or
transaction under such master agreement
that is referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii);
or
(ix) any security agreement or
arrangement or other credit
enhancement, related to any agreement
or transaction referred to in this
subparagraph, but not to exceed the
actual value of such contract on the
date of the filing of the petition; and
(B) does not include any purchase, sale, or
repurchase obligation under a participation in
a commercial mortgage loan.
* * * * * * *
Sec. 753. Stockbroker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, securities clearing agencies, swap
participants, repo participants, and master netting
agreement participants
Notwithstanding any other provision of this title, the
exercise of rights by a forward contract merchant, commodity
broker, stockbroker, financial institution, securities clearing
agency, swap participant, repo participant, financial
participant, or master netting agreement participant under this
title shall not affect the priority of any unsecured claim it
may have after the exercise of such rights.
SUBCHAPTER IV--COMMODITY BROKER LIQUIDATION
Sec. 761. Definitions for this subchapter
In this subchapter--
(1) * * *
* * * * * * *
(4) ``commodity contract'' means--
(A) * * *
* * * * * * *
(D) with respect to a clearing
organization, contract for the purchase or sale
of a commodity for future delivery on, or
subject to the rules of, a contract market or
board of trade that is cleared by such clearing
organization, or commodity option traded on, or
subject to the rules of, a contract market or
board of trade that is cleared by such clearing
organization; [or]
* * * * * * *
(F) any other agreement or transaction that
is similar to an agreement or transaction
referred to in this paragraph;
(G) any combination of the agreements or
transactions referred to in this paragraph;
(H) any option to enter into an agreement
or transaction referred to in this paragraph;
(I) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B), (C), (D), (E), (F), (G),
or (H), together with all supplements to such
master agreement, without regard to whether the
master agreement provides for an agreement or
transaction that is not a commodity contract
under this paragraph, except that the master
agreement shall be considered to be a commodity
contract under this paragraph only with respect
to each agreement or transaction under the
master agreement that is referred to in
subparagraph (A), (B), (C), (D), (E), (F), (G),
or (H); or
(J) any security agreement or arrangement
or other credit enhancement related to any
agreement or transaction referred to in this
paragraph, but not to exceed the actual value
of such contract on the date of the filing of
the petition;
* * * * * * *
Sec. 767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, financial participants, securities
clearing agencies, swap participants, repo
participants, and master netting agreement
participants
Notwithstanding any other provision of this title, the
exercise of rights by a forward contract merchant, commodity
broker, stockbroker, financial institution, financial
participant, securities clearing agency, swap participant, repo
participant, or master netting agreement participant under this
title shall not affect the priority of any unsecured claim it
may have after the exercise of such rights.
* * * * * * *
CHAPTER 9--ADJUSTMENT OF DEBTS OF A MUNICIPALITY
* * * * * * *
SUBCHAPTER I--GENERAL PROVISIONS
Sec. 901. Applicability of other sections of this title
(a) Sections 301, 344, 347(b), 349, 350(b), 361, 362,
364(c), 364(d), 364(e), 364(f), 365, 366, 501, 502, 503, 504,
506, 507(a)(1), 509, 510, 524(a)(1), 524(a)(2), 544, 545, 546,
547, 548, 549(a), 549(c), 549(d), 550, 551, 552, 553, 555, 556,
557, 559, 560, 561, 562, 1102, 1103, 1109, 1111(b), 1122,
1123(a)(1), 1123(a)(2), 1123(a)(3), 1123(a)(4), 1123(a)(5),
1123(b), 1123(d), 1124, 1125, 1126(a), 1126(b), 1126(c),
1126(e), 1126(f), 1126(g), 1127(d), 1128, 1129(a)(2),
1129(a)(3), 1129(a)(6), 1129(a)(8), 1129(a)(10), 1129(b)(1),
1129(b)(2)(A), 1129(b)(2)(B), 1142(b), 1143, 1144, and 1145 of
this title apply in a case under this chapter.
* * * * * * *
SUBCHAPTER II--ADMINISTRATION
Sec. 921. Petition and proceedings relating to petition
(a) * * *
* * * * * * *
(d) If the petition is not dismissed under subsection (c)
of this section, the court shall order relief under this
chapter notwithstanding section 301(b).
* * * * * * *
CHAPTER 11--REORGANIZATION
SUBCHAPTER I--OFFICERS AND ADMINISTRATION
Sec.
1101. Definitions for this chapter.
* * * * * * *
1115. Property of the estate.
1116. Duties of trustee or debtor in possession in small business
cases.
* * * * * * *
Sec. 1102. Creditors' and equity security holders' committees
(a)(1) * * *
* * * * * * *
(3) On request of a party in interest in a case in which
the debtor is a small business debtor and for cause, the court
may order that a committee of creditors not be appointed.
(4) On request of a party in interest and after notice and
a hearing, the court may order the United States trustee to
change the membership of a committee appointed under this
subsection, if the court determines that the change is
necessary to ensure adequate representation of creditors or
equity security holders. The court may order the United States
trustee to increase the number of members of a committee to
include a creditor that is a small business concern (as
described in section 3(a)(1) of the Small Business Act (15
U.S.C. 632(a)(1))), if the court determines that the creditor
holds claims (of the kind represented by the committee) the
aggregate amount of which, in comparison to the annual gross
revenue of that creditor, is disproportionately large.
(b)(1) * * *
* * * * * * *
(3) A committee appointed under subsection (a) shall--
(A) provide access to information for creditors
who--
(i) hold claims of the kind represented by
that committee; and
(ii) are not appointed to the committee;
(B) solicit and receive comments from the creditors
described in subparagraph (A); and
(C) be subject to a court order that compels any
additional report or disclosure to be made to the
creditors described in subparagraph (A).
* * * * * * *
Sec. 1104. Appointment of trustee or examiner
(a) At any time after the commencement of the case but
before confirmation of a plan, on request of a party in
interest or the United States trustee, and after notice and a
hearing, the court shall order the appointment of a trustee--
(1) for cause, including fraud, dishonesty,
incompetence, or gross mismanagement of the affairs of
the debtor by current management, either before or
after the commencement of the case, or similar cause,
but not including the number of holders of securities
of the debtor or the amount of assets or liabilities of
the debtor; [or]
(2) if such appointment is in the interests of
creditors, any equity security holders, and other
interests of the estate, without regard to the number
of holders of securities of the debtor or the amount of
assets or liabilities of the debtor[.]; or
(3) if grounds exist to convert or dismiss the case
under section 1112, but the court determines that the
appointment of a trustee or an examiner is in the best
interests of creditors and the estate.
(b)(1) Except as provided in section 1163 of this title, on
the request of a party in interest made not later than 30 days
after the court orders the appointment of a trustee under
subsection (a), the United States trustee shall convene a
meeting of creditors for the purpose of electing one
disinterested person to serve as trustee in the case. The
election of a trustee shall be conducted in the manner provided
in subsections (a), (b), and (c) of section 702 of this title.
(2)(A) If an eligible, disinterested trustee is elected at
a meeting of creditors under paragraph (1), the United States
trustee shall file a report certifying that election.
(B) Upon the filing of a report under subparagraph (A)--
(i) the trustee elected under paragraph (1) shall
be considered to have been selected and appointed for
purposes of this section; and
(ii) the service of any trustee appointed under
subsection (d) shall terminate.
(C) In the case of any dispute arising out of an election
described in subparagraph (A), the court shall resolve the
dispute.
* * * * * * *
Sec. 1106. Duties of trustee and examiner
(a) A trustee shall--
(1) perform the duties of a trustee specified in
[sections 704(2), 704(5), 704(7), 704(8), and 704(9)]
paragraphs (2), (5), (7), (8), (9), and (11) of section
704(a) of this title;
* * * * * * *
(6) for any year for which the debtor has not filed
a tax return required by law, furnish, without personal
liability, such information as may be required by the
governmental unit with which such tax return was to be
filed, in light of the condition of the debtor's books
and records and the availability of such information;
[and]
(7) after confirmation of a plan, file such reports
as are necessary or as the court orders[.]; and
(8) if, with respect to an individual debtor, there
is a claim for a domestic support obligation, provide
the applicable notification specified in subsection
(c).
* * * * * * *
(c)(1) In any case described in subsection (a)(7), the
trustee shall--
(A)(i) notify in writing the holder of the claim of
the right of that holder to use the services of a State
child support enforcement agency established under
sections 464 and 466 of the Social Security Act (42
U.S.C. 664, 666) for the State in which the holder
resides; and
(ii) include in the notice under this paragraph the
address and telephone number of the child support
enforcement agency; and
(B)(i) notify, in writing, the State child support
agency (of the State in which the holder of the claim
resides) of the claim;
(ii) include in the notice under this paragraph the
name, address, and telephone number of the holder of
the claim; and
(iii) at such time as the debtor is granted a
discharge under section 1141, notify the holder of the
claim and the State child support agency of the State
in which that holder resides of--
(I) the granting of the discharge;
(II) the last recent known address of the
debtor;
(III) the last recent known name and
address of the debtor's employer; and
(IV) with respect to the debtor's case, the
name of each creditor that holds a claim that--
(aa) is not discharged under
paragraph (2), (3), or (14) of section
523(a); or
(bb) was reaffirmed by the debtor
under section 524(c).
(2)(A) A holder of a claim or a State child support agency
may request from a creditor described in paragraph
(1)(B)(iii)(IV) the last known address of the debtor.
(B) Notwithstanding any other provision of law, a creditor
that makes a disclosure of a last known address of a debtor in
connection with a request made under subparagraph (A) shall not
be liable to the debtor or any other person by reason of making
that disclosure.
* * * * * * *
Sec. 1112. Conversion or dismissal
(a) * * *
[(b) Except as provided in subsection (c) of this section,
on request of a party in interest or the United States trustee
or bankruptcy administrator, and after notice and a hearing,
the court may convert a case under this chapter to a case under
chapter 7 of this title or may dismiss a case under this
chapter, whichever is in the best interest of creditors and the
estate, for cause, including--
[(1) continuing loss to or diminution of the estate
and absence of a reasonable likelihood of
rehabilitation;
[(2) inability to effectuate a plan;
[(3) unreasonable delay by the debtor that is
prejudicial to creditors;
[(4) failure to propose a plan under section 1121
of this title within any time fixed by the court;
[(5) denial of confirmation of every proposed plan
and denial of a request made for additional time for
filing another plan or a modification of a plan;
[(6) revocation of an order of confirmation under
section 1144 of this title, and denial of confirmation
of another plan or a modified plan under section 1129
of this title;
[(7) inability to effectuate substantial
consummation of a confirmed plan;
[(8) material default by the debtor with respect to
a confirmed plan;
[(9) termination of a plan by reason of the
occurrence of a condition specified in the plan; or
[(10) nonpayment of any fees or charges required
under chapter 123 of title 28.]
(b)(1) Except as provided in paragraph (2) of this
subsection, subsection (c) of this section, and section
1104(a)(3), on request of a party in interest, and after notice
and a hearing, the court shall convert a case under this
chapter to a case under chapter 7 or dismiss a case under this
chapter, whichever is in the best interest of creditors and the
estate, if the movant establishes cause.
(2) The relief provided in paragraph (1) shall not be
granted if the debtor or another party in interest objects and
establishes by a preponderance of the evidence that--
(A) a plan with a reasonable possibility of being
confirmed will be filed within a reasonable period of
time; and
(B) the grounds include an act or omission of the
debtor--
(i) for which there exists a reasonable
justification for the act or omission; and
(ii) that will be cured within a reasonable
period of time fixed by the court.
(3) The court shall commence the hearing on any motion
under this subsection not later than 30 days after filing of
the motion, and shall decide the motion not later than 15 days
after commencement of the hearing, unless the movant expressly
consents to a continuance for a specific period of time or
compelling circumstances prevent the court from meeting the
time limits established by this paragraph.
(4) For purposes of this subsection, the term ``cause''
includes--
(A) substantial or continuing loss to or diminution
of the estate;
(B) gross mismanagement of the estate;
(C) failure to maintain appropriate insurance that
poses a risk to the estate or to the public;
(D) unauthorized use of cash collateral harmful to
1 or more creditors;
(E) failure to comply with an order of the court;
(F) repeated failure timely to satisfy any filing
or reporting requirement established by this title or
by any rule applicable to a case under this chapter;
(G) failure to attend the meeting of creditors
convened under section 341(a) or an examination ordered
under rule 2004 of the Federal Rules of Bankruptcy
Procedure;
(H) failure timely to provide information or attend
meetings reasonably requested by the United States
trustee or the bankruptcy administrator;
(I) failure timely to pay taxes due after the date
of the order for relief or to file tax returns due
after the order for relief;
(J) failure to file a disclosure statement, or to
file or confirm a plan, within the time fixed by this
title or by order of the court;
(K) failure to pay any fees or charges required
under chapter 123 of title 28;
(L) revocation of an order of confirmation under
section 1144;
(M) inability to effectuate substantial
consummation of a confirmed plan;
(N) material default by the debtor with respect to
a confirmed plan;
(O) termination of a confirmed plan by reason of
the occurrence of a condition specified in the plan;
and
(P) failure of the debtor to pay any domestic
support obligation that first becomes payable after the
date on which the petition is filed.
(5) The court shall commence the hearing on any motion
under this subsection not later than 30 days after filing of
the motion, and shall decide the motion not later than 15 days
after commencement of the hearing, unless the movant expressly
consents to a continuance for a specific period of time or
compelling circumstances prevent the court from meeting the
time limits established by this paragraph.
* * * * * * *
Sec. 1115. Property of the estate
(a) In a case concerning an individual debtor, property of
the estate includes, in addition to the property specified in
section 541--
(1) all property of the kind specified in section
541 that the debtor acquires after the commencement of
the case but before the case is closed, dismissed, or
converted to a case under chapter 7, 12, or 13,
whichever occurs first; and
(2) earnings from services performed by the debtor
after the commencement of the case but before the case
is closed, dismissed, or converted to a case under
chapter 7, 12, or 13, whichever occurs first.
(b) Except as provided in section 1104 or a confirmed plan
or order confirming a plan, the debtor shall remain in
possession of all property of the estate.
Sec. 1116. Duties of trustee or debtor in possession in small business
cases
In a small business case, a trustee or the debtor in
possession, in addition to the duties provided in this title
and as otherwise required by law, shall--
(1) append to the voluntary petition or, in an
involuntary case, file not later than 7 days after the
date of the order for relief--
(A) its most recent balance sheet,
statement of operations, cash-flow statement,
Federal income tax return; or
(B) a statement made under penalty of
perjury that no balance sheet, statement of
operations, or cash-flow statement has been
prepared and no Federal tax return has been
filed;
(2) attend, through its senior management personnel
and counsel, meetings scheduled by the court or the
United States trustee, including initial debtor
interviews, scheduling conferences, and meetings of
creditors convened under section 341 unless the court
waives that requirement after notice and hearing, upon
a finding of extraordinary and compelling
circumstances;
(3) timely file all schedules and statements of
financial affairs, unless the court, after notice and a
hearing, grants an extension, which shall not extend
such time period to a date later than 30 days after the
date of the order for relief, absent extraordinary and
compelling circumstances;
(4) file all postpetition financial and other
reports required by the Federal Rules of Bankruptcy
Procedure or by local rule of the district court;
(5) subject to section 363(c)(2), maintain
insurance customary and appropriate to the industry;
(6)(A) timely file tax returns and other required
government filings; and
(B) subject to section 363(c)(2), timely pay all
administrative expense tax claims, except those being
contested by appropriate proceedings being diligently
prosecuted; and
(7) allow the United States trustee, or a
designated representative of the United States trustee,
to inspect the debtor's business premises, books, and
records at reasonable times, after reasonable prior
written notice, unless notice is waived by the debtor.
SUBCHAPTER II--THE PLAN
Sec. 1121. Who may file a plan
(a) * * *
* * * * * * *
(d) [On] (1) Subject to paragraph (2), on request of a
party in interest made within the respective periods specified
in subsections (b) and (c) of this section and after notice and
a hearing, the court may for cause reduce or increase the 120-
day period or the 180-day period referred to in this section.
(2)(A) The 120-day period specified in paragraph (1) may
not be extended beyond a date that is 18 months after the date
of the order for relief under this chapter.
(B) The 180-day period specified in paragraph (1) may not
be extended beyond a date that is 20 months after the date of
the order for relief under this chapter.
[(e) In a case in which the debtor is a small business and
elects to be considered a small business--
[(1) only the debtor may file a plan until after
100 days after the date of the order for relief under
this chapter;
[(2) all plans shall be filed within 160 days after
the date of the order for relief; and
[(3) on request of a party in interest made within
the respective periods specified in paragraphs (1) and
(2) and after notice and a hearing, the court may--
[(A) reduce the 100-day period or the 160-
day period specified in paragraph (1) or (2)
for cause; and
[(B) increase the 100-day period specified
in paragraph (1) if the debtor shows that the
need for an increase is caused by circumstances
for which the debtor should not be held
accountable.]
(e) In a small business case--
(1) only the debtor may file a plan until after 180
days after the date of the order for relief, unless
that period is--
(A) extended as provided by this
subsection, after notice and hearing; or
(B) the court, for cause, orders otherwise;
(2) the plan, and any necessary disclosure
statement, shall be filed not later than 300 days after
the date of the order for relief; and
(3) the time periods specified in paragraphs (1)
and (2), and the time fixed in section 1129(e), within
which the plan shall be confirmed, may be extended only
if--
(A) the debtor, after providing notice to
parties in interest (including the United
States trustee), demonstrates by a
preponderance of the evidence that it is more
likely than not that the court will confirm a
plan within a reasonable period of time;
(B) a new deadline is imposed at the time
the extension is granted; and
(C) the order extending time is signed
before the existing deadline has expired.
* * * * * * *
Sec. 1123. Contents of plan
(a) Notwithstanding any otherwise applicable nonbankruptcy
law, a plan shall--
(1) * * *
* * * * * * *
(6) provide for the inclusion in the charter of the
debtor, if the debtor is a corporation, or of any
corporation referred to in paragraph (5)(B) or (5)(C)
of this subsection, of a provision prohibiting the
issuance of nonvoting equity securities, and providing,
as to the several classes of securities possessing
voting power, an appropriate distribution of such power
among such classes, including, in the case of any class
of equity securities having a preference over another
class of equity securities with respect to dividends,
adequate provisions for the election of directors
representing such preferred class in the event of
default in the payment of such dividends; [and]
(7) contain only provisions that are consistent
with the interests of creditors and equity security
holders and with public policy with respect to the
manner of selection of any officer, director, or
trustee under the plan and any successor to such
officer, director, or trustee[.]; and
(8) in a case concerning an individual, provide for
the payment to creditors through the plan of all or
such portion of earnings from personal services
performed by the debtor after the commencement of the
case or other future income of the debtor as is
necessary for the execution of the plan.
* * * * * * *
Sec. 1124. Impairment of claims or interests
Except as provided in section 1123(a)(4) of this title, a
class of claims or interests is impaired under a plan unless,
with respect to each claim or interest of such class, the
plan--
(1) * * *
(2) notwithstanding any contractual provision or
applicable law that entitles the holder of such claim
or interest to demand or receive accelerated payment of
such claim or interest after the occurrence of a
default--
(A) cures any such default that occurred
before or after the commencement of the case
under this title, other than a default of a
kind specified in section 365(b)(2) of this
title or of a kind that section 365(b)(2) of
this title expressly does not require to be
cured;
* * * * * * *
(C) compensates the holder of such claim or
interest for any damages incurred as a result
of any reasonable reliance by such holder on
such contractual provision or such applicable
law; [and]
(D) if such claim or such interest arises
from any failure to perform a nonmonetary
obligation, other than a default arising from
failure to operate a non-residential real
property lease subject to section 365(b)(1)(A),
compensates the holder of such claim or such
interest (other than the debtor or an insider)
for any actual pecuniary loss incurred by such
holder as a result of such failure; and
[(D)] (E) does not otherwise alter the
legal, equitable, or contractual rights to
which such claim or interest entitles the
holder of such claim or interest.
* * * * * * *
Sec. 1125. Postpetition disclosure and solicitation
(a) In this section--
(1) ``adequate information'' means information of a
kind, and in sufficient detail, as far as is reasonably
practicable in light of the nature and history of the
debtor and the condition of the debtor's books and
records, including a discussion of the potential
material Federal tax consequences of the plan to the
debtor, any successor to the debtor, and a hypothetical
investor typical of the holders of claims or interests
in the case, that would enable [a hypothetical
reasonable investor typical of holders of claims or
interests] such a hypothetical investor of the relevant
class to make an informed judgment about the plan, but
adequate information need not include such information
about any other possible or proposed plan and in
determining whether a disclosure statement provides
adequate information, the court shall consider the
complexity of the case, the benefit of additional
information to creditors and other parties in interest,
and the cost of providing additional information; and
* * * * * * *
[(f) Notwithstanding subsection (b), in a case in which the
debtor has elected under section 1121(e) to be considered a
small business--
[(1) the court may conditionally approve a
disclosure statement subject to final approval after
notice and a hearing;
[(2) acceptances and rejections of a plan may be
solicited based on a conditionally approved disclosure
statement as long as the debtor provides adequate
information to each holder of a claim or interest that
is solicited, but a conditionally approved disclosure
statement shall be mailed at least 10 days prior to the
date of the hearing on confirmation of the plan; and
[(3) a hearing on the disclosure statement may be
combined with a hearing on confirmation of a plan.]
(f) Notwithstanding subsection (b), in a small business
case--
(1) the court may determine that the plan itself
provides adequate information and that a separate
disclosure statement is not necessary;
(2) the court may approve a disclosure statement
submitted on standard forms approved by the court or
adopted under section 2075 of title 28; and
(3)(A) the court may conditionally approve a
disclosure statement subject to final approval after
notice and a hearing;
(B) acceptances and rejections of a plan may be
solicited based on a conditionally approved disclosure
statement if the debtor provides adequate information
to each holder of a claim or interest that is
solicited, but a conditionally approved disclosure
statement shall be mailed not later than 20 days before
the date of the hearing on confirmation of the plan;
and
(C) the hearing on the disclosure statement may be
combined with the hearing on confirmation of a plan.
(g) Notwithstanding subsection (b), an acceptance or
rejection of the plan may be solicited from a holder of a claim
or interest if such solicitation complies with applicable
nonbankruptcy law and if such holder was solicited before the
commencement of the case in a manner complying with applicable
nonbankruptcy law.
* * * * * * *
Sec. 1127. Modification of plan
(a) * * *
* * * * * * *
(e) In a case concerning an individual, the plan may be
modified at any time after confirmation of the plan but before
the completion of payments under the plan, whether or not the
plan has been substantially consummated, upon request of the
debtor, the trustee, the United States trustee, or the holder
of an allowed unsecured claim, to--
(1) increase or reduce the amount of payments on
claims of a particular class provided for by the plan;
(2) extend or reduce the time period for such
payments; or
(3) alter the amount of the distribution to a
creditor whose claim is provided for by the plan to the
extent necessary to take account of any payment of such
claim made other than under the plan.
(f)(1) Sections 1121 through 1128 of this title and the
requirements of section 1129 of this title apply to any
modification under subsection (a).
(2) The plan, as modified, shall become the plan only after
there has been disclosure under section 1125, as the court may
direct, notice and a hearing, and such modification is
approved.
* * * * * * *
Sec. 1129. Confirmation of plan
(a) The court shall confirm a plan only if all of the
following requirements are met:
(1) * * *
* * * * * * *
(9) Except to the extent that the holder of a
particular claim has agreed to a different treatment of
such claim, the plan provides that--
(A) * * *
(B) with respect to a class of claims of a
kind specified in section 507(a)(3), 507(a)(4),
507(a)(5), 507(a)(6), or 507(a)(7) of this
title, each holder of a claim of such class
will receive--
(i) * * *
(ii) if such class has not accepted
the plan, cash on the effective date of
the plan equal to the allowed amount of
such claim; [and]
(C) with respect to a claim of a kind
specified in section 507(a)(8) of this title,
the holder of such claim will receive on
account of such claim [deferred cash payments,
over a period not exceeding six years after the
date of assessment of such claim, of a value,
as of the effective date of the plan, equal to
the allowed amount of such claim.] regular
installment payments in cash--
(i) of a total value, as of the
effective date of the plan, equal to
the allowed amount of such claim;
(ii) over a period ending not later
than 5 years after the date of the
entry of the order for relief under
section 301, 302, or 303; and
(iii) in a manner not less
favorable than the most favored
nonpriority unsecured claim provided
for in the plan (other than cash
payments made to a class of creditors
under section 1122(b)); and
(D) with respect to a secured claim which
would otherwise meet the description of an
unsecured claim of a governmental unit under
section 507(a)(8), but for the secured status
of that claim, the holder of that claim will
receive on account of that claim, cash
payments, in the same manner and over the same
period, as prescribed in subparagraph (C).
* * * * * * *
(14) If the debtor is required by a judicial or
administrative order or statute to pay a domestic
support obligation, the debtor has paid all amounts
payable under such order or statute for such obligation
that first become payable after the date on which the
petition is filed.
(15) In a case concerning an individual in which
the holder of an allowed unsecured claim objects to the
confirmation of the plan--
(A) the value of the property to be
distributed under the plan on account of such
claim is, as of the effective date of the plan,
not less than the amount of such claim; or
(B) the value of the property to be
distributed under the plan is not less than the
debtor's projected disposable income (as that
term is defined in section 1325(b)(2)) to be
received during the 5-year period beginning on
the date that the first payment is due under
the plan, or during the term of the plan,
whichever is longer.
(16) All transfers of property of the plan shall be
made in accordance with any applicable provisions of
nonbankruptcy law that govern the transfer of property
by a corporation or trust that is not a moneyed,
business, or commercial corporation or trust.
(b)(1) * * *
(2) For the purpose of this subsection, the condition that
a plan be fair and equitable with respect to a class includes
the following requirements:
(A) * * *
(B) With respect to a class of unsecured claims--
(i) * * *
(ii) the holder of any claim or interest
that is junior to the claims of such class will
not receive or retain under the plan on account
of such junior claim or interest any property,
except that in a case concerning an individual,
the debtor may retain property included in the
estate under section 1115, subject to the
requirements of subsection (a)(14).
* * * * * * *
(e) In a small business case, the plan shall be confirmed
not later than 175 days after the date of the order for relief,
unless such 175-day period is extended as provided in section
1121(e)(3).
* * * * * * *
SUBCHAPTER III--POSTCONFIRMATION MATTERS
Sec. 1141. Effect of confirmation
(a) * * *
* * * * * * *
(d)(1) * * *
(2) [The confirmation of a plan does not discharge an
individual debtor] A discharge under this chapter does not
discharge a debtor from any debt excepted from discharge under
section 523 of this title.
* * * * * * *
(5) In a case concerning an individual--
(A) except as otherwise ordered for cause shown,
the discharge is not effective until completion of all
payments under the plan; and
(B) at any time after the confirmation of the plan
and after notice and a hearing, the court may grant a
discharge to a debtor that has not completed payments
under the plan only if--
(i) for each allowed unsecured claim, the
value, as of the effective date of the plan, of
property actually distributed under the plan on
account of that claim is not less than the
amount that would have been paid on such claim
if the estate of the debtor had been liquidated
under chapter 7 of this title on such date; and
(ii) modification of the plan under 1127 of
this title is not practicable.
(6) Notwithstanding paragraph (1), the confirmation of a
plan does not discharge a debtor that is a corporation from any
debt described in section 523(a)(2) or for a tax or customs
duty with respect to which the debtor--
(A) made a fraudulent return; or
(B) willfully attempted in any manner to evade or
defeat that tax or duty.
* * * * * * *
Sec. 1146. Special tax provisions
[(a) For the purposes of any State or local law imposing a
tax on or measured by income, the taxable period of a debtor
that is an individual shall terminate on the date of the order
for relief under this chapter, unless the case was converted
under section 706 of this title.
[(b) The trustee shall make a State or local tax return of
income for the estate of an individual debtor in a case under
this chapter for each taxable period after the order for relief
under this chapter during which the case is pending.]
[(c)] (a) The issuance, transfer, or exchange of a
security, or the making or delivery of an instrument of
transfer under a plan confirmed under section 1129 of this
title, may not be taxed under any law imposing a stamp tax or
similar tax.
[(d)] (b) The court may authorize the proponent of a plan
to request a determination, limited to questions of law, by a
State or local governmental unit charged with responsibility
for collection or determination of a tax on or measured by
income, of the tax effects, under section 346 of this title and
under the law imposing such tax, of the plan. In the event of
an actual controversy, the court may declare such effects after
the earlier of--
(1) the date on which such governmental unit
responds to the request under this subsection; or
(2) 270 days after such request.
* * * * * * *
Sec. 1170. Abandonment of railroad line
(a) * * *
* * * * * * *
(e)(1) In authorizing any abandonment of a railroad line
under this section, the court shall require the rail carrier to
provide a fair arrangement at least as protective of the
interests of employees as that established under section
[11347] 11326(a) of title 49.
* * * * * * *
Sec. 1172. Contents of plan
(a) * * *
* * * * * * *
(c)(1) In approving an application under subsection (b) of
this section, the Board shall require the rail carrier to
provide a fair arrangement at least as protective of the
interests of employees as that established under section
[11347] 11326(a) of title 49.
* * * * * * *
CHAPTER 12--ADJUSTMENT OF DEBTS OF A FAMILY FARMER WITH REGULAR ANNUAL
INCOME
* * * * * * *
SUBCHAPTER I--OFFICERS, ADMINISTRATION, AND THE ESTATE
Sec. 1202. Trustee
(a) * * *
(b) The trustee shall--
(1) * * *
* * * * * * *
(4) ensure that the debtor commences making timely
payments required by a confirmed plan; [and]
(5) if the debtor ceases to be a debtor in
possession, perform the duties specified in sections
704(8), 1106(a)(1), 1106(a)(2), 1106(a)(6), 1106(a)(7),
and 1203[.]; and
(6) if, with respect to an individual debtor, there
is a claim for a domestic support obligation, provide
the applicable notification specified in subsection
(c).
(c)(1) In any case described in subsection (b)(6), the
trustee shall--
(A)(i) notify in writing the holder of the claim of
the right of that holder to use the services of a State
child support enforcement agency established under
sections 464 and 466 of the Social Security Act (42
U.S.C. 664, 666) for the State in which the holder
resides; and
(ii) include in the notice under this paragraph the
address and telephone number of the child support
enforcement agency; and
(B)(i) notify, in writing, the State child support
agency (of the State in which the holder of the claim
resides) of the claim;
(ii) include in the notice under this paragraph the
name, address, and telephone number of the holder of
the claim; and
(iii) at such time as the debtor is granted a
discharge under section 1228, notify the holder of the
claim and the State child support agency of the State
in which that holder resides of--
(I) the granting of the discharge;
(II) the last recent known address of the
debtor;
(III) the last recent known name and
address of the debtor's employer; and
(IV) with respect to the debtor's case, the
name of each creditor that holds a claim that--
(aa) is not discharged under
paragraph (2), (4), or (14) of section
523(a); or
(bb) was reaffirmed by the debtor
under section 524(c).
(2)(A) A holder of a claim or a State child support agency
may request from a creditor described in paragraph
(1)(B)(iii)(IV) the last known address of the debtor.
(B) Notwithstanding any other provision of law, a creditor
that makes a disclosure of a last known address of a debtor in
connection with a request made under subparagraph (A) shall not
be liable to the debtor or any other person by reason of making
that disclosure.
* * * * * * *
Sec. 1208. Conversion or dismissal
(a) * * *
* * * * * * *
(c) On request of a party in interest, and after notice and
a hearing, the court may dismiss a case under this chapter for
cause, including--
(1) * * *
* * * * * * *
(8) termination of a confirmed plan by reason of
the occurrence of a condition specified in the plan;
[or]
(9) continuing loss to or diminution of the estate
and absence of a reasonable likelihood of
rehabilitation[.]; and
(10) failure of the debtor to pay any domestic
support obligation that first becomes payable after the
date on which the petition is filed.
* * * * * * *
SUBCHAPTER II--THE PLAN
* * * * * * *
Sec. 1222. Contents of plan
(a) The plan shall--
(1) * * *
[(2) provide for the full payment, in deferred cash
payments, of all claims entitled to priority under
section 507 of this title, unless the holder of a
particular claim agrees to a different treatment of
such claim; and]
(2) provide for the full payment, in deferred cash
payments, of all claims entitled to priority under
section 507, unless--
(A) the claim is a claim owed to a
governmental unit that arises as a result of
the sale, transfer, exchange, or other
disposition of any farm asset used in the
debtor's farming operation, in which case the
claim shall be treated as an unsecured claim
that is not entitled to priority under section
507, but the debt shall be treated in such
manner only if the debtor receives a discharge;
or
(B) the holder of a particular claim agrees
to a different treatment of that claim;
(3) if the plan classifies claims and interests,
provide the same treatment for each claim or interest
within a particular class unless the holder of a
particular claim or interest agrees to less favorable
treatment[.]; and
(4) notwithstanding any other provision of this
section, a plan may provide for less than full payment
of all amounts owed for a claim entitled to priority
under section 507(a)(1)(B) only if the plan provides
that all of the debtor's projected disposable income
for a 5-year period, beginning on the date that the
first payment is due under the plan, will be applied to
make payments under the plan.
(b) Subject to subsections (a) and (c) of this section, the
plan may--
(1) * * *
* * * * * * *
(11) provide for the payment of interest accruing
after the date of the filing of the petition on
unsecured claims that are nondischargeable under
section 1328(a), except that such interest may be paid
only to the extent that the debtor has disposable
income available to pay such interest after making
provision for full payment of all allowed claims;
[(11)] (12) include any other appropriate provision
not inconsistent with this title.
* * * * * * *
Sec. 1225. Confirmation of plan
(a) Except as provided in subsection (b), the court shall
confirm a plan if--
(1) * * *
* * * * * * *
(5) with respect to each allowed secured claim
provided for by the plan--
(A) * * *
* * * * * * *
(C) the debtor surrenders the property
securing such claim to such holder; [and]
(6) the debtor will be able to make all payments
under the plan and to comply with the plan[.]; and
(7) if the debtor is required by a judicial or
administrative order or statute to pay a domestic
support obligation, the debtor has paid all amounts
payable under such order for such obligation that first
become payable after the date on which the petition is
filed.
(b)(1) * * *
(2) For purposes of this subsection, ``disposable income''
means income which is received by the debtor and which is not
reasonably necessary to be expended--
(A) for the maintenance or support of the debtor or
a dependent of the debtor or for a domestic support
obligation that first becomes payable after the date on
which the petition is filed; or
* * * * * * *
Sec. 1228. Discharge
(a) As soon as practicable after completion by the debtor
of all payments under the plan, and in the case of a debtor who
is required by a judicial or administrative order to pay a
domestic support obligation, after such debtor certifies that
all amounts payable under such order or statute that are due on
or before the date of the certification (including amounts due
before the petition was filed, but only to the extent provided
for in the plan) have been paid, other than payments to holders
of allowed claims provided for under section 1222(b)(5) or
[1222(b)(10)] 1222(b)(9) of this title, unless the court
approves a written waiver of discharge executed by the debtor
after the order for relief under this chapter, the court shall
grant the debtor a discharge of all debts provided for by the
plan allowed under section 503 of this title or disallowed
under section 502 of this title, except any debt--
(1) provided for under section 1222(b)(5) or
[1222(b)(10)] 1222(b)(9) of this title; or
(2) of the kind specified in section 523(a) of this
title.
* * * * * * *
(c) A discharge granted under subsection (b) of this
section discharges the debtor from all unsecured debts provided
for by the plan or disallowed under section 502 of this title,
except any debt--
(1) provided for under section 1222(b)(5) or
[1222(b)(10)] 1222(b)(9) of this title; or
(2) of a kind specified in section 523(a) of this
title.
* * * * * * *
Sec. 1231. Special tax provisions
[(a) For the purpose of any State or local law imposing a
tax on or measured by income, the taxable period of a debtor
that is an individual shall terminate on the date of the order
for relief under this chapter, unless the case was converted
under section 706 of this title.
[(b) The trustee shall make a State or local tax return of
income for the estate of an individual debtor in a case under
this chapter for each taxable period after the order for relief
under this chapter during which the case is pending.]
[(c)] (a) The issuance, transfer, or exchange of a
security, or the making or delivery of an instrument of
transfer under a plan confirmed under section 1225 of this
title, may not be taxed under any law imposing a stamp tax or
similar tax.
[(d)] (b) The court may authorize the proponent of a plan
to request a determination, limited to questions of law, by [a
State or local governmental unit] any governmental unit charged
with responsibility for collection or determination of a tax on
or measured by income, of the tax effects, under section 346 of
this title and under the law imposing such tax, of the plan. In
the event of an actual controversy, the court may declare such
effects after the earlier of--
(1) the date on which such governmental unit
responds to the request under this subsection; or
(2) 270 days after such request.
CHAPTER 13--ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME
SUBCHAPTER I--OFFICERS, ADMINISTRATION, AND THE ESTATE
Sec.
1301. Stay of action against codebtor.
* * * * * * *
1308. Filing of prepetition tax returns.
* * * * * * *
SUBCHAPTER I--OFFICERS, ADMINISTRATION, AND THE ESTATE
* * * * * * *
Sec. 1302. Trustee
(a) * * *
(b) The trustee shall--
(1) * * *
* * * * * * *
(4) advise, other than on legal matters, and assist
the debtor in performance under the plan; [and]
(5) ensure that the debtor commences making timely
payments under section 1326 of this title[.]; and
(6) if, with respect to an individual debtor, there
is a claim for a domestic support obligation, provide
the applicable notification specified in subsection
(d).
* * * * * * *
(d)(1) In any case described in subsection (b)(6), the
trustee shall--
(A)(i) notify in writing the holder of the claim of
the right of that holder to use the services of a State
child support enforcement agency established under
sections 464 and 466 of the Social Security Act (42
U.S.C. 664, 666) for the State in which the holder
resides; and
(ii) include in the notice under this paragraph the
address and telephone number of the child support
enforcement agency; and
(B)(i) notify in writing the State child support
agency of the State in which the holder of the claim
resides of the claim;
(ii) include in the notice under this paragraph the
name, address, and telephone number of the holder of
the claim; and
(iii) at such time as the debtor is granted a
discharge under section 1328, notify the holder of the
claim and the State child support agency of the State
in which that holder resides of--
(I) the granting of the discharge;
(II) the last recent known address of the
debtor;
(III) the last recent known name and
address of the debtor's employer; and
(IV) with respect to the debtor's case, the
name of each creditor that holds a claim that--
(aa) is not discharged under
paragraph (2), (4), or (14) of section
523(a); or
(bb) was reaffirmed by the debtor
under section 524(c).
(2)(A) A holder of a claim or a State child support agency
may request from a creditor described in paragraph
(1)(B)(iii)(IV) the last known address of the debtor.
(B) Notwithstanding any other provision of law, a creditor
that makes a disclosure of a last known address of a debtor in
connection with a request made under subparagraph (A) shall not
be liable to the debtor or any other person by reason of making
that disclosure.
* * * * * * *
Sec. 1307. Conversion or dismissal
(a) * * *
* * * * * * *
(c) Except as provided in subsection (e) of this section,
on request of a party in interest or the United States trustee
and after notice and a hearing, the court may convert a case
under this chapter to a case under chapter 7 of this title, or
may dismiss a case under this chapter, whichever is in the best
interests of creditors and the estate, for cause, including--
(1) * * *
* * * * * * *
(9) only on request of the United States trustee,
failure of the debtor to file, within fifteen days, or
such additional time as the court may allow, after the
filing of the petition commencing such case, the
information required by paragraph (1) of section 521;
[or]
(10) only on request of the United States trustee,
failure to timely file the information required by
paragraph (2) of section 521[.]; or
(11) failure of the debtor to pay any domestic
support obligation that first becomes payable after the
date on which the petition is filed.
(e) Upon the failure of the debtor to file a tax return
under section 1308, on request of a party in interest or the
United States trustee and after notice and a hearing, the court
shall dismiss a case or convert a case under this chapter to a
case under chapter 7 of this title, whichever is in the best
interest of the creditors and the estate.
[(e)] (f) The court may not convert a case under this
chapter to a case under chapter 7, 11, or 12 of this title if
the debtor is a farmer, unless the debtor requests such
conversion.
[(f)] (g) Notwithstanding any other provision of this
section, a case may not be converted to a case under another
chapter of this title unless the debtor may be a debtor under
such chapter.
Sec. 1308. Filing of prepetition tax returns
(a) Not later than the day before the date on which the
meeting of the creditors is first scheduled to be held under
section 341(a), if the debtor was required to file a tax return
under applicable nonbankruptcy law, the debtor shall file with
appropriate tax authorities all tax returns for all taxable
periods ending during the 4-year period ending on the date of
the filing of the petition.
(b)(1) Subject to paragraph (2), if the tax returns
required by subsection (a) have not been filed by the date on
which the meeting of creditors is first scheduled to be held
under section 341(a), the trustee may hold open that meeting
for a reasonable period of time to allow the debtor an
additional period of time to file any unfiled returns, but such
additional period of time shall not extend beyond--
(A) for any return that is past due as of the date
of the filing of the petition, the date that is 120
days after the date of that meeting; or
(B) for any return that is not past due as of the
date of the filing of the petition, the later of--
(i) the date that is 120 days after the
date of that meeting; or
(ii) the date on which the return is due
under the last automatic extension of time for
filing that return to which the debtor is
entitled, and for which request is timely made,
in accordance with applicable nonbankruptcy
law.
(2) Upon notice and hearing, and order entered before the
tolling of any applicable filing period determined under this
subsection, if the debtor demonstrates by a preponderance of
the evidence that the failure to file a return as required
under this subsection is attributable to circumstances beyond
the control of the debtor, the court may extend the filing
period established by the trustee under this subsection for--
(A) a period of not more than 30 days for returns
described in paragraph (1); and
(B) a period not to extend after the applicable
extended due date for a return described in paragraph
(2).
(c) For purposes of this section, the term ``return''
includes a return prepared pursuant to subsection (a) or (b) of
section 6020 of the Internal Revenue Code of 1986, or a similar
State or local law, or a written stipulation to a judgment or a
final order entered by a nonbankruptcy tribunal.
SUBCHAPTER II--THE PLAN
* * * * * * *
Sec. 1322. Contents of plan
(a) The plan shall--
(1) * * *
(2) provide for the full payment, in deferred cash
payments, of all claims entitled to priority under
section 507 of this title, unless the holder of a
particular claim agrees to a different treatment of
such claim; [and]
(3) if the plan classifies claims, provide the same
treatment for each claim within a particular class[.];
and
(4) notwithstanding any other provision of this
section, a plan may provide for less than full payment
of all amounts owed for a claim entitled to priority
under section 507(a)(1)(B) only if the plan provides
that all of the debtor's projected disposable income
for a 5-year period beginning on the date that the
first payment is due under the plan will be applied to
make payments under the plan.
(b) Subject to subsections (a) and (c) of this section, the
plan may--
(1) * * *
* * * * * * *
(9) provide for the vesting of property of the
estate, on confirmation of the plan or at a later time,
in the debtor or in any other entity; [and]
(10) provide for the payment of interest accruing
after the date of the filing of the petition on
unsecured claims that are nondischargeable under
section 1328(a), except that such interest may be paid
only to the extent that the debtor has disposable
income available to pay such interest after making
provision for full payment of all allowed claims; and
[(10)] (11) include any other appropriate provision
not inconsistent with this title.
* * * * * * *
[(d) The plan may not provide for payments over a period
that is longer than three years, unless the court, for cause,
approves a longer period, but the court may not approve a
period that is longer than five years.]
(d)(1) If the current monthly income of the debtor and the
debtor's spouse combined, when multiplied by 12, is not less
than--
(A) in the case of a debtor in a household of 1
person, the median family income of the applicable
State for 1 earner last reported by the Bureau of the
Census;
(B) in the case of a debtor in a household of 2, 3,
or 4 individuals, the highest median family income of
the applicable State for a family of the same number or
fewer individuals last reported by the Bureau of the
Census; or
(C) in the case of a debtor in a household
exceeding 4 individuals, the highest median family
income of the applicable State for a family of 4 or
fewer individuals last reported by the Bureau of the
Census, plus $525 per month for each individual in
excess of 4,
the plan may not provide for payments over a period that is
longer than 5 years.
(2) If the current monthly income of the debtor and the
debtor's spouse combined, when multiplied by 12, is less than--
(A) in the case of a debtor in a household of 1
person, the median family income of the applicable
State for 1 earner last reported by the Bureau of the
Census;
(B) in the case of a debtor in a household of 2, 3,
or 4 individuals, the highest median family income of
the applicable State for a family of the same number or
fewer individuals last reported by the Bureau of the
Census; or
(C) in the case of a debtor in a household
exceeding 4 individuals, the highest median family
income of the applicable State for a family of 4 or
fewer individuals last reported by the Bureau of the
Census, plus $525 per month for each individual in
excess of 4,
the plan may not provide for payments over a period that is
longer than 3 years, unless the court, for cause, approves a
longer period, but the court may not approve a period that is
longer than 5 years.
* * * * * * *
(f) A plan may not materially alter the terms of a loan
described in section 362(b)(19) and any amounts required to
repay such loan shall not constitute ``disposable income''
under section 1325.
* * * * * * *
Sec. 1324. Confirmation hearing
[After] (a) Except as provided in subsection (b) and after
notice, the court shall hold a hearing on confirmation of the
plan. A party in interest may object to confirmation of the
plan.
(b) The hearing on confirmation of the plan may be held not
earlier than 20 days and not later than 45 days after the date
of the meeting of creditors under section 341(a).
Sec. 1325. Confirmation of plan
(a) Except as provided in subsection (b), the court shall
confirm a plan if--
(1) * * *
* * * * * * *
(5) with respect to each allowed secured claim
provided for by the plan--
(A) the holder of such claim has accepted
the plan;
(B)[(i) the plan provides that the holder
of such claim retain the lien securing such
claim; and]
(i) the plan provides that--
(I) the holder of such claim retain
the lien securing such claim until the
earlier of--
(aa) the payment of the
underlying debt determined
under nonbankruptcy law; or
(bb) discharge under
section 1328; and
(II) if the case under this chapter
is dismissed or converted without
completion of the plan, such lien shall
also be retained by such holder to the
extent recognized by applicable
nonbankruptcy law;
(ii) the value, as of the effective date of
the plan, of property to be distributed under
the plan on account of such claim is not less
than the allowed amount of such claim; [or] and
(iii) if--
(I) property to be
distributed pursuant to this
subsection is in the form of
periodic payments, such
payments shall be in equal
monthly amounts; and
(II) the holder of the
claim is secured by personal
property, the amount of such
payments shall not be less than
an amount sufficient to provide
to the holder of such claim
adequate protection during the
period of the plan; or
(C) the debtor surrenders the property
securing such claim to such holder; [and]
(6) the debtor will be able to make all payments
under the plan and to comply with the plan[.];
(7) the action of the debtor in filing the petition
was in good faith;
(8) the debtor is required by a judicial or
administrative order or statute to pay a domestic
support obligation, the debtor has paid all amounts
payable under such order or statute for such obligation
that first becomes payable after the date on which the
petition is filed; and
(9) the debtor has filed all applicable Federal,
State, and local tax returns as required by section
1308.
For purposes of paragraph (5), section 506 shall not apply to a
claim described in that paragraph if the creditor has a
purchase money security interest securing the debt that is the
subject of the claim, the debt was incurred within the 5-year
period preceding the filing of the petition, and the collateral
for that debt consists of a motor vehicle (as defined in
section 30102 of title 49) acquired for the personal use of the
debtor, or if collateral for that debt consists of any other
thing of value, if the debt was incurred during the 1-year
period preceding that filing.
(b)(1) If the trustee or the holder of an allowed unsecured
claim objects to the confirmation of the plan, then the court
may not approve the plan unless, as of the effective date of
the plan--
(A) the value of the property to be distributed
under the plan on account of such claim is not less
than the amount of such claim; or
(B) the plan provides that all of the debtor's
projected disposable income to be received in the
[three-year period] applicable commitment period
beginning on the date that the first payment is due
under the plan will be applied to make payments to
unsecured creditors under the plan.
[(2) For purposes of this subsection, ``disposable income''
means income which is received by the debtor and which is not
reasonably necessary to be expended--
[(A) for the maintenance or support of the debtor
or a dependent of the debtor, including charitable
contributions (that meet the definition of ``charitable
contribution'' under section 548(d)(3)) to a qualified
religious or charitable entity or organization (as that
term is defined in section 548(d)(4)) in an amount not
to exceed 15 percent of the gross income of the debtor
for the year in which the contributions are made; and
[(B) if the debtor is engaged in business, for the
payment of expenditures necessary for the continuation,
preservation, and operation of such business.]
(2) For purposes of this subsection, the term
``disposable income'' means current monthly income
received by the debtor (other than child support
payments, foster care payments, or disability payments
for a dependent child made in accordance with
applicable nonbankruptcy law to the extent reasonably
necessary to be expended for such child) less amounts
reasonably necessary to be expended--
(A) for the maintenance or support of the
debtor or a dependent of the debtor or for a
domestic support obligation that first becomes
payable after the date on which the petition is
filed or for a domestic support obligation that
first becomes payable after the date the
petition is filed and for charitable
contributions (that meet the definition of
``charitable contribution'' under section
548(d)(3) to a qualified religious or
charitable entity or organization (as that term
is defined in section 548(d)(4)) in an amount
not to exceed 15 percent of gross income of the
debtor for the year in which the contributions
are made; and
(B) if the debtor is engaged in business,
for the payment of expenditures necessary for
the continuation, preservation, and operation
of such business.
(3) Amounts reasonably necessary to be expended
under paragraph (2) shall be determined in accordance
with subparagraphs (A) and (B) of section 707(b)(2), if
the debtor has current monthly income, when multiplied
by 12, greater than--
(A) in the case of a debtor in a household
of 1 person, the median family income of the
applicable State for 1 earner last reported by
the Bureau of the Census;
(B) in the case of a debtor in a household
of 2, 3, or 4 individuals, the highest median
family income of the applicable State for a
family of the same number or fewer individuals
last reported by the Bureau of the Census; or
(C) in the case of a debtor in a household
exceeding 4 individuals, the highest median
family income of the applicable State for a
family of 4 or fewer individuals last reported
by the Bureau of the Census, plus $525 per
month for each individual in excess of 4.
(4) For purposes of this subsection, the ``applicable
commitment period''--
(A) subject to subparagraph (B), shall be--
(i) 3 years; or
(ii) not less than 5 years, if the current
monthly income of the debtor and the debtor's
spouse combined, when multiplied by 12, is not
less than--
(I) in the case of a debtor in a
household of 1 person, the median
family income of the applicable State
for 1 earner last reported by the
Bureau of the Census;
(II) in the case of a debtor in a
household of 2, 3, or 4 individuals,
the highest median family income of the
applicable State for a family of the
same number or fewer individuals last
reported by the Bureau of the Census;
or
(III) in the case of a debtor in a
household exceeding 4 individuals, the
highest median family income of the
applicable State for a family of 4 or
fewer individuals last reported by the
Bureau of the Census, plus $525 per
month for each individual in excess of
4; and
(B) may be less than 3 or 5 years, whichever is
applicable under subparagraph (A), but only if the plan
provides for payment in full of all allowed unsecured
claims over a shorter period.
* * * * * * *
Sec. 1326. Payments
[(a)(1) Unless the court orders otherwise, the debtor shall
commence making the payments proposed by a plan within 30 days
after the plan is filed.
[(2) A payment made under this subsection shall be retained
by the trustee until confirmation or denial of confirmation of
a plan. If a plan is confirmed, the trustee shall distribute
any such payment in accordance with the plan as soon as
practicable. If a plan is not confirmed, the trustee shall
return any such payment to the debtor, after deducting any
unpaid claim allowed under section 503(b) of this title.]
(a)(1) Unless the court orders otherwise, the debtor shall
commence making payments not later than 30 days after the date
of the filing of the plan or the order for relief, whichever is
earlier, in the amount--
(A) proposed by the plan to the trustee;
(B) scheduled in a lease of personal property
directly to the lessor for that portion of the
obligation that becomes due after the order for relief,
reducing the payments under subparagraph (A) by the
amount so paid and providing the trustee with evidence
of such payment, including the amount and date of
payment; and
(C) that provides adequate protection directly to a
creditor holding an allowed claim secured by personal
property to the extent the claim is attributable to the
purchase of such property by the debtor for that
portion of the obligation that becomes due after the
order for relief, reducing the payments under
subparagraph (A) by the amount so paid and providing
the trustee with evidence of such payment, including
the amount and date of payment.
(2) A payment made under paragraph (1)(A) shall be retained
by the trustee until confirmation or denial of confirmation. If
a plan is confirmed, the trustee shall distribute any such
payment in accordance with the plan as soon as is practicable.
If a plan is not confirmed, the trustee shall return any such
payments not previously paid and not yet due and owing to
creditors pursuant to paragraph (3) to the debtor, after
deducting any unpaid claim allowed under section 503(b).
(3) Subject to section 363, the court may, upon notice and
a hearing, modify, increase, or reduce the payments required
under this subsection pending confirmation of a plan.
(4) Not later than 60 days after the date of filing of a
case under this chapter, a debtor retaining possession of
personal property subject to a lease or securing a claim
attributable in whole or in part to the purchase price of such
property shall provide the lessor or secured creditor
reasonable evidence of the maintenance of any required
insurance coverage with respect to the use or ownership of such
property and continue to do so for so long as the debtor
retains possession of such property.
(b) Before or at the time of each payment to creditors
under the plan, there shall be paid--
(1) any unpaid claim of the kind specified in
section 507(a)(1) of this title; [and]
(2) if a standing trustee appointed under section
586(b) of title 28 is serving in the case, the
percentage fee fixed for such standing trustee under
section 586(e)(1)(B) of title 28[.]; and
(3) if a chapter 7 trustee has been allowed
compensation due to the conversion or dismissal of the
debtor's prior case pursuant to section 707(b), and
some portion of that compensation remains unpaid in a
case converted to this chapter or in the case dismissed
under section 707(b) and refiled under this chapter,
the amount of any such unpaid compensation, which shall
be paid monthly--
(A) by prorating such amount over the
remaining duration of the plan; and
(B) by monthly payments not to exceed the
greater of--
(i) $25; or
(ii) the amount payable to
unsecured nonpriority creditors, as
provided by the plan, multiplied by 5
percent, and the result divided by the
number of months in the plan.
* * * * * * *
(d) Notwithstanding any other provision of this title--
(1) compensation referred to in subsection (b)(3)
is payable and may be collected by the trustee under
that paragraph, even if such amount has been discharged
in a prior proceeding under this title; and
(2) such compensation is payable in a case under
this chapter only to the extent permitted by subsection
(b)(3).
Sec. 1328. Discharge
(a) As soon as practicable after completion by the debtor
of all payments under the plan, and in the case of a debtor who
is required by a judicial or administrative order to pay a
domestic support obligation, after such debtor certifies that
all amounts payable under such order or statute that are due on
or before the date of the certification (including amounts due
before the petition was filed, but only to the extent provided
for in the plan) have been paid, unless the court approves a
written waiver of discharge executed by the debtor after the
order for relief under this chapter, the court shall grant the
debtor a discharge of all debts provided for by the plan or
disallowed under section 502 of this title, except any debt--
[(1) provided for under section 1322(b)(5) of this
title;
[(2) of the kind specified in paragraph (5), (8),
or (9) of section 523(a) of this title; or
[(3) for restitution, or a criminal fine, included
in a sentence on the debtor's conviction of a crime.]
(1) provided for under section 1322(b)(5);
(2) of the kind specified in section 507(a)(8)(C)
or in paragraph (1)(B), (1)(C), (2), (3), (4), (5),
(8), or (9) of section 523(a);
(3) for restitution, or a criminal fine, included
in a sentence on the debtor's conviction of a crime; or
(4) for restitution, or damages, awarded in a civil
action against the debtor as a result of willful or
malicious injury by the debtor that caused personal
injury to an individual or the death of an individual.
* * * * * * *
(f) Notwithstanding subsections (a) and (b), the court
shall not grant a discharge of all debts provided for by the
plan or disallowed under section 502 if the debtor has received
a discharge in any case filed under this title within 5 years
before the order for relief under this chapter.
(g) The court shall not grant a discharge under this
section to a debtor, unless after filing a petition the debtor
has completed an instructional course concerning personal
financial management described in section 111.
(h) Subsection (g) shall not apply with respect to a debtor
who resides in a district for which the United States trustee
or bankruptcy administrator of the bankruptcy court of that
district determines that the approved instructional courses are
not adequate to service the additional individuals who would be
required to complete the instructional course by reason of the
requirements of this section.
(i) Each United States trustee or bankruptcy administrator
that makes a determination described in subsection (h) shall
review that determination not later than 1 year after the date
of that determination, and not less frequently than every year
thereafter.
Sec. 1329. Modification of plan after confirmation
(a) * * *
* * * * * * *
(c) A plan modified under this section may not provide for
payments over a period that expires after [three years] the
applicable commitment period under section 1325(b)(1)(B) after
the time that the first payment under the original confirmed
plan was due, unless the court, for cause, approves a longer
period, but the court may not approve a period that expires
after five years after such time.
* * * * * * *
CHAPTER 15--ANCILLARY AND OTHER CROSS-BORDER CASES
Sec.
1501. Purpose and scope of application.
SUBCHAPTER I--GENERAL PROVISIONS
1502. Definitions.
1503. International obligations of the United States.
1504. Commencement of ancillary case.
1505. Authorization to act in a foreign country.
1506. Public policy exception.
1507. Additional assistance.
1508. Interpretation.
SUBCHAPTER II--ACCESS OF FOREIGN REPRESENTATIVES AND CREDITORS TO THE
COURT
1509. Right of direct access.
1510. Limited jurisdiction.
1511. Commencement of case under section 301 or 303.
1512. Participation of a foreign representative in a case under this
title.
1513. Access of foreign creditors to a case under this title.
1514. Notification to foreign creditors concerning a case under this
title.
SUBCHAPTER III--RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF
1515. Application for recognition.
1516. Presumptions concerning recognition.
1517. Order granting recognition.
1518. Subsequent information.
1519. Relief that may be granted upon filing petition for recognition.
1520. Effects of recognition of a foreign main proceeding.
1521. Relief that may be granted upon recognition.
1522. Protection of creditors and other interested persons.
1523. Actions to avoid acts detrimental to creditors.
1524. Intervention by a foreign representative.
SUBCHAPTER IV--COOPERATION WITH FOREIGN COURTS AND FOREIGN
REPRESENTATIVES
1525. Cooperation and direct communication between the court and
foreign courts or foreign representatives.
1526. Cooperation and direct communication between the trustee and
foreign courts or foreign representatives.
1527. Forms of cooperation.
SUBCHAPTER V--CONCURRENT PROCEEDINGS
1528. Commencement of a case under this title after recognition of a
foreign main proceeding.
1529. Coordination of a case under this title and a foreign proceeding.
1530. Coordination of more than 1 foreign proceeding.
1531. Presumption of insolvency based on recognition of a foreign main
proceeding.
1532. Rule of payment in concurrent proceedings.
Sec. 1501. Purpose and scope of application
(a) The purpose of this chapter is to incorporate the Model
Law on Cross-Border Insolvency so as to provide effective
mechanisms for dealing with cases of cross-border insolvency
with the objectives of--
(1) cooperation between--
(A) United States courts, United States
trustees, trustees, examiners, debtors, and
debtors in possession; and
(B) the courts and other competent
authorities of foreign countries involved in
cross-border insolvency cases;
(2) greater legal certainty for trade and
investment;
(3) fair and efficient administration of cross-
border insolvencies that protects the interests of all
creditors, and other interested entities, including the
debtor;
(4) protection and maximization of the value of the
debtor's assets; and
(5) facilitation of the rescue of financially
troubled businesses, thereby protecting investment and
preserving employment.
(b) This chapter applies where--
(1) assistance is sought in the United States by a
foreign court or a foreign representative in connection
with a foreign proceeding;
(2) assistance is sought in a foreign country in
connection with a case under this title;
(3) a foreign proceeding and a case under this
title with respect to the same debtor are taking place
concurrently; or
(4) creditors or other interested persons in a
foreign country have an interest in requesting the
commencement of, or participating in, a case or
proceeding under this title.
(c) This chapter does not apply to--
(1) a proceeding concerning an entity, other than a
foreign insurance company, identified by exclusion in
section 109(b);
(2) an individual, or to an individual and such
individual's spouse, who have debts within the limits
specified in section 109(e) and who are citizens of the
United States or aliens lawfully admitted for permanent
residence in the United States; or
(3) an entity subject to a proceeding under the
Securities Investor Protection Act of 1970, a
stockbroker subject to subchapter III of chapter 7 of
this title, or a commodity broker subject to subchapter
IV of chapter 7 of this title.
(d) The court may not grant relief under this chapter with
respect to any deposit, escrow, trust fund, or other security
required or permitted under any applicable State insurance law
or regulation for the benefit of claim holders in the United
States.
SUBCHAPTER I--GENERAL PROVISIONS
Sec. 1502. Definitions
For the purposes of this chapter, the term--
(1) ``debtor'' means an entity that is the subject
of a foreign proceeding;
(2) ``establishment'' means any place of operations
where the debtor carries out a nontransitory economic
activity;
(3) ``foreign court'' means a judicial or other
authority competent to control or supervise a foreign
proceeding;
(4) ``foreign main proceeding'' means a foreign
proceeding taking place in the country where the debtor
has the center of its main interests;
(5) ``foreign nonmain proceeding'' means a foreign
proceeding, other than a foreign main proceeding,
taking place in a country where the debtor has an
establishment;
(6) ``trustee'' includes a trustee, a debtor in
possession in a case under any chapter of this title,
or a debtor under chapter 9 of this title;
(7) ``recognition'' means the entry of an order
granting recognition of a foreign main proceeding or
foreign nonmain proceeding under this chapter; and
(8) ``within the territorial jurisdiction of the
United States'', when used with reference to property
of a debtor, refers to tangible property located within
the territory of the United States and intangible
property deemed under applicable nonbankruptcy law to
be located within that territory, including any
property subject to attachment or garnishment that may
properly be seized or garnished by an action in a
Federal or State court in the United States.
Sec. 1503. International obligations of the United States
To the extent that this chapter conflicts with an
obligation of the United States arising out of any treaty or
other form of agreement to which it is a party with one or more
other countries, the requirements of the treaty or agreement
prevail.
Sec. 1504. Commencement of ancillary case
A case under this chapter is commenced by the filing of a
petition for recognition of a foreign proceeding under section
1515.
Sec. 1505. Authorization to act in a foreign country
A trustee or another entity (including an examiner) may be
authorized by the court to act in a foreign country on behalf
of an estate created under section 541. An entity authorized to
act under this section may act in any way permitted by the
applicable foreign law.
Sec. 1506. Public policy exception
Nothing in this chapter prevents the court from refusing to
take an action governed by this chapter if the action would be
manifestly contrary to the public policy of the United States.
Sec. 1507. Additional assistance
(a) Subject to the specific limitations stated elsewhere in
this chapter the court, if recognition is granted, may provide
additional assistance to a foreign representative under this
title or under other laws of the United States.
(b) In determining whether to provide additional assistance
under this title or under other laws of the United States, the
court shall consider whether such additional assistance,
consistent with the principles of comity, will reasonably
assure--
(1) just treatment of all holders of claims against
or interests in the debtor's property;
(2) protection of claim holders in the United
States against prejudice and inconvenience in the
processing of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent
dispositions of property of the debtor;
(4) distribution of proceeds of the debtor's
property substantially in accordance with the order
prescribed by this title; and
(5) if appropriate, the provision of an opportunity
for a fresh start for the individual that such foreign
proceeding concerns.
Sec. 1508. Interpretation
In interpreting this chapter, the court shall consider its
international origin, and the need to promote an application of
this chapter that is consistent with the application of similar
statutes adopted by foreign jurisdictions.
SUBCHAPTER II--ACCESS OF FOREIGN REPRESENTATIVES AND CREDITORS TO THE
COURT
Sec. 1509. Right of direct access
(a) A foreign representative may commence a case under
section 1504 by filing directly with the court a petition for
recognition of a foreign proceeding under section 1515.
(b) If the court grants recognition under section 1515, and
subject to any limitations that the court may impose consistent
with the policy of this chapter--
(1) the foreign representative has the capacity to
sue and be sued in a court in the United States;
(2) the foreign representative may apply directly
to a court in the United States for appropriate relief
in that court; and
(3) a court in the United States shall grant comity
or cooperation to the foreign representative.
(c) A request for comity or cooperation by a foreign
representative in a court in the United States other than the
court which granted recognition shall be accompanied by a
certified copy of an order granting recognition under section
1517.
(d) If the court denies recognition under this chapter, the
court may issue any appropriate order necessary to prevent the
foreign representative from obtaining comity or cooperation
from courts in the United States.
(e) Whether or not the court grants recognition, and
subject to sections 306 and 1510, a foreign representative is
subject to applicable nonbankruptcy law.
(f) Notwithstanding any other provision of this section,
the failure of a foreign representative to commence a case or
to obtain recognition under this chapter does not affect any
right the foreign representative may have to sue in a court in
the United States to collect or recover a claim which is the
property of the debtor.
Sec. 1510. Limited jurisdiction
The sole fact that a foreign representative files a
petition under section 1515 does not subject the foreign
representative to the jurisdiction of any court in the United
States for any other purpose.
Sec. 1511. Commencement of case under section 301 or 303
(a) Upon recognition, a foreign representative may
commence--
(1) an involuntary case under section 303; or
(2) a voluntary case under section 301 or 302, if
the foreign proceeding is a foreign main proceeding.
(b) The petition commencing a case under subsection (a)
must be accompanied by a certified copy of an order granting
recognition. The court where the petition for recognition has
been filed must be advised of the foreign representative's
intent to commence a case under subsection (a) prior to such
commencement.
Sec. 1512. Participation of a foreign representative in a case under
this title
Upon recognition of a foreign proceeding, the foreign
representative in the recognized proceeding is entitled to
participate as a party in interest in a case regarding the
debtor under this title.
Sec. 1513. Access of foreign creditors to a case under this title
(a) Foreign creditors have the same rights regarding the
commencement of, and participation in, a case under this title
as domestic creditors.
(b)(1) Subsection (a) does not change or codify present law
as to the priority of claims under section 507 or 726 of this
title, except that the claim of a foreign creditor under those
sections shall not be given a lower priority than that of
general unsecured claims without priority solely because the
holder of such claim is a foreign creditor.
(2)(A) Subsection (a) and paragraph (1) do not change or
codify present law as to the allowability of foreign revenue
claims or other foreign public law claims in a proceeding under
this title.
(B) Allowance and priority as to a foreign tax claim or
other foreign public law claim shall be governed by any
applicable tax treaty of the United States, under the
conditions and circumstances specified therein.
Sec. 1514. Notification to foreign creditors concerning a case under
this title
(a) Whenever in a case under this title notice is to be
given to creditors generally or to any class or category of
creditors, such notice shall also be given to the known
creditors generally, or to creditors in the notified class or
category, that do not have addresses in the United States. The
court may order that appropriate steps be taken with a view to
notifying any creditor whose address is not yet known.
(b) Such notification to creditors with foreign addresses
described in subsection (a) shall be given individually, unless
the court considers that, under the circumstances, some other
form of notification would be more appropriate. No letter or
other formality is required.
(c) When a notification of commencement of a case is to be
given to foreign creditors, the notification shall--
(1) indicate the time period for filing proofs of
claim and specify the place for their filing;
(2) indicate whether secured creditors need to file
their proofs of claim; and
(3) contain any other information required to be
included in such a notification to creditors under this
title and the orders of the court.
(d) Any rule of procedure or order of the court as to
notice or the filing of a claim shall provide such additional
time to creditors with foreign addresses as is reasonable under
the circumstances.
SUBCHAPTER III--RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF
Sec. 1515. Application for recognition
(a) A foreign representative applies to the court for
recognition of the foreign proceeding in which the foreign
representative has been appointed by filing a petition for
recognition.
(b) A petition for recognition shall be accompanied by--
(1) a certified copy of the decision commencing the
foreign proceeding and appointing the foreign
representative;
(2) a certificate from the foreign court affirming
the existence of the foreign proceeding and of the
appointment of the foreign representative; or
(3) in the absence of evidence referred to in
paragraphs (1) and (2), any other evidence acceptable
to the court of the existence of the foreign proceeding
and of the appointment of the foreign representative.
(c) A petition for recognition shall also be accompanied by
a statement identifying all foreign proceedings with respect to
the debtor that are known to the foreign representative.
(d) The documents referred to in paragraphs (1) and (2) of
subsection (b) shall be translated into English. The court may
require a translation into English of additional documents.
Sec. 1516. Presumptions concerning recognition
(a) If the decision or certificate referred to in section
1515(b) indicates that the foreign proceeding is a foreign
proceeding (as defined in section 101) and that the person or
body is a foreign representative (as defined in section 101),
the court is entitled to so presume.
(b) The court is entitled to presume that documents
submitted in support of the petition for recognition are
authentic, whether or not they have been legalized.
(c) In the absence of evidence to the contrary, the
debtor's registered office, or habitual residence in the case
of an individual, is presumed to be the center of the debtor's
main interests.
Sec. 1517. Order granting recognition
(a) Subject to section 1506, after notice and a hearing, an
order recognizing a foreign proceeding shall be entered if--
(1) the foreign proceeding for which recognition is
sought is a foreign main proceeding or foreign nonmain
proceeding within the meaning of section 1502;
(2) the foreign representative applying for
recognition is a person or body as defined in section
101; and
(3) the petition meets the requirements of section
1515.
(b) The foreign proceeding shall be recognized--
(1) as a foreign main proceeding if it is taking
place in the country where the debtor has the center of
its main interests; or
(2) as a foreign nonmain proceeding if the debtor
has an establishment within the meaning of section 1502
in the foreign country where the proceeding is pending.
(c) A petition for recognition of a foreign proceeding
shall be decided upon at the earliest possible time. Entry of
an order recognizing a foreign proceeding constitutes
recognition under this chapter.
(d) The provisions of this subchapter do not prevent
modification or termination of recognition if it is shown that
the grounds for granting it were fully or partially lacking or
have ceased to exist, but in considering such action the court
shall give due weight to possible prejudice to parties that
have relied upon the order granting recognition. The case under
this chapter may be closed in the manner prescribed under
section 350.
Sec. 1518. Subsequent information
From the time of filing the petition for recognition of the
foreign proceeding, the foreign representative shall file with
the court promptly a notice of change of status concerning--
(1) any substantial change in the status of the
foreign proceeding or the status of the foreign
representative's appointment; and
(2) any other foreign proceeding regarding the
debtor that becomes known to the foreign
representative.
Sec. 1519. Relief that may be granted upon filing petition for
recognition
(a) From the time of filing a petition for recognition
until the court rules on the petition, the court may, at the
request of the foreign representative, where relief is urgently
needed to protect the assets of the debtor or the interests of
the creditors, grant relief of a provisional nature,
including--
(1) staying execution against the debtor's assets;
(2) entrusting the administration or realization of
all or part of the debtor's assets located in the
United States to the foreign representative or another
person authorized by the court, including an examiner,
in order to protect and preserve the value of assets
that, by their nature or because of other
circumstances, are perishable, susceptible to
devaluation or otherwise in jeopardy; and
(3) any relief referred to in paragraph (3), (4),
or (7) of section 1521(a).
(b) Unless extended under section 1521(a)(6), the relief
granted under this section terminates when the petition for
recognition is granted.
(c) It is a ground for denial of relief under this section
that such relief would interfere with the administration of a
foreign main proceeding.
(d) The court may not enjoin a police or regulatory act of
a governmental unit, including a criminal action or proceeding,
under this section.
(e) The standards, procedures, and limitations applicable
to an injunction shall apply to relief under this section.
(f) The exercise of rights not subject to the stay arising
under section 362(a) pursuant to paragraph (6), (7), (17), or
(28) of section 362(b) or pursuant to section 362(l) shall not
be stayed by any order of a court or administrative agency in
any proceeding under this chapter.
Sec. 1520. Effects of recognition of a foreign main proceeding
(a) Upon recognition of a foreign proceeding that is a
foreign main proceeding--
(1) sections 361 and 362 apply with respect to the
debtor and that property of the debtor that is within
the territorial jurisdiction of the United States;
(2) sections 363, 549, and 552 of this title apply
to a transfer of an interest of the debtor in property
that is within the territorial jurisdiction of the
United States to the same extent that the sections
would apply to property of an estate;
(3) unless the court orders otherwise, the foreign
representative may operate the debtor's business and
may exercise the rights and powers of a trustee under
and to the extent provided by sections 363 and 552; and
(4) section 552 applies to property of the debtor
that is within the territorial jurisdiction of the
United States.
(b) Subsection (a) does not affect the right to commence an
individual action or proceeding in a foreign country to the
extent necessary to preserve a claim against the debtor.
(c) Subsection (a) does not affect the right of a foreign
representative or an entity to file a petition commencing a
case under this title or the right of any party to file claims
or take other proper actions in such a case.
Sec. 1521. Relief that may be granted upon recognition
(a) Upon recognition of a foreign proceeding, whether main
or nonmain, where necessary to effectuate the purpose of this
chapter and to protect the assets of thedebtor or the interests
of the creditors, the court may, at the request of the foreign
representative, grant any appropriate relief, including--
(1) staying the commencement or continuation of an
individual action or proceeding concerning the debtor's
assets, rights, obligations or liabilities to the
extent they have not been stayed under section 1520(a);
(2) staying execution against the debtor's assets
to the extent it has not been stayed under section
1520(a);
(3) suspending the right to transfer, encumber or
otherwise dispose of any assets of the debtor to the
extent this right has not been suspended under section
1520(a);
(4) providing for the examination of witnesses, the
taking of evidence or the delivery of information
concerning the debtor's assets, affairs, rights,
obligations or liabilities;
(5) entrusting the administration or realization of
all or part of the debtor's assets within the
territorial jurisdiction of the United States to the
foreign representative or another person, including an
examiner, authorized by the court;
(6) extending relief granted under section 1519(a);
and
(7) granting any additional relief that may be
available to a trustee, except for relief available
under sections 522, 544, 545, 547, 548, 550, and
724(a).
(b) Upon recognition of a foreign proceeding, whether main
or nonmain, the court may, at the request of the foreign
representative, entrust the distribution of all or part of the
debtor's assets located in the United States to the foreign
representative or another person, including an examiner,
authorized by the court, provided that the court is satisfied
that the interests of creditors in the United States are
sufficiently protected.
(c) In granting relief under this section to a
representative of a foreign nonmain proceeding, the court must
be satisfied that the relief relates to assets that, under the
law of the United States, should be administered in the foreign
nonmain proceeding or concerns information required in that
proceeding.
(d) The court may not enjoin a police or regulatory act of
a governmental unit, including a criminal action or proceeding,
under this section.
(e) The standards, procedures, and limitations applicable
to an injunction shall apply to relief under paragraphs (1),
(2), (3), and (6) of subsection (a).
(f) The exercise of rights not subject to the stay arising
under section 362(a) pursuant to paragraph (6), (7), (17), or
(28) of section 362(b) or pursuant to section 362(l) shall not
be stayed by any order of a court or administrative agency in
any proceeding under this chapter.
Sec. 1522. Protection of creditors and other interested persons
(a) The court may grant relief under section 1519 or 1521,
or may modify or terminate relief under subsection (c), only if
the interests of the creditors and other interested entities,
including the debtor, are sufficiently protected.
(b) The court may subject relief granted under section 1519
or 1521, or the operation of the debtor's business under
section 1520(a)(3) of this title, to conditions it considers
appropriate, including the giving of security or the filing of
a bond.
(c) The court may, at the request of the foreign
representative or an entity affected by relief granted under
section 1519 or 1521, or at its own motion, modify or terminate
such relief.
(d) Section 1104(d) shall apply to the appointment of an
examiner under this chapter. Any examiner shall comply with the
qualification requirements imposed on a trustee by section 322.
Sec. 1523. Actions to avoid acts detrimental to creditors
(a) Upon recognition of a foreign proceeding, the foreign
representative has standing in a case concerning the debtor
pending under another chapter of this title to initiate actions
under sections 522, 544, 545, 547, 548, 550, 553, and 724(a).
(b) When the foreign proceeding is a foreign nonmain
proceeding, the court must be satisfied that an action under
subsection (a) relates to assets that, under United States law,
should be administered in the foreign nonmain proceeding.
Sec. 1524. Intervention by a foreign representative
Upon recognition of a foreign proceeding, the foreign
representative may intervene in any proceedings in a State or
Federal court in the United States in which the debtor is a
party.
SUBCHAPTER IV--COOPERATION WITH FOREIGN COURTS AND FOREIGN
REPRESENTATIVES
Sec. 1525. Cooperation and direct communication between the court and
foreign courts or foreign representatives
(a) Consistent with section 1501, the court shall cooperate
to the maximum extent possible with foreign courts or foreign
representatives, either directly or through the trustee.
(b) The court is entitled to communicate directly with, or
to request information or assistance directly from, foreign
courts or foreign representatives, subject to the rights of
parties in interest to notice and participation.
Sec. 1526. Cooperation and direct communication between the trustee and
foreign courts or foreign representatives
(a) Consistent with section 1501, the trustee or other
person, including an examiner, authorized by the court, shall,
subject to the supervision of the court, cooperate to the
maximum extent possible with foreign courts or foreign
representatives.
(b) The trustee or other person, including an examiner,
authorized by the court is entitled, subject to the supervision
of the court, to communicate directly with foreign courts or
foreign representatives.
Sec. 1527. Forms of cooperation
Cooperation referred to in sections 1525 and 1526 may be
implemented by any appropriate means, including--
(1) appointment of a person or body, including an
examiner, to act at the direction of the court;
(2) communication of information by any means
considered appropriate by the court;
(3) coordination of the administration and
supervision of the debtor's assets and affairs;
(4) approval or implementation of agreements
concerning the coordination of proceedings; and
(5) coordination of concurrent proceedings
regarding the same debtor.
SUBCHAPTER V--CONCURRENT PROCEEDINGS
Sec. 1528. Commencement of a case under this title after recognition of
a foreign main proceeding
After recognition of a foreign main proceeding, a case
under another chapter of this title may be commenced only if
the debtor has assets in the United States. The effects of such
case shall be restricted to the assets of the debtor that are
within the territorial jurisdiction of the United States and,
to the extent necessary to implement cooperation and
coordination under sections 1525, 1526, and 1527, to other
assets of the debtor that are within the jurisdiction of the
court under sections 541(a) of this title, and 1334(e) of title
28, to the extent that such other assets are not subject to the
jurisdiction and control of a foreign proceeding that has been
recognized under this chapter.
Sec. 1529. Coordination of a case under this title and a foreign
proceeding
If a foreign proceeding and a case under another chapter of
this title are taking place concurrently regarding the same
debtor, the court shall seek cooperation and coordination under
sections 1525, 1526, and 1527, and the following shall apply:
(1) If the case in the United States is taking
place at the time the petition for recognition of the
foreign proceeding is filed--
(A) any relief granted under sections 1519
or 1521 must be consistent with the relief
granted in the case in the United States; and
(B) even if the foreign proceeding is
recognized as a foreign main proceeding,
section 1520 does not apply.
(2) If a case in the United States under this title
commences after recognition, or after the filing of the
petition for recognition, of the foreign proceeding--
(A) any relief in effect under sections
1519 or 1521 shall be reviewed by the court and
shall be modified or terminated if inconsistent
with the case in the United States; and
(B) if the foreign proceeding is a foreign
main proceeding, the stay and suspension
referred to in section 1520(a) shall be
modified or terminated if inconsistent with the
relief granted in the case in the United
States.
(3) In granting, extending, or modifying relief
granted to a representative of a foreign nonmain
proceeding, the court must be satisfied that the relief
relates to assets that, under the laws of the United
States, should be administered in the foreign nonmain
proceeding or concerns information required in that
proceeding.
(4) In achieving cooperation and coordination under
sections 1528 and 1529, the court may grant any of the
relief authorized under section 305.
Sec. 1530. Coordination of more than 1 foreign proceeding
In matters referred to in section 1501, with respect to
more than 1 foreign proceeding regarding the debtor, the court
shall seek cooperation and coordination under sections 1525,
1526, and 1527, and the following shall apply:
(1) Any relief granted under section 1519 or 1521
to a representative of a foreign nonmain proceeding
after recognition of a foreign main proceeding must be
consistent with the foreign main proceeding.
(2) If a foreign main proceeding is recognized
after recognition, or after the filing of a petition
for recognition, of a foreign nonmain proceeding, any
relief in effect under section 1519 or 1521 shall be
reviewed by the court and shall be modified or
terminated if inconsistent with the foreign main
proceeding.
(3) If, after recognition of a foreign nonmain
proceeding, another foreign nonmain proceeding is
recognized, the court shall grant, modify, or terminate
relief for the purpose of facilitating coordination of
the proceedings.
Sec. 1531. Presumption of insolvency based on recognition of a foreign
main proceeding
In the absence of evidence to the contrary, recognition of
a foreign main proceeding is, for the purpose of commencing a
proceeding under section 303, proof that the debtor is
generally not paying its debts as such debts become due.
Sec. 1532. Rule of payment in concurrent proceedings
Without prejudice to secured claims or rights in rem, a
creditor who has received payment with respect to its claim in
a foreign proceeding pursuant to a law relating to insolvency
may not receive a payment for the same claim in a case under
any other chapter of this title regarding the debtor, so long
as the payment to other creditors of the same class is
proportionately less than the payment the creditor has already
received.
----------
TITLE 18, UNITED STATES CODE
* * * * * * *
PART I--CRIMES
* * * * * * *
CHAPTER 9--BANKRUPTCY
Sec.
151. Definition.
* * * * * * *
158. Designation of United States attorneys and agents of the Federal
Bureau of Investigation to address abusive reaffirmations of
debt and materially fraudulent statements in bankruptcy
schedules.
* * * * * * *
Sec. 156. Knowing disregard of bankruptcy law or rule
(a) Definitions.--In this section--
(1) the term ``bankruptcy petition preparer'' means
a person, other than the debtor's attorney or an
employee of such an attorney, who prepares for
compensation a document for filing[.]; and
(2) the term ``document for filing'' means a
petition or any other document prepared for filing by a
debtor in a United States bankruptcy court or a United
States district court in connection with a case under
[this title] title 11.
* * * * * * *
Sec. 158. Designation of United States attorneys and agents of the
Federal Bureau of Investigation to address abusive
reaffirmations of debt and materially fraudulent
statements in bankruptcy schedules
(a) In General.--The Attorney General of the United States
shall designate the individuals described in subsection (b) to
have primary responsibility in carrying out enforcement
activities in addressing violations of section 152 or 157
relating to abusive reaffirmations of debt. In addition to
addressing the violations referred to in the preceding
sentence, the individuals described under subsection (b) shall
address violations of section 152 or 157 relating to materially
fraudulent statements in bankruptcy schedules that are
intentionally false or intentionally misleading.
(b) United States District Attorneys and Agents of the
Federal Bureau of Investigation--The individuals referred to in
subsection (a) are--
(1) a United States attorney for each judicial
district of the United States; and
(2) an agent of the Federal Bureau of Investigation
(within the meaning of section 3107) for each field
office of the Federal Bureau of Investigation.
(c) Bankruptcy Investigations.--Each United States attorney
designated under this section shall, in addition to any other
responsibilities, have primary responsibility for carrying out
the duties of a United States attorney under section 3057.
(d) Bankruptcy Procedures.--The bankruptcy courts shall
establish procedures for referring any case which may contain a
materially fraudulent statement in a bankruptcy schedule to the
individuals designated under this section.
* * * * * * *
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TITLE 28, UNITED STATES CODE
* * * * * * *
PART I--ORGANIZATION OF COURTS
* * * * * * *
CHAPTER 6--BANKRUPTCY JUDGES
Sec.
151 Designation of bankruptcy courts.
* * * * * * *
159. Bankruptcy statistics.
* * * * * * *
Sec. 152. Appointment of bankruptcy judges
(a)(1) [The United States court of appeals for the circuit
shall appoint bankruptcy judges for the judicial districts
established in paragraph (2) in such numbers as are established
in such paragraph.] Each bankruptcy judge to be appointed for a
judicial district, as provided in paragraph (2), shall be
appointed by the United States court of appeals for the circuit
in which such district is located. Such appointments shall be
made after considering the recommendations of the Judicial
Conference submitted pursuant to subsection (b). Each
bankruptcy judge shall be appointed for a term of fourteen
years, subject to the provisions of subsection (e). However,
upon the expiration of the term, a bankruptcy judge may, with
the approval of the judicial council of the circuit, continue
to perform the duties of the office until the earlier of the
date which is 180 days after the expiration of the term or the
date of the appointment of a successor. Bankruptcy judges shall
serve as judicial officers of the United States district court
established under Article III of the Constitution.
(2) The bankruptcy judges appointed pursuant to this
section shall be appointed for the several judicial districts
as follows:
Districts Judges
Alabama:
Northern.................................................. 5
Middle.................................................... 2
Southern.................................................. 2
* * * * * * *
Georgia:
Northern.................................................. 8
Middle.................................................... [2] 3
Southern.................................................. 2
[Middle and Southern...................................... 1]
* * * * * * *
Sec. 157. Procedures
(a) * * *
(b)(1) Bankruptcy judges may hear and determine all cases
under title 11 and all core proceedings arising under title 11,
or arising in a case under title 11, referred under subsection
(a) of this section, and may enter appropriate orders and
judgments, subject to review under section 158 of this title.
(2) Core proceedings include, but are not limited to--
(A) * * *
* * * * * * *
(N) orders approving the sale of property other
than property resulting from claims brought by the
estate against persons who have not filed claims
against the estate; [and]
(O) other proceedings affecting the liquidation of
the assets of the estate or the adjustment of the
debtor-creditor or the equity security holder
relationship, except personal injury tort or wrongful
death claims[.]; and
(P) recognition of foreign proceedings and other
matters under chapter 15 of title 11.
* * * * * * *
Sec. 158. Appeals
(a) * * *
* * * * * * *
[(d) The courts of appeals shall have jurisdiction of
appeals from all final decisions, judgments, orders, and
decrees entered under subsections (a) and (b) of this section.]
(d)(1) In a case in which the appeal is heard by the
district court, the judgment, decision, order, or decree of the
bankruptcy judge shall be deemed a judgment, decision, order,
or decree of the district court entered 31 days after such
appeal is filed with the district court, unless not later than
30 days after such appeal is filed with the district court--
(A) the district court--
(i) files a decision on the appeal from the
judgment, decision, order, or decree of the
bankruptcy judge; or
(ii) enters an order extending such 30-day
period for cause upon motion of a party or upon
the court's own motion; or
(B) all parties to the appeal file written consent
that the district court may retain such appeal until it
enters a decision.
(2) For the purpose of this subsection, an appeal shall be
considered filed with the district court on the date on which
the notice of appeal is filed, except that in a case in which
the appeal is heard by the district court because a party has
made an election under subsection (c)(1)(B), the appeal shall
be considered filed with the district court on the date on
which such election is made.
(e) The courts of appeals shall have jurisdiction of
appeals from--
(1) all final judgments, decisions, orders, and
decrees of district courts entered under subsection
(a);
(2) all final judgments, decisions, orders, and
decrees of bankruptcy appellate panels entered under
subsection (b); and
(3) all judgments, decisions, orders, and decrees
of district courts entered under subsection (d) to the
extent that such judgments, decisions, orders, and
decrees would be reviewable by a district court under
subsection (a).
(f) In accordance with rules prescribed by the Supreme
Court of the United States under sections 2072 through 2077,
the court of appeals may, in its discretion, exercise
jurisdiction over an appeal from an interlocutory judgment,
decision, order, or decree under subsection (e)(3).
Sec. 159. Bankruptcy statistics
(a) The clerk of each district shall collect statistics
regarding individual debtors with primarily consumer debts
seeking relief under chapters 7, 11, and 13 of title 11. Those
statistics shall be on a standardized form prescribed by the
Director of the Administrative Office of the United States
Courts (referred to in this section as the ``Director'').
(b) The Director shall--
(1) compile the statistics referred to in
subsection (a);
(2) make the statistics available to the public;
and
(3) not later than October 31, 2002, and annually
thereafter, prepare, and submit to Congress a report
concerning the information collected under subsection
(a) that contains an analysis of the information.
(c) The compilation required under subsection (b) shall--
(1) be itemized, by chapter, with respect to title
11;
(2) be presented in the aggregate and for each
district; and
(3) include information concerning--
(A) the total assets and total liabilities
of the debtors described in subsection (a), and
in each category of assets and liabilities, as
reported in the schedules prescribed pursuant
to section 2075 of this title and filed by
those debtors;
(B) the current monthly income, average
income, and average expenses of those debtors
as reported on the schedules and statements
that each such debtor files under sections 521
and 1322 of title 11;
(C) the aggregate amount of debt discharged
in the reporting period, determined as the
difference between the total amount of debt and
obligations of a debtor reported on the
schedules and the amount of such debt reported
in categories which are predominantly
nondischargeable;
(D) the average period of time between the
filing of the petition and the closing of the
case;
(E) for the reporting period--
(i) the number of cases in which a
reaffirmation was filed; and
(ii)(I) the total number of
reaffirmations filed;
(II) of those cases in which a
reaffirmation was filed, the number of
cases in which the debtor was not
represented by an attorney; and
(III) of those cases in which a
reaffirmation was filed, the number of
cases in which the reaffirmation was
approved by the court;
(F) with respect to cases filed under
chapter 13 of title 11, for the reporting
period--
(i)(I) the number of cases in which
a final order was entered determining
the value of property securing a claim
in an amount less than the amount of
the claim; and
(II) the number of final orders
determining the value of property
securing a claim issued;
(ii) the number of cases dismissed,
the number of cases dismissed for
failure to make payments under the
plan, the number of cases refiled after
dismissal, and the number of cases in
which the plan was completed,
separately itemized with respect to the
number of modifications made before
completion of the plan, if any; and
(iii) the number of cases in which
the debtor filed another case during
the 6-year period preceding the filing;
(G) the number of cases in which creditors
were fined for misconduct and any amount of
punitive damages awarded by the court for
creditor misconduct; and
(H) the number of cases in which sanctions
under rule 9011 of the Federal Rules of
Bankruptcy Procedure were imposed against
debtor's counsel or damages awarded under such
Rule.
* * * * * * *
PART II--DEPARTMENT OF JUSTICE
* * * * * * *
CHAPTER 39--UNITED STATES TRUSTEES
Sec.
581. United States trustees.
* * * * * * *
589b. Bankruptcy data.
* * * * * * *
Sec. 586. Duties; supervision by Attorney General
(a) Each United States trustee, within the region for which
such United States trustee is appointed, shall--
(1) * * *
* * * * * * *
(3) supervise the administration of cases and
trustees in cases under chapter 7, 11, 12, [or 13] 13,
or 15, of title 11 by, whenever the United States
trustee considers it to be appropriate--
(A) * * *
* * * * * * *
(G) monitoring the progress of cases under
title 11 and taking such actions as the United
States trustee deems to be appropriate to
prevent undue delay in such progress; [and]
(H) in small business cases (as defined in
section 101 of title 11), performing the
additional duties specified in title 11
pertaining to such cases; and
[(H)] (I) monitoring applications filed
under section 327 of title 11 and, whenever the
United States trustee deems it to be
appropriate, filing with the court comments
with respect to the approval of such
applications;
* * * * * * *
(5) perform the duties prescribed for the United
States trustee under title 11 and this title, and such
duties consistent with title 11 and this title as the
Attorney General may prescribe; [and]
[(6) make such reports as the Attorney General
directs.]
(6) make such reports as the Attorney General
directs, including the results of audits performed
under section 603(a) of the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2001; and
(7) in each of such small business cases--
(A) conduct an initial debtor interview as
soon as practicable after the entry of order
for relief but before the first meeting
scheduled under section 341(a) of title 11, at
which time the United States trustee shall--
(i) begin to investigate the
debtor's viability;
(ii) inquire about the debtor's
business plan;
(iii) explain the debtor's
obligations to file monthly operating
reports and other required reports;
(iv) attempt to develop an agreed
scheduling order; and
(v) inform the debtor of other
obligations;
(B) if determined to be appropriate and
advisable, visit the appropriate business
premises of the debtor and ascertain the state
of the debtor's books and records and verify
that the debtor has filed its tax returns; and
(C) review and monitor diligently the
debtor's activities, to identify as promptly as
possible whether the debtor will be unable to
confirm a plan; and
(8) in any case in which the United States trustee
finds material grounds for any relief under section
1112 of title 11, the United States trustee shall apply
promptly after making that finding to the court for
relief.
* * * * * * *
(d)(1) The Attorney General shall prescribe by rule
qualifications for membership on the panels established by
United States trustees under paragraph (a)(1) of this section,
and qualifications for appointment under subsection (b) of this
section to serve as standing trustee in cases under chapter 12
or 13 of title 11. The Attorney General may not require that an
individual be an attorney in order to qualify for appointment
under subsection (b) of this section to serve as standing
trustee in cases under chapter 12 or 13 of title 11.
(2) A trustee whose appointment under subsection (a)(1) or
under subsection (b) is terminated or who ceases to be assigned
to cases filed under title 11, United States Code, may obtain
judicial review of the final agency decision by commencing an
action in the United States district court for the district for
which the panel to which the trustee is appointed under
subsection (a)(1), or in the United States district court for
the district in which the trustee is appointed under subsection
(b) resides, after first exhausting all available
administrative remedies, which if the trustee so elects, shall
also include an administrative hearing on the record. Unless
the trustee elects to have an administrative hearing on the
record, the trustee shall be deemed to have exhausted all
administrative remedies for purposes of this paragraph if the
agency fails to make a final agency decision within 90 days
after the trustee requests administrative remedies. The
Attorney General shall prescribe procedures to implement this
paragraph. The decision of the agency shall be affirmed by the
district court unless it is unreasonable and without cause
based on the administrative record before the agency.
(e)(1) * * *
* * * * * * *
(3) After first exhausting all available administrative
remedies, an individual appointed under subsection (b) may
obtain judicial review of final agency action to deny a claim
of actual, necessary expenses under this subsection by
commencing an action in the United States district court in the
district where the individual resides. The decision of the
agency shall be affirmed by the district court unless it is
unreasonable and without cause based upon the administrative
record before the agency.
(4) The Attorney General shall prescribe procedures to
implement this subsection.
(f)(1) The United States trustee for each district is
authorized to contract with auditors to perform audits in cases
designated by the United States trustee, in accordance with the
procedures established under section 603(a) of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2001.
(2)(A) The report of each audit referred to in paragraph
(1) shall be filed with the court and transmitted to the United
States trustee. Each report shall clearly and conspicuously
specify any material misstatement of income or expenditures or
of assets identified by the person performing the audit. In any
case in which a material misstatement of income or expenditures
or of assets has been reported, the clerk of the bankruptcy
court shall give notice of the misstatement to the creditors in
the case.
(B) If a material misstatement of income or expenditures or
of assets is reported, the United States trustee shall--
(i) report the material misstatement, if
appropriate, to the United States Attorney pursuant to
section 3057 of title 18; and
(ii) if advisable, take appropriate action,
including but not limited to commencing an adversary
proceeding to revoke the debtor's discharge pursuant to
section 727(d) of title 11.
* * * * * * *
Sec. 589a. United States Trustee System Fund
(a) * * *
(b) For the purpose of recovering the cost of services of
the United States Trustee System, there shall be deposited as
offsetting collections to the appropriation ``United States
Trustee System Fund'', to remain available until expended, the
following--
[(1) 27.42 percent of the fees collected under
section 1930(a)(1) of this title;]
(1)(A) 40.63 percent of the fees collected under
section 1930(a)(1)(A) of this title in cases commenced
under chapter 7 of title 11; and
(B) 70.00 percent of the fees collected under
section 1930(a)(1)(B) of this title in cases commenced
under chapter 13 of title 11;
(2) [one-half] three-fourths of the fees collected
under section 1930(a)(3) of this title;
(3) one-half of the fees collected under section
1930(a)(4) of this title;
(4) [one-half] 100 percent of the fees collected
under section 1930(a)(5) of this title;
* * * * * * *
Sec. 589b. Bankruptcy data
(a) Rules.--The Attorney General shall, within a reasonable
time after the effective date of this section, issue rules
requiring uniform forms for (and from time to time thereafter
to appropriately modify and approve)--
(1) final reports by trustees in cases under
chapters 7, 12, and 13 of title 11; and
(2) periodic reports by debtors in possession or
trustees, as the case may be, in cases under chapter 11
of title 11.
(b) Reports.--Each report referred to in subsection (a)
shall be designed (and the requirements as to place and manner
of filing shall be established) so as to facilitate compilation
of data and maximum possible access of the public, both by
physical inspection at one or more central filing locations,
and by electronic access through the Internet or other
appropriate media.
(c) Required Information.--The information required to be
filed in the reports referred to in subsection (b) shall be
that which is in the best interests of debtors and creditors,
and in the public interest in reasonable and adequate
information to evaluate the efficiency and practicality of the
Federal bankruptcy system. In issuing rules proposing the forms
referred to in subsection (a), the Attorney General shall
strike the best achievable practical balance between--
(1) the reasonable needs of the public for
information about the operational results of the
Federal bankruptcy system;
(2) economy, simplicity, and lack of undue burden
on persons with a duty to file reports; and
(3) appropriate privacy concerns and safeguards.
(d) Final Reports.--Final reports proposed for adoption by
trustees under chapters 7, 12, and 13 of title 11 shall, in
addition to such other matters as are required by law or as the
Attorney General in the discretion of the Attorney General,
shall propose, include with respect to a case under such
title--
(1) information about the length of time the case
was pending;
(2) assets abandoned;
(3) assets exempted;
(4) receipts and disbursements of the estate;
(5) expenses of administration, including for use
under section 707(b), actual costs of administering
cases under chapter 13 of title 11;
(6) claims asserted;
(7) claims allowed; and
(8) distributions to claimants and claims
discharged without payment,
in each case by appropriate category and, in cases under
chapters 12 and 13 of title 11, date of confirmation of the
plan, each modification thereto, and defaults by the debtor in
performance under the plan.
(e) Periodic Reports.--Periodic reports proposed for
adoption by trustees or debtors in possession under chapter 11
of title 11 shall, in addition to such other matters as are
required by law or as the Attorney General, in the discretion
of the Attorney General, shall propose, include--
(1) information about the standard industry
classification, published by the Department of
Commerce, for the businesses conducted by the debtor;
(2) length of time the case has been pending;
(3) number of full-time employees as of the date of
the order for relief and at the end of each reporting
period since the case was filed;
(4) cash receipts, cash disbursements and
profitability of the debtor for the most recent period
and cumulatively since the date of the order for
relief;
(5) compliance with title 11, whether or not tax
returns and tax payments since the date of the order
for relief have been timely filed and made;
(6) all professional fees approved by the court in
the case for the most recent period and cumulatively
since the date of the order for relief (separately
reported, for the professional fees incurred by or on
behalf of the debtor, between those that would have
been incurred absent a bankruptcy case and those not);
and
(7) plans of reorganization filed and confirmed
and, with respect thereto, by class, the recoveries of
the holders, expressed in aggregate dollar values and,
in the case of claims, as a percentage of total claims
of the class allowed.
* * * * * * *
PART III--COURT OFFICERS AND EMPLOYEES
* * * * * * *
CHAPTER 57--GENERAL PROVISIONS APPLICABLE TO COURT OFFICERS AND
EMPLOYEES
* * * * * * *
Sec. 960. Tax liability
(a) Any officers and agents conducting any business under
authority of a United States court shall be subject to all
Federal, State and local taxes applicable to such business to
the same extent as if it were conducted by an individual or
corporation.
(b) A tax under subsection (a) shall be paid on or before
the due date of the tax under applicable nonbankruptcy law,
unless--
(1) the tax is a property tax secured by a lien
against property that is abandoned within a reasonable
period of time after the lien attaches by the trustee
of a bankruptcy estate under section 554 of title 11;
or
(2) payment of the tax is excused under a specific
provision of title 11.
(c) In a case pending under chapter 7 of title 11, payment
of a tax may be deferred until final distribution is made under
section 726 of title 11, if--
(1) the tax was not incurred by a trustee duly
appointed under chapter 7 of title 11; or
(2) before the due date of the tax, an order of the
court makes a finding of probable insufficiency of
funds of the estate to pay in full the administrative
expenses allowed under section 503(b) of title 11 that
have the same priority in distribution under section
726(b) of title 11 as the priority of that tax.
* * * * * * *
PART IV--JURISDICTION AND VENUE
* * * * * * *
CHAPTER 85--DISTRICT COURTS; JURISDICTION
* * * * * * *
Sec. 1334. Bankruptcy cases and proceedings
(a) * * *
(b) [Notwithstanding] Except as provided in subsection
(e)(2), and notwithstanding any Act of Congress that confers
exclusive jurisdiction on a court or courts other than the
district courts, the district courts shall have original but
not exclusive jurisdiction of all civil proceedings arising
under title 11, or arising in or related to cases under title
11.
(c)(1) [Nothing in] Except with respect to a case under
chapter 15 of title 11, nothing in this section prevents a
district court in the interest of justice, or in the interest
of comity with State courts or respect for State law, from
abstaining from hearing a particular proceeding arising under
title 11 or arising in or related to a case under title 11.
* * * * * * *
(d) Any decision to abstain or not to abstain [made under
this subsection] made under subsection (c) (other than a
decision not to abstain in a proceeding described in subsection
(c)(2)) is not reviewable by appeal or otherwise by the court
of appeals under [section 158(d)] subsection (e) or (f) of
section 158, 1291, or 1292 of this title or by the Supreme
Court of the United States under section 1254 of this title.
[This subsection] Subsection (c) and this subsection shall not
be construed to limit the applicability of the stay provided
for by section 362 of title 11, United States Code, as such
section applies to an action affecting the property of the
estate in bankruptcy.
[(e) The district court in which a case under title 11 is
commenced or is pending shall have exclusive jurisdiction of
all of the property, wherever located, of the debtor as of the
commencement of such case, and of property of the estate.]
(e) The district court in which a case under title 11 is
commenced or is pending shall have exclusive jurisdiction--
(1) of all the property, wherever located, of the
debtor as of the date of commencement of such case, and
of property of the estate; and
(2) over all claims or causes of action that
involve construction of section 327 of title 11, United
States Code, or rules relating to disclosure
requirements under section 327.
* * * * * * *
CHAPTER 87--DISTRICT COURTS; VENUE
* * * * * * *
Sec. 1409. Venue of proceedings arising under title 11 or arising in or
related to cases under title 11
(a) * * *
(b) Except as provided in subsection (d) of this section, a
trustee in a case under title 11 may commence a proceeding
arising in or related to such case to recover a money judgment
of or property worth less than $1,000 or a consumer debt of
less than $5,000, or a nonconsumer debt against a noninsider of
less than $10,000, only in the district court for the district
in which the defendant resides.
[Sec. 1410. Venue of cases ancillary to foreign proceedings
[(a) A case under section 304 of title 11 to enjoin the
commencement or continuation of an action or proceeding in a
State or Federal court, or the enforcement of a judgment, may
be commenced only in the district court for the district where
the State or Federal court sits in which is pending the action
or proceeding against which the injunction is sought.
[(b) A case under section 304 of title 11 to enjoin the
enforcement of a lien against a property, or to require the
turnover of property of an estate, may be commenced only in the
district court for the district in which such property is
found.
[(c) A case under section 304 of title 11, other than a
case specified in subsection (a) or (b) of this section, may be
commenced only in the district court for the district in which
is located the principal place of business in the United
States, or the principal assets in the United States, of the
estate that is the subject of such case.]
Sec. 1410. Venue of cases ancillary to foreign proceedings
A case under chapter 15 of title 11 may be commenced in the
district court for the district--
(1) in which the debtor has its principal place of
business or principal assets in the United States;
(2) if the debtor does not have a place of business
or assets in the United States, in which there is
pending against the debtor an action or proceeding in a
Federal or State court; or
(3) in a case other than those specified in
paragraph (1) or (2), in which venue will be consistent
with the interests of justice and the convenience of
the parties, having regard to the relief sought by the
foreign representative.
* * * * * * *
CHAPTER 89--DISTRICT COURTS; REMOVAL OF CASES FROM STATE COURTS
* * * * * * *
Sec. 1452. Removal of claims related to bankruptcy cases
(a) * * *
(b) The court to which such claim or cause of action is
removed may remand such claim or cause of action on any
equitable ground. An order entered under this subsection
remanding a claim or cause of action, or a decision to not
remand, is not reviewable by appeal or otherwise by the court
of appeals under [section 158(d)] subsection (e) or (f) of
section 158, 1291, or 1292 of this title or by the Supreme
Court of the United States under section 1254 of this title.
* * * * * * *
CHAPTER 123--FEES AND COSTS
* * * * * * *
Sec. 1930. Bankruptcy fees
(a) [Notwithstanding section 1915 of this title, the] The
parties commencing a case under title 11 shall pay to the clerk
of the district court or the clerk of the bankruptcy court, if
one has been certified pursuant to section 156(b) of this
title, the following filing fees:
[(1) For a case commenced under chapter 7 or 13 of
title 11, $155.]
(1) For a case commenced--
(A) under chapter 7 of title 11, $160; or
(B) under chapter 13 of title 11, $150.
* * * * * * *
(f)(1) Under the procedures prescribed by the Judicial
Conference of the United States, the district court or the
bankruptcy court may waive the filing fee in a case under
chapter 7 of title 11 for an individual if the court determines
that such debtor has income less than 150 percent of the income
official poverty line (as defined by the Office of Management
and Budget, and revised annually in accordance with section
673(2) of the Omnibus Budget Reconciliation Act of 1981)
applicable to a family of the size involved and is unable to
pay that fee in installments. For purposes of this paragraph,
the term ``filing fee'' means the filing required by subsection
(a), or any other fee prescribed by the Judicial Conference
under subsections (b) and (c) that is payable to the clerk upon
the commencement of a case under chapter 7.
(2) The district court or the bankruptcy court may waive
for such debtors other fees prescribed under subsections (b)
and (c).
(3) This subsection does not restrict the district court or
the bankruptcy court from waiving, in accordance with Judicial
Conference policy, fees prescribed under this section for other
debtors and creditors.
* * * * * * *
PART V--PROCEDURE
* * * * * * *
CHAPTER 131 - RULES OF COURTS
* * * * * * *
Sec. 2075. Bankruptcy rules
The Supreme Court shall have the power to prescribe by
general rules, the forms of process, writs, pleadings, and
motions, and the practice and procedure in cases under title
11. Such rules shall not abridge, enlarge, or modify any
substantive right. The Supreme Court shall transmit to Congress
not later than May 1 of the year in which a rule prescribed
under this section is to become effective a copy of the
proposed rule. The rule shall take effect no earlier than
December 1 of the year in which it is transmitted to Congress
unless otherwise provided by law. The bankruptcy rules
promulgated under this section shall prescribe a form for the
statement required under section 707(b)(2)(C) of title 11 and
may provide general rules on the content of such statement.
----------
SECTION 406 OF THE JUDICIARY APPROPRIATIONS ACT, 1990
Sec. 406. (a) * * *
(b) All fees as shall be hereafter collected for any service
not of a kind described in any of the items enumerated as items
1 through 7 and as items 9 through 18, as in effect on November
21, 1989, of the bankruptcy miscellaneous fee schedule
prescribed by the Judicial Conference of the United States
[pursuant to 28 U.S.C. section 1930(b) and 33.87 per centum of
the fees hereafter collected under 28 U.S.C. section 1930(a)(1)
and 25 percent of the fees hereafter collected under 28 U.S.C.
section 1930(a)(3) shall be deposited as offsetting receipts to
the fund established under 28 U.S.C. section 1931] under
section 1930(b) of title 28, United States Code, and 31.25
percent of the fees collected under section 1930(a)(1)(A) of
that title, 30.00 percent of the fees collected under section
1930(a)(1)(B) of that title, and 25 percent of the fees
collected under section 1930(a)(3) of that title shall be
deposited as offsetting receipts to the fund established under
section 1931 of that title and shall remain available to the
Judiciary until expended to reimburse any appropriation for the
amount paid out of such appropriation for expenses of the
Courts of Appeals, District Courts, and other Judicial Services
and the Administrative Office of the United States Courts. The
Judicial Conference shall report to the Committees on
Appropriations of the House of Representatives and the Senate
on a quarterly basis beginning on the first day of each fiscal
year regarding the sums deposited in said fund.
* * * * * * *
----------
FEDERAL DEPOSIT INSURANCE ACT
* * * * * * *
Sec. 11. (a) * * *
* * * * * * *
(e) Provisions Relating to Contracts Entered Into Before
Appointment of Conservator or Receiver.--
(1) * * *
* * * * * * *
(8) Certain qualified financial contracts.--
(A) Rights of parties to contracts.--
Subject to [paragraph (10)] paragraphs (9) and
(10) of this subsection and notwithstanding any
other provision of this Act (other than
subsection (d)(9) of this section and section
13(e)), any other Federal law, or the law of
any State, no person shall be stayed or
prohibited from exercising--
(i) any right [to cause the
termination or liquidation] such person
has to cause the termination,
liquidation, or acceleration of any
qualified financial contract with an
insured depository institution which
arises upon the appointment of the
Corporation as receiver for such
institution at any time after such
appointment;
[(ii) any right under any security
arrangement relating to any contract or
agreement described in clause (i); or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to one or
more qualified financial contracts
described in clause (i);
* * * * * * *
(C) Certain transfers not avoidable.--
(i) In general.--Notwithstanding
paragraph (11), section 5242 of the
Revised Statutes of the United States
(12 U.S.C. 91) or any other Federal or
State law relating to the avoidance of
preferential or fraudulent transfers,
the Corporation, whether acting as such
or as conservator or receiver of an
insured depository institution, may not
avoid any transfer of money or other
property in connection with any
qualified financial contract with an
insured depository institution.
* * * * * * *
(D) Certain contracts and agreements
defined.--For purposes of this subsection--
(i) Qualified financial contract.--
The term ``qualified financial
contract'' means any securities
contract, commodity contract, forward
contract, repurchase agreement, swap
agreement, and any similar agreement
that the Corporation determines by
regulation, resolution, or order to be
a qualified financial contract for
purposes of this paragraph.
[(ii) Securities contract.--The
term ``securities contract''--
[(I) has the meaning given
to such term in section 741 of
title 11, United States Code,
except that the term
``security'' (as used in such
section) shall be deemed to
include any mortgage loan, any
mortgage-related security (as
defined in section 3(a)(41) of
the Securities Exchange Act of
1934), and any interest in any
mortgage loan or mortgage-
related security; and
[(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term.
[(iii) Commodity contract.--The
term ``commodity contract'' has the
meaning given to such term in section
761 of title 11, United States Code.
[(iv) Forward contract.--The term
``forward contract'' has the meaning
given to such term in section 101 of
title 11, United States Code.
[(v) Repurchase agreement.--The
term ``repurchase agreement''--
[(I) has the meaning given
to such term in section 101 of
title 11, the United States
Code, except that the items (as
described in such section)
which may be subject to any
such agreement shall be deemed
to include mortgage-related
securities (as such term is
defined in section 3(a)(41) of
the Securities Exchange Act of
1934), any mortgage loan, and
any interest in any mortgage
loan; and
[(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term.
[(vi) Swap agreement.--The term
``swap agreement''--
[(I) means any agreement,
including the terms and
conditions incorporated by
reference in any such
agreement, which is a rate swap
agreement, basis swap,
commodity swap, forward rate
agreement, interest rate
future, interest rate option
purchased, forward foreign
exchange agreement, rate cap
agreement, rate floor
agreement, rate collar
agreement, currency swap
agreement, cross-currency rate
swap agreement, currency
future, or currency option
purchased or any other similar
agreement, and
[(II) includes any
combination of such agreements
and any option to enter into
any such agreement.
[(vii) Treatment of master
agreement as 1 swap agreement.--Any
master agreement for any agreements
described in clause (vi)(I) together
with all supplements to such master
agreement shall be treated as 1 swap
agreement.
[(viii) Transfer.--The term
``transfer'' has the meaning given to
such term in section 101 of title 11,
United States Code.]
(ii) Securities contract.--The term
``securities contract''--
(I) means a contract for
the purchase, sale, or loan of
a security, a certificate of
deposit, a mortgage loan, or
any interest in a mortgage
loan, a group or index of
securities, certificates of
deposit, or mortgage loans or
interests therein (including
any interest therein or based
on the value thereof) or any
option on any of the foregoing,
including any option to
purchase or sell any such
security, certificate of
deposit, loan, interest, group
or index, or option;
(II) does not include any
purchase, sale, or repurchase
obligation under a
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
agreement within the meaning of
such term;
(III) means any option
entered into on a national
securities exchange relating to
foreign currencies;
(IV) means the guarantee by
or to any securities clearing
agency of any settlement of
cash, securities, certificates
of deposit, mortgage loans or
interests therein, group or
index of securities,
certificates of deposit, or
mortgage loans or interests
therein (including any interest
therein or based on the value
thereof) or option on any of
the foregoing, including any
option to purchase or sell any
such security, certificate of
deposit, loan, interest, group
or index or option;
(V) means any margin loan;
(VI) means any other
agreement or transaction that
is similar to any agreement or
transaction referred to in this
clause;
(VII) means any combination
of the agreements or
transactions referred to in
this clause;
(VIII) means any option to
enter into any agreement or
transaction referred to in this
clause;
(IX) means a master
agreement that provides for an
agreement or transaction
referred to in subclause (I),
(III), (IV), (V), (VI), (VII),
or (VIII), together with all
supplements to any such master
agreement, without regard to
whether the master agreement provides
for an agreement or transaction that
is not a securities contract under
this clause, except that the master
agreement shall be considered to be a
securities contract under this clause
only with respect to each agreement
or transaction under the master
agreement that is referred to in
subclause (I), (III), (IV), (V),
(VI), (VII), or (VIII); and
(X) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in this
clause.
(iii) Commodity contract.--The term
``commodity contract'' means--
(I) with respect to a
futures commission merchant, a
contract for the purchase or
sale of a commodity for future
delivery on, or subject to the
rules of, a contract market or
board of trade;
(II) with respect to a
foreign futures commission
merchant, a foreign future;
(III) with respect to a
leverage transaction merchant,
a leverage transaction;
(IV) with respect to a
clearing organization, a
contract for the purchase or
sale of a commodity for future
delivery on, or subject to the
rules of, a contract market or
board of trade that is cleared
by such clearing organization,
or commodity option traded on,
or subject to the rules of, a
contract market or board of
trade that is cleared by such
clearing organization;
(V) with respect to a
commodity options dealer, a
commodity option;
(VI) any other agreement or
transaction that is similar to
any agreement or transaction
referred to in this clause;
(VII) any combination of
the agreements or transactions
referred to in this clause;
(VIII) any option to enter
into any agreement or
transaction referred to in this
clause;
(IX) a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (II), (III),
(IV), (V), (VI), (VII), or
(VIII), together with all
supplements to any such master
agreement, without regard to
whether the master agreement
provides for an agreement or
transaction that is not a
commodity contract under this
clause, except that the master
agreement shall be considered
to be a commodity contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
(IV), (V), (VI), (VII), or
(VIII); or
(X) any security agreement
or arrangement or other credit
enhancement related to any
agreement or transaction
referred to in this clause.
(iv) Forward contract.--The term
``forward contract'' means--
(I) a contract (other than
a commodity contract) for the
purchase, sale, or transfer of
a commodity or any similar
good, article, service, right,
or interest which is presently
or in the future becomes the
subject of dealing in the
forward contract trade, or
product or byproduct thereof,
with a maturity date more than
2 days after the date the
contract is entered into,
including, a repurchase
transaction, reverse repurchase
transaction, consignment,
lease, swap, hedge transaction,
deposit, loan, option,
allocated transaction,
unallocated transaction, or any
other similar agreement;
(II) any combination of
agreements or transactions
referred to in subclauses (I)
and (III);
(III) any option to enter
into any agreement or
transaction referred to in
subclause (I) or (II);
(IV) a master agreement
that provides for an agreement
or transaction referred to in
subclauses (I), (II), or (III),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a forward contract
under this clause, except that
the master agreement shall be
considered to be a forward
contract under this clause only
with respect to each agreement
or transaction under the master
agreement that is referred to in
subclause (I), (II), or (III); or
(V) any security agreement
or arrangement or other credit
enhancement related to any
agreement or transaction
referred to in subclause (I),
(II), (III), or (IV).
(v) Repurchase agreement.--The term
``repurchase agreement'' (which
definition also applies to a reverse
repurchase agreement)--
(I) means an agreement,
including related terms, which
provides for the transfer of
one or more certificates of
deposit, mortgage-related
securities (as such term is
defined in the Securities
Exchange Act of 1934), mortgage
loans, interests in mortgage-
related securities or mortgage
loans, eligible bankers'
acceptances, qualified foreign
government securities or
securities that are direct
obligations of, or that are
fully guaranteed by, the United
States or any agency of the
United States against the
transfer of funds by the
transferee of such certificates
of deposit, eligible bankers'
acceptances, securities, loans,
or interests with a
simultaneous agreement by such
transferee to transfer to the
transferor thereof certificates
of deposit, eligible bankers'
acceptances, securities, loans,
or interests as described
above, at a date certain not
later than 1 year after such
transfers or on demand, against
the transfer of funds, or any
other similar agreement;
(II) does not include any
repurchase obligation under a
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term;
(III) means any combination
of agreements or transactions
referred to in subclauses (I)
and (IV);
(IV) means any option to
enter into any agreement or
transaction referred to in
subclause (I) or (III);
(V) means a master
agreement that provides for an
agreement or transaction
referred to in subclause (I),
(III), or (IV), together with
all supplements to any such
master agreement, without
regard to whether the master
agreement provides for an
agreement or transaction that
is not a repurchase agreement
under this clause, except that
the master agreement shall be
considered to be a repurchase
agreement under this subclause
only with respect to each
agreement or transaction under
the master agreement that is
referred to in subclause (I),
(III), or (IV); and
(VI) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in
subclause (I), (III), (IV), or
(V).
For purposes of this clause, the term
``qualified foreign government
security'' means a security that is a
direct obligation of, or that is fully
guaranteed by, the central government
of a member of the Organization for
Economic Cooperation and Development
(as determined by regulation or order
adopted by the appropriate Federal
banking authority).
(vi) Swap agreement.--The term
``swap agreement'' means--
(I) any agreement,
including the terms and
conditions incorporated by
reference in any such
agreement, which is an interest
rate swap, option, future, or
forward agreement, including a
rate floor, rate cap, rate
collar, cross-currency rate
swap, and basis swap; a spot,
same day-tomorrow, tomorrow-
next, forward, or other foreign
exchange or precious metals
agreement; a currency swap,
option, future, or forward
agreement; an equity index or
equity swap, option, future, or
forward agreement; a debt index
or debt swap, option, future,
or forward agreement; a credit
spread or credit swap, option,
future, or forward agreement; a
commodity index or commodity
swap, option, future, or
forward agreement; or a weather
swap, weather derivative, or
weather option;
(II) any agreement or
transaction similar to any
other agreement or transaction
referred to in this clause that
is presently, or in the future
becomes, regularly entered into
in the swap market (including
terms and conditions
incorporated by reference in
such agreement) and that is a
forward, swap, future, or
option on one or more rates,
currencies, commodities, equity
securities or other equity
instruments, debt securities or
other debt instruments, or
economic indices or measures of
economic risk or value;
(III) any combination of
agreements or transactions
referred to in this clause;
(IV) any option to enter
into any agreement or
transaction referred to in this
clause;
(V) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III), or
(IV), together with all
supplements to any such master
agreement, without regard to
whether the master agreement
contains an agreement or
transaction that is not a swap
agreement under this clause,
except that the master
agreement shall be considered
to be a swap agreement under
this clause only with respect
to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
or (IV); and
(VI) any security agreement
or arrangement or other credit
enhancement related to any
agreements or transactions
referred to in subparagraph
(I), (II), (III), (IV), or (V).
Such term is applicable for purposes of
this title only and shall not be
construed or applied so as to challenge
or affect the characterization,
definition, or treatment of any swap
agreement under any other statute,
regulation, or rule, including the
Securities Act of 1933, the Securities
Exchange Act of 1934, the Public
Utility Holding Company Act of 1935,
the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the
Investment Advisers Act of 1940, the
Securities Investor Protection Act of
1970, the Commodity Exchange Act, and
the regulations promulgated by the
Securities and Exchange Commission or
the Commodity Futures Trading
Commission.
(vii) Treatment of master agreement
as one agreement.--Any master agreement
for any contract or agreement described
in any preceding clause of this
subparagraph (or any master agreement
for such master agreement or
agreements), together with all
supplements to such master agreement,
shall be treated as a single agreement
and a single qualified financial
contract. If a master agreement
contains provisions relating to
agreements or transactions that are not
themselves qualified financial
contracts, the master agreement shall
be deemed to be a qualified financial
contract only with respect to those
transactions that are themselves
qualified financial contracts.
(viii) Transfer.--The term
``transfer'' means every mode, direct
or indirect, absolute or conditional,
voluntary or involuntary, of disposing
of or parting with property or with an
interest in property, including
retention of title as a security
interest and foreclosure of the
depository institutions's equity of
redemption.
(E) Certain protections in event of
appointment of conservator.--Notwithstanding
any other provision of this Act ([other than
paragraph (12) of this subsection, subsection
(d)(9)] other than subsections (d)(9) and
(e)(10) of this section, and section 13(e) of
this Act), any other Federal law, or the law of
any State, no person shall be stayed or
prohibited from exercising--
(i) * * *
[(ii) any right under any security
arrangement relating to such qualified
financial contracts; or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to one or
more qualified financial contracts
described in clause (i);
* * * * * * *
(F) Clarification.--No provision of law
shall be construed as limiting the right or
power of the Corporation, or authorizing any
court or agency to limit or delay, in any
manner, the right or power of the Corporation
to transfer any qualified financial contract in
accordance with paragraphs (9) and (10) of this
subsection or to disaffirm or repudiate any
such contract in accordance with subsection
(e)(1) of this section.
(G) Walkaway clauses not effective.--
(i) In general.--Notwithstanding
the provisions of subparagraphs (A) and
(E), and sections 403 and 404 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991, no walkaway
clause shall be enforceable in a
qualified financial contract of an
insured depository institution in
default.
(ii) Walkaway clause defined.--For
purposes of this subparagraph, the term
``walkaway clause'' means a provision
in a qualified financial contract that,
after calculation of a value of a
party's position or an amount due to or
from 1 of the parties in accordance
with its terms upon termination,
liquidation, or acceleration of the
qualified financial contract, either
does not create a payment obligation of
a party or extinguishes a payment
obligation of a party in whole or in
part solely because of such party's
status as a nondefaulting party.
(H) Recordkeeping requirements.--The
Corporation, in consultation with the
appropriate Federal banking agencies, may
prescribe regulations requiring more detailed
recordkeeping with respect to qualified
financial contracts (including market
valuations) by insured depository institutions.
[(9) Transfer of qualified financial contracts.--In
making any transfer of assets or liabilities of a
depository institution in default which includes any
qualified financial contract, the conservator or
receiver for such depository institution shall either--
[(A) transfer to 1 depository institution
(other than a depository institution in
default)--
[(i) all qualified financial
contracts between--
[(I) any person or any
affiliate of such person; and
[(II) the depository
institution in default;
[(ii) all claims of such person or
any affiliate of such person against
such depository institution under any
such contract (other than any claim
which, under the terms of any such
contract, is subordinated to the claims
of general unsecured creditors of such
institution);
[(iii) all claims of such
depository institution against such
person or any affiliate of such person
under any such contract; and
[(iv) all property securing any
claim described in clause (ii) or (iii)
under any such contract; or
[(B) transfer none of the financial
contracts, claims, or property referred to in
subparagraph (A) (with respect to such person
and any affiliate of such person).]
(9) Transfer of qualified financial contracts.--
(A) In general.--In making any transfer of
assets or liabilities of a depository
institution in default which includes any
qualified financial contract, the conservator
or receiver for such depository institution
shall either--
(i) transfer to one financial
institution, other than a financial
institution for which a conservator,
receiver, trustee in bankruptcy, or
other legal custodian has been
appointed or which is otherwise the
subject of a bankruptcy or insolvency
proceeding--
(I) all qualified financial
contracts between any person or
any affiliate of such person
and the depository institution
in default;
(II) all claims of such
person or any affiliate of such
person against such depository
institution under any such
contract (other than any claim
which, under the terms of any
such contract, is subordinated
to the claims of general
unsecured creditors of such
institution);
(III) all claims of such
depository institution against
such person or any affiliate of
such person under any such
contract; and
(IV) all property securing
or any other credit enhancement
for any contract described in
subclause (I) or any claim
described in subclause (II) or
(III) under any such contract;
or
(ii) transfer none of the qualified
financial contracts, claims, property
or other credit enhancement referred to
in clause (i) (with respect to such
person and any affiliate of such
person).
(B) Transfer to foreign bank, foreign
financial institution, or branch or agency of a
foreign bank or financial institution.--In
transferring any qualified financial contract
and related claims and property under
subparagraph (A)(i), the conservator or
receiver for the depository institution shall
not make such transfer to a foreign bank,
financial institution organized under the laws
of a foreign country, or a branch or agency of
a foreign bank or financial institution
unless, under the law applicable to such bank,
financial institution, branch or agency, to the
qualified financial contracts, and to any
netting contract, any security agreement or
arrangement or other credit enhancement related
to one or more qualified financial contracts,
the contractual rights of the parties to such
qualified financial contracts, netting contracts,
security agreements or arrangements, or other
credit enhancements are enforceable substantially
to the same extent as permitted under this section.
(C) Transfer of contracts subject to the
rules of a clearing organization.--In the event
that a conservator or receiver transfers any
qualified financial contract and related
claims, property, and credit enhancements
pursuant to subparagraph (A)(i) and such
contract is subject to the rules of a clearing
organization, the clearing organization shall
not be required to accept the transferee as a
member by virtue of the transfer.
(D) Definition.--For purposes of this
paragraph, the term ``financial institution''
means a broker or dealer, a depository
institution, a futures commission merchant, or
any other institution, as determined by the
Corporation by regulation to be a financial
institution.
(10) Notification of transfer.--
(A) In general.--If--
(i) the conservator or receiver for
an insured depository institution in
default makes any transfer of the
assets and liabilities of such
institution; and
(ii) the transfer includes any
qualified financial contract,
[the conservator or receiver shall use such
conservator's or receiver's best efforts to
notify any person who is a party to any such
contract of such transfer by 12:00, noon (local
time) on the business day following such
transfer.] the conservator or receiver shall
notify any person who is a party to any such
contract of such transfer by 5:00 p.m. (eastern
time) on the business day following the date of
the appointment of the receiver in the case of
a receivership, or the business day following
such transfer in the case of a conservatorship.
(B) Certain rights not enforceable.--
(i) Receivership.--A person who is
a party to a qualified financial
contract with an insured depository
institution may not exercise any right
that such person has to terminate,
liquidate, or net such contract under
paragraph (8)(A) of this subsection or
section 403 or 404 of the Federal
Deposit Insurance Corporation
Improvement Act of 1991, solely by
reason of or incidental to the
appointment of a receiver for the
depository institution (or the
insolvency or financial condition of
the depository institution for which
the receiver has been appointed)--
(I) until 5:00 p.m.
(eastern time) on the business
day following the date of the
appointment of the receiver; or
(II) after the person has
received notice that the
contract has been transferred
pursuant to paragraph (9)(A).
(ii) Conservatorship.--A person who
is a party to a qualified financial
contract with an insured depository
institution may not exercise any right
that such person has to terminate, liquidate,
or net such contract under paragraph (8)(E)
of this subsection or sections 403 or 404 of
the Federal Deposit Insurance Corporation
Improvement Act of 1991, solely by reason of
or incidental to the appointment of a
conservator for the depository institution
(or the insolvency or financial condition
of the depository institution for which the
conservator has been appointed).
(iii) Notice.--For purposes of this
paragraph, the Corporation as receiver
or conservator of an insured depository
institution shall be deemed to have
notified a person who is a party to a
qualified financial contract with such
depository institution if the
Corporation has taken steps reasonably
calculated to provide notice to such
person by the time specified in
subparagraph (A).
(C) Treatment of bridge banks.--The
following institutions shall not be considered
to be a financial institution for which a
conservator, receiver, trustee in bankruptcy,
or other legal custodian has been appointed or
which is otherwise the subject of a bankruptcy
or insolvency proceeding for purposes of
paragraph (9):
(i) A bridge bank.
(ii) A depository institution
organized by the Corporation, for which
a conservator is appointed either--
(I) immediately upon the
organization of the
institution; or
(II) at the time of a
purchase and assumption
transaction between the
depository institution and the
Corporation as receiver for a
depository institution in
default.
[(B)] (D) Business day defined.--For
purposes of this paragraph, the term ``business
day'' means any day other than any Saturday,
Sunday, or any day on which either the New York
Stock Exchange or the Federal Reserve Bank of
New York is closed.
(11) Disaffirmance or repudiation of qualified
financial contracts.--In exercising the rights of
disaffirmance or repudiation of a conservator or
receiver with respect to any qualified financial
contract to which an insured depository institution is
a party, the conservator or receiver for such
institution shall either--
(A) disaffirm or repudiate all qualified
financial contracts between--
(i) any person or any affiliate of
such person; and
(ii) the depository institution in
default; or
(B) disaffirm or repudiate none of the
qualified financial contracts referred to in
subparagraph (A) (with respect to such person
or any affiliate of such person).
[(11)] (12) Certain security interests not
avoidable.--No provision of this subsection shall be
construed as permitting the avoidance of any legally
enforceable or perfected security interest in any of
the assets of any depository institution except where
such an interest is taken in contemplation of the
institution's insolvency or with the intent to hinder,
delay, or defraud the institution or the creditors of
such institution.
[(12)] (13) Authority to enforce contracts.--
(A) In general.--The conservator or
receiver may enforce any contract, other than a
director's or officer's liability insurance
contract or a depository institution bond,
entered into by the depository institution
notwithstanding any provision of the contract
providing for termination, default,
acceleration, or exercise of rights upon, or
solely by reason of, insolvency or the
appointment of or the exercise of rights or
powers by a conservator or receiver.
* * * * * * *
[(13)] (14) Exception for federal reserve and
federal home loan banks.--No provision of this
subsection shall apply with respect to--
(A) * * *
* * * * * * *
[(14)] (15) Selling credit card accounts
receivable.--
(A) * * *
* * * * * * *
[(15)] (16) Certain credit card customer lists
protected.--
(A) * * *
* * * * * * *
Sec. 13. (a) * * *
* * * * * * *
(e) Agreements Against Interests of Corporation.--
(1) * * *
[(2) Public deposits.--An agreement to provide for
the lawful collateralization of deposits of a Federal,
State, or local governmental entity or of any depositor
referred to in section 11(a)(2) shall not be deemed to
be invalid pursuant to paragraph (1)(B) solely because
such agreement was not executed contemporaneously with
the acquisition of the collateral or with any changes
in the collateral made in accordance with such
agreement.]
(2) Exemptions from contemporaneous execution
requirement.--An agreement to provide for the lawful
collateralization of--
(A) deposits of, or other credit extension
by, a Federal, State, or local governmental
entity, or of any depositor referred to in
section 11(a)(2), including an agreement to
provide collateral in lieu of a surety bond;
(B) bankruptcy estate funds pursuant to
section 345(b)(2) of title 11, United States
Code;
(C) extensions of credit, including any
overdraft, from a Federal reserve bank or
Federal home loan bank; or
(D) one or more qualified financial
contracts, as defined in section 11(e)(8)(D),
shall not be deemed invalid pursuant to paragraph
(1)(B) solely because such agreement was not executed
contemporaneously with the acquisition of the
collateral or because of pledges, delivery, or
substitution of the collateral made in accordance with
such agreement.
* * * * * * *
----------
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
* * * * * * *
TITLE IV--MISCELLANEOUS PROVISIONS
Subtitle A--Payment System Risk Reduction
CHAPTER 1--BILATERAL AND CLEARING ORGANIZATION NETTING
* * * * * * *
SEC. 402. DEFINITIONS.
For purposes of this chapter--
(1) * * *
* * * * * * *
(2) Clearing organization.--The term ``clearing
organization'' means a clearinghouse, clearing
association, clearing corporation, or similar
organization--
(A) that provides clearing, netting, or
settlement services for its members and--
(i) * * *
(ii) which is registered as a
clearing agency under the Securities
Exchange Act of 1934, or is exempt from
such registration by order of the
Securities and Exchange Commission; or
(B) that is registered as a derivatives
clearing organization under section 5b of the
Commodity Exchange Act or that has been granted
an exemption under section 4(c)(1) of the
Commodity Exchange Act.
* * * * * * *
(6) Depository institution.--The term ``depository
institution'' means--
(A) a depository institution as defined in
section 19(b)(1)(A) of the Federal Reserve Act
(other than clause (vii));
(B) an uninsured national bank or an
uninsured State bank that is a member of the
Federal Reserve System, if the national bank or
State member bank is not eligible to make
application to become an insured bank under
section 5 of the Federal Deposit Insurance Act;
[(B) a branch or agency as defined in
section 1(b) of the International Banking Act
of 1978;]
(C) a branch or agency of a foreign bank, a
foreign bank and any branch or agency of the
foreign bank, or the foreign bank that
established the branch or agency, as those
terms are defined in section 1(b) of the
International Banking Act of 1978;
[(C)] (D) a corporation chartered under
section 25(a) of the Federal Reserve Act; or
[(D)] (E) a corporation having an agreement
or undertaking with the Board of Governors of
the Federal Reserve System under section 25 of
the Federal Reserve Act.
* * * * * * *
(11) Member.--The term ``member'' means a member of
or participant in a clearing organization, and includes
the clearing organization and any other clearing
organization with which such clearing organization has
a netting contract.
* * * * * * *
(14) Netting contract.--
(A) In general.--The term ``netting
contract''--
[(i) means a contract or agreement
between 2 or more financial
institutions or members, that--
[(I) is governed by the
laws of the United States, any
State, or any political
subdivision of any State, and
[(II) provides for netting
present or future payment
obligations or payment
entitlements (including
liquidation or close-out values
relating to the obligations or
entitlements) among the parties
to the agreement; and]
(i) means a contract or agreement
between 2 or more financial
institutions, clearing organizations,
or members that provides for netting
present or future payment obligations
or payment entitlements (including
liquidation or closeout values relating
to such obligations or entitlements)
among the parties to the agreement; and
(ii) includes the rules of a
clearing organization.
(B) Invalid contracts not included.--The
term ``netting contract'' does not include any
contract or agreement that is invalid under or
precluded by Federal law.
(15) Payment.--The term ``payment'' means a payment
of United States dollars, another currency, or a
composite currency, and a noncash delivery, including a
payment or delivery to liquidate an unmatured
obligation.
SEC. 403. BILATERAL NETTING.
[(a) General Rule.--Notwithstanding any other provision of
law, the covered contractual payment obligations and the
covered contractual payment entitlements between any 2
financial institutions shall be netted in accordance with, and
subject to the conditions of, the terms of any applicable
netting contract.]
(a) General Rule.--Notwithstanding any other provision of
State or Federal law (other than paragraphs (8)(E), (8)(F), and
(10)(B) of section 11(e) of the Federal Deposit Insurance Act
or any order authorized under section 5(b)(2) of the Securities
Investor Protection Act of 1970), the covered contractual
payment obligations and the covered contractual payment
entitlements between any 2 financial institutions shall be
netted in accordance with, and subject to the conditions of,
the terms of any applicable netting contract (except as
provided in section 561(b)(2) of title 11, United States Code).
* * * * * * *
(f) Enforceability of Security Agreements.--The provisions
of any security agreement or arrangement or other credit
enhancement related to one or more netting contracts between
any 2 financial institutions shall be enforceable in accordance
with their terms (except as provided in section 561(b)(2) of
title 11, United States Code), and shall not be stayed,
avoided, or otherwise limited by any State or Federal law
(other than paragraphs (8)(E), (8)(F), and (10)(B) of section
11(e) of the Federal Deposit Insurance Act and section 5(b)(2)
of the Securities Investor Protection Act of 1970).
SEC. 404. CLEARING ORGANIZATION NETTING.
[(a) General Netting Rule.--Notwithstanding any other
provision of law, the covered contractual payment obligations
and covered contractual payment entitlements of a member of a
clearing organization to and from all other members of a
clearing organization shall be netted in accordance with and
subject to the conditions of any applicable netting contract.]
(a) General Rule.--Notwithstanding any other provision of
State or Federal law (other than paragraphs (8)(E), (8)(F), and
(10)(B) of section 11(e) of the Federal Deposit Insurance Act
and any order authorized under section 5(b)(2) of the
Securities Investor Protection Act of 1970), the covered
contractual payment obligations and the covered contractual
payment entitlements of a member of a clearing organization to
and from all other members of a clearing organization shall be
netted in accordance with and subject to the conditions of any
applicable netting contract (except as provided in section
561(b)(2) of title 11, United States Code).
* * * * * * *
(h) Enforceability of Security Agreements.--The provisions
of any security agreement or arrangement or other credit
enhancement related to one or more netting contracts between
any 2 members of a clearing organization shall be enforceable
in accordance with their terms (except as provided in section
561(b)(2) of title 11, United States Code), and shall not be
stayed, avoided, or otherwise limited by any State or Federal
law (other than paragraphs (8)(E), (8)(F), and (10)(B) of
section 11(e) of the Federal Deposit Insurance Act and section
5(b)(2) of the Securities Investor Protection Act of 1970).
* * * * * * *
SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL BANKS AND
UNINSURED FEDERAL BRANCHES AND AGENCIES.
(a) In General.--Notwithstanding any other provision of
law, paragraphs (8), (9), (10), and (11) of section 11(e) of
the Federal Deposit Insurance Act shall apply to an uninsured
national bank or uninsured Federal branch or Federal agency,
except that for such purpose--
(1) any reference to the ``Corporation as
receiver'' or ``the receiver or the Corporation'' shall
refer to the receiver of an uninsured national bank or
uninsured Federal branch or Federal agency appointed by
the Comptroller of the Currency;
(2) any reference to the ``Corporation'' (other
than in section 11(e)(8)(D) of such Act), the
``Corporation, whether acting as such or as conservator
or receiver'', a ``receiver'', or a ``conservator''
shall refer to the receiver or conservator of an
uninsured national bank or uninsured Federal branch or
Federal agency appointed by the Comptroller of the
Currency; and
(3) any reference to an ``insured depository
institution'' or ``depository institution'' shall refer
to an uninsured national bank or an uninsured Federal
branch or Federal agency.
(b) Liability.--The liability of a receiver or conservator
of an uninsured national bank or uninsured Federal branch or
agency shall be determined in the same manner and subject to
the same limitations that apply to receivers and conservators
of insured depository institutions under section 11(e) of the
Federal Deposit Insurance Act.
(c) Regulatory Authority.--
(1) In general.--The Comptroller of the Currency,
in consultation with the Federal Deposit Insurance
Corporation, may promulgate regulations to implement
this section.
(2) Specific requirement.--In promulgating
regulations to implement this section, the Comptroller
of the Currency shall ensure that the regulations
generally are consistent with the regulations and
policies of the Federal Deposit Insurance Corporation
adopted pursuant to the Federal Deposit Insurance Act.
(d) Definitions.--For purposes of this section, the terms
``Federal branch'', ``Federal agency'', and ``foreign bank''
have the same meanings as in section 1(b) of the International
Banking Act of 1978.
SEC. [407.] 407A. NATIONAL EMERGENCIES.
The provisions of this subtitle may not be construed to
limit the authority of the President under the Trading With the
Enemy Act (50 U.S.C. App. 1 et seq.) or the International
Emergency Economic Powers Act (50 U.S.C. 1701 et seq.).
* * * * * * *
----------
SECTION 5 OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970
SEC. 5. PROTECTION OF CUSTOMERS.
(a) * * *
* * * * * * *
(b) Court Action.--
(1) * * *
(2) Jurisdiction and powers of court.--
(A) * * *
* * * * * * *
(C) Exception from stay.--
(i) Notwithstanding section 362 of
title 11, United States Code, neither
the filing of an application under
subsection (a)(3) nor any order or
decree obtained by SIPC from the court
shall operate as a stay of any
contractual rights of a creditor to
liquidate, terminate, or accelerate a
securities contract, commodity
contract, forward contract, repurchase
agreement, swap agreement, or master
netting agreement, as those terms are
defined in sections 101 and 741 of
title 11, United States Code, to offset
or net termination values, payment
amounts, or other transfer obligations
arising under or in connection with one
or more of such contracts or
agreements, or to foreclose on any cash
collateral pledged by the debtor,
whether or not with respect to one or
more of such contracts or agreements.
(ii) Notwithstanding clause (i),
such application, order, or decree may
operate as a stay of the foreclosure
on, or disposition of, securities
collateral pledged by the debtor,
whether or not with respect to one or
more of such contracts or agreements,
securities sold by the debtor under a
repurchase agreement, or securities
lent under a securities lending
agreement.
(iii) As used in this subparagraph,
the term ``contractual right'' includes
a right set forth in a rule or bylaw of
a national securities exchange, a
national securities association, or a
securities clearing agency, a right set
forth in a bylaw of a clearing
organization or contract market or in a
resolution of the governing board thereof,
and a right, whether or not in writing,
arising under common law, under law merchant,
or by reason of normal business practice.
* * * * * * *
----------
TRUTH IN LENDING ACT
* * * * * * *
CHAPTER 2--CREDIT TRANSACTIONS
* * * * * * *
Sec. 127. Open end consumer credit plans
(a) * * *
* * * * * * *
(b) The creditor of any account under an open end consumer
credit plan shall transmit to the obligor, for each billing
cycle at the end of which there is an outstanding balance in
that account or with respect to which a finance charge is
imposed, a statement setting forth each of the following items
to the extent applicable:
(1) * * *
* * * * * * *
(11)(A) In the case of an open end credit plan that
requires a minimum monthly payment of not more than 4
percent of the balance on which finance charges are
accruing, the following statement, located on the front
of the billing statement, disclosed clearly and
conspicuously: ``Minimum Payment Warning: Making only
the minimum payment will increase the interest you pay
and the time it takes to repay your balance. For
example, making only the typical 2% minimum monthly
payment on a balance of $1,000 at an interest rate of
17% would take 88 months to repay the balance in full.
For an estimate of the time it would take to repay your
balance, making only minimum payments, call this toll-
free number: ____________.'' (the blank space to be
filled in by the creditor).
(B) In the case of an open end credit plan that
requires a minimum monthly payment of more than 4
percent of the balance on which finance charges are
accruing, the following statement, in a prominent
location on the front of the billing statement,
disclosed clearly and conspicuously: ``Minimum Payment
Warning: Making only the required minimum payment will
increase the interest you pay and the time it takes to
repay your balance. Making a typical 5% minimum monthly
payment on a balance of $300 at an interest rate of 17%
would take 24 months to repay the balance in full. For
an estimate of the time it would take to repay your
balance, making only minimum monthly payments, call
this toll-free number: ____________.'' (the blank space
to be filled in by the creditor).
(C) Notwithstanding subparagraphs (A) and (B), in
the case of a creditor with respect to which compliance
with this title is enforced by the Federal Trade
Commission, the following statement, in a prominent
location on the front of the billing statement,
disclosed clearly and conspicuously: ``Minimum Payment
Warning: Making only the required minimum payment will
increase the interest you pay and the time it takes to
repay your balance. For example, making only the
typical 5% minimum monthly payment on a balance of $300
at an interest rate of 17% would take 24 months to
repay the balance in full. For an estimate of the time
it would take to repay your balance, making only
minimum monthly payments, call the Federal Trade
Commission at this toll-free number: ____________.''
(the blank space to be filled in by the creditor). A
creditor who is subject to this subparagraph shall not
be subject to subparagraph (A) or (B).
(D) Notwithstanding subparagraph (A), (B), or (C),
in complying with any such subparagraph, a creditor may
substitute an example based on an interest rate that is
greater than 17 percent. Any creditor that is subject
to subparagraph (B) may elect to provide the disclosure
required under subparagraph (A) in lieu of the
disclosure required under subparagraph (B).
(E) The Board shall, by rule, periodically
recalculate, as necessary, the interest rate and
repayment period under subparagraphs (A), (B), and (C).
(F)(i) The toll-free telephone number disclosed by
a creditor or the Federal Trade Commission under
subparagraph (A), (B), or (G), as appropriate, may be a
toll-free telephone number established and maintained
by the creditor or the Federal Trade Commission, as
appropriate, or may be a toll-free telephone number
established and maintained by a third party for use by
the creditor or multiple creditors or the Federal Trade
Commission, as appropriate. The toll-free telephone
number may connect consumers to an automated device
through which consumers may obtain information
described in subparagraph (A), (B), or (C), by
inputting information using a touch-tone telephone or
similar device, if consumers whose telephones are not
equipped to use such automated device are provided the
opportunity to be connected to an individual from whom
the information described in subparagraph (A), (B), or
(C), as applicable, may be obtained. A person that
receives a request for information described in
subparagraph (A), (B), or (C) from an obligor through
the toll-free telephone number disclosed under
subparagraph (A), (B), or (C), as applicable, shall
disclose in response to such request only the
information set forth in the table promulgated by the
Board under subparagraph (H)(i).
(ii)(I) The Board shall establish and maintain for
a period not to exceed 24 months following the
effective date of the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2001, a toll-free telephone
number, or provide a toll-free telephone number
established and maintained by a third party, for use by
creditors that are depository institutions (as defined
in section 3 of the Federal Deposit Insurance Act),
including a Federal credit union or State credit union
(as defined in section 101 of the Federal Credit Union
Act (12 U.S.C. 1752)), with total assets not exceeding
$250,000,000. The toll-free telephone number may
connect consumers to an automated device through which
consumers may obtain information described in
subparagraph (A) or (B), as applicable, by inputting
information using a touch-tone telephone or similar
device, if consumers whose telephones are not equipped
to use such automated device are provided the
opportunity to be connected to an individual from whom
the information described in subparagraph (A) or (B),
as applicable, may be obtained. A person that receives
a request for information described in subparagraph (A)
or (B) from an obligor through the toll-free telephone
number disclosed under subparagraph (A) or (B), as
applicable, shall disclose in response to such request
only the information set forth in the table promulgated
by the Board under subparagraph (H)(i). The dollar
amount contained in this subclause shall be adjusted
according to an indexing mechanism established by the
Board.
(II) Not later than 6 months prior to the
expiration of the 24-month period referenced in
subclause (I), the Board shall submit to the Committee
on Banking, Housing, and Urban Affairs of the Senate
and the Committee on Banking and Financial Services of
the House of Representatives a report on the program
described in subclause (I).
(G) The Federal Trade Commission shall establish
and maintain a toll-free number for the purpose of
providing to consumers the information required to be
disclosed under subparagraph (C).
(H) The Board shall--
(i) establish a detailed table illustrating
the approximate number of months that it would
take to repay an outstanding balance if a
consumer pays only the required minimum monthly
payments and if no other advances are made,
which table shall clearly present standardized
information to be used to disclose the
information required to be disclosed under
subparagraph (A), (B), or (C), as applicable;
(ii) establish the table required under
clause (i) by assuming--
(I) a significant number of
different annual percentage rates;
(II) a significant number of
different account balances;
(III) a significant number of
different minimum payment amounts; and
(IV) that only minimum monthly
payments are made and no additional
extensions of credit are obtained; and
(iii) promulgate regulations that provide
instructional guidance regarding the manner in
which the information contained in the table
established under clause (i) should be used in
responding to the request of an obligor for any
information required to be disclosed under
subparagraph (A), (B), or (C).
(I) The disclosure requirements of this paragraph
do not apply to any charge card account, the primary
purpose of which is to require payment of charges in
full each month.
(J) A creditor that maintains a toll-free telephone
number for the purpose of providing customers with the
actual number of months that it will take to repay the
customer's outstanding balance is not subject to the
requirements of subparagraph (A) or (B).
(K) A creditor that maintains a toll-free telephone
number for the purpose of providing customers with the
actual number of months that it will take to repay an
outstanding balance shall include the following
statement on each billing statement: ``Making only the
minimum payment will increase the interest you pay and
the time it takes to repay your balance. For more
information, call this toll-free number: ________.''
(the blank space to be filled in by the creditor).
(12) If a late payment fee is to be imposed due to
the failure of the obligor to make payment on or before
a required payment due date, the following shall be
stated clearly and conspicuously on the billing
statement:
(A) The date on which that payment is due
or, if different, the earliest date on which a
late payment fee may be charged.
(B) The amount of the late payment fee to
be imposed if payment is made after such date.
(c) Disclosure in Credit and Charge Card Applications and
Solicitations.--
(1) * * *
* * * * * * *
(6) Additional notice concerning ``introductory
rates''.--
(A) In general.--Except as provided in
subparagraph (B), an application or
solicitation to open a credit card account and
all promotional materials accompanying such
application or solicitation for which a
disclosure is required under paragraph (1), and
that offers a temporary annual percentage rate
of interest, shall--
(i) use the term ``introductory''
in immediate proximity to each listing
of the temporary annual percentage rate
applicable to such account, which term
shall appear clearly and conspicuously;
(ii) if the annual percentage rate
of interest that will apply after the
end of the temporary rate period will
be a fixed rate, state in a clear and
conspicuous manner in a prominent
location closely proximate to the first
listing of the temporary annual
percentage rate (other than a listing
of the temporary annual percentage rate
in the tabular format described in
section 122(c)), the time period in
which the introductory period will end
and the annual percentage rate that
will apply after the end of the
introductory period; and
(iii) if the annual percentage rate
that will apply after the end of the
temporary rate period will vary in
accordance with an index, state in a
clear and conspicuous manner in a
prominent location closely proximate to
the first listing of the temporary
annual percentage rate (other than a
listing in the tabular format
prescribed by section 122(c)), the time
period in which the introductory period
will end and the rate that will apply
after that, based on an annual
percentage rate that was in effect
within 60 days before the date of
mailing the application or
solicitation.
(B) Exception.--Clauses (ii) and (iii) of
subparagraph (A) do not apply with respect to
any listing of a temporary annual percentage
rate on an envelope or other enclosure in which
an application or solicitation to open a credit
card account is mailed.
(C) Conditions for introductory rates.--An
application or solicitation to open a credit
card account for which a disclosure is required
under paragraph (1), and that offers a
temporary annual percentage rate of interest
shall, if that rate of interest is revocable
under any circumstance or upon any event,
clearly and conspicuously disclose, in a
prominent manner on or with such application or
solicitation--
(i) a general description of the
circumstances that may result in the
revocation of the temporary annual
percentage rate; and
(ii) if the annual percentage rate
that will apply upon the revocation of
the temporary annual percentage rate--
(I) will be a fixed rate,
the annual percentage rate that
will apply upon the revocation
of the temporary annual
percentage rate; or
(II) will vary in
accordance with an index, the
rate that will apply after the
temporary rate, based on an
annual percentage rate that was
in effect within 60 days before
the date of mailing the
application or solicitation.
(D) Definitions.--In this paragraph--
(i) the terms ``temporary annual
percentage rate of interest'' and
``temporary annual percentage rate''
mean any rate of interest applicable to
a credit card account for an
introductory period of less than 1
year, if that rate is less than an
annual percentage rate that was in
effect within 60 days before the date
of mailing the application or
solicitation; and
(ii) the term ``introductory
period'' means the maximum time period
for which the temporary annual
percentage rate may be applicable.
(E) Relation to other disclosure
requirements.--Nothing in this paragraph may be
construed to supersede subsection (a) of
section 122, or any disclosure required by
paragraph (1) or any other provision of this
subsection.
(7) Internet-based applications and
solicitations.--
(A) In general.--In any solicitation to
open a credit card account for any person under
an open end consumer credit plan using the
Internet or other interactive computer service,
the person making the solicitation shall
clearly and conspicuously disclose--
(i) the information described in
subparagraphs (A) and (B) of paragraph
(1); and
(ii) the information described in
paragraph (6).
(B) Form of disclosure.--The disclosures
required by subparagraph (A) shall be--
(i) readily accessible to consumers
in close proximity to the solicitation
to open a credit card account; and
(ii) updated regularly to reflect
the current policies, terms, and fee
amounts applicable to the credit card
account.
(C) Definitions.--For purposes of this
paragraph--
(i) the term ``Internet'' means the
international computer network of both
Federal and non-Federal interoperable
packet switched data networks; and
(ii) the term ``interactive
computer service'' means any
information service, system, or access
software provider that provides or
enables computer access by multiple
users to a computer server, including
specifically a service or system that
provides access to the Internet and
such systems operated or services
offered by libraries or educational
institutions.
* * * * * * *
(h) Prohibition on Certain Actions for Failure To Incur
Finance Charges.--A creditor of an account under an open end
consumer credit plan may not terminate an account prior to its
expiration date solely because the consumer has not incurred
finance charges on the account. Nothing in this subsection
shall prohibit a creditor from terminating an account for
inactivity in 3 or more consecutive months.
SEC. 127A. DISCLOSURE REQUIREMENTS FOR OPEN END CONSUMER CREDIT PLANS
SECURED BY THE CONSUMER'S PRINCIPAL DWELLING.
(a) Application Disclosures.--In the case of any open end
consumer credit plan which provides for any extension of credit
which is secured by the consumer's principal dwelling, the
creditor shall make the following disclosures in accordance
with subsection (b):
(1) * * *
* * * * * * *
(13) Statement regarding [consultation of tax
advisor] tax deductibility.--[A statement that the] A
statement that--
(A) the consumer should consult a tax
advisor regarding the deductibility of interest
and charges under the plan[.]; and
(B) in any case in which the extension of
credit exceeds the fair market value (as
defined under the Internal Revenue Code of
1986) of the dwelling, the interest on the
portion of the credit extension that is greater
than the fair market value of the dwelling is
not tax deductible for Federal income tax
purposes.
* * * * * * *
Sec. 128. Consumer credit not under open end credit plans
(a) For each consumer credit transaction other than under
an open end credit plan, the creditor shall disclose each of
the following items, to the extent applicable:
(1) * * *
* * * * * * *
(15) In the case of a consumer credit transaction
that is secured by the principal dwelling of the
consumer, in which the extension of credit may exceed
the fair market value of the dwelling, a clear and
conspicuous statement that--
(A) the interest on the portion of the
credit extension that is greater than the fair
market value of the dwelling is not tax
deductible for Federal income tax purposes; and
(B) the consumer should consult a tax
adviser for further information regarding the
deductibility of interest and charges.
(b)(1) * * *
* * * * * * *
(3) In the case of a credit transaction described in
paragraph (15) of subsection (a), disclosures required by that
paragraph shall be made to the consumer at the time of
application for such extension of credit.
* * * * * * *
CHAPTER 3--CREDIT ADVERTISING
* * * * * * *
Sec. 144. Advertising of credit other than open end plans
(a) * * *
* * * * * * *
(e) Each advertisement to which this section applies that
relates to a consumer credit transaction that is secured by the
principal dwelling of a consumer in which the extension of
credit may exceed the fair market value of the dwelling, and
which advertisement is disseminated in paper form to the public
or through the Internet, as opposed to by radio or television,
shall clearly and conspicuously state that--
(1) the interest on the portion of the credit
extension that is greater than the fair market value of
the dwelling is not tax deductible for Federal income
tax purposes; and
(2) the consumer should consult a tax adviser for
further information regarding the deductibility of
interest and charges.
* * * * * * *
SEC. 147. ADVERTISING OF OPEN END CONSUMER CREDIT PLANS SECURED BY THE
CONSUMER'S PRINCIPAL DWELLING.
(a) * * *
* * * * * * *
(b) Tax Deductibility.--[If any]
(1) In general.--If any advertisement described in
subsection (a) contains a statement that any interest
expense incurred with respect to the plan is or may be
tax deductible, the advertisement shall not be
misleading with respect to such deductibility.
(2) Credit in excess of fair market value.--Each
advertisement described in subsection (a) that relates
to an extension of credit that may exceed the fair
market value of the dwelling, and which advertisement
is disseminated in paper form to the public or through
the Internet, as opposed to by radio or television,
shall include a clear and conspicuous statement that--
(A) the interest on the portion of the
credit extension that is greater than the fair
market value of the dwelling is not tax
deductible for Federal income tax purposes; and
(B) the consumer should consult a tax
adviser for further information regarding the
deductibility of interest and charges.
* * * * * * *
Markup Transcript
BUSINESS MEETING
WEDNESDAY, FEBRUARY 14, 2001
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 10:03 a.m., in
Room 2141, Rayburn House Office Building, Hon. F. James
Sensenbrenner (chairman of the committee) presiding.
Chairman Sensenbrenner. The committee will be in order. The
Chair notes the presence of a working quorum and, pursuant to
notice, I now call up the bill H.R. 333, the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2001, for purposes of
markup and move its favorable recommendation to the House.
Without objection, the bill will be considered as read and open
for amendment at any point. Without objection, the Chair is
authorized to declare recesses of the committee during
consideration of the noticed bills. Without objection, all
members' statements will be included in the appropriate point
in the record.
The Chair moves to strike the last word, and recognizes
himself for 5 minutes.
Today, we have scheduled for markup two bills, both of
which have long histories before this committee. H.R. 333, the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2001
represents the culmination of more than 3 years of intense and
incisive consideration by this committee. Over these 3 years,
the bill has benefitted immensely from the legislative process.
During the last Congress alone, this committee entertained
59 amendments over the course of a 5-day markup of H.R. 833,
which is this bill's predecessor, which included 29 recorded
votes. Of these amendments, 27 were agreed to. On the floor, 11
more amendments were considered. Likewise, this bill's
predecessors on the Senate side also had benefit of an
extensive and mandatory process. Beginning in November 1999,
through final passage the following February, more than 250
amendments were proposed.
We also need to keep in mind that this bill is the product
of extensive negotiation and compromise. Shortly after H.R.
833, as amended, was passed by the Senate last year, members
and their staffs from both bodies spent nearly 7 months engaged
in what was initially an informal conference to reconcile
differences between the bills. The product of these extensive
negotiations was the conference report that accompanied H.R.
2415. This legislation was so uncontroversial that it passed
the House by a voice vote last October. In the Senate, the
legislation was passed by a veto-proof vote of 70 to 28. But
for President Clinton's pocket veto in the waning days of the
last session, the conference report, which is virtually
identical to H.R. 333, would now be law.
While I acknowledge that H.R. 333 is not beyond further
perfection, I am concerned that any further substantive
amendments to this bill will upset the delicate balance and
various compromises that have been struck. We must be mindful
of the fact that the House has registered its unqualified
support for this bill's progenitors on not just one occasion,
but four separate times.
Once we complete the markup of H.R. 333, we will then
consider H.R. 256 for markup. H.R. 256 reenacts and extends
chapter 12 of the Bankruptcy Code, a specialized form of
bankruptcy relief for family farmers. Chapter 12 allows
eligible family farmers, under the supervision of a bankruptcy
trustee, to reorganize their debts pursuant to a repayment
plan. The special attributes of this form of bankruptcy relief
make it better suited to meet the particularized needs of
family farmers in financial distress than other forms of
bankruptcy relief.
This committee has previously considered and supported the
extension of chapter 12. In addition, the House, on two
occasions in the last Congress, passed legislation which would
have extended chapter 12. Unfortunately, however, the Senate
did not act on these bills, and chapter 12 expired on July 1,
2000, as a result. H.R. 256 simply reenacts chapter 12 of the
Bankruptcy Code, effective retroactively to July 1, 2000. In
addition, the bill extends this temporary form of bankruptcy
relief for 11 months, until June 1, 2001. It is important to
note, however, that H.R. 333 would make chapter 12 a permanent
form of bankruptcy relief under the Code.
I now turn to my colleague, the gentleman from Michigan,
Mr. Conyers, the distinguished ranking member of this
committee, and ask him if he has any opening remarks. The
gentleman is recognized for 5 minutes.
Mr. Conyers. Thank you very much, Mr. Chairman.
In the spirit of cooperation that has informed the
Judiciary Committee 107th Congress, I would like to point out
that both you and I arrived at the same time today here for the
meeting.
Chairman Sensenbrenner. And we couldn't be more cooperative
than that. [Laughter.]
Mr. Conyers. No, the timing, plus, I have two occasions
which I got here before you still to my credit. So this intense
cooperation I hope isn't getting anybody down so soon. I am
delighted to come to the hearing. We're searching for more of
our members, some of whom I know have asked to be excused. Mr.
Delahunt is in another committee.
But the fact still remains there are a few economic issues
facing the Congress that are more far-reaching than bankruptcy
reform. As you all know, more of our citizens come and your
constituents come into the bankruptcy courts more frequently
than all of the other Federal courts combined. And at a time of
record-high consumer debt, our economy slowing, there is no
doubt that any changes that we make in the Bankruptcy Code will
have a significant impact on our financial well-being.
Now, let me say, first and foremost, that I want to
acknowledge that the bill before us has improved substantially
over the course of the last two Congresses. I credit that to
Mr. Gekas, the subcommittee Chair. We modified the means test.
We've added safe-harbor protections; the bill includes an
informa pauperis provision, and I commend the majority on this
committee and the subcommittee chairman for these positive
improvements. The bill, however, is still flawed, dangerously
flawed, and I realize that, to me, the best course that those
of us oppose it should make several focused proposed
corrections and hope that we can gain a support of a majority
number of people on this committee.
The first amendment that I will propose, and hope will be
favorably considered, deals with the alimony and child support
because, although we are seeking to enhance the status of
alimony and child support payments, the problem is that in
bankruptcy it is impossible to do this if we also enhance the
status of credit card debt and place it in direct competition
with alimony and child support payments. And so, members of the
committee, this is what I seek to correct, precisely. It is
very important, and I have a proposal that I will shortly offer
to do that.
Now, the second thing is dealing with small business
bankruptcy. We need to make sure that the new requirements are
rational and that if a deadline cannot be met, for example,
because of a regulatory process that must take place before the
plan can be developed, we should give the court discretion to
waive the deadline. Now, this is not a big, huge item, this is
a small adjustment that we are asking that be made that will
have a very large beneficial result.
And, finally, a couple of technical corrections that in
calculating the debtor's income in chapter 13, we use actual
income, not a figure based on a job he no longer has, and that
lawyers who are bankruptcy petition preparers need not file a
document stating they are not lawyers.
And so there you have it. These three proposals, to the
extent that enough of the members in the committee could reach
some joinder with me on, I think we may be able to have an even
better bill than the one that is before us now.
Thank you.
Chairman Sensenbrenner. I thank the gentleman from
Michigan.
Let me state that in terms of how we are going to proceed
today, the Chair has noticed a markup for this bill for
tomorrow morning at 10 o'clock. I think that, given the fact
that there are no votes tomorrow on the floor of the House,
members would kind of like to get out of town and go back to
their districts. However, I would like to be able to wrap this
up either today or tomorrow. So, with a little bit of
bipartisan cooperation, perhaps we can get this done today,
which would eliminate the necessity of having to come back
tomorrow.
It is my intention to keep the committee in session until
about 5:30. Today is Valentine's Day, and I certainly do not
want to have the Valentines of all of those in the room get
very angry at this committee during the first markup to keep
you away from whatever obligations you have arranged for
yourselves later on tonight. So, if we can work until 5:30,
with an hour off for lunch, about the time that the votes are
called on the floor, I think that we will either be able to get
done or to get almost done and have the ball at least on the
10-yard line, and I would like to ask the members to be
cooperative in that respect.
Without objection, other members' opening statements will
be placed in the record at this point, and are there any
amendments?
Mr. Watt. Mr. Chairman, may I make an inquiry?
Chairman Sensenbrenner. The gentleman from North Carolina.
Mr. Watt. Have you all reached some agreement that
prohibits opening statements by the rest of the members of the
committee or what----
Chairman Sensenbrenner. No. No, we have not, Mr. Watt. But,
you know, let me say that, you know, I have never seen any kind
of press comment on opening statements by members of the
committee----
Mr. Watt. Well, Mr. Chairman, I----
Chairman Sensenbrenner. I am not going----
Mr. Watt. With all respect to the chairman, this isn't
about press. I don't even know that the press is here. This is
a markup of a bill.
Chairman Sensenbrenner. If the gentleman wants to move to
strike the last word, there is no way I can prevent you from
doing that. But, you know, let me say that if this markup drags
on, we're going to be here tomorrow, and that's an imposition
on the other members.
The gentleman is recognized for 5 minutes.
Mr. Watt. Thank you, Mr. Chairman. I appreciate the
chairman's indulgence and the committee's indulgence. I will
just say at the outset, nothing that I do or say today will be
done or said for any dilatory purpose, but this is a
legislative body, this is the Judiciary Committee, and this is
the place that a bill receives consideration in the most detail
if it is going to be considered at all. I'm not sure I know
what the implication to read into the chairman's statement
about press coverage of opening statements. I don't think I
have given him any reason to think that every time a camera is
around I've got to be in front of it, but I do think I have
given the chairman, and other people on this committee, reason
to understand that if we are going to engage in a serious
markup of a serious bill that has serious implications for the
American people, neither Valentine's Day, nor Christmas, nor
Hanukkah, nor any other excuses, even concerns about the
necessity of having to return to Washington tomorrow need deter
that.
Now, having said that, let me be clear in what I will try
to do, as I was with Mr. Gekas last year. I start, unlike some
people who I have heard talk about this issue, with the
agreement with a number of my colleagues, that the bankruptcy
law needs to be revised and reformed in many ways. I know that
there are a number of people who are gaming the bankruptcy
system, and I don't like it any more than anybody else,
regardless of their purported philosophical stripes on this
committee.
What I am seeking to do is to offer amendments, and I will
seek to offer amendments. I have a total of 14, and I am going
to put the chairman on notice about that at this very moment. I
may or may not offer all of them, but I have 14 of them in my
file, and every single one of them is designed, from my
perspective, to make this bill one that I have the capacity to
vote for. That's what I'm trying to get to. I support
bankruptcy reform. The bill that has come out of this
conference, I do not support. And if the bill is not revised, I
cannot support it, and therefore I cannot follow through on
what I have said to my colleagues on the committee or my
constituents at home about what I feel about bankruptcy reform,
which is that the Bankruptcy Code does need some reform and
revisions, but I think this bill does not do it, in a number of
respects, in the best way, and I think this bill, in a number
of respects, is counterproductive to what it purports to do and
will make more bankruptcy litigation, more paperwork, more red
tape, and discourage a number of people from going into chapter
13 bankruptcies, rather than encouraging more people to get out
of chapter 7 and into--into 13, as the bill purports to do.
So, if the chairman has any illusions about, you know, this
whole--this, for me, this is not about being bipartisan or
nonbipartisan. I don't know what bills anybody has struck about
time to consider this bill, but I came here to work, and I will
be here to work tomorrow, if we are here to work, if it is
necessary to try to amend the bill in a way that will get it to
the point where----
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Watt [continuing]. At the end of the day, I can
support----
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Watt [continuing]. Or vote against the bill.
Chairman Sensenbrenner. Are there any amendments?
Mr. Conyers. I have one.
Chairman Sensenbrenner. The gentleman from Michigan.
The clerk will report the amendment.
Mr. Conyers. The Alimony and Child Support Amendment.
The Clerk. Amendment to H.R. 333 offered by Mr. Conyers and
Ms. Waters, page 144, line 14, strike the period----
Mr. Conyers. I ask unanimous consent the amendment be
considered as read.
Chairman Sensenbrenner. Without objection, so ordered. And
the gentleman is recognized for 5 minutes.
Mr. Conyers. Members of the committee and Mr. Chairman, I
offer this amendment on behalf of myself and Representative
Maxine Waters, and we offer the amendment because of the bill's
adverse impact on payment of domestic support obligations.
As is known, the bill increases the amount of funds being
paid to unsecured creditors, and such payments will often come
at the expense of other less-aggressive creditors, such as
women and children owed alimony and child support. This problem
is by no means insignificant, given that an estimated quarter
of a million to 325,000 bankruptcy cases involve child support
and alimony orders during the most recent years. In particular,
by making significant amounts of credit card debt
nondischargeable, more of these debts will survive bankruptcy.
And, of course, outside the bankruptcy court is precisely the
arena where sophisticated credit card companies have the
greatest advantages.
While the bankruptcy court provides a strict set of
priority and payment rules, generally seeking to provide equal
treatment of creditors with similar legal rights, State law
collection is far more akin to survival of the fittest.
Whichever creditor engages in the most aggressive tactic, be it
through repeated collection demands and letters cutting off
access to future credit, garnishment of wages or foreclosure on
asset is the one most likely to be repaid.
And that's why the women and children's advocacy groups
have come out in opposition to the bill. The National Women's
Law Center has said the child support provisions of the bill
fail to ensure that the increased rights the bill would give to
commercial creditors do not come at the--should not come at the
expense of families owed support. The Governing Council of the
Family Law Section of the ABA has written that if credit card
debt is added to the current list of items that are not
dischargeable after a bankruptcy of a support payer, the
alimony and child support recipient will be forced to compete
with the well-organized, well-financed, obscenely profitable
credit card companies, and it's not a fair fight, and it's one
that women and children who rely on support will usually lose.
And so it's not just the advocacy groups who flag the
problem, the Congressional Research Service, nonpartisan, has
written that child support and credit card obligations could be
pitted against each other. Both the domestic creditor and the
commercial credit card creditor could pursue the debtor and
attempt to collect from postpetition assets, but not in the
bankruptcy court.
So all this amendment does is respond to the problem by
providing a creditor should not receive any greater protections
under the bill with regard to luxury good purchases, ATM debt
or credit card debt used to pay taxes if it would impair the
debtor's ability to pay alimony and child support. The
amendment does not--does nothing to impair the present position
of the creditors. It merely states that before we give that
greater protection than they now enjoy--than they now enjoy, we
need to make sure that alimony and child care are protected.
Surely this is something that most of us can agree is fair and
makes good sense.
Thank you.
[The Amendment to H.R. 333 Offered by Mr. Conyers and Ms.
Waters follows:]
Chairman Sensenbrenner. Would the gentleman yield back the
balance of his time?
Let the Chair say that the lights on the timer on the desk
are in the process of being repaired. The timer is working up
at the chairman's desk. For what purpose does the gentleman
from Pennsylvania seek recognition?
Mr. Gekas. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. I thank the chair.
One of the answers to the gentleman from Michigan is found
in his own words, in his opening statement, that to the effect
that this bill, which he acknowledges is better than the one we
started with from his point of view, has taken great endeavors
over the past two terms to establish the primacy of domestic
support and women's and children's issues and has, in various
ways and in various provisions, established and reestablished
the primary consideration of making sure that support payments
reached their destinations as a priority.
Therefore, the language that he now employs in these
amendments, although they go to a different portion of the
bankruptcy concepts of the 60 days, and 90 days, and 80 days,
and 70 days, provisions that have been historically cutoff
marks for bankruptcy, do not, in any way, enhance the situation
that we've already cured.
I ask the members to vote no on this amendment, but I have
asserted to the gentleman from Michigan, so that everyone will
know, that I am willing again to, between now and the floor
action on the House--in the House chamber, to review this with
him, with a view to possibly agreeing on some measure of solace
to him or compromise even further. I believe that we have
compromised and negotiated sufficiently to assure the American
people that the primary obligation of support is preserved.
Mr. Conyers. Would the gentleman yield for my last comment?
You see the problem, George, is when both are competing
equally, they--the mother and the children--are at a
disadvantage because they don't have the professional law firms
that regularly handle this. They come in one by one and get
their socks beat off. And all I am saying is that we ought to
take that into consideration, since we both profess to be
concerned about maintaining this stringent rule about
protecting child support and alimony orders.
Mr. Gekas. Seizing back my time. The concerns that the
gentleman has I think are wrapped up in the notion that and the
fact that support obligations are part of another part of the
court system in which they take extra pains in support court
and in domestic court and in all of the penal provisions that
apply to collection of support. You say that the people are
without help, that the domestic seekers of support are without
help. They've got an entire court system that is available to
them and is imbedded, right from the start, in our system of
bankruptcy, so that they are protected even by more than an
ordinary consumer lawyer that might appear for that individual
to protect one's life, there's an entire system already set up
to guarantee support flowing to those who will be benefitted by
it. I ask for a no vote on the amendment.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. Does the gentleman yield back the
balance of his time?
Mr. Gekas. I do.
Chairman Sensenbrenner. For what purpose does the gentleman
from North Carolina seek recognition?
Mr. Watt. I move to strike the last word in support of
the----
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Thank you, Mr. Chairman.
I want to rise in support of Mr. Conyers' amendment. Mr.
Gekas, of course, is right that there is a separate system for
child support. It is--that separate system was put in place
because we have placed a premium and value on having a child
support system, but it doesn't do any good to have a domestic
court, State court or a child support enforcement mechanism or
whatever system we have in place to protect and secure the
obtaining of a judgment for child support if that judgment, if
that agreement, if that system is not going to be given some
sanctity above and beyond an automobile loan or some other kind
of loan that we don't think is as important in the bankruptcy
context.
Mr. Gekas is absolutely right that if you are not in the
bankruptcy court, there is plenty of protection and system to
try to make sure of that, and the reason for that, of course,
is that we, we value--that's a reflection of the values that
State court and even interstate mechanisms have now been put in
place to guarantee collection of child support, but if we
undermine that in the bankruptcy court by allowing somebody to
just go in and declare bankruptcy and then put automobile loans
and luxury goods up to $250 or whatever we decide is going to
go into some kind of preferred category, which we are doing
over and over in this bill, putting more and more things into a
preferred category, then basically what we've done is set up a
system where more people, at the end of the day, are competing
on a preferred basis with child support.
And this amendment is a clear and unequivocal statement
that when that occurs, if it occurs, if those other competing
creditors are going to put domestic support, child support at a
disadvantage and child support is going to be compromised in
any way, we want to continue to give it the same value and
recognition that we have, in fact, given it outside the
bankruptcy context for good and valid public policy reasons.
I'm not sure what you can--what the--what the gentleman's
objection to this language is. He says he supports making sure
that child support gets paid. That's been all the rhetoric
throughout this process. I don't know how much clearer you
could be playing around with the words between now and the
floor. This is the committee that this bill is supposed to be
considered and marked up in, and I assure you that if we don't
put this language in this bill in this committee, it will never
see the light of day again between now and the floor or on the
floor.
If we value child support, then we should support the
amendment. It does no disadvantage, no harm to any other values
that are purported to be advanced by this bill. What it says is
what we have said over and over again in a number of different
contexts, that child support is our number one priority.
I yield to Mr. Conyers.
Mr. Conyers. Thank you for an excellent statement, Mr.
Watt. What you have said about the urgency of this passing now
or never is so true that any future negotiations with us, and
the subcommittee chairman, and to see how things go in Rules,
and out on the floor and all of that, if this provision isn't
in now, we all, realistically, know that it's not going to ever
appear anywhere else again.
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. Who seeks recognition?
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Massachusetts?
Mr. Delahunt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Delahunt. I will be very brief. I wanted to associate
myself with the remarks by the gentleman from North Carolina.
And I guess my question is what is there, and I would direct it
to the former Chair of the subcommittee, what is there in the
language that he objects to at this particular point in time?
Again, there seems to be rhetoric that would prioritize
clearly the payment of child support. I think this makes it
very clear and very unequivocal, and as the gentleman from
North Carolina stated, it gives it a priority so that it is not
competing with other priorities that the bill, in large, now
creates as priorities.
Mr. Gekas. Does the gentleman want me to yield?
Mr. Delahunt. No, I'm yielding to the gentleman, in terms
of responding.
Mr. Gekas. I might yield an answer to you.
Mr. Delahunt. I have the time----
Mr. Gekas. I say----
Mr. Delahunt. Yes?
Mr. Gekas. I say to the gentleman that we've already
established the mechanisms, in and out of bankruptcy, to
guarantee the primacy of support. When a debtor is about to
declare bankruptcy, the bankruptcy--the lawyer who will be
representing or the court that will be representing the spouse
or the custodial parent will make certain that support is
forthcoming through the regular channels of support----
Mr. Delahunt. Outside of the bankruptcy court.
Mr. Gekas. Yes, as part and as part and parcel----
Mr. Delahunt. We----
Mr. Gekas. In fact, our bill, our bill creates the----
Mr. Delahunt. Reclaiming my time, the avenues that the
gentleman alludes to outside of the bankruptcy court is when an
individual who is responsible for child support payment has the
ability to pay. That has nothing at all to do with bankruptcy,
whether it be a family court or a criminal court. Those avenues
are available when an individual is not in bankruptcy. It is
those particular courts that calculate the level of support. It
has nothing whatsoever to do with an individual who finds
himself in bankruptcy. So it really--they are absolutely,
totally unrelated.
I yield back to the gentleman.
Mr. Gekas. The gentleman fails to connect dots here. Here's
an individual who is under an obligation by another court to
pay $50 a week support. All of a sudden he decides he is going
to go bankrupt because of the overwhelming burden of debts
otherwise accumulated. What in the world does the gentleman
believe will happen to that support matter, that it dissolves
in favor of creditors? It stays in place. And throughout the
bankruptcy proceeding----
Mr. Delahunt. Reclaiming my time. That support payment
comes into competition with other priorities that are created
by the bill before us.
Mr. Gekas. Well, if that's the problem----
Mr. Delahunt. I yield to the gentleman from North Carolina.
Mr. Watt. Let me, let me point out to the members of the
committee exactly what this is all about. Look at where this
amendment is proposed to be inserted. It's inserted behind a
provision dealing with luxury goods. We're spend--we're giving
priority up to $250 to luxury goods on the same basis that
we're giving the child support. That's crazy. That is insane.
We are extending, and that has never been in the bankruptcy
bill before. I mean, that wasn't the law. We are adding to the
people that we are giving a preference to under this bill.
The same section, on page 144, gives priority up to $750 to
extensions of consumer credit under an open-end credit plan.
That's money that you get out of an ATM machine. I mean, you
don't even know what it's going for. Basically, what you said,
if the bank or you got some money out of an ATM machine, up to
$750, we're going to give you the same priority that we give to
children. This is crazy. It is counterproductive to the exact
objectives that the sponsors and supporters of this bill, and
why is that? It's because all of these people have come forward
and said, ``Hey, put us on the gravy train.'' It's kind of like
this tax bill. They just--this is the train that's moving out,
and everybody wants priority, and we've given everybody
priority----
Chairman Sensenbrenner. The time of the gentleman from
Massachusetts has expired.
Mr. Watt [continuing]. Now on the same basis that children
have priority.
Chairman Sensenbrenner. The time of the gentleman from
Massachusetts has expired.
The question is on the adoption of amendment no. 1 offered
by the gentleman from Michigan.
Mr. Conyers. Recorded vote, sir.
Chairman Sensenbrenner. All of those in favor will signify
by saying aye, as your names are called; those opposed, no, and
the clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. I----
The Clerk. Mr. Gekas, aye.
Pardon me?
Mr. Gekas. I am here voting no. [Laughter.]
The Clerk. Mr. Gekas, no. Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no. Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no. Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Scarborough?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no. Mr. Issa?
[No response.]
The Clerk. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no. Mr. Flake?
[No response.]
The Clerk. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye. Mr. Scott?
[No response.]
The Clerk. Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye. Ms. Lofgren?
Ms. Lofgren. Aye.
The Clerk. Ms. Lofgren, aye. Ms. Jackson Lee?
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye. Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
[No response.]
The Clerk. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there other members who wish to
cast their votes? The gentlewoman from California?
The Clerk. Ms. Waters?
Chairman Sensenbrenner. The gentlewoman from California,
the clerk did not get your vote. The gentlewoman from
California?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Chairman Sensenbrenner. The gentleman from Utah?
Mr. Cannon. No.
Chairman Sensenbrenner. Are there other members who wish to
record their vote or to change their votes?
[No response.]
Chairman Sensenbrenner. Hearing none, the clerk will
report.
The Clerk. Mr. Chairman, there are 10 ayes and 14 nays.
Chairman Sensenbrenner. The amendment is not agreed to.
Are there further amendments? The gentleman from Michigan?
[No response.]
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina.
Mr. Watt. Mr. Chairman, I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Watt. It's Watt No. 4.
The Clerk. Amendment to H.R. 333 offered by Mr. Watt of
North Carolina.
Page 144, after line 14, insert the following [and make
such technical and conforming changes as may be appropriate]:
Chairman Sensenbrenner. Without objection, the amendment is
considered as read, and the gentleman from North Carolina is
recognized for 5 minutes.
Mr. Watt. Thank you, Mr. Chairman.
This is not the order that I would plan to offer my
amendments in, but I think this relates really to the same
point that the last amendment did and illustrates the point
that I was trying to make to the members of the committee about
how this bill has become, in many ways, counterproductive to
the purposes that many have said that they were setting out to
achieve.
On page 143, section 310, of the bill starts to define the
limitations on luxury goods and other items that basically are
given priority in a bankruptcy proceeding. It limits to $250
luxury goods, which I think is appropriate. I don't think it
ought to be on the same basis as child support, but at least it
makes some sense to have a limitation, but--and it makes an
exception at the end for luxury goods that are necessary for
the support or maintenance of the debtor or a dependent of the
debtor, which I think is good language. That's all the way over
on page 144.
The next part of this, though, talks about cash advances
aggregating more than $750. That means that up to $750 you get
the priority if those advances were obtained within 70 days
before the order for relief is granted, and unfortunately there
is no similar exemption for that $750 that subordinates it to
payments for support or maintenance of the debtor or a
dependent of the debtor because if you look on page 144, lines
11 through 14, the limitation that subordinates luxury goods up
to $250 to reasonably necessary support and maintenance of the
debtor, there is no similar limitation for the $750 that's been
advanced. Even if I went to the ATM and got the $750 to try to
pay child support, there is no recognition of that.
Basically, what the credit card companies have succeeded in
doing, and I'm not an opponent of credit card companies, I just
think we've got to be reasonable in the approach we are using
here, and what this amendment would do is make that $750-credit
card advance, that cash advance of extension of consumer credit
under an open-end credit plan subject to the same limitation
that we have placed on luxury goods if a person can come into
the bankruptcy court and show that that advance, that credit
card extension was for the purpose of support and maintenance
of their children.
So this further illustrates how we have gotten this whole
thing out of whack. And if you can't support the general
language that gets everything subject to providing child
support for children who need it, at least we ought to make
luxury goods and these cash advances subject to that child
support payment.
And I would, therefore, encourage my colleagues to support
and vote for this amendment, and I yield back the balance of my
time.
[The Amendment to H.R. 333 Offered by Mr. Watt follows:]
Chairman Sensenbrenner. The gentleman from Pennsylvania?
Mr. Gekas. I rise to state my opposition to the amendment.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. Again, it's difficult to explain, I believe, or
it's my failure, but the current law in these luxury item
provisions to which the gentleman refers, the current law gives
primacy to support payments, the current law, which we leave
untouched, absolutely untouched in our bill. All we do in the
sections that you are corresponding here is change the amounts
that would constitute fraud if perpetrated within a certain
number or period of days before bankruptcy. That's all we do.
We do not affect the obligation to make sure that those items
do not include goods or services reasonably acquired for the
support or maintenance of the debtor or dependent of the
debtor.
So the rhetoric which is accused handily by the members of
the minority as to--or the proponents of this bill is the
rhetoric that you're using. You're using rhetoric to say, ``Oh,
my gosh, how can we take support and put it behind luxury
items?'' That's, that's what is inane.
Mr. Watt. Would the gentleman yield?
Mr. Gekas. It's my time.
Mr. Watt. I'm asking if the gentleman would yield.
Mr. Gekas. Let me finish my statement.
I'm saying to you, and I repeat, for the benefit of all of
the members, we do not, I repeat, we do not harm the current
law which gives primacy to support payments vis-a-vis the 60--
the prior to bankruptcy period of time, when someone goes to
the extreme to try to defraud the system, to game the system.
The gentleman from North Carolina is an opponent of
individuals who game the system. These provisions are there to
prevent gaming the system, and they are accompanied by strong
language that says when they do try to game the system, even if
they do try to game the system, if they use part of that money,
which they have gamed, for support payments, then that will not
be dischargeable.
So I am saying that this is rhetoric, unaccompanied by
logic, that you are attending to this provision.
Mr. Watt. Will the gentleman yield?
Mr. Gekas. Yes, I'll yield.
Mr. Watt. I thank the gentleman for yielding.
First of all, let me clear I have never said that you have
elevated these things above support payment. What I said is
that you put them on the same basis. You expanded the number of
things you put on the same basis as support payment, and in the
process of doing that, unless you make it clear that if you
have to come to a choice between these things and support
payments, that support payments take priority, then you have
done a disservice to support payments.
Now, if the gentleman would just look at lines 11 through
14, where you make luxury goods or services subject to support
payments. Why is it not logical to make the $750-credit card
advance subject to the same support payments if they come into
conflict with each other? Just--that's the only, only time at
which this would be applicable. Why would you not make that
same exception for credit card advances? You've made it for
luxury goods.
Mr. Gekas. Reclaiming my time. I do not want to venture on
the same treadmill as the gentleman from North Carolina in
repeating and repeating what is--happens not to be the case.
The current law, I repeat, on this luxury items is unaffected.
It is unaffected except for the numerical figure that is now
applied in our bill to supplant that which currently exists.
Therefore, the primacy of support payments, if an
individual contemplates bankruptcy, so he is going to game the
system, he immediately goes out and gets cash advances for
$750. All of a sudden the red light goes up when he files for
bankruptcy. If he did this within a short period of time before
filing bankruptcy, it should be disallowed. But on second
thought, if he used part of that money for support of the
dependent or the spouse or someone relying on that support,
then there is no penalty. It does not constitute fraud. That's
the current law, and all we do is substitute different money
figures.
Mr. Nadler. Would the gentleman yield for questions?
Mr. Gekas. I yield back the balance of my time.
Mr. Nadler. Would the gentleman yield for questions?
Mr. Gekas. Yes. Yes, I'll----
Mr. Nadler. I don't understand what you just said, George.
If you used part of that for the----
Chairman Sensenbrenner. The time of the gentleman has
expired.
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from New York seek recognition?
Mr. Nadler. Strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Nadler. Mr. Chairman, what this amend--what the bill
does is to change--what's the time period of it?--is to change
$1,075 within 60 days to $750 within 70 days. So it's a much
smaller amount of money. It's $10 a day.
But second of all what it does is--let me ask a question.
Let's assume, let's assume that this person is not fraudulent,
that this person is in very good faith, that this person has a
dozen different credit card debts at 6- or 7- or 8- or 10-
percent interest or whatever it is, and in an attempt to avoid
bankruptcy, gets in the mail one of these promotions that says,
``Consolidate your debts. Join up on First Card, National
Citibank, for 2.99 percent,'' and he consolidates his debts. He
takes that credit card, and he takes a thousand dollars on the
credit card, all of which is existing debt. He transfers it
from five different credit cards to one just to get a lower
interest rate.
It seems to me that he's taking cash advances aggregating,
that he meets the definition here, and he's presumptively
fraudulent.
Mr. Gekas. Would the gentleman yield?
Mr. Nadler. Yes, I will yield.
Mr. Gekas. I haven't the slightest idea of what you just
described in your hypothetical.
Mr. Nadler. Well, I described it very simply.
Mr. Gekas. And it's a--what I, for the purpose of this
debate and for the purpose of getting on with the process of
this committee, I reassert that the changes that were made in
the bill with respect to the 70 days prior, 90 days prior and
so forth, were chiefly monetary in aspect, and they did not
affect at all the current demand by the language----
Mr. Nadler. Reclaiming my time. I don't understand, if it
doesn't affect it, why it's in here. But let me give a better
example, perhaps, that will be more understandable.
Seven hundred and fifty dollars in 70 days is about $10 a
day. So a person who is spending $10 a day on Pampers and baby
food, and milk for the baby, is presumed to be a fraud--and is
using a credit card to buy it--is presumed to be having so much
credit card within that 70 days that he's obviously doing this
in contemplation of bankruptcy, and it's fraudulent. And,
frankly, that doesn't make a heck--and then he's got to hire a
lawyer to defend himself, and it doesn't make a heck of a lot
of sense to me. I just hope we pass this amendment so this bill
is a little less egregiously unfair, though still egregiously
unfair in most of the----
Mr. Watt. Would the gentleman yield?
Mr. Nadler. I'll yield.
Mr. Watt. Let me be clear to Mr. Gekas and to the members
of the committee. We are not trying to do away with the luxury
goods exception. We're not trying to do away with the $750. I
actually think you have--I agree with you. You have moved the
bill in a good direction. The problem is that what you have
done, in the process, is put luxury goods up to $250 and $750
worth of cash advances on the same basis that child support is
being put if they--and I don't have any problem with that if
a--if a debtor can pay all three of those things, it's fine.
But when you come to a fork in a road and that debtor's
money is not enough to pay but one of those things, all we're
saying--we're not trying to do away with the language. I mean,
I didn't move--the amendment doesn't take the language out. All
it says is when they come into competition with each other,
child support ought to take priority, and that's exactly what
you have said in lines 11 through 14 about luxury goods up to
$250. Why wouldn't the same rationale apply to credit card
debt?
Mr. Nadler. Reclaiming my time.
The key point that the gentleman from Pennsylvania misses
on this whole question of child support priority, he said again
a few minutes ago, we give priority to child support. Sure, you
do, but the priority given in this bill to child support is
only in bankruptcy court. Once you make these other debts
nondischargeable, as child support already is, the competition
for the mother to collect, the competition between the mother
and the Chemical Bank lawyer to collect between child support
and nondischargeable debt is after the debt is discharged, you
are no longer in bankruptcy court. You are in State court, and
there is no such thing as a priority----
Chairman Sensenbrenner. The time of the gentleman from New
York----
Mr. Nadler [continuing]. In State court----
Chairman Sensenbrenner [continuing]. Has expired.
Mr. Nadler. So it's all irrelevant.
I yield back the balance of my time.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from North Carolina, Mr. Watt.
Those in favor will say aye.
Those opposed will say no.
The noes appear to have it.
Mr. Watt. Mr. Chairman, I request a recorded vote.
Chairman Sensenbrenner. Roll call is ordered. Those in
favor of the Watt amendment will vote aye, as your names are
called; those opposed will vote no, and the clerk will call the
roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. I am present, voting no. [Laughter.]
The Clerk. Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no. Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no. Mr. Bachus?
[No response.]
The Clerk. Mr. Scarborough?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no. Mr. Issa?
[No response.]
The Clerk. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no. Mr. Flake?
[No response.]
The Clerk. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye. Mr. Scott?
[No response.]
The Clerk. Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye. Ms. Lofgren?
Ms. Lofgren. Aye.
The Clerk. Ms. Lofgren, aye. Ms. Jackson Lee?
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
[No response.]
The Clerk. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there members in the room who
wish to record their vote or change their vote?
The gentleman from California, Mr. Gallegly?
Mr. Gallegly. No.
Chairman Sensenbrenner. The gentleman from Alabama, Ms.
Bachus?
Mr. Bachus. No.
Chairman Sensenbrenner. Any further members who wish to
record their vote or change their vote? If not, the clerk will
report.
The Clerk. Mr. Chairman, there are 8 ayes and 15 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Conyers. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Michigan, Mr.
Conyers?
Mr. Conyers. Mr. Chairman, I'd like to call up my business
amendment now.
Chairman Sensenbrenner. Is there a number on your amendment
so the clerk is----
Mr. Conyers. No, it's known as the business amendment.
Chairman Sensenbrenner. The clerk will report the Conyers
business amendment.
Mr. Conyers. It's Conyers and Nadler, by the way.
It's the one that begins, ``Page 181, line 3.'' On the top
is ``Conyers 002.''
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 333 offered by Mr. Conyers,
page 181, line 3, strike the close----
Chairman Sensenbrenner. Without objection, the amendment
will be considered as read, and the gentleman from Michigan
will be recognized for 5 minutes.
Mr. Conyers. Thank you, Mr. Chairman.
I'd like to ask unanimous consent to have this amendment
denominated the Conyers and Nadler amendment.
Chairman Sensenbrenner. Without objection.
Mr. Conyers. Thank you.
Ladies and gentlemen, this amendment amends several
provisions of the bill that provides for strict new deadlines
and allows them to be extended where it can be shown that the
reason for the delay is due to circumstances beyond the
debtor's control. It also specifies that the new provisions
exempting asset-backed securities from bankruptcy only apply to
true sales.
Now, as it presently stands, the legislation before us
would completely alter the manner in which small businesses and
real estate concerns may reorganize under the bankruptcy laws.
In particular, it imposes a whole host of arbitrary deadlines
designed to speed up the bankruptcy process. These provisions
have drawn the strong opposition of the Small Business
Administration Office of Advocacy and organized labor. The AFL-
CIO has correctly warned that the small business provisions
will threaten jobs by placing substantial procedural barriers
in the way of small business's access to the protections of
chapter 11.
Now, I've stated before that I agree that we need to
streamline and expedite small business cases, but what's
happened again is that in our haste, we have made new
requirements that are now onerous in their own regard. Thus, if
the reason a deadline can't be met is because of a regulatory
process which the bankrupt applicant can't control; for
example, a hearing on an environmental claim which must take
place before a plan can be developed, we want to merely give
the court the discretion to waive the deadline, for goodness
sake, not a big deal. The last thing we want to do--the last
thing we want to do is to worsen the current situation the
applicant is in by forcing businesses to liquidate or layoff
workers to comply with some arbitrary deadline.
Now it's one thing to tighten the bankruptcy rule where the
only parties involved are the borrower and lender, but where
the changes will harm innocent third parties, namely, employees
and their families, I think most of us believe we have an
obligation to give the business a reasonable chance to
reorganize in bankruptcy. And so I urge the members of the
committee to join with me and Mr. Nadler in supporting this
idea of protecting American jobs by giving the court discretion
to waive the deadline. This is all this amendment is, not a
horribly big deal. I urge its support and return any time that
may be remaining.
[The Amendment to H.R. 333 Offered by Mr. Conyers and Mr.
Nadler follows:]
Chairman Sensenbrenner. For what purpose does the gentleman
from Pennsylvania rise?
Mr. Gekas. Move to strike the last word, Mr. Chairman.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. Mr. Chairman and members, we should recognize
part of the history of how we arrived at this juncture in
bankruptcy reform. Several years ago the Congress authorized
the Commission, the well-known Bankruptcy Commission, to look
at, particularly to look at the business provisions of the
current bankruptcy law. They concluded, and it was part of
Congress's rationale in the first place that the reorganization
features under chapter 11 were not working. Why? Because there
was too much delay, too many extensions, too much time granted
over a period of time guaranteeing the failure of a business
more than giving it time to resuscitate its business
activities.
I repeat, it promoted failure on the part of a business to
continue to extend times without regard to deadlines of
established law. So the Bankruptcy Commission, in its wisdom,
came up with recommendations that said we've got to more
tightly fit the reorganization features of bankruptcy into time
tables to allow the business to make certain that it can
survive by doing X, Y, and Z, in consultation with the
creditors and with the bankruptcy court so that, although we do
still allow and have the courts given discretion to extend
deadlines in some quarters on the whole process, we do not have
the abject open-ended discretion that led to the failures about
which the Bankruptcy Commission made so much commentary in
their recommendations.
So, for those reasons, mainly the reason that the Conyers
amendment in this regard takes us back to the time before the
Bankruptcy Commission looked at this very set of features as
being a cause of failure of reorganization, we want
reorganization to work, we want to do it in a speedy and in
deliberate time, and we want all of the parties involved to
know what's facing them in the form of time tables so that they
can make appropriate----
Mr. Weiner. Would the gentleman yield on that point?
Mr. Nadler. Mr. Chairman?
Mr. Weiner. Would the gentleman yield on that point?
Mr. Gekas. Yes, I'll yield.
Chairman Sensenbrenner. Which gentleman from New York are
you yielding to?
Mr. Gekas. To both of them at the same time. [Laughter.]
To the gentleman, Mr. Weiner.
Chairman Sensenbrenner. I'm sorry. I saw the gentleman's
hand up.
Mr. Nadler. I was seeking recognition, but not for
yielding.
Mr. Weiner. I just want to clarify something that you said
that is, in fact, not correct.
In the Conyers amendment, they have to show by clear and
convincing evidence, it's a new standard that's been inserted,
that will put quite a burden on the debtor to show that there
is something beyond his control. I mean, it seems to me that if
you trust even a modicum of the judgment of the judge in the
case to be able to take the case that can't be anticipated by
us here--very often my colleagues on that side talk about us
setting rules here in Washington that are unnecessarily strict,
unnecessarily dictatorial and not giving enough discretion to
localities--it seems to me that Mr. Conyers strikes a balance
by putting this, this clear and convincing evidence test, into
his amendment. Doesn't that satisfy your concern about having
extraneous delays and delays that are simply for the purpose--
--
Mr. Gekas. Reclaiming my time.
Mr. Weiner. Certainly, sir.
Mr. Gekas. I believe it's in the eyes of the beholder. I
believe that the additional extension of time that you're
referring to, even with clear and convincing evidence, takes us
back to the Never-Never Land of never-ending reorganization,
which the Bankruptcy Commission felt had to come to an end for
justice in bankruptcy. So I am relying on the tighter set of
deadlines that seem to be, in a unanimous way, felt would best
serve the reorganization of bankruptcies.
I yield back the balance of my time. I yield to the other
gentleman from New York.
Mr. Nadler. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Nadler. Thank you, Mr. Chairman. I find it remarkable
that the gentleman from Pennsylvania is citing the work of that
lamented Bankruptcy Commission. If the gentleman would
introduce a bill simply incorporating all of the
recommendations of that Bankruptcy Commission and nothing else,
we'd pass that bill unanimously in about 3 minutes. But as you
know, this bill rejects about 95 percent of what the Bankruptcy
Commission recommended. The Bankruptcy Commission was against
means tests, the Bankruptcy Commission rejected everything on
taxes. The fact is that this is the only thing that this bill
seems to do that goes along with the Bankruptcy Commission.
Let me say this: It is a mischaracterization of this
amendment to talk about abject and open-ended. It's clear and
convincing evidence, circumstances beyond the debtor's control,
not foreseeable the date of the order for relief. You don't get
back into a Never-Never Land of unending reorganization unless
you assume that all of our judges are incompetent, and I
certainly wouldn't assume that the judges to be appointed by
President Bush are all incompetent. Some may be competent.
The fact is that what this bill seeks to do is to remove
all discretion from a judge here, and I guarantee you that by
putting these severe and inflexible deadlines, you are going to
cause a lot of businesses that could have been reorganized and
could have been saved, you're going to put them into
liquidation. And even at the hearing last week, when I asked
the gentleman, I think his name was Fosten from the Chamber of
Commerce, the question about wouldn't these provisions of
inflexible deadlines put more--force more businesses out of
business and into liquidation, he essentially said, yes, but it
was worth it because of the balance of other good things in the
bill, but we can amend the bill. We don't have to balance
terrible provisions that are going to destroy lots of small
businesses.
We may be heading into, I hope not, the President says we
are, heading into a recession. If we go into a recession,
you're going to get a lot of small businesses going into
chapter 11 just in time to meet this provision that will force
many of them to be liquidated instead of being able to be saved
and lay off a lot of people. To simply say that if a debtor can
show, by clear and convincing evidence, which is a high burden
of proof, that the extension is justified by unforeseen
circumstances beyond his control and let the judge decide that,
not the debtor, if he can prove that, that you can get an
extension, that's reasonable. But, of course, this bill is not
designed to be reasonable, so I know this amendment is forlorn.
I withdraw the balance of my time.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from Michigan, Mr. Conyers, and the
gentleman from New York, Mr. Nadler.
Those in favor will signify by saying aye.
Opposed, no.
The noes appear to have it. The noes have it, and the
amendment----
Mr. Nadler. Recorded vote, sir.
Chairman Sensenbrenner. A recorded vote will be ordered.
The question is on the Conyers-Nadler amendment. Those in favor
will signify by saying aye, as your names are called; those
opposed, no, and the clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no. Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no. Mr. Chabot?
[No response.]
The Clerk. Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no. Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Graham?
[No response.]
The Clerk. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Scarborough?
Mr. Scarborough. No.
The Clerk. Mr. Scarborough, no. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no. Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no. Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye. Mr. Scott?
[No response.]
The Clerk. Mr. Watt?
[Aye.]
The Clerk. Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
[No response.]
The Clerk. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there additional members who
wish to record their vote?
The gentleman from California, Mr. Gallegly?
Mr. Gallegly. No.
Chairman Sensenbrenner. The gentleman from South Carolina,
Mr. Graham?
Mr. Graham. No.
Chairman Sensenbrenner. Are there any members who wish to
change their vote? If not--Mr. Jenkins of Tennessee, do you
wish to record your vote?
Mr. Jenkins. No.
Chairman Sensenbrenner. Further members? Clerk will report.
The Clerk. There are 6 yeas and 18 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments? The gentleman from New York,
Mr. Nadler?
Mr. Nadler. Mr. Chairman, I have an amendment at the desk,
No. 001.
Chairman Sensenbrenner. The clerk will report .001.
The Clerk. Amendment to H.R. 333 offered by Mr. Nadler,
page 178, after line 4, insert the following [and make such
technical----
Chairman Sensenbrenner. Without objection, the reading of
the amendment is dispensed with, and the gentleman from New
York is recognized for 5 minutes.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Chairman, I offered this amendment in this committee
last year, and in the Senate it was offered by Mr. Schumer and
passed the Senate last year with 80 votes.
As Senator Hatch pointed out in the confirmation hearings
on Attorney General Ashcroft a couple of years ago, even
Senator Ashcroft, former Senator Ashcroft, voted for this
amendment, for this exact language, not because Senator
Ashcroft is pro-choice, but because he believes that the law
must be respected.
This amendment would deal with an ongoing and highly
publicized abuse of the Bankruptcy Code involving people who
violate the legal rights of Americans to receive medical care,
and intimidate their health care providers and to then file for
bankruptcy for the express purpose of having the debts incurred
in judgments of courts because of their torts against people
seeking interest in these clinics, they then seek to have these
judgments discharged in bankruptcy.
There are several cases currently in lengthy and costly
litigation on this question. In one case, a $107-million
verdict was rendered in the case of the so-called Nuremberg
files, which was implicated in the murder, murder of at least
one doctor.
Randall Terry has filed for bankruptcy to avoid payment of
over $1.6 million in legal fines and related fees. He said, ``I
cannot in good conscience permit the National Organization for
Women, Planned Parenthood and others who have profited from
abortion to harass my wife and family and possibly get money
from me to continue their crusade against unborn life.''
These are bold words, but as Senator Ashcroft pointed out
during the hearings, opposing abortion does not give you a
license to break the law, and it certainly should not translate
into a license to abuse the Bankruptcy Code to avoid the lawful
payment of legal judgments awarded by courts to compensate
victims of deliberate violations of the law.
Although no debt has actually been discharged, this
widespread and growing pattern of using bankruptcy to avoid
payment of judgments in these cases have proved extremely
burdensome to the individuals who are awarded these judgments
because their legal rights have been violated.
The victims have been chasing these lawbreakers through the
courts for years, going through discovery, being forced to
engage in further costly litigation, seeking assets and
litigating in bankruptcy courts across the country. We should
settle any uncertainty in the law by making clear that the
Bankruptcy Code cannot be used a shield against judgments for
these lawbreakers. We make debts for drunk boating accidents
nondischargeable in this bill, we penalize a parent who uses
cash advances at the rate of little more than $10 a day to
purchase necessities for the family, including baby food and
Pampers, by making those debts nondischargeable.
I think we should preserve the integrity of the Code and
take a tremendous burden off our bankruptcy courts and off the
victims of this wrongdoing with the simple clarification that
these judgments, awarded by a court for torts, are not
dischargeable in bankruptcy.
I yield back.
[The Amendment to H.R. 333 Offered by Mr. Nadler follows:]
Chairman Sensenbrenner. The gentleman from Pennsylvania,
Mr. Gekas?
Mr. Gekas. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. I ask the members to vote no on this amendment.
The current law in bankruptcy, which we preserve in our reform
measure, already calls for nondischargeability of debts
incurred as a result of violence or willful misconduct, such as
murder, which was referred to by the gentleman, and any other
kind of willful damage caused at an abortion clinic or any
other institution, so that willful misconduct and damages,
willful criminal conduct, so to speak, willful conduct of that
nature, is already covered by the current law. We gain nothing
by specifying violence in an abortion clinic, except to allow
the pro-abortion factions to make a statement, and so we oppose
the amendment, certifying and asserting that these kinds of
measures taken by demonstrators at an abortion clinic are
already covered by our law.
In addition, the Nadler amendment, if it--and I'm only
guessing now--if it follows the same language as the Schumer
amendment----
Mr. Nadler. It's identical.
Mr. Gekas. It's identical. Who followed whom, I don't know
for sure.
Mr. Nadler. He followed me.
Mr. Gekas. He followed you, all right. Thank you.
It goes a little farther and puts in nebulous criteria
about intent or--let me find the exact language that I'm
referring to. Actual or potential actions alleging the
violation of any Federal, State or local statutory or common
law. You're talking about establishing 20 new courts to
determine the definition of those particular portions of the
amendment. It's bad enough to repeat already stated law about
violence and misconduct, but now you extend it to curious
language about alleging the violation of any Federal, State or
local statutory or common law.
I ask the members to reject this amendment. I yield back
the balance of my time.
Mr. Weiner. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from New York, Mr. Weiner, seek recognition?
Mr. Weiner. Strike the last word, Mr. Chairman.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Weiner. What the sponsor of the legislation in his
explanation fails to point out is there is ambiguity or at
least inasmuch as the bankruptcy law and the bankruptcy courts
have been a place where people who are guilty of these crimes,
people who are having or who are--or are being forced to pay
these civil penalties and other penalties, they are using the
bankruptcy courts currently to get out from under in a clearly
stated strategy.
And I would remind the gentleman, also, that this is not a
question of your views on a woman's right to choose. In the
Senate this passed with 80 votes because this is simply a
question about whether or not someone should be allowed to use
the bankruptcy courts in an effort to get out from under the
responsibilities they would otherwise have which, from the
gentleman's own explanation of this bill for the course of the
last 2 years, is exactly what he says he seeks to do with this
bankruptcy reform law, which is to make sure that people that
have the ability to pay don't use the bankruptcy law as a way
to get out from paying.
So all that the Nadler amendment does is seek to clarify
that, and it's clearly a necessity because it has become a
strategy of those that violate the clinic access laws to use
the bankruptcy laws. In jurisdictions throughout this Nation,
it's been part of their strategy. There is zero harm and a
great deal of benefit to clearing up the ambiguity that
apparently exists. You may not see it, I certainly don't see
it. I believe it's a matter, it's a matter of moral certainty
and a matter of certainty under the law, but the fact of the
matter is that bankruptcy courts throughout the Nation are
having to wrestle with this exact case, and we have an
opportunity now----
Mr. Hutchinson. Would the gentleman yield?
Mr. Weiner [continuing]. To clarify that point.
Mr. Hutchinson. Would the gentleman yield for a question?
Mr. Weiner. I would certainly yield.
Mr. Hutchinson. My experience in having a judgment against
someone for willful misconduct, I simply filed a petition with
the court to have that debt nondischargeable because of willful
misconduct, and the court ruled in my favor, and it is exactly
what should have happened, and it was very similar to this.
The current law, as Mr. Gekas indicated, does protect
against the dischargeability of cases which you cite would
involve violence against a clinic. And you indicated that it's
a strategy out there to use the bankruptcy as protection. Are
there any cases in which an individual had the debt discharged
by a court which involved violence against a clinic?
Mr. Weiner. If I can reclaim my time, I think it's
fascinating that in this amendment the folks in the majority
party are saying, well, we can trust judges to make the correct
decisions, and look, this is a ground-ball judgment call that
they can make. In the last amendment, we didn't even trust the
judges to make the decisions about whether something was
outside the control of one of the parties in the case.
And in answer to your question, yes, it's going on now. You
know, the people trying to, trying to recover have to go
through discovery, they have to go through the different
jurisdictions. This is an opportunity for us to clarify the
state of the law in a very obvious way, and I would yield to
Mr. Nadler.
Mr. Nadler. Thank you.
Mr. Chairman, first of all, the language from the amendment
that the gentleman from Pennsylvania wrote that he said was
vague, et cetera, that's language describing an action. This
amendment only applies to a judgment order consent decree or
decree entered in a Federal or State court in various types of
actions. It's got to be a judgment. You don't have to speculate
about what it is, number one. It's a judgment or decree.
Number two, it talks about malicious and willful. Already
malicious and willful is already nondischargeable. True, but
you don't have to be malicious and willful to violate the law.
The law which these people violate makes it prohibited by force
or threat of force, or by physical obstruction, intentionally
injures, intimidates or interferes or attempts to injure,
intimidate or interfere with any person, et cetera. It doesn't
say it has to be willful or malicious. So you're establishing a
new standard.
Number three, right now, yes, there has not been a
discharge yet, but according to a statement from the hearing
last year, ``My firm, to date, has expended over 3,200 attorney
hours in litigating these bankruptcy proceedings, in addition
to the time spent by local counsel in each jurisdiction and the
substantial expense of filing fees, service fees, and travel
around the country. Thus far, after extensive litigation and
considerable expense, we have won the willful and malicious
injury issue in four of the bankruptcy courts. Despite these
victories, enactment of the proposed amendment to the
Bankruptcy Code is necessary because defendant should not have
been given the opportunity to litigate the issue of the
discharge in bankruptcy when they have been judged guilty of
violating the faith statute, as intended by Congress.''
In other words, the tort fees, the people who violated the
law----
Chairman Sensenbrenner. The gentleman's time has expired.
Ms. Jackson Lee. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the
gentlewoman from Texas, Ms. Jackson Lee, seek recognition?
Ms. Jackson Lee. To strike the last word.
Chairman Sensenbrenner. The gentlewoman is recognized for 5
minutes.
Ms. Jackson Lee. Thank you very much, Mr. Chairman.
Let me just define what I think is the appropriate role of
this room and this body. Often we are described as problem
solvers. I hope we can be described as doing no harm.
The issue that Mr. Nadler raises in his amendment is an
issue that raises the specter of confusion. Just about 3 years
ago we sat and listened to a nurse from Birmingham, Alabama, if
my recollection serves me well, that was horrifically mutilated
by a bombing incident at an abortion clinic--visibly mutilated,
emotionally mutilated, the victim of a very terrible and
devastating crime to this date has not been solved.
As a basis of study, we can utilize the approach that many
in the segregated South, Ku Klux Klan, took to avoid
compensating those whose civil rights they violated. It is well
known that individuals of this propensity have used the
bankruptcy courts or have used the concept of bankruptcy to
suggest that when a judgment has been rendered against them,
the KKK or them individually, they would not pay.
It seems to me, Mr. Chairman, and to my colleagues, with an
80-vote support in the Senate, that it would be beneficial for
an overhaul of the Bankruptcy Code, of which we are doing, and
reasonable minds can disagree because I certainly think that
this is an unnecessary process, an unneeded process, but we are
in the midst of it, that clarification and specificity is the
route to go; specificity meaning that it clarifies that you
cannot utilize the Bankruptcy Code, under H.R. 333, to avoid
the just judgment rendered against you.
In my sense, Mr. Chairman, this is doing no harm, based
upon proceeding evidence and actual incidences where
organizations have taken to the bankruptcy courts to blatantly
try to overcome just judgments against them, where they have
mutilated, where they have violated, where they have destroyed
the property and the lives of others.
Now, it seems to me a benign amendment. It does not harm.
It helps. And I am at a loss as to why the opposition, the
Republican majority, finds the necessity to oppose
clarification because if the bankruptcy courts are saying that
there is potential for confusion, why not narrow the need for
them to furry around in trying to make a decision, when they
can turn to what may be potentially a past legislation. This
looks like it's on the route to be law. Why can't this
amendment simply clarify that you cannot avoid, you cannot
negate, you cannot usurp, you cannot ignore, you cannot abuse,
you cannot utilize the Bankruptcy Code to avoid the just
judgment rendered against you in an instance of violence
against clinics?
And I have yet to hear any argument by the esteemed
gentleman from Pennsylvania and others that would make any
sense as to why a simple point of clarification cannot be
added. Do we need to bring in more mutilated victims? Do we
need to bring in the relatives of deceased doctors who rightly
deserve to recover against those who perpetrated the heinous
crimes of which the lives cannot be brought back? But certainly
in the scheme of our justice system, some compensation
obviously is warranted, some monetary penalty. And it is well
known that the trickery of those who are in their minds
violently opposed to abortion, violently exercising their
opposition, that they will likewise use any tactic, which
includes the bankruptcy code, to avoid the just rendering of
this heinous act where families and loved ones and those who
have been violated and abused and frightened and intimidated
cannot recover.
This is simple language, the non-dischargeability of debts
incurred through the commission of violence at clinics,
supports by an 80-vote margin in the Senate. And I guess I am--
I am--I'm simply at a loss----
Chairman Sensenbrenner. The woman's time has expired.
Ms. Jackson Lee [continuing]. That unfortunately the
bipartisanship----
Chairman Sensenbrenner. For what purpose does the gentleman
from Ohio seek recognition?
Ms. Jackson Lee [continuing]. Has disintegrated. I ask my
colleagues to support the amendment.
[The prepared statement of Ms. Jackson Lee follows:]
Prepared Statement of Hon. Sheila Jackson Lee, a Representative in
Congress from the State of Texas
Good morning Mr. Chairman, as you know, the issue of bankruptcy
reform has been a heated topic of debate in this body since the first
session of the 105th Congress, when shortly before the National
Bankruptcy Review Commission issued its report recommending changes to
the current bankruptcy laws; legislation was introduced to dramatically
change the way in which consumer bankruptcies are administered under
the U.S. Code, 11 U.S.C. sec. 101 et seq. Both the House and Senate
enacted different versions of the bill in the second session of the
105th Congress and a conference report was filed shortly after. The
House agreed to the conference report version of the bill by a vote of
300 to 25 on October 9, 1998, but this bill which then, President
Clinton threatened to veto, was not brought before the Senate for a
vote prior to adjournment.
This legislation was again reintroduced in the 106th Congress and
was passed by voice vote in the House and passed in the Senate by a
vote of 70 to 28. Then, President Clinton withheld his approval,
Congress adjourned sine die, and bill was ``pocket'' vetoed.
Mr. Chairman, in yesterday's hearing, I questioned Philip J.
Strauss who was representing the California District Attorney's
Association and the California Family Support Council on the fact that
H.R. 333 places economically vulnerable women and children who are
forced into bankruptcy, and those who are owed support by men who file
for bankruptcy at greater risk by increasing the rights of many
creditors, including credit card companies, finance companies, auto
lenders and others over that of the women and children. Mr. Strauss,
however, appeared shocked at these facts and affirmatively stated that
women and children's child support payments from former spouses are
protected because the states collect money from people who owe child
support and make payments to mothers.
Mr. Chairman, I was not able to finish my point yesterday, however,
in the interest of justice for the thousands of women and children who
will be held hostage by H.R. 333. However, I will correct this gross
misrepresentation today. While it is true that states collect money
from people who owe child support to make payments to mothers, H.R. 333
would effectively bottle this money in the coffers of the state because
it increases the rights of creditors over these vulnerable women and
children, and sets up a competition for scarce resources between
parents and children owed support and commercial creditors both during
and after bankruptcy. Therefore, single parents facing financial crises
often caused by divorce, nonpayment of support, loss of a job,
uninsured medical expenses or domestic violence would find it harder to
regain their economic stability through the bankruptcy process.
Mr. Chairman, this fact is not something new whose light has
recently been cast over the dark future of bankruptcy reform that would
follow H.R. 333. The fact that H.R. 333 would effectively place women
and children in a gladiator's arena with creditors to do battle for
child support money owed by former spouses who file bankruptcy has been
articulated by national organizations such as the National Women's Law
Center, the National Association of Consumer Bankruptcy Attorney's, the
National Organization for Women, a coalition of bankruptcy professors
and bankruptcy judges and the National Association of Attorney's
General's to name but a few. How, anyone could argue against the
drastic effects and hardships that the language in this bill will cause
on the vulnerable women and children in this country is beyond me.
I have consistently said that the greatest challenge before us in
the bankruptcy reform efforts is solving the widely recognized
inadequacies of the law in the area of consumer bankruptcy. As it has
always been in the Congress, the key to this process, is, of course,
successfully balancing the priorities of creditors, who desire a
general reduction in the amount of debtor filing fraud, and debtors,
who desire fair and simple access to bankruptcy protections when they
need them. H.R. 333 does not accomplish this goal.
Once again, however, the bankruptcy reform bill has been
introduced, now in the 107th Congress. As with the bills introduced in
the 105th and 106th Congress's, I cannot in good faith support H.R. 333
introduced in the 107th Congress, because it:
will weaken important credit card disclosure
provisions that will help ensure consumers understand the debt
they are incurring;
will eliminate protections for reasonable retirement
pensions that reflect years of contributions by workers and
their employers; and
will include an anti-consumer provision eliminating
existing law protections against inappropriate collection
practices when collecting from people who bounce checks.
For H.R. 333 to accomplish its intended goals, I believe that it
must include provisions that will:
ensure families who need Chapter 7 relief are able to
get it, including the preservation of appropriate judicial
discretion;
ensure women and children seeking to collect child
support from a debtor do not have to compete with other
creditors;
contain adequate protection for families against
abusive reaffirmation practices of creditors;
enhance, not detract from, the viability of Chapter
13 plans; and
require adequate and accurate disclosure of credit
repayment terms.
In addition, given the recent turn in the economy, resulting in major
corporations laying off workers by the thousands, it is even more
important for Congress to carefully consider the impact of H.R.333.
Mr. Chairman, colleagues, ladies and gentlemen, I am for bankruptcy
reform, but I believe that it must be equitable and fair to all
interested parties. I am for bankruptcy reform that recognizes the
financial interest at stake for the debtor, his or her family and the
creditors.
As I have already mentioned, in assessing bankruptcy reform we must
balance two key principles. First, debtors must not be allowed to use
the law to avoid repaying loans when they can actually afford to do so;
and; Second, debtors should not be forced into serious hardship.
Efforts to implement these two ideas have been made for a long time.
The statute of Anne, enacted in 1705, was the first such effort. It
introduced the idea of the fresh start into our law and punished those
who abused the bankruptcy with death by hanging. In the bill before us
today, the sponsors sought to draw the line by separating those who are
worthy of a fresh start from those who abuse the system, but it is this
very goal that they have failed to accomplish.
In reviewing H.R. 333, I was reminded of a hypothetical given by
Douglas Baird, a law professor at the University of Chicago on H.R.
333's predecessor's in the 105th and 106th Congress's stating that
those bankruptcy reform bills would fail to balance the two competing
goals that are the base of bankruptcy reform. The same is the case with
H.R. 333 today.
Professor Baird's hypothetical considers an elderly woman living in
Florida who returned to the workforce several years after her husband
became ill and died. She makes $30,000 annually as a secretary and she
has not taken a vacation in several years. She rents a one-bedroom
apartment and owes $60,000, much of which stems from medical bills for
the care of her late husband. Most of the remaining debt consists of
unpaid credit card bills, most of it spent on household goods and
groceries. Interest runs at 15%. The widow is behind in her payments,
collection agencies call at home and at work, and they are threatening
to garnish her wages.
The hypothetical then considers a 45-year-old businessman, also
living in Florida. He works for a large corporation and makes $95,000 a
year. He previously had his own business but it failed. Though single,
he lives in a 5-bedroom house worth $500,000. He owes $60,000 in debt
from his 10 credit cards, which he used to pay for vacations, clothes
and meals in restaurants. In addition, he is personally liable for
$200,000 in debt from his failed business venture.
The current bankruptcy law would allow both the elderly widow and
the businessman to file Chapter 7 bankruptcy petitions and receive a
fresh start. However, under H.R. 333, only the businessman would be
allowed a fresh start because the widow's use of Chapter 7 would be
presumed abusive. The widow might be eligible for relief under Chapter
13 but only if she commits all of her income for the next five years to
the repayment of her debts, apart from monthly living expenses.
In contrast, under H.R. 333, the businessman will be eligible for
Chapter 7 relief, and be able to discharge all of his debt and keep his
house.
The reform laid out in H.R. 333, will also increase hardship on
debtors because it toughens the rules for ordinary debtors, most of
whom declare bankruptcy not out of irresponsibility but because of
catastrophic medical bills, unemployment or divorce.
Mr. Chairman, women are the fastest growing and largest group
filing bankruptcy today. In 1999, over half a million women filed for
bankruptcy by themselves--more than men filing by themselves or married
couples. Of this number, over 200,000 women who filed for bankruptcy in
1999 tried to collect child support or alimony. The domestic support
provisions of H.R. 333 does not solve the problems faced by women in
bankruptcy and does nothing address the additional problems it would
cause to the hundreds of thousands of women forced into bankruptcy each
year, including the single mothers forced into bankruptcy because they
are unable to collect child support.
Furthermore, the National Association of Attorneys General has
already warned that increasing the claims of partially secured
creditors as H.R. 333 would do would make it more difficult to collect
child support because credit card companies would treat all debts as
secured, resulting in credit card debt being elevated to the same or a
higher level than domestic support claims, and thus, make it more
difficult to ensure that debtors are able to satisfy their obligations
to their spouses and children.
H.R. 333, also creates a new priority for support debts owed to
government units over that of a spouse, former spouse or child, which
must be paid in full in a chapter 13 plan. Mr. Chairman, this bill does
not provide further protections to vulnerable women and children facing
creditors, instead, the points I have outlined today show that H.R. 333
gives priority in many cases to the creditors over the vulnerable women
and children.
H.R. 333 also fails in its attempt to encourage chapter 13 filings
by debtors, resulting in many families who currently save their homes
and cars through chapter 13 being no longer able to do so. Under
current law, a chapter 13 case can be filed after a chapter 7 or 13
discharge, or after a dismissed case. This is important to families who
might incur large medical expenses a few years after a prior discharge
or whose chapter 13 plans fail for circumstances beyond their control.
H.R. 333, however, prohibits a new chapter 7 case within 8 years,
rather than the current 6 years, after a petition resulting in a prior
chapter 7 discharge, and a new chapter 13 case within 5 years.
Furthermore, it is unclear whether the 5 years runs from the prior
petition or the discharge. If the 5 years begin to run from the prior
petition, it would mean that a chapter 13 case could be prohibited for
up to 10 years after a prior chapter 13 petition.
H.R. 333 will also place many new obstacles in the path of
bankruptcy debtors, which would decrease access to the system,
especially for those with the least income, primarily by raising costs.
for filing motions, defending dischargeability litigation, obtaining
stays in repeat filings and other added administrative costs in the
area of several hundred dollars which could be prohibitive for many
families. This will greatly increase the already significant number of
consumers who cannot afford attorney representation in bankruptcy and
who would therefore have only the choices of filing pro se, going to an
unqualified non-attorney petition preparer, or not filing at all.
In addition, H.R. 333 not only restricts the circumstances that
families can file for chapter 13, it also significantly reduces the
scope of the chapter 13 discharge making many of the debts that are
currently dischargeable, non-dischargeable under the full compliance
discharge. This would effectively hurt debtors who can presently pay
all they can afford.
Mr. Chairman, many of the provisions that are the base of H.R. 333
were designed for the sole purpose of reducing bankruptcy debtor filing
fraud. As I stated at the out-set of my statement, I applaud and
support this goal. However, the facts at hand tell us decisively that
this goal will not be achieved under H.R. 333 because it is not
narrowly tailored and does not provide fair and equal treatment in
cases like homestead exemption. Furthermore, the goal of curbing
bankruptcy debtor filing fraud is in serious question due to the sharp
decline in bankruptcy filings overall. Statistics provided by the VISA
Bankruptcy Notification Service, which compiles weekly reports on
bankruptcy filings show a continued sharp decline in the bankruptcy
rate which dropped by more than 9 % in 1999, continuing to decline at
an 8% annual rate in the first five months of the year 2000.
Bankruptcies are now running at a lower level than in 1997, 1998 or
1999. The per capita growth rate in personal bankruptcies was up by
25.2% in 1997, up by 3.1 % in 1998, down by 7.9% in 1999 and down by
7.7% in 2000. In addition, the growth rate in personal bankruptcies was
up by 26.1% in 1997, up by 4.0% in 1998, down by 7.0% in 1999 and down
by 6.8% in 2000. In addition to the VISA Bankruptcy Notification
Service, these numbers are also consistent with those compiled by the
Chicago Mercantile Exchange in connection with the Quarterly Bankruptcy
Index contract. These numbers that show a continuing decline in
bankruptcies supports the view that many of the provisions provided in
H.R. 333 are unnecessary and counterproductive.
Mr. Chairman, as elected officials for the American people we must
protect America's families. Most individuals who file petitions in the
bankruptcy courts are usually experiencing turbulent times. Financial
hardship is a serious matter that deserves legislative reform that is
the product of a deliberative process. This bill, is an extreme bill
undertaken at the direction of special interest groups. We must protect
working-class families. We must work to find a viable solution that
deters abuse of the bankruptcy system while preserving the fresh start
for discharged debtors. It is ironic that the consumer lending industry
actively solicits unsuspecting consumers through the mail with terms of
easy credit, buy now--pay later rhetoric. After addicting debtors to
this ``financial crack'' lenders are advocating for reform. Of course
debtors are responsible for financial obligations that they incur;
however, lenders must assume responsibility for their actions in
creating the precarious financial crisis we are discussing.
In the 105th Congress, I served as a member of the Subcommittee on
Commercial and Administrative law and as a conferee on H.R. 3150, the
precursor to the bill before us today. As a member of that subcommittee
in the 105th Congress, I signed onto the dissenting views of the
accompanied the report from the committee. The dissents' conclusion is
appropriate in this context:
For nearly 100 years, Congress has carefully considered the
bankruptcy laws and legislated on a deliberate and bipartisan basis. In
the past, Congress has elected also to carefully preserve an insolvency
system, that provides for a fresh start for honest, hard-working
debtors, protects ongoing businesses and jobs, and balances the rights
of and between debtors and creditors.
Because H.R. 333 departs from these historical principles, and
tramples on the preservation of the American people, I oppose this
legislation in the interest of all that is just and fair.
Thank you.
Mr. Chabot. Mr. Chairman, I move to strike the last word.
Chairman Sensenbrenner. The gentleman from Ohio is
recognized for 5 minutes.
Mr. Chabot. Thank you. I won't take all that time, and I'll
also yield to the gentleman from Georgia, Mr. Barr. But I'd
just note that I keep hearing the term ``mutilated'' thrown
around here pretty freely, and there's absolutely no excuse for
anybody who takes action against a person or any of these
abhorrent bombings or anything else, it's absolutely
outrageous. But I'd just note that the little babies who go
into these abortion facilities come out in a pretty darn
mutilated state as well. And the language in this particular
amendment is totally unnecessary. The amendment's unnecessary,
because malicious and willful tort awards are non-dischargeable
under existing bankruptcy law. So the amendment is unnecessary
and----
Ms. Jackson Lee. Would the gentleman yield?
Mr. Barr. Would the gentleman yield?
Mr. Chabot. [continuing]. I would urge my colleagues----
Mr. Barr. Would the gentleman yield?
Ms. Jackson Lee. Would the gentleman yield?
Mr. Chabot [continuing]. To oppose this amendment. I've
already indicated I'd yield to the gentleman from Georgia, Mr.
Barr. I yield.
Mr. Barr. Thank you. Well, I think we have here the same as
we had in prior Congresses with the Schumer amendment, which
essentially is what we're talking about here today. It is
simply an effort to inject a debate over abortion into a
bankruptcy bill, Mr. Chairman. This amendment was defeated as
the red herring that it is previously, and I would ask our
colleagues, again, based on the eloquent statements made by the
former chairman of the committee, the subcommittee with
jurisdiction, as well as the gentleman from Ohio, that this
amendment is unnecessary. It is simply an effort by pro-
abortion proponents to interject a debate over abortion into a
bill that has and should have nothing to do with abortion.
As the gentleman from Ohio indicated, the current
bankruptcy code makes a debt for willful and malicious injury
to a person or property non-dischargeable in an individual
debtor's chapter 7 or chapter 11 bankruptcy case.
I yield back.
Mr. Nadler. Would the gentleman from Ohio now yield for a
question?
Mr. Chabot. In the interest of time, I'm going to yield
back the time, and the folks are welcome to get their own time.
Chairman Sensenbrenner. The gentleman has yielded back his
time. For what purpose does the gentlewoman from California
seek recognition?
Ms. Waters. I move to strike the last word.
Chairman Sensenbrenner. The gentlewoman is recognized for 5
minutes.
Ms. Waters. Mr. Chairman and members----
Chairman Sensenbrenner. And the machine is working.
Ms. Waters. [continuing]. I am a bit embarrassed by this
debate. I'm embarrassed because I recognize that we are in the
minority and that we are going to lose most of our attempts to
amend this legislation, and I expect that. But there is a point
where partisanship should not enter into the debate.
This amendment is a reasonable amendment that speaks to an
issue that I don't believe anyone can really, really disagree
with. The fact of the matter is we can argue all day long about
when life begins or when does it start, and those debates will
go on forever. But human beings who are sitting inside that
clinic, working inside that clinic, are living. They're live
human beings. It's not debatable whether or not they are put at
great risk, whether or not they can be killed, whether or not
they could be harmed, and it has happened. And I suppose it
will continue to happen.
And I dare say that I would like to believe that no matter
what you feel about abortion, that there's not one person here
on this committee who would support the bombing of a clinic. I
would like to believe that, no matter what you feel about
abortion.
Now, the argument can be made that everybody knows, because
somewhere in law these obligations are not dischargeable. But
what harm does it do to send that public policy message right
from here? Right from here. So it's no question about whether
or not it's a decision of a--of a judge somewhere down the line
but, rather, we make it very clear in this law that we are
passing that you cannot discharge an obligation, a judgment, or
an order that has been rendered to have someone pay for damages
incurred because of that kind of an act.
So I would simply say to you, no matter what you feel,
again, the person sitting in that clinic, whether you like it
or not, could be your daughter. It could be your wife. It could
be your neighbor. And as a woman, I'm terribly offended and
embarrassed that we have to argue this case, that we have to
take this time to talk about striking a blow on behalf of
protection for women, even if you disagree with the decision
that they have made.
I would simply ask that we support this amendment. Let's
not even bring abortion into this argument. It's about whether
or not we will support or whether or not you will allow public
policy to roll out of this committee showing that you support a
criminal who has been judged to have been guilty of an act that
is so horrendous that it is just hard to imagine.
So I would ask support for this amendment, and I would
yield the balance of my time to Mr. Nadler.
Mr. Nadler. Thank you, Mr. Chairman. I will say again,
since Mr. Chabot apparently didn't hear when it was said
earlier, yes, malicious and willful torts are not
dischargeable. But violating the FACE act in a deliberate way
to harass or intimidate people does not have to be malicious
and willful, and it is dischargeable, and that is what this
amendment seeks to get at. That's point one.
Point two, I will paraphrase Mr. Barr in a different
context. This amendment is not about abortion. It's about the
rule of law. The law says you can't intimidate and harass
people going into a clinic. We didn't bring--we're not trying
to bring abortion into a bankruptcy bill. Randall Terry and
Operation Rescue and others who are using the bankruptcy courts
to try to avoid judgments and fines levied by courts for their
violation of the law, they brought the bankruptcy code into
this question.
Now, maybe ultimately when appellate courts rule on this
question, they will rule that you--that these things are all
undischargeable. But we've already had thousands and thousands
and thousands of hours of litigation in bankruptcy court
costing millions of dollars. The real purpose of this
amendment----
Chairman Sensenbrenner. The gentleman's time has expired.
For what purpose does the gentleman from Virginia seek
recognition?
Mr. Scott. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Scott. Mr. Chairman, I support the amendment and yield
the balance of my time to the gentleman from New York.
Mr. Nadler. Thank you.
This amendment is about eliminating frivolous litigation
designed to help people--frivolous litigation by people who
have been adjudged in violation of the law. If you think people
should be able to violate the law and then engage in thousands
of hours of litigation over whether to bother paying the fine
or the judgment, then vote against this amendment. That's what
this is about. This has nothing to do with willful or
malicious. That's a red herring raised by a few people. What
this amendment says is if you violate the FACE law, if the
court finds that you violated the FACE law--it's not if someone
thinks you did or your intention. The court finds you violated
the law and issues a judgment against you and says you should
pay X dollars, you shouldn't then be able to waste the
bankruptcy court's time and the victim--the tort victim's money
and time by a frivolous action in bankruptcy court to avoid
paying the find or the judgment. That's all this amendment
says.
And I hope that Republicans are still opposed to excessive
and frivolous litigation, which is all this amendment seems
to--I'm sorry, seeks to curtail.
I yield back.
Mr. Scott. I yield back.
Chairman Sensenbrenner. The question is on the amendment
number four offered by Mr. Nadler of New York. Those in favor
will say aye. Opposed, say no.
The noes appear to have it.
Mr. Nadler. Roll call.
Chairman Sensenbrenner. A roll call is requested. The
question is on the Nadler amendment. Those in favor will say
aye as your names are called. Those opposed, say no. And the
clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no.
Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no.
Mr. Goodlatte?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no.
Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no.
Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no.
Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no.
Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no.
Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no.
Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no.
Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Mr. Scarborough?
Mr. Scarborough. No.
The Clerk. Mr. Scarborough, no.
Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye.
Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
Ms. Lofgren. Aye.
The Clerk. Ms. Lofgren, aye.
Ms. Jackson Lee?
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye.
Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye.
Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there additional members in the
room who wish to cast their vote and change their vote? The
gentleman from Florida?
The Clerk. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Chairman Sensenbrenner. Any other additional members. If
not, the clerk will report.
The Clerk. Mr. Chairman, there are 9 ayes and 20 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments? And for what purpose does the
gentlewoman from Texas seek recognition?
Ms. Jackson Lee. Strike the last word, offer an amendment,
Mr. Chairman.
Chairman Sensenbrenner. The clerk will report the
amendment.
Ms. Jackson Lee. The amendment is dealing with credit card
abuse of underage voters, number 6, Jackson Lee.
Chairman Sensenbrenner. The clerk will report Jackson Lee
amendment number 6.
The Clerk. Mr. Chairman, there is no amendment number 6
here at the desk.
Chairman Sensenbrenner. For what purpose does the gentleman
from California seek recognition?
Ms. Jackson Lee. Excuse me, Mr. Chairman. It's there, 015
at the top.
Chairman Sensenbrenner. Has the clerk found the amendment
that is referred to by the gentlewoman from Texas? The clerk
will report the amendment.
The Clerk. Amendment to H.R. 333, offered by Ms. Jackson
Lee. Page 120, after line 16, insert the following: ``(and make
such technical and conforming changes''----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read, and the gentlewoman from Texas is
recognized for 5 minutes.
Ms. Jackson Lee. Thank you very much, Mr. Chairman.
Some years ago there was a very popular movie that had the
phrase that was very quotable: ``Show me the money.'' Young
people quoted it, and it got to be sort of a familiar
Americana, if you will.
This bill causes reasonable minds to disagree, and I would
hope in this instance we could get reasonable minds to agree.
This is a simple amendment that restores the language to
prevent the language that would protect the abuse of underage
creditors or users of credit.
When we debated this over the last two sessions of
Congress, our interest was--if we could ever find a compromise,
it was in working with the credit card companies to realize
that abuse is a two-way street. I offer for the consideration
of my colleagues the proliferation of mail that comes to all of
us, and I show one of these constant barrages that comes to
everyone's mailbox.
This happens to be Visa Gold, and it says, ``Send for your
card now.'' Gleaming, bold letters reaching out and screeching
to the innocent. Send the card now. No restraint, no
understanding of how you balance a checkbook, but just send me
the card.
[The Amendment offered by Ms. Jackson Lee follows:]
Ms. Jackson Lee. I would ask, Mr. Chairman, as well to
submit into the record an article in the USA Today, Tuesday,
February 13, 2001.
[The article follows:]
Ms. Jackson Lee. The headline said, ``Debt Smothers Young
Americans: Undergraduates pile on credit cards and debt.''
Young people having credit cards in 1998, 67 percent; in 2000,
now 78 percent. Young people having four or more credit cards
in 1998, 27 percent; 2000, 32 percent. Average credit card debt
in 1998, $1,879; the year 2000, $2,748.
It seems ludicrous, Mr. Chairman, that previous language
had protection against the abuse of underage creditors, but
H.R. 333 saw either the light that none of us could see or had
some vision that others of us did not have, and this language
is not in it.
So my amendment is extremely simple and straightforward,
what it does is it protects the underage creditor from the
screeching sound of ``take me now.''
This is a travesty when young people from 18 to 35--and
obviously 35-year-olds are certainly adults. But it is well
known that through this credit system and this constant barrage
from the credit card companies we live from paycheck to
paycheck, young people using credit cards for restaurant meals
and high-tech toys, as noted in this article, and a $3,000 debt
constantly at their doorstep.
I believe that if we are to do no harm but as well to have
reasonable minds, assessing the fact that maybe there is a
recession--we have heard the President talk us into it. We know
that growth is about 3 percent. Even though the economy is
rumbling along, we do know that we will have to face some
organizing of our debt, if you will.
You have language in this legislation that means testing,
literally blocking people from getting into the bankruptcy
court, standing in the wayside, locking the key, and yet every
single day you have a barrage of credit card mailing to college
campuses, to young people with first-time jobs, to unemployed
young people, to unemployed Americans talking about send the
credit card now. Show me the money.
And I think it's irresponsible, if we had the credit card
industry sitting in here and saying give me the benefits but
don't give me the burdens. Why we can't find an opportunity for
a meeting of the minds to provide language that protects these
underage----
Chairman Sensenbrenner. The gentlewoman's time has expired.
Ms. Jackson Lee. I would ask my colleagues to be
reasonable----
Chairman Sensenbrenner. The gentlewoman----
Ms. Jackson Lee [continuing]. And support this amendment.
Chairman Sensenbrenner. The gentlewoman's time has expired.
For what purpose does the gentleman from Pennsylvania seek
recognition?
Mr. Gekas. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. The amendment at hand is one on which I would
ask the members to vote no. The--it's a little bit confusing to
me as to the aim of the lady from Texas. But I have to assert
that if a creditor violates the existing provisions of the
Consumer Credit Protection Act, then the claim of that creditor
falls of its own weight, and the bankruptcy provisions already
in place and the ones which will be addressed by our bill will
already impose sanctions on that kind of creditor. So this is a
simple restatement, it seems to me, of the obvious. A creditor
who violates the Consumer Credit Protection Act shall not have
a valid claim against a debtor. Therefore, I ask for a simple
no to a simple amendment.
Chairman Sensenbrenner. The question----
Mr. Gekas. I yield back the balance of my time.
Chairman Sensenbrenner. The question is on the amendment
number 5 offered by the gentlewoman from Texas, Ms. Jackson
Lee. Those in favor will signify by saying aye. Opposed, no.
Ms. Jackson Lee. Roll call.
Chairman Sensenbrenner. The noes appear to have it. Roll
call is requested and ordered. The question is on the adoption
of the amendment offered by the gentlewoman from Texas, Ms.
Jackson Lee. Those in favor will, as your names are called,
answer aye, those opposed, no, and the clerk will call the
roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no.
Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no.
Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no.
Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no.
Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no.
Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no.
Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Mr. Scarborough?
Mr. Scarborough. No.
The Clerk. Mr. Scarborough, no.
Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Mr. Keller?
[No.]
The Clerk. Mr. Issa?
[No response.]
The Clerk. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye.
Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there additional members who
wish to cast their vote or change their vote? The gentleman
from California, Mr. Gallegly?
Mr. Gallegly. No.
Chairman Sensenbrenner. Any additional members? If not, the
clerk will report.
The Clerk. Mr. Chairman, there are 6 ayes and 18 nays.
Chairman Sensenbrenner. The amendment is not agreed to.
Are there further amendments?
Ms. Jackson Lee. Parliamentary inquiry, Mr. Chairman.
Chairman Sensenbrenner. State your inquiry.
Ms. Jackson Lee. Mr. Chairman, you noted at the beginning
of this session, as you began your chairmanship, that you would
be adhering to the rules. Let me acknowledge the fact that I
respect your attention to the detail of the rules and will work
very hard during these next 2 years to do so.
I do believe, however, in the sense of comity that a hard-
hitting gavel is over the edge----
Chairman Sensenbrenner. Well----
Ms. Jackson Lee [continuing]. When someone is finishing
their sentence. I believe that if we can work with less
hostility in this room, we can all do a better job. I was
concluding my sentence and had no intention to disrespect the
clock. But I would appreciate it--I heard your voice, and I
would appreciate it if we can work more in comity and with less
hostility. And I thank the chairman.
Chairman Sensenbrenner. The gentlewoman was not stating a
parliamentary inquiry. You know, let me say that the clock runs
at the same rate for both sides of the aisle.
Ms. Jackson Lee. I appreciate it, Mr. Chairman, and I will
do my best to adhere to it.
Chairman Sensenbrenner. For all members----
Ms. Jackson Lee. But the heavy-handed gavel does nothing
but antagonize an already----
Chairman Sensenbrenner. The gentlewoman----
Ms. Jackson Lee [continuing]. Antagonized minority.
Chairman Sensenbrenner [continuing]. From Texas is
interrupting once again. The machine is operating properly.
Every member has a yellow light notice when there is 1 minute
to go. The Chair told the gentlewoman that her time had
expired----
Ms. Jackson Lee. And I was completing my sentence, Mr.
Chairman.
Chairman Sensenbrenner [continuing]. And she continued--she
continued speaking, and the Chair will enforce the rules, and
when the red light goes on, that means----
Ms. Jackson Lee. And I appreciate it----
Chairman Sensenbrenner [continuing]. Your time is up.
That's the way it works----
Ms. Jackson Lee. Since we have to spend 2 years together, I
would appreciate it if we could do it in comity. I thank the
chairman.
Chairman Sensenbrenner. Okay, and comity means we don't
interrupt each other.
For what purpose does the gentlewoman from California----
Ms. Jackson Lee. I agree, and I would appreciate if you
wouldn't heavy-handle on this gavel. All you're going to do is
break the gavel, keep going on and on and on. We can----
Mr. Scarborough. Regular order, Mr. Chairman.
Ms. Jackson Lee [continuing]. Work together. We are
professionals----
Mr. Scarborough. Regular order, Mr. Chairman. Regular
order, Mr. Chairman.
Chairman Sensenbrenner. Would the gentlewoman from Texas
kindly follow the rules?
For what purpose does the gentlewoman from California, Ms.
Waters, seek recognition?
Ms. Waters. Prior to seeking recognition, I have a
parliamentary inquiry. Do you wish us--if I may, Mr. Chairman--
to----
Chairman Sensenbrenner. The gentlewoman will state her
inquiry.
Ms. Waters. I have multiple amendments. Do you wish us just
to take up one so that you can go around----
Chairman Sensenbrenner. What the----
Ms. Waters [continuing]. The room? Will you have a second
round?
Chairman Sensenbrenner. What the Chair has been doing is he
has been conferring with the Democratic staff and following
their advice into which order they wish me to recognize members
of the minority. So I guess I would say please consult with
your staff, and which amendment do you wish to offer now?
Because they told me to recognize you next.
Ms. Waters. Well, that was not my question. I was inquiring
whether or not I should do multiple amendments, but I will just
go ahead. I have an amendment at the desk----
Chairman Sensenbrenner. Would you like to do them en bloc?
Ms. Waters. No, I would not. I have an amendment at the
desk.
Chairman Sensenbrenner. Which amendment does the
gentlewoman wish to offer?
Ms. Waters. It is not numbered. It is--it is referred to
under section 102, page 12, beginning on line 18.
Chairman Sensenbrenner. Has the clerk found the proper
amendment? If so, the clerk will report the amendment.
The Clerk. Amendment to H.R. 333, offered by Ms. Waters.
Page 12, beginning on line 18, insert----
Chairman Sensenbrenner. Without objection, the amendment
will be considered as read, and the gentlewoman from California
will be recognized for 5 minutes.
[The Amendment offered by Ms. Waters follows:]
Ms. Waters. Thank you very much.
Mr. Chairman and members, this amendment would amend
section 102, dismissal or conversion, so that debtors who
establish that their income falls below a specified threshold
do not have to comply with all of the reporting requirements
included in the means test. The threshold should be based on
the Federal income poverty guidelines for the current year.
The means test is a burdensome test requiring debtors to
gather a great deal of information for presentation to the
bankruptcy court. Under proposed section 102, all persons
filing for bankruptcy would have all of these requirements for
reporting and documenting monthly expenses, rent,
transportation, food, clothing, and necessary expenses to
maintain safety, on and on and on. And it actually requires an
attorney to be able to put all of this in order for
presentation.
We're talking about people who are below the poverty
guidelines and they can show proof of that, of their income. We
would simply ask that they not be put in the position of hiring
an attorney. Not only do they not have the resources to do so,
we have cut back on legal aid so much until they cannot
accommodate these kinds of requests, even when people have no
way of being able to comply with the requirements of bankruptcy
court.
So we need to recognize some minimal threshold below which
debtors do not need to comply with the reporting requirements
of the means test.
Specifically, individuals with incomes below the Federal
poverty guidelines would be exempt. To be below the guidelines
for 2000, for a family of four, for example, the household
income must be below $17,000. They are least--people filing in
that category are least able to afford an attorney to assist
them in gathering the necessary information.
So, Mr. Chairman and members, I would ask that we support
this amendment, give poor people an opportunity to not have to
comply with these burdensome requirements, not clog up the
system, and simply give proof of their earnings. And if they
fall below the poverty guidelines, that should be enough.
Chairman Sensenbrenner. Does the gentlewoman yield back the
balance of her time?
Ms. Waters. I yield back the balance of my time.
Chairman Sensenbrenner. For what purpose does the gentleman
from Pennsylvania seek recognition?
Mr. Gekas. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. The answer to the gentlelady from California is
apparent in the language of her proposed amendment. On the one
hand, she says that the person under the poverty level
shouldn't have to prove anything, and then in the amendment
says the debtors who establish that their income falls below
the Federal income poverty guidelines. So we can only imagine
that there are just a few ways in which one can establish that
the income falls below the Federal income poverty.
One is that the debtor can simply say I'm below the Federal
income--Federal income poverty guideline, therefore, grant me
bankruptcy. We can't allow that, can we?
So the second step is--to establish means to provide income
tax returns or slips, bank slips, or an array of bills, et
cetera, or somehow that individual still has to establish. You
have gone thus far, even in this second step, toward what we
are attempting to do in this bill, and that is to make certain
that everyone who comes before the bankruptcy court is entitled
to relief. It is not a burden in any way on anyone to prove
that they come within a certain guideline----
Ms. Waters. Will the gentleman yield?
Mr. Gekas [continuing]. In the bankruptcy provisions.
Ms. Waters. Will the gentleman yield?
Mr. Gekas. And it will become readily available and readily
recognizable if a person is in a poverty guideline with the
initial filing that that person----
Ms. Waters. Will the gentleman yield?
Mr. Gekas [continuing]. Is entitled to chapter 7 discharge.
I would yield.
Ms. Waters. Thank you very much, and in my presentation, I
attempted to distinguish between establishing and giving simple
proof. For example, under this section, all persons filing for
bankruptcy will be required to do the following: they would
have to show the monthly expenses, rent, transportation, food,
clothing, and all necessary expenses to maintain safety, actual
expenses paid for reasonably necessary care to support the
elderly, chronically ill, the disabled household member, a
member of debtor's immediate family, actual expenses for each
dependent child under the age of 18 years, and up to $1,500 per
year for private--on and on and on.
What I'm saying to you is if you fell below the poverty
guideline, you are poor, and you come in and you show proof--
your income tax statement, your payment slips, simple proof of
how much money you earn, if you fall below the guidelines, that
you don't put this person in the position of having to go out
and try and find an attorney to do all of this documentation
when, in fact, they're poor, they have nothing. And you're
clogging up bankruptcy court with this, and you're asking them
to meet certain kind of standards that they can't very well
meet. I mean, it's--it's about having a little mercy. It's
about simply recognizing that someone who falls below the
poverty guidelines should not have to go and gather and try and
put together all of this documentation. It really doesn't make
good sense.
Mr. Gekas. Recovering some of my time here, I simply
reiterate that it is not a great burden for an individual to
demonstrate by what we require under this law that they come
under the median income level, let alone the poverty levels.
It's not that great a burden.
As a practical matter, looking at it from a lawyer's
standpoint, I believe that once the income level is stated and
proved to be under the median income--forget the poverty for
just a moment--but it might also be obvious that they're under
the poverty level, that that ends the case right then and
there, and that that individual will be accorded the protection
of chapter 7.
I ask the members to vote----
Ms. Waters. Would the gentleman yield? Then you agree with
me? Are you agreeing that----
Chairman Sensenbrenner. The time belongs to the gentleman
from Pennsylvania. Do you yield?
Mr. Gekas. Yes, I yield. What is the question?
Ms. Waters. The latter part of your statement was a bit
confusing. What you--what you said was that if you fall below
the median or if you are poor that you should not have to do
anything else to prove or to meet all of the requirements of
this legislation. Is that what you said?
Mr. Gekas. I did not say that. I said that the requirements
that we do place in the bill do not exert a great burden on the
debtor, and as a practical matter, if the individual is already
declared and is proved to be under the median----
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Gekas [continuing]. Guidelines for the poverty lines,
they'll be discharged.
Chairman Sensenbrenner. The question----
Mr. Watt. For what purpose does the gentleman from North
Carolina, Mr. Watt, seek recognition?
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Thank you, Mr. Chairman. I'm somewhat frustrated
because it--it does sound to me like what Ms. Waters and what
Mr. Gekas are saying puts them on the same side of this issue
philosophically. Unfortunately, the bill has no exemption from
all of these onerous paperwork requirements for people who
clearly fall below the median income.
Mr. Gekas. Would the gentleman yield?
Mr. Watt. I'm happy to yield. I hope I can yield to him for
the purpose of showing me where in this bill, once somebody
demonstrates they fall below the median income and would be
exempt from--should be exempt from the rest of the onerous
provisions, where it says they really are exempt, because I've
been looking for it and a number of experts in this field have
looked rigorously for the provision and say that that is a
serious, serious problem. I can't find it.
Mr. Gekas. Would the gentleman yield----
Mr. Watt. People who have testified here who are experts in
this field can't find it. Not advocates. I'm talking about
people from the National Bankruptcy Conference, which has
people from Republicans and Democrats, conservatives and
liberals, all of them are in this organization. They can't find
the provision----
Mr. Gekas. Would the gentleman yield?
Mr. Watt [continuing]. That you say does this. And maybe
Ms. Waters' amendment doesn't artfully do it, either. I don't
know. But if you all agree, I don't know why we're protecting
the integrity of a bill that doesn't say what you all agree on.
Mr. Gekas. Would the gentleman yield?
Mr. Watt. I think the appropriate individual to engage in
this debate on this particular provision is the gentleman from
North Carolina, because he very carefully articulated the
notion and the fact that even a person under the median level,
or even under the poverty levels, can game the system. That is
a fact. But----
Mr. Watt. No, no, but----
Mr. Gekas. Let me----
Mr. Watt. Let me just seize back my time here. I'm going to
yield back to you. But that person then goes--it doesn't go out
of bankruptcy. They still flip over into another bankruptcy.
They're not gaming the system. What they are--what they are
doing--I mean, what if all the parties in the bankruptcy court
come in and stipulate that this person meets the income,
there's no controversy about it whatsoever, there's nothing in
this bill that allows that person to be exempted from filing
all of these documents, going through all this process. You
know, and that may be your intent. It sounds like it is. That's
what I'm saying. But there's nothing in the bill that does
that, Mr. Gekas, and perhaps Ms. Waters' amendment doesn't do
it artfully either. But somewhere in this bill that ought to be
addressed.
Mr. Scott. Would the gentleman yield?
Mr. Watt. I'd be happy to--well, I told Mr. Gekas I'd yield
back to him. He's going to tell me where the provision is,
maybe.
Mr. Gekas. It's out there--what I----
Mr. Watt. Well, I think that's where it is, is out there.
I'm trying to find it in this bill. It's out there in
cyberspace somewhere in a notion that you have about equity,
which Ms. Waters has about equity, which I think everybody on
this committee has about equity, and all we're saying is
please, if we--if we found something we agree about, put it in
the bill.
Mr. Gekas. Would the gentleman yield?
Mr. Watt. Yes, sir.
Mr. Gekas. The current law requires for the purpose of
making certain that individuals qualify, to have their debts
discharged, to be able to prove their expenses, their income,
the whole gamut of things. The current law requires that. So we
don't change that portion of it.
If an individual is to be scrutinized to determine whether
or not they're trying to game the system or somehow to avoid
their responsibilities to repay some of the debt, it's only a
necessary and proper requirement to have them list their
expenses, et cetera. What I'm saying----
Mr. Watt. But what happens if everybody in the bankruptcy
agrees that----
Chairman Sensenbrenner. The time of the gentleman has
expired.
Mr. Scarborough. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from Florida, Mr. Scarborough, seek recognition?
Mr. Watt. Would Mr. Scarborough yield----
Mr. Scarborough. To strike----
Mr. Watt. So I can at least----
Chairman Sensenbrenner. I'd recognize him first, please.
For what purpose do you seek recognition?
Mr. Scarborough. To strike the last word.
Chairman Sensenbrenner. The gentleman from Florida is
recognized for 5 minutes.
Mr. Scarborough. I will yield to you, Mr. Watt, but let me
yield to you asking you a question, too, because I'm
sympathetic to Ms. Waters' concern, because I think most of us
here would be sympathetic, not wanting to strap those that are
truly impoverished with a lot of these requirements that would
require an attorney.
But let me ask you, Mr. Watt or Ms. Waters, just to throw
this out there, how do we stop, let's say, somebody worth $10
million or somebody that's making, you know, hundreds of
thousands of dollars or millions of dollars a year from 1 year
deciding to report that they made $13,000 in income a year or
move their money around so they don't game the system? So
instead of having a single mother with three kids who has run
up some credit card bills that she can't pay, having somebody
else game the system?
Mr. Watt. See, what happens, Mr. Scarborough, is this: This
bill only takes that person and flips them over into another
form of bankruptcy. Okay? They've still got to go through all
of the requirements. You know, if there's some question about
that, that can be determined in that bankruptcy proceeding, and
they can come back over--they can be sent back over here.
That's one of the--one of the concerns we've expressed about
this bill, is it really doesn't have a provision that kicks
people back if they've--if they've done it either. But the
problem is----
Mr. Scarborough. Reclaiming real quick with one more quick
question, do you agree with Ms. Waters that there are onerous
requirements that would require the hiring of an attorney for
somebody in poverty?
Mr. Watt. Yes.
Mr. Scarborough. You can keep talking now and just talk
about whatever you wanted to talk about.
Mr. Watt. Oh, I thought you were yielding--you asked me a
question, and I answered the question.
Mr. Scarborough. Okay. You want me to take my time back?
Mr. Watt. That's unusual----
Mr. Scarborough. Yeah, that is. Okay, Mr. Gekas, do you
agree with Ms. Waters that--that the requirements are so
onerous that, let's say, a single mother under the poverty line
would have to hire an attorney to be able to meet these
requirements? I'm just curious. I'm not----
Mr. Gekas. I don't think--yes. If the gentleman would
yield, I don't think it's going to be absolutely necessary for
a person under the poverty level to hire a lawyer. I really
don't. I can be proved otherwise there, but there are many
other reasons that we require the expenses to be outlined for a
person claiming poverty or under the median income.
For instance, the creditor has a right to determine from
these--these accounts as to whether or not they extended credit
in the first place on a reasonable basis or were they defrauded
or were they misled by the debtor when they obtained credit in
the first place. They're entitled to know that.
Secondly, in the question of reaffirming--reaffirmation,
the creditor is required or should know whether or not to give
this person a chance to reaffirm what these expenses are and
whether they're regular and proper and necessary. So it's not
an undue burden for anyone claiming bankruptcy to be able to
supply these kinds of----
Ms. Waters. Would the gentleman yield?
Mr. Gekas [continuing]. This information. That's all I'm
saying. Philosophically, we agree. And as a practical matter,
this is the only thing that I was trying to say in accord with
Ms. Waters, that in the practice of bankruptcy, it may be
apparent, as Mr. Watt implied in one of his statements, from
all the circumstances--and everybody agrees that even in a
recounting of the expenses, which are still a part of the
record, that we agree that that person should be discharging
debt. But they'll still be scrutinizing these expenses.
Mr. Watt. Would the gentleman yield?
Mr. Scarborough. Well, Ms. Waters, did you ask----
Ms. Waters. Yes.
Mr. Scarborough. Ms. Waters?
Ms. Waters. I--I--you asked the question about whether or
not you believe it is necessary to hire an attorney, and what
Mr. Gekas did not answer was all of the requirements that are
in the bill that have to be addressed by somebody. And when you
look at these requirements, for documentation, for everything,
I think you will concur that the average person is unable to do
it without an attorney and poor people simply don't have the
resources to do it.
If he would but read the legislation and look at how it is
delineated here, I think he cannot--he cannot reasonably
conclude that this poor person won't need an attorney in order
to compile all of this documentation, to depreciate, to do a
lot of things, in order to have an accurate picture.
So if they're poor and they don't have anything, a family
of four meeting the poverty guidelines, under $17,000, for
God's sake, if that's your proof, that's all they have, let
them go.
Chairman Sensenbrenner. The time of the gentleman from
Florida has expired.
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from Massachusetts seek----
Mr. Delahunt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman's recognized for 5
minutes.
Mr. Delahunt. And point out to--to Mr. Scarborough that I
dare say there are not many on this particular panel, unless
they have practiced in the bankruptcy courts, that had--would
have the experience and the ability to fill out what would be--
what be required to fill out.
In fact, at the only--at one of the hearings that this
committee had, there was testimony from an individual professor
from Utah who--I don't know whether I'm accurate in saying
this, but he is a member of the National Bankruptcy Conference
that I believe is considered a neutral--a neutral party. And he
indicated that he agreed with the import of Ms. Waters'
amendment, that you'd have to have a lawyer.
In response to a question by Mr. Nadler, he indicated that
in most cases it would be hundreds of dollars' worth of legal
fees, but in some cases thousands of dollars' worth of legal
fees, even when the debtor would qualify for chapter 7.
Mr. Scarborough. Would the gentleman yield for a second?
And I think we agree on that point. Let me ask you this very
quickly, Mr. Delahunt. Looking at Ms. Waters' amendment, let me
ask you what I asked Mr. Watt. I mean, do you think it's overly
broad and is susceptible to being gamed by people? We all agree
with this concept, I think. Most of us do. But are you
comfortable with this language?
Mr. Delahunt. I--I just walked in and I haven't read the--
--
Mr. Scarborough. You don't read any bills, so just--just
fake it.
Mr. Delahunt. Well, my guess is, since we're----
Mr. Watt. Would the gentleman yield?
Chairman Sensenbrenner. If the Chair can interrupt, the
author of the amendment has suggested that we might bring this
amendment to a vote before we break for lunch. The committee
members can be advised and the gentleman can proceed.
Mr. Delahunt. And I will be very brief, but I just want to
direct my comments to my colleagues on the other side, that
this particular bill as drafted now is a dream for lawyers. If
you want to make lawyers active and busy and prosperous, reject
the Watt--reject, rather, the Waters amendment.
Mr. Watt. Would the gentleman yield?
Mr. Delahunt. I yield to Mr. Watt.
Mr. Watt. Let me--and I appreciate you yielding to somebody
who actually has read the bill and the amendment, because I've
been looking for this--this phantom cyberspace amend--
provision. I mean, this is a serious problem. And it's even
more a problem because there's no provision in the bill that
allows you to get out of this process even if everybody agrees
that you qualify.
Now, does--does the Waters language leave something to be
desired? Yes, it does. But the point I'm making is that if we
all agree that there's a certain category of cases where it is
absolutely clear that the person shouldn't be there, that
they--that they're exempted, why couldn't we come up with some
language to at least put that exception in the bill to keep
people from having to go through all of these onerous
requirements when we all agree that that shouldn't be
necessary?
Mr. Scott. Would the gentleman yield?
Mr. Scarborough. Would the gentleman yield?
Mr. Watt. And I would say to the gentleman that Ms. Waters'
amendment----
Mr. Delahunt. I yield to Mr. Scarborough.
Mr. Watt [continuing]. Gets a lot closer to where--where
the gentleman is than the bill does.
Mr. Delahunt. I yield to Mr. Scarborough.
Mr. Scarborough. And I thank you. If that's the case, would
Ms. Waters consider withdrawing the amendment so we could see
if we couldn't work on language that Mr. Watt and others would
be more comfortable with and bring it up for a vote later on?
Ms. Waters. I appreciate the consideration that you're
giving to this, and if the language is imprecise and does not
get to satisfying Mr. Gekas and others, I'm very happy to work
on it.
Chairman Sensenbrenner. Does the gentlewoman withdraw the
amendment?
Mr. Watt. Would the gentleman yield? Would the gentleman
yield? Let me suggest to him that a better way to proceed,
since there is nothing in the bill--I mean, it would be--it
would make more sense on this--on this point to withdraw the
bill, because Ms. Waters' amendment----
Mr. Scarborough. Don't push your luck. I'm----
Mr. Watt. I say that with tongue in cheek. The reason I say
that is because----
Chairman Sensenbrenner. The time of gentleman from
Massachusetts----
Mr. Watt. I ask unanimous consent for 30 additional
seconds.
Chairman Sensenbrenner. Well, there's a vote on. The
gentleman from Massachusetts is recognized for 30 additional
seconds.
Mr. Watt. I just--we ought to put this provision in the
bill and then continue to work on this provision to clean up
the language, not just leave the bill alone and hope that
some--somewhere cyberspace comes in----
Chairman Sensenbrenner. The gentleman's time has once
again----
Ms. Waters. Excuse me. If I may, unanimous consent, if I
need it, to address the concerns of Mr. Scarborough.
Chairman Sensenbrenner. Well----
Ms. Waters. I'd be happy over the lunch break to work with
him so that we can come back and see if we can have language
that we agree on.
Chairman Sensenbrenner. Okay. The committee is recessed
until 1:30. Members should be present promptly.
[Whereupon, at 12:27 p.m., the committee was recessed, to
reconvene at 1:30 p.m., this same day.]
AFTERNOON SESSION [1:43 p.m.]
Chairman Sensenbrenner. The committee will be in order.
Pending at the time the committee recessed earlier today was
amendment number 6 by the gentlewoman from California, Ms.
Waters. All those in favor of the Waters amendment will----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from North Carolina seek recognition? He has already spoken
once on this amendment.
Mr. Frank. Mr. Chairman?
Chairman Sensenbrenner. Yes?
Mr. Frank. I seek to strike the last word.
Chairman Sensenbrenner. The gentleman from Massachusetts is
recognized----
Mr. Frank. I yield to the gentleman from North Carolina.
Chairman Sensenbrenner [continuing]. For 5 minutes.
Mr. Frank. I yield to the gentleman from North Carolina.
Mr. Watt. I thank the gentleman for yielding.
As the chairman is well aware, at the end of the discussion
we had been talking with Mr. Scarborough about the possibility
of--of trying to get to some language that everybody could
agree upon to accomplish what it appeared that both Mr. Gekas
and Ms. Waters and Mr. Scarborough and apparently a substantial
majority of the committee agreed to.
I have some language here. Unfortunately, Ms. Waters is not
here. Ms. Scar--Mr. Scarborough is not here. And I don't have
the authority to withdraw Ms. Waters' amendment, but I would
request that that amendment be deferred until we have a chance
to----
Chairman Sensenbrenner. If the gentleman from Massachusetts
would yield, you know, unfortunately, the rules do not allow us
to defer amendments. And only the offeror of the amendment can
have it withdrawn. So I would--the defeat of the Waters
amendment would not prejudice any other member offering an
amendment on the same subject that was significantly similar to
the Waters amendment.
Mr. Watt. Mr. Chairman, I think in light of that, I mean,
since we're going to be rigid about this, I would offer my
amendment, offer this language as an amendment to the Waters
amendment, if that would be in order.
Chairman Sensenbrenner. Well, the Chair doesn't know what
is in this amendment on whether it would be germane or not. But
the clerk will report the amendment to the amendment.
The Clerk. An amendment to an amendment to H.R. 333,
offered by Mr. Watt of California. Page 12, insert after line
17, ``2(B)(v), a debtor whose current monthly income is equal
to''----
Mr. Watt. Mr. Chairman, I ask unanimous consent the
amendment be considered as read.
Chairman Sensenbrenner. Without objection.
[The Amendment offered by Mr. Watt follows:]
Mr. Gekas. Mr. Chairman, I reserve the right to object.
Mr. Frank. Point of order, Mr. Chairman. Isn't it too late,
the reading having already been completed?
Chairman Sensenbrenner. No, the reading has not been
completed, and the Chair hasn't recognized the gentleman for 5
minutes. You know, that's--that's when reservation of a point
of order does not become timely.
Do you reserve the right to object to waiving the reading
of the amendment, or are you going to reserve a point of order?
Mr. Gekas. I'm reserving the right to object----
Chairman Sensenbrenner. Okay.
Mr. Gekas [continuing]. To a point of order.
Chairman Sensenbrenner. Well----
Mr. Gekas. To raise a point of order.
Mr. Watt. I'll withdraw my motion that the--my unanimous
consent request and allow the clerk to read.
Chairman Sensenbrenner. Okay. The clerk will read.
The Clerk. ``2(B)(v), a debtor whose current monthly income
is equal to or less than the amount set forth in paragraph 7
and has been for the 1-year period preceding the date of the
filing of the petition may, in lieu of the requirements of
clauses 4 and 5 of section 521(a)(1)(B) and subsections (e),
(f), and (g) of section 521''----
Chairman Sensenbrenner. Without objection, further----
Mr. Watt. I object, Mr. Chairman.
Chairman Sensenbrenner. If the gentleman from North
Carolina could allow the Chair to state that the Chair has
reviewed the amendment and it is germane and a point of order
wouldn't lie.
Mr. Watt. Well, I thought he was objecting to the reading,
in which case, I--you know, I don't--I----
Chairman Sensenbrenner. We have worked it out on this side
of the aisle. I'm afraid we haven't worked--the clerk will
continue to read.
Mr. Watt. Okay. I'll withdraw--I'll withdraw my objection.
I thought he was objecting to--to the fact that the amendment
was not being read.
Chairman Sensenbrenner. That was not the objection. The
gentleman from North Carolina is recognized for 5 minutes.
Mr. Watt. Thank you, Mr. Chairman.
Mr. Chairman and members, at the end of the--before we
broke for the votes, we had been engaged in a discussion with
Mr. Scarborough and I thought also with Mr. Gekas about how we
might satisfy the concern that the--that the system not be
gamed, but still not require people who met the criteria to get
out of the bankruptcy--out of chapter 7 and into 13 to go ahead
and do that without an onerous paperwork burden and legal
burden, how we could accomplish that, which every--everybody
seemed to be intent on accomplishing.
Over the break, our staff has come up with this wording. In
the haste of things, they indicated that I'm from the State of
California, and I ask unanimous consent to revise that to make
it clear that I'm from North Carolina still.
Chairman Sensenbrenner. Without objection.
Mr. Watt. But beyond that, I think we have the makings of
something that would--hopefully would satisfy what I think
everybody is trying to achieve. And basically what that would
require is if somebody met the criteria, felt that they met the
criteria, they could simply file with the court written
evidence showing their income for a 1-year period before the
date of the filing of the petition, and file with that a
declaration under penalty of perjury that the debtor's income
meets the test of this clause for that period.
Now, you know, I--I think everybody is trying to achieve
the same thing. We're working in good faith. And what I would
like to see, since Ms. Waters hadn't seen this amendment, Mr.
Scarborough hadn't seen it, but I think all of us are saying
the same thing, is let's put this amendment in the bill, and if
we can figure out a better way or if somebody has a problem
with it, between now and the floor, Mr. Gekas and the chairman
of this committee have full control over this bill between now
and the floor, so, I mean, it's not going to be the end of
their world--although it might be the end of our world if we
don't get some language in here on this, because as I think Mr.
Gekas has already acknowledged, except in cyberspace somewhere,
there is nothing that even when everybody agrees the criteria
are met, to get somebody exempted from this bill that will get
you out of court without filing mountains and mountains of
paper. And that's all we're trying to achieve.
I yield back.
Mr. Gekas. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from--the gentleman
from Pennsylvania.
Mr. Gekas. Yes, I thank the Chair. I move to strike the
last word.
Chairman Sensenbrenner. The gentleman's recognized for 5
minutes.
Mr. Gekas. I still oppose the amendment because in the
final analysis the whole purpose of bankruptcy is to allow
those people who deserve a fresh start to gain that fresh
start, but the opposite still applies, namely, that those who
are able to repay even a portion of the debt should be
compelled to do so. We have to examine that, and that's the
purpose of the entry-level submission of documentation, et
cetera, so that the court can be satisfied as to the real
status of that individual.
The language of this amendment does not take into account
the questions of reaffirmation. It does not take into account
the questions of bad faith, except to say the penalty of
perjury, et cetera. Well, that's always there. Even under our
language, that penalty of perjury is still a constant. You're
not adding anything or showing your toughness or anything like
that by putting in the penalty of perjury when that already
exists.
What we're saying is that it is not a burden, contrary to
the general thinking of the debate that has thus far been held,
to ask an individual to show what income is derived, what
expenses apply to that and so forth. The totality of
circumstances which the bankruptcy court looks at, a question
of bad faith, a question of reaffirmation, all of those depend
upon this full exposition of the--the details of a person's
financial status.
Now, having shown why I believe we should vote no, I still,
contrary John Conyers' peroration of my intentions in the past,
am willing to--to meet, once this is voted down, I am--you
don't know what peroration means.
Mr. Frank. No. If the gentleman would yield, we're just
afraid you thought you were getting paid per oration, and we
didn't want you to get into that.
Mr. Gekas. Peroration. You really don't know what it means,
then. But I am willing, once this is defeated--I hope it is
defeated--to again join with Mr. Watt and Mr. Conyers, if he
deigns to meet with me, having heard my pledge to do so, to try
to work something out before the floor. But for now I ask the
members to vote now.
Mr. Scott. Would the gentleman yield?
Chairman Sensenbrenner. Does the gentleman yield back the
balance of his time?
Mr. Gekas. I do.
Chairman Sensenbrenner. For what purpose does the gentleman
from Virginia seek recognition?
Mr. Scott. The gentleman is recognized for 5 minutes.
Mr. Scott. Mr. Chairman, maybe I'm missing something. I
thought this reporting that was under paragraph 2 and now is
under clauses 4 and 5 was for the purpose of determining what
you could pay under chapter 13. What this says is if you're not
going to chapter 13 because you are clearly eligible for
chapter 7, all of that reporting doesn't serve--all of that
reporting serves no useful purpose. And the question is: If
there's no purpose to be served with the filing, why should
anyone have to incur all of the expense of filing it?
Mr. Gekas. Would the gentleman yield?
Mr. Scott. I would yield.
Mr. Gekas. I believe the gentleman is begging the question.
To look at the items of expense and so forth is to determine
whether or not that individual is in any way exercising bad
faith or trying to game the system. And once we look at that,
it may well be that the solution is to go to chapter 13, or it
may be to discharge, or it may be to--to not allow discharge.
There are a lot of options available. But having the evidence
and the facts before us is a prerequisite.
Mr. Scott. Reclaiming my time, as I understand it, if you
are under the median income, are you or are you not entitled to
file chapter 7? I yield.
Mr. Gekas. If you would yield again, yes. But not if it is
determined that the filing has occurred, even with a
demonstration prima facie that they're under the median income.
It does not prima facie mean that they are not trying to game
the system, to use that phrase again. And, therefore, the
investigation into totality of circumstances could yield a
rejection of chapter 7, even when the median income is shown--
is shown to be the top level of this person's income.
Mr. Scott. I yield back.
Mr. Frank. Mr. Chairman?
Mr. Hutchinson. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Arkansas, Mr.
Hutchinson.
Mr. Hutchinson. I thank the chairman and I move to strike
the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Hutchinson. The purpose of me seeking this time is to
make a couple of points and ask some questions. I would agree
with the gentleman from Florida that there is a legitimate need
that we all have or desire to minimize the paperwork
requirement for those people who are below the poverty line,
those people who are not making sufficient money that they
could ever repay any of the debts. We don't want them to have
an onerous burden of--of filing.
But I'm just relying upon my recollection. I don't know of
anybody who's filed bankruptcy that hasn't had an attorney
under the present system. I just went through the University of
Arkansas Legal Clinic, and under the present system they
provide legal counsel to indigents who need assistance in
preparing their petition for bankruptcy. And I know that the
Legal Services do that to the extent that they can. So under
the present system, people need assistance, legal assistance.
Mr. Watt. Would the gentleman yield?
Mr. Hutchinson. In a moment, because I have some questions
for you. The--I think it's an admonition to us all that
whenever Legal Services comes up for funding, we should be
mindful of that. And so if someone's going to make that point,
I will join with you in that. I think this is an instance in
which, you know, if we expect people to have access to the
bankruptcy court and we're going to put on some burdensome
filing requirements, we need to adequately fund Legal Services
so that they can have that assistance.
But in regard to the amendment that's being offered by the
gentleman from North Carolina----
Mr. Watt. Would the gentleman yield so I can respond to
those two issues that he just raised?
Mr. Hutchinson. Well----
Chairman Sensenbrenner. The gentleman from Arkansas has the
time.
Mr. Hutchinson. I'd like to--let me ask some questions,
then I'll give you some time. In your amendment you refer to
monthly income equal to or less than the amount set forth in
paragraph 7. I'm not sure where paragraph 7 is. I need some
assistance as to where that is. Second--let me finish. And,
secondly, it talks about in the third line, in lieu of the
requirements of clauses 4 and 5 of section 521(A)(1)(b), I want
to know what are the burdensome requirements that we're putting
on that we want to have waived. Obviously, they need to put out
their income. They need to sign it under oath. So what more are
we concerned about here?
Mr. Watt. Would the gentleman yield?
Mr. Hutchinson. Yes, I would yield.
Mr. Watt. Okay. First of all, there are a number of debtors
still who go into bankruptcy court unrepresented. But even if
that were not the case, I think we, in addition to imposing a
massive and useless burden on poor debtors, you're--you're
imposing a tremendous paperwork burden on the bankruptcy courts
because the documents that you're talking about, the ones that
are required under paragraph 7, could get voluminous. There's
no place to store these things. We talked about that last year
when we--when we debated this bill. It adds to the paperwork
burden of the court----
Mr. Hutchinson. Reclaiming my time, I would like to be
pointed to specifically the paperwork burden. You mentioned
paragraph 7. Are these tax returns that must be furnished?
Where are we----
Mr. Watt. Paragraph 7 is the--is the income criteria that
triggers you out of chapter 7 into chapter 13. That's what
paragraph 7 is. The burdensome requirements--let's see if I can
get somebody to help me with that one so I can--it might take
me a little bit to zero in on them. They are in paragraph----
Mr. Hutchinson. Well, in order to move along here, let me
reclaim the time, and if the gentleman could identify that or
have some staff person identify those provisions, I'd like to
be able to examine what is necessary to be waived. But I would
just--I believe that whatever we do, anyone who goes into
bankruptcy is going to have to set forth their income, their
expenses, which is currently under the present system. If
there's a burden to provide tax returns, many of these people
are not going to have tax returns and probably have to certify
they don't have copies of them. And I think it will be a little
bit more minimal, and regardless, I think you're going to have
to have legal counsel. And I----
Mr. Watt. Would the gentleman yield again?
Mr. Hutchinson. Yes.
Mr. Watt. First of all, those requirements would be
applicable if they are going to stay in--if they're going to--
if they're going to stay in chapter 7, as opposed to----
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Frank. Mr. Chairman? Mr. Chairman? Mr. Chairman?
Chairman Sensenbrenner. What purpose does the gentleman
from Massachusetts----
Mr. Frank. Strike the last word.
Chairman Sensenbrenner. The gentleman is recognized.
Mr. Frank. I yield to the gentleman from North Carolina.
Mr. Watt. So the purpose of this inquiry is to determine
whether they are eligible--whether they meet the income
criteria, and all of these other standards don't relate to the
income criteria. If you meet the income criteria, you are
automatically allowed to stay in 7 and--and these things will
take place anyway. The--the gathering of the information will
take place anyway in that chapter 7 proceeding. But there's no
reason to have to file it with the court. Chapter 7 has its own
set of requirements about what you've got to do and expenses
and income and the whole scenario, but it does not have the--
the list of steps that are outlined starting--if you--if you
take a look at page 151, starting with debtor's duties, and you
keep going--how far does this goes?--157 I think is where all
this madness finally ends. And what we're saying is if somebody
clearly meets the income criteria, why are you going to do all
of this stuff?
Mr. Delahunt. Would the gentleman yield?
Mr. Frank. Who asked me to yield? Oh, yes, you're easy.
Mr. Delahunt. Thank you, Mr. Frank. And I'd like to just
make these observations for the benefit of my friend from
Arkansas. At the hearings that have been held during the course
of the consideration of this particular proposal, the estimates
of the cost to the taxpayers were an additional $200 to $300
million over a 5-year period in the implementation because of
the additional paperwork and burdens that would be imposed, the
additional trustees, the additional bankruptcy court judges,
and the personnel. I think that's really important to remember.
And I don't know if you were here earlier, Asa, but at the--at
the hearing that we did have, there was testimony from a
representative of the Bankruptcy Conference that to insist that
everyone, even an individual who clearly was going to stay in
7, fill out the necessary--the paperwork that the bill as
presently constituted would require, would mean additional
hundreds if not thousands of dollars in legal fees per case. I
mean, these are monies that could, you know, go to creditors,
could go to debtors, and wouldn't cost the taxpayers.
I mean, I think that, you know, the gentleman from North
Carolina has explained rather clearly the rationale for the--
for this particular amendment. There's nothing--there's nothing
here that should come as a surprise to anyone, and I think it's
important.
Mr. Frank. Let me again yield to the gentleman from North
Carolina.
Mr. Watt. Let me just point out to the gentleman from
Arkansas, if you start at (3)(i) on page 152--I mean, it starts
before that, but look--take a look at what you--a statement of
the debtor's financial affairs and, if applicable, a
certificate of an attorney whose name is on the petition, if no
attorney for the debtor is indicated and no bankruptcy preparer
signed the petition of the debtor, such notice was obtained and
read by the debtor, copies of all payment advices or other
evidence of payment, if any, received by the debtor from any
employer of the debtor in the period 60 days before the filing
of the petition, statement of the amount of monthly income. I
mean, you just go on and on and on with things that if you have
all--if you meet the criteria and you are going to stay in 7,
you ought not have to do that. That's all I'm saying.
Mr. Frank. Mr. Chairman, I think I've made my point, so I
yield back.
Chairman Sensenbrenner. The question is on adoption of the
amendment of the gentleman from North Carolina, Mr. Watt, to
the amendment of the gentlewoman from California, Ms. Waters.
All those in favor will signify by saying aye. Opposed, no? The
noes appear to have it.
Mr. Watt. Mr. Chairman, I ask for a roll call vote.
Chairman Sensenbrenner. A roll call is requested.
Mr. Watt. My hearing is a little bit different than yours.
Chairman Sensenbrenner. Those in favor of the Watt
amendment to the Waters amendment will, as your names are
called, answer aye, those opposed, no, and the clerk will call
the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no.
Mr. Goodlatte?
[No response.]
The Clerk. Mr. Barr?
[No response.]
The Clerk. Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no.
Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
[No response.]
The Clerk. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Mr. Scarborough?
Mr. Scarborough. No.
The Clerk. Mr. Scarborough, aye.
Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Mr.--Ms. Hart?
[No response.]
The Clerk. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye.
Mr. Frank?
Mr. Frank. Aye.
The Clerk. Mr. Frank, aye.
Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye.
Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there additional members in the
room who wish to cast their vote or change their vote? The
gentlewoman Pennsylvania?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Chairman Sensenbrenner. Any other members who wish to cast
their vote and change their vote? The gentleman from Virginia?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no.
Chairman Sensenbrenner. Anybody else? If not, the clerk
will report.
The Clerk. Mr. Chairman, there are 9 ayes and 13 nays.
Chairman Sensenbrenner. The question now is on the
amendment offered by the gentlewoman from California, Ms.
Waters. Those in favor will say aye. Opposed, no? The noes
appear to have it. The noes have it and the amendment is not
agreed to.
Further amendments? The gentleman from Michigan, for what
purpose do you seek recognition?
Mr. Conyers. I have an amendment, a technical correction.
Chairman Sensenbrenner. The clerk will report the Conyers
technical correction amendment.
The Clerk. Amendment to H.R. 333, offered by Mr. Conyers.
Page 13, line 14, strike----
Mr. Conyers. Mr. Chairman, I ask unanimous consent the
amendment be considered as read.
Chairman Sensenbrenner. Without objection, so ordered. The
gentleman from Michigan is recognized for 5 minutes.
Mr. Conyers. Thank you very much.
[The Amendment offered by Mr. Conyers follows:]
Mr. Conyers. Members of the committee, this amendment
provides for two technical corrections, and I think you'll find
that they are genuine corrections. The first would clarify that
in calculating the debtor's income in chapter 13 that we should
use his actual income, not the figure based on a job that he
had been laid off from. The problem arises because in
calculating chapter 13 payments the bill uses a defined term
based on previous income. That definition was meant to apply in
the chapter 7 means test only, and that's why I think that this
is a technical correction, that it may not have been intended.
It was inadvertently brought over into chapter 13 where it
could also apply to persons with income below the median.
The second technical amendment clarifies that lawyers who
are bankruptcy petition preparers need not file a document
stating that they are not lawyers. As the bill is presently
written, it does this unusual thing, it states that all
bankruptcy lawyers or bankruptcy petition preparers, even
though part of the petition preparer's obligation is to
disclose that he or she is not a lawyer. The drafters may not
have intended this result, and I believe that both these
matters are simple drafting oversights that may be easily
corrected. I hope that this will enjoy the support of the
entire committee.
Chairman Sensenbrenner. Will the gentleman yield back?
Mr. Conyers. Yes.
Chairman Sensenbrenner. Gentleman from Pennsylvania, Mr.
Gekas.
Mr. Gekas. Mr. Chairman, I seek to strike the last----
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. I believe that the gentleman may intend to
correct some matters here on a technical basis, but even if he
is correct, the better way to proceed would be--and I am
willing to look at, if he is willing to meet with me after this
session and before we go to the floor--to amend section 221 and
its definition of ``bankruptcy petition preparer'', rather than
his immediate aim to try to change the definition of
``attorney, et cetera.'', or that it incorrectly applies to
attorneys rather than to non-attorneys. So it is the question
of the definition of ``bankruptcy petition preparer'' the may
require some technical amendment. I am willing to ask first
that the members vote no on this amendment, and then pledge to
him, to Mr. Conyers, that I will meet with him to try to work
this out before we go to the floor on the technical changes
that he seeks.
Chairman Sensenbrenner. The gentleman yield back?
Mr. Scott. Mr. Chairman----
Chairman Sensenbrenner. For what purpose, the gentleman
from Virginia?
Mr. Scott. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Scott. I didn't hear the gentleman from Pennsylvania
comment on the amendment page 23, line 14, on that part of the
amendment, which is a fairly important part of the amendment,
and I didn't hear a commitment to try to work that out too.
Mr. Gekas. Is this the one that has to do with the current
monthly income you are saying?
Mr. Scott. Right.
Mr. Gekas. We have been using the words of art, ``current
monthly income'', and we believe that serves the purpose of
what we are trying to do. I am not prepared to accept a
substitute for that at this juncture.
Mr. Scott. Well, reclaiming my time, the point that the
gentleman from Michigan was making was that it makes very
little sense to calculate what you can pay on your bills if in
fact that is not your income. If you lost your job, you can't
calculate what you can pay based on the job that you lost, and
that is why the words ``projected disposable income.'' If you
file, knowing that you have lost your job, your projected
disposable income will be what you actually have available. The
definition of ``current monthly income'' is calculated as what
you made the last 6 months, which, in fact, may not be
realistic.
Mr. Goodlatte. Would the gentleman yield?
Mr. Gekas. I would yield.
Chairman Sensenbrenner. Who has the time? The gentleman
from Virginia has the time.
Mr. Scott. I yield to my colleague from Virginia.
Mr. Goodlatte. I thank the gentleman for yielding. I see
what you are getting at, but I don't think this change gets us
there, because it would then read, ``For the purpose of this
subsection the term 'disposable income' means projected
disposable income less reasonable amounts necessary to be
expended.'' But the rest of this section defines what
disposable income is. This simply sets the benchmark of current
monthly income less disposable, and there would be
circumstances where somebody wouldn't be employed and might
nonetheless still qualify under the provisions of this. And I
think it needs some more work, but I don't think this language
gets us there.
Mr. Scott. I will yield back.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from Michigan, Mr. Conyers. Those in
favor will say aye.
Opposed, no.
The noes appear to have it. The noes have it, and the
amendment is not agreed to.
For what purpose does he gentlelady from California, Ms.
Waters, seek recognition?
Ms. Waters. I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment, and is the clerk sure this is the amendment that the
gentlewoman----
Ms. Waters. 001.
Chairman Sensenbrenner. Waters, 001.
Ms. Waters. Section 311, page 144, line 16, insert
exceptions to automatic stay. Do you have it?
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 333, offered by Ms. Waters,
page 14, line 16, insert ``(a) Exceptions to Automatic Stay''
before----
Chairman Sensenbrenner. Without objection, the amendment
will be considered as read, and the gentlewoman from California
is recognized for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman and members.
This would amend section 311, Automatic Stay, that allows
landlords to evict debtors outside of the bankruptcy court, and
to continue eviction even after debtors have obtained an
automatic stay. This would amend the provision to exempt the
following groups of people: victims of domestic violence,
elderly persons on fixed incomes, debtors with minor children
who will fall below the median of the means test. Currently,
debtors can remain in a property after declaring bankruptcy, so
long as they can stay current from the date of filing or catch
up on arrears and stay current. Even if they don't, the
landlord can seek to evict them, but the landlord must do so
through the bankruptcy court. This creates an additional burden
on the landlord, but is viewed as necessary to provide the
debtor a chance to get on his or her feet.
The bill proposes allowing evictions through the regular
eviction process, and permits landlords to proceed with
evictions that had been started before the debtor filed for
bankruptcy.
The provision should be amended to exempt, again, that
group of persons that I just indicated. And for further
explanation, the victims of domestic violence are dealing with
a number of traumas simultaneously. They may need a little
extra time to reorient themselves and figure out how to manage
their financial affairs. Elderly persons on fixed incomes also
require more time to reorganize their finances. They do not
have the same opportunities for gainful employment at the same
time they have increased medical costs. Debtors who have minor
children and who fall below the median specified by the
proposed legislation should similarly be exempted. Such debtors
do not have the financial wherewithal to find other housing,
and an eviction could result in more minor children becoming
homeless.
Members, I don't know why we are changing this in this
bill. In the previous legislation, the landlords had to go
through the bankruptcy court in order to do the eviction, and
you are changing that in this legislation, and it will wreak
havoc on the most vulnerable of our society. And I do believe
that if we give these automatic stays, that we will not be
harming landlords in any way, because the people that I am
trying to protect would still have the responsibility to be
current, to pay current. And I would ask that you support these
amendments in the interest of, again, protecting the most
vulnerable in our society in this bankruptcy bill.
[The Amendment offered by Ms. Waters follows:]
Chairman Sensenbrenner. Will the gentlewoman yield back the
balance of her time?
Ms. Waters. Yield back the balance of my time.
Chairman Sensenbrenner. The gentleman from Pennsylvania,
Mr. Gekas.
Mr. Gekas. Yes, I move to strike the last word. It appears
that the amendment offered by the gentlelady from California,
in effect, substitutes her versions of people who should have
the benefit of an automatic stay to the detriment of those
articulated in section 362(b). In other words, her language
vitiates, removes, erases what we have put in as combatants to
the automatic stay in the previous portion of the statute. On
that basis alone we have to reject the amendment.
But beyond that, on the philosophical question, her
amendment would say that without any boundaries that a senior
citizen, with whom we have total sympathy, and we have worked
assiduously in many different ways to protect senior citizens
in every aspect of their lives, this senior citizen could
remain in a landlord-owned property indefinitely without paying
rent. Just a moment. The better way it seems to approach these
societal problems of inadequate assets on the part of senior
citizens to pay rent, is to provide as fast as we could,
alternative housing or additional forms of public assistance in
order to pay the rent, not to find ways and means to allow the
landlord to go months and months and months on an investment
that would be jeopardized by allowing a senior citizen or
anybody else continuing to stay rent free. That is against all
the tenets of the laws of property and of enterprise and of the
freedoms that we have in our country, the whole basis of our
fiscal system, so----
Ms. Waters. Will the gentleman yield?
Mr. Gekas. [continuing]. I would ask members to vote no on
this amendment.
Ms. Waters. Will the gentleman yield?
Mr. Gekas. Yes.
Ms. Waters. Would you please identify the persons that you
give an automatic stay to in the legislation? Who am I
replacing that you have already protected? Who am I
substituting for in the bill?
Mr. Gekas. It says ``an eviction based on endangerment to
property or person, or the use of illegal drugs'', just for one
example.
Ms. Waters. I beg your pardon?
Mr. Gekas. Under 311, section 3, just to give you one
example, ``An eviction action based on endangerment to property
or person, or the use of illegal drugs.''
Ms. Waters. That is not what I am talking about at all.
Mr. Gekas. I know that is not what you intended.
Ms. Waters. But you are not protecting drug dealers. I
asked who is it you are protecting?
Mr. Gekas. The tenants--the property and the tenants from
the illegal drug----
Ms. Waters. Well, I am sorry. We are not on the same track
here.
Mr. Gekas. That is true.
Ms. Waters. We are not talking about the same thing.
Mr. Gekas. That is true.
Ms. Waters. What I----
Mr. Scott. Will the gentlelady yield?
Chairman Sensenbrenner. The time belongs to the gentleman
from Pennsylvania.
Mr. Scott. Excuse me.
Mr. Gekas. Did somebody ask?
Chairman Sensenbrenner. Does the gentleman yield?
Mr. Gekas. Yes.
Mr. Scott. The amendment appears to me to be adding, not
replacing language. Is that your understanding?
Mr. Gekas. I think it replaces it.
Ms. Waters. No.
Mr. Scott. It says----
Mr. Gekas. I don't think that was the intent.
Mr. Scott. No, it adds language. It doesn't replace any
language, according to the way I read the amendment.
He thought you were knocking this out.
Ms. Waters. No, we are not. We are talking about two
different things.
Mr. Gekas. That is true.
Ms. Waters. If the gentleman would yield. If I may, I am
asking that a particular category of people be protected. I am
not asking that they be able to stay rent free, and I do not
want my amendment to be misunderstood that way. I am asking
that this category of vulnerable persons be granted an
automatic stay, and that if the landlord wishes to evict, they
have to go through the bankruptcy court in order to do that.
And I am additionally saying that these people are responsible
for paying their rent while they are in bankruptcy.
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Gekas. I yield back the balance of my time.
Mr. Frank. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Massachusetts.
For what purpose do you seek recognition?
Mr. Frank. To strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Frank. I join with my colleague from California in
being puzzled by one of the assertions of the gentleman from
Pennsylvania. I understood him to say that he objected in part
to the gentlewoman's amendment because it vitiated, removed and
excised, which is a pretty powerful triple threat. Even lawyers
generally only go two words. You used three. But he said that
it was removing some exceptions that were in there. The
gentlewoman's amendment clearly says amended by inserting,
after the last paragraph. So it is hard to see how an amendment
which consists entirely of an additional set of words, removes,
vitiates, excises, diminishes, belittles, criticize or
perorates anything. So I would be glad to yield to the
gentleman, but I think he may have a point in mind other than
the one he expressed.
Mr. Gekas. Would the gentleman yield to the peroration?
Mr. Frank. With resignation.
Mr. Gekas. Line 5 of the amendment that is offered by the
lady says, ``This subsection shall not apply'', meaning all the
three previous----
Mr. Frank. But only--oh, in that case then, I understand
what the gentleman is saying, but I don't think it is what he
said before. It does not remove exceptions. It does state
exceptions to them.
Mr. Gekas. It nullifies them.
Mr. Frank. No. Only in certain very limited cases, the
single parent, et cetera, so it does modify the exceptions. But
I think the gentleman gave the impression, when he spoke, that
this was going to entirely replace that section. It does say
that those exceptions in the section wouldn't apply if you had
these particular categories. So then I think the legitimate
debate is should you or shouldn't you carve out an exception
here for the battered spouse or the senior citizen. I yield to
the gentleman.
Ms. Waters. Will the gentleman yield?
Mr. Gekas. In order to vitiate the impression, then I
repeat, what we are saying here is that what we took careful
time and effort in the past to put in with regard to reform of
automatic state provisions, is modified unduly by the----
Mr. Frank. Okay. Well, let me just say--I haven't--there is
a policy difference here, and that is okay. I do not think that
the gentlewoman means any disrespect to the gentleman's care.
There is a policy difference, and that is what she is trying to
do. But it does not, as we said, remove it. And let me yield
now. The gentlewoman from California wanted me to yield to her.
Ms. Waters. Would the gentleman yield?
Mr. Frank. Yes.
Ms. Waters. If it makes it clearer to you, we just looked
at a way by which we can state it so perhaps it is clearer to
you. Under line 5----
Mr. Frank. If the gentlewoman would yield, I would not get
my hopes up unduly on that particular point. [Laughter.]
Ms. Waters. This elimination of the automatic stay set
forth in the subsection shall not apply if the debtor certifies
in the debtor's petition that the debtor is senior citizen or a
single parent with minor children whose incomes is less than
the median income applicable to the debtor, or is a battered
spouse, and on and on and on. You see what we are saying? I
want to make sure that you understand that we are not in any
way eliminating any protections that you think that you have.
We are not substituting. What we are doing is we are inserting
this category of vulnerable citizens that we think should be
protected.
Mr. Frank. Would the gentlewoman yield? Let me just say I
think it is clear now that what the gentlewoman would do would
modify that list, and I think there was a confusion. It
wouldn't entirely remove it. The list would still be there in
the original legislation, but the gentlewoman's legislation is
a modification of that and says the provision he says doesn't
apply in these limited class of cases.
Mr. Gekas. If the gentleman would yield?
Mr. Frank. I yield.
Mr. Gekas. It means that we have to look at trying to
accommodate what the lady is trying to do by redrafting this to
make certain that----
Mr. Frank. No, I think it is fairly clear.
Mr. Gekas. Well, if----
Mr. Frank. I am taking back my time.
Mr. Gekas. Yes.
Mr. Frank. We have technical corrections to deal with this.
What you are talking about here is a policy statement. The
gentleman's proposal says there are these cases in which the
automatic stay doesn't apply, et cetera. The gentlewoman has
proposed a policy modification. I think we understand that. It
is a modification of the language. The technical wording, as I
said, that is why we have technical and conforming amendments
done at the end. I don't think the gentleman's objection to the
amendment is in fact technical; it is substantive. He does not
think that there should be exceptions carved out that way. That
is what we ought to be voting on.
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from Virginia seek recognition?
Mr. Scott. Move to strike the last word.
Chairman Sensenbrenner. The gentleman's recognized for 5
minutes.
Mr. Scott. Mr. Chairman, I would ask to speak in favor of
the amendment. We are changing the law in terms of a stay on
evictions. The Waters' Amendment says that we ought not change
the law for these--for this category of people, senior
citizens, single parent with minor children whose income is
less than the median income. You know, it just seems to me that
that category of people, if you allow the eviction to go
forward and not allow the bankruptcy to take place, while they
may be able in fact to catch up with back rent, you are kicking
these people out in the street.
Now, the question is whether or not we want the change of
the law to apply to them, or whether you want just that
category. Change the law for everybody else, but not for them.
The bankruptcy law has been in effect for hundreds of years,
and it has always been the case that you get a stay of all
proceedings. If you are going to change that, we are just
asking, very simply, that you not kick senior citizens out in
the street under this new law, at least exempt them and single
parents with minor children, and not kick them out in the
street, not change the law for them. I yield back.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentlewoman from California, Ms. Waters. Those
in favor will signify by saying aye.
Opposed, no.
The noes appear to have it. Roll call?
Ms. Waters. Roll call, please.
Chairman Sensenbrenner. Roll call is ordered. The question
is on the Waters' Amendment. Those in favor will, as your names
are called, answer aye. Those opposed, no, and the clerk will
call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no. Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no. Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no. Mr. Jenkins?
[No response.]
The Clerk. Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no. Mr. Bachus?
[No response.]
The Clerk. Mr. Scarborough?
[No response.]
The Clerk. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no. Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no. Mr. Flake?
[No response.]
The Clerk. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Frank?
Mr. Frank. Aye.
The Clerk. Mr. Frank, aye. Mr. Berman.
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye. Mr. Watt?
[No response.]
The Clerk. Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye. Mr. Meehan?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there----
Mr. Bachus. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Alabama.
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Chairman Sensenbrenner. The gentleman from Indiana.
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Chairman Sensenbrenner. Are there additional members in the
chamber who wish to record their vote or change their vote? If
not, the clerk will report.
The Clerk. Mr. Chairman, there are 9 ayes and 13 nays.
Chairman Sensenbrenner. The amendment is not agreed to. For
what purposes does the gentleman from Massachusetts, Mr.
Meehan, seek recognition?
Mr. Meehan. Mr. Chairman, I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment, and if there are more than one by you, please inform
the clerk which one you want.
Mr. Meehan. It's Meehan.002.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 333, authored by----
Mr. Meehan. Mr. Chairman, I ask unanimous consent----
Chairman Sensenbrenner. Without objection. And the
gentleman is recognized for 5 minutes.
Mr. Meehan. Mr. Chairman, I offer this amendment to correct
what I think is an unintended but nonetheless significant
problem with the bill's various safe harbors for low-income
debtors. Under the bill, debtors of certain size households
were exempt from the chapter 7's mean test, and exempt from
having IRS expense standards used to judge their proposed
chapter 13 plans if their incomes are less than the median
family income of their states last reported by the Bureau of
Census for a family of the same size as their household.
The problem is, from what I can see and tell, the Bureau of
Census currently publishes State by State median family income
adjusted for variations in family size only once a decade,
following the decennial census, and based on the data collected
in that census. The Census Bureau doesn't publish State by
State median household income on a yearly basis based on the
annual surveys of 50,000 randomly selected households
nationwide. But the statistics published on a yearly basis is
not adjusted for variations in family size.
In any event, median household income is entirely different
from median family income. If I am wrong or if someone can
demonstrate to the contrary, this isn't correct. If I am right,
and I think I am, this means that the bill's safe harbor
provisions may become quickly outdated as the years elapse,
since the once-a-decade publication of the state by state
median family income figure is adjusted for various variations
in family size.
So, basically what my amendment says is the State by State
median family income figures are counting for variations in
family size last published by the Bureau of Census, which is
what the bill sets as a basis for its safe harbors, should be
indexed for inflation for each year, since their publication
that the--since their publication that the Census Bureau has
not published new figures on State by State median family
income adjusted for these variations in family size. This is
not an automatic inflation adjustment. Inflation adjustment
would happen only when the Bureau of Census had not published
new figures on a yearly basis.
As I suggested earlier, the Census Bureau does not do
annual data collection and annual publication of income
statistics. My understanding is that they could readily State
by State median family income figures accounting for variations
in family size on a yearly basis. Now, it would be my hope that
that is exactly what they would do, but there is no way to be
assured that they will do it that way. So I think there is an
adjustment that needs to be made, and I thank the chairman and
yield back the balance of my time.
[The Amendment offered by Mr. Meehan follows:]
Chairman Sensenbrenner. For what purpose does the gentleman
from Pennsylvania seek recognition?
Mr. Gekas. To strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. Mr. Chairman and members, I ask for a no vote on
this proposition. We want the record to indicate that when
these sections were drafted, it was after full consultation, as
I understand it, by the conferees and those who were helping to
draft the legislation, led by Senator Torricelli, I might add,
who had conferences or consultations at least with the Bureau
of Census to which you have referred, to the Department of
Labor, to all concerned to craft what could be extrapolated
finally by way of these statistics to which you refer into use
in the bankruptcy code. And so we have adopted what seems to be
a consensus among those people who were drafting it at that
time. This does not prohibit a review of all of these things
next year, or with new census figures or amended census figures
or amended labor standards or anything. But for the time being,
this represents the best effort of those involved in drafting
this set of provisions on a bipartisan basis, and with due
consultation with the entities to which the gentleman has
referred. I yield back the balance of my time.
Chairman Sensenbrenner. The question is on the----
Mr. Frank. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Massachusetts.
Mr. Frank. To strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Frank. I appreciate the fact that the people who
originally voted didn't include this, because by definition, if
they had, it wouldn't have been in order as an amendment. But I
didn't get the policy reasons why it wasn't included. It would
seem to me if you agree that there should be an income level
adjusting it, particularly when we're talking about individuals
adjusting it for this inflation factor, or to just be routine,
and other than the fact that they didn't do it, we didn't know
why they didn't do it. The gentleman said it was on a
bipartisan basis. Certainly nobody on this side of the
committee was involved in that decision. So I would yield to
the gentleman. What is the policy reason for not doing this, I
mean, other than the fact that you didn't do it? I would yield.
Mr. Gekas. We understand that the Census Bureau is in the
ongoing process all the time of filling in the blanks, as it
were, of bringing in the data to which the gentleman has
referred. We do not prohibit them from promulgating these
changes in the Census Bureau that would accommodate what the
gentleman is referring to.
Mr. Frank. I yield to the gentleman from Massachusetts.
Mr. Meehan. I am not suggesting that you don't prohibit
them from doing it, but the fact is, if that is going to be the
basis for these safe harbors, they ought to do it every year if
you want it to be accurate. Presently they do it once every 10
years, so how are these figures for a family income by the size
of family, in some cases could be 7, 8, 9-years old, they are
not really relevant any more. So what you could--all we are
saying is you put it in the legislation so you either index it
for inflation or you get the Census Bureau to do it every year,
if you are going the rely on that for safe harbors.
Mr. Frank. Let me just add my understanding, and maybe
there is a question--surely, the Bureau of Labor Statistics,
that is, the--yes, it is the Department of Labor. So what we
are saying is those figures are there, and why not update them
every year when there is a danger in the eighth and ninth year
of it being too long? And the gentleman says we don't prohibit
it. Well, we think it is a good idea. It would seem to me non-
prohibition isn't enough. If we think it is a good policy idea,
why don't we simply incorporate it? I don't understand why it I
controversial. I yield to the gentleman.
Mr. Gekas. We don't believe it is controversial. The Census
Bureau can and does, on a periodic basis, change its figures
and----
Mr. Frank. No. The gentleman is contradicting himself. If
you didn't think it was controversial, you would have accepted
this a couple of debates ago, and we would have had it. When it
is offered, as a general--on the principle of saying, ``Well,
we have no objection to this. We just don't want it in the
bill, and the Census Bureau can do it if it wants to or not.''
We are the policy-making body. We are setting an important
number here. Leaving it to the discretion of the agency seems
to me not to be doing our job. I would ask the gentleman from
Pennsylvania, does he think it would be a bad thing in policy
terms if this was done every year?
Mr. Gekas. We do believe that we have the right to and are
satisfied with relying on the regular work of the Census Bureau
throughout the 10 years, who will be able to adjust----
Mr. Frank. Well, the gentleman didn't answer my question.
Mr. Gekas [continuing]. And they do regularly adjust----
Mr. Frank. The gentleman didn't answer my question. You
know, arguing--I have to say, as a general legislative
principle, when people tell me that they are against an
amendment solely because it is redundant and unnecessary, I am
always skeptical, because if it is only unnecessary, it doesn't
do any harm. And I asked the gentleman does he have any policy
objection. He is saying, ``Well, the Census Bureau may well do
this anyway.''
Mr. Gekas. Not may well, will.
Mr. Frank. Well, why not put it in the legislation? What
harm will it do to have it in the legislation if the gentleman
thinks it is going to happen anyway? And I will yield to him.
Mr. Gekas. And there is the controversy. You want to
introduce a controversial amendment to put in solid language,
when we know that the process agreed to by the Treasury
Department, the administration, the Census Bureau, all the
people who were involved in the reform measure, who will
recognize that the Census Bureau, in its ongoing figure
creation, will be doing that next year----
Mr. Frank. Mr. Chairman, I must say, the argument that it
is a good policy, there is no objection to the policy, but we
should trust that the Census Bureau would do it anyway, rather
than write it in, is wholly unpersuasive to me. And I do not--
if the policy of regular adjustment for inflation is not
controversial, I do not understand why it becomes controversial
for us to say that we want to reassure that we--we want to
assure that we do the non-controversial policy.
Let me say this. I have voted for this bill. I ask for 30
second, Mr. Chairman. I have voted for this bill in committee
before. I do think that there is abuse, and I am ready for
changes, but adopt the posture that your Rembrandt--and not a
brush stroke of this masterpiece can ever be changed, even if
people find that there are ways in which it can be improved,
and you will drive votes away; you will not add votes. I thank
you, Chairman.
Chairman Sensenbrenner. The gentleman's time has expired.
The question is on the----
Mr. Watt. Mr. Chairman.
Chairman Sensenbrenner. For what purpose does the gentleman
from North Carolina, Mr. Watt, seek recognition?
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognize for 5
minutes.
Mr. Watt. I am sorry. I had to be out for a little bit, and
may have missed part of this, but is Mr. Gekas's contention
that the Census Bureau can change the bankruptcy bill, even if
it adopts a cost of living increase?
Mr. Gekas. Would the gentleman yield?
Mr. Watt. It wouldn't have any bearing--maybe I am just--I
got in on the end of the discussion.
Mr. Gekas. Many of the bureaus in our system of government
have regular reporting updates of current conditions and a
variety of our societal needs and institutions. In our bill we
say, in this particular instance, that for instance, in the
portion having to do with a household of two, three or four
individuals, the highest median family income of the applicable
State for a family of the same number or fewer individuals last
reported by the Bureau of the Census. And we are saying that
that does not mean this is the final set of statistics. ``Last
reported'' contemplates the ongoing duty of the Census Bureau
to update all of these statistics. Thus, we incorporate by
reference, after they promulgate their latest reporting----
Mr. Watt. So the gentleman's argument is, if we do this, we
are doing something that the Census Bureau might do anyway?
Mr. Gekas. Is doing anyway.
Mr. Watt. And it is redundant?
Mr. Gekas. Well, yes. That is a peroration. No, but--no, I
think that states the proposition.
Mr. Watt. Which set into play the Barney Frank Principle of
redundancy. I yield, Mr. Meehan.
Mr. Meehan. The problem is that the Census Bureau only
updates these figures, the family income based on the size of
the family, every 10 years. That is when they do it presently.
So all the amendment says is, is that we should update the
figures. If you are going to have safe harbor provisions and
they are going to be 8 years old or 9 years old, that we ought
to use the most updates information. There is nothing that
assures that the US Census Bureau is going to change. It is a
very simple amendment.
Mr. Watt. Perhaps the gentleman has forgotten that because
the cost of living has been so modest under the Democratic
Administration, he has forgotten the times that there was
runaway inflation under some of the prior administrations.
Mr. Frank. The gentleman yield to me?
Mr. Watt. I will yield.
Mr. Frank. It is very clear. If the Census Bureau did it on
an annual basis, this amendment would have no effect. This
amendment would only have an effect if the Census Bureau, for
some reason, did not promulgate these figures annually. So if
in fact it works exactly as the gentleman from Pennsylvania
expects, there is no problem. But if the Census Bureau did not
promulgate them annually, this would prevent there from being a
lag in that figure. As someone who supports that concept, I
cannot for the life of me, understand why there should be any
substantive objection to this amendment.
Mr. Watt. I think I understand, Mr. Chairman. Mr. Gekas
thinks he has a Rembrandt that any brush will clearly make----
Chairman Sensenbrenner. Moses had a more hard-line attitude
than Rembrandt did. Will the gentleman yield back?
Mr. Watt. Moses?
Chairman Sensenbrenner. Yes. He sent things down in stone
tablets.
Mr. Watt. Oh, yeah. Well----
Mr. Frank. If the gentleman would yield, I am not----
Mr. Watt. Perhaps he thinks he has a stone tablet then.
Mr. Frank. If the gentleman would yield, I am not a great
theologian, but I don't think Moses sent down the tablets; he
was more the recipient. I don't think Moses ever claimed to be
the author.
Chairman Sensenbrenner. I stand corrected. Will the
gentleman yield back?
Mr. Watt. I think I will, on that happy note.
Chairman Sensenbrenner. Okay. The question is on the
amendment offered by the gentleman from Massachusetts, Mr.
Meehan. Those in favor will signify by saying aye.
Opposed, no.
The noes appear to have it. Roll call is ordered. The
question is on the Meehan Amendment. Those in favor will, as
your names are called, vote aye. Those opposed, no. And the
clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no. Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
[No response.]
The Clerk. Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no. Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
[No response.]
The Clerk. Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no. Mr. Scarborough?
[No response.]
The Clerk. Mr. Bachus?
[No response.]
The Clerk. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
Mr. Green. No.
The Clerk. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Issa?
[No response.]
The Clerk. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Frank?
Mr. Frank. Aye.
The Clerk. Mr. Frank, aye. Mr. Berman.
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye. Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye. Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye. Ms. Waters?
Ms. Waters. Aye.
[No response.]
The Clerk. Mr. Meehan?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye. Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there members in the chamber
who wish to record their vote or change their vote? The
gentleman from Alabama, Mr. Bachus.
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Chairman Sensenbrenner. The gentleman from Indiana, Mr.
Hostettler.
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Chairman Sensenbrenner. The gentleman from Florida, Mr.
Scarborough?
Mr. Scarborough. No.
The Clerk. Mr. Scarborough, no.
Chairman Sensenbrenner. Further members who wish to record
or change their vote? The gentleman from Arkansas, Mr.
Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no.
Chairman Sensenbrenner. Anybody else? If not, the clerk
will report.
The Clerk. Mr. Chairman, there are 9 ayes and 13 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments? For what purpose the gentlewoman
from Texas, Ms. Jackson Lee seek recognition?
Ms. Jackson Lee. Mr. Chairman, I have an amendment at the
desk. I think it is known as No. 3. It has .010 at the top.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 333 offered by Ms. Jackson
Lee. Beginning on page 417, strike line 21 and all that
follows----
Chairman Sensenbrenner. Without objection, the amendment
will be considered as read, and the gentlewoman from Texas is
recognized for 5 minutes.
Ms. Jackson Lee. Thank you very much, Mr. Chairman. I am
hoping that there can be an opportunity for a rich and
rewarding discussion on this. First of all, I am gratified that
the chairman allowed us to have hearings last week, because if
my recollection serves me well, I believe Mr. Gekas raised an
issue as well about section 1310, which this amendment
addresses.
My concern about this particular provision in the
legislation is that it was added in conference, and it was not
in either the House or the Senate bills, and therefore, I think
it merits a deep consideration. If it stays as it is in H.R.
333, this provision would have, I believe, a drastic and
serious impact on the international commerce, on insurance and
reinsurance placements for American business, and could
interfere with the states' regulation of the insurance
industry.
In addition, international investment organizations, such
as the US State Department, the US Department of Justice, have
both declared that such a provision could undermine US efforts
to enforce US court orders in foreign courts.
This is sort of a two-way street. If we are to be in the
international arena, we must give to international businesses
or businesses other than American businesses, the same
opportunity and the same grace that we would wish our
businesses receive in doing international trade.
I would like to yield to Mr. Gekas and ask his thoughts. I
would like to have this language eliminated. I know that my
recollection is that you have an interest in this language not
being in the bill. I would be willing to have further
discussions about this. I have this amendment that I am ready
to move forward, but I wanted to engage you, Mr. Gekas, to see
whether or not we could work together on this.
[The Amendment offered by Ms. Jackson Lee follows:]
Mr. Gekas. Yes. If the lady----
Ms. Jackson Lee. I yield to the gentleman.
Mr. Gekas. All right. I do not--I am not enamored of this
language, and I intended to, and still intend to follow through
with attempting to remove it from the final outcome of this
bill. By way of authorship jealousy or whatever we want to--
pride, I want this bill to remain intact for the time being,
and therefore, during these proceedings, I will not offer to
remove it, nor will I support an amendment to remove it. But I
have had discussions with this with a variety of people, and if
nothing else happens, I will go before the Rules Committee and
ask that an amendment to remove this from the bill be made an
order, so that we can have full debate on it. But I would not
be loyal to my own concept of keeping this bill intact on the
one hand and my desire to do something about this provision if
I didn't approach it in that manner.
Chairman Sensenbrenner. Will the gentlewoman yield to me?
Ms. Jackson Lee. Yes, I would be happy to yield to the
chairman.
Chairman Sensenbrenner. First of all, I thank the
gentlewoman for yielding. Let me state that I share the
gentleman from Pennsylvania's discomfort with the provisions in
section 1310.
Ms. Jackson Lee. My discomfort as well.
Chairman Sensenbrenner. Any your discomfort as well. I am
informed, however, that if section 1310 is removed here, then
the Committee on Financial Services will demand a sequential
referral of this legislation. As I stated at the organization
meeting of this committee, I will vigorously defend the
jurisdiction of the Judiciary Committee against all enemies,
foreign and domestic. [Laughter.]
Ms. Jackson Lee. I support you, Mr. Chairman.
Chairman Sensenbrenner. And the enemies of the jurisdiction
of this committee are more domestic than foreign, and we know
who they are. Bankruptcy is very clearly within the
jurisdiction of the Judiciary Committee, and I am not willing
to have another committee start mucking around in what I think
everybody in this committee feels is within our jurisdiction.
If section 1310 stays in, the bill goes to the floor without a
sequential. What happens out on the floor will be the will of
the House and not the will of this committee or any other
committee, but I will join with the gentleman from Pennsylvania
in seeking to make an amendment to strike section 1310 in order
on the floor if the gentlewoman will withdraw her amendment at
this time.
Ms. Jackson Lee. Mr. Chairman, with that generous offer,
and I would like to be included as part of the offeror of such
an amendment to go to the floor, I would be willing to----
Mr. Scott. Before you do that.
Ms. Jackson Lee. I will withhold.
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Alabama also
wants to say something, so--the gentleman from Virginia, go
ahead.
Mr. Scott. Before it is stricken, Mr. Chairman, I have an
additional discomfort. We have a provision in here that
obviously means something, and no one can explain to us what we
are voting on, why it is in there, how it got there.
Chairman Sensenbrenner. The gentlewoman's time has expired.
For what purpose does the gentleman seek recognition?
Mr. Scott. Move to strike the last----
Ms. Jackson Lee. I was going to ask for an additional----
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Scott. Mr. Chairman, we have a provision in the bill
that obviously means something. It is there for some reason,
and no one can explain to use what it does or why it got there,
and I think the gentleman from Alabama--I will yield to him if
he can explain to us why we ought to vote for the bill with
that provision in there.
Mr. Bachus. Let me say this. You are yielding to me?
Mr. Scott. I yield.
Mr. Bachus. What this does, this language, which was put in
in the Senate, only applies to a foreign judgment which is the
result of fraudulent misrepresentations made in the United
States to investors. So it is narrowly drawn. And what it says,
if someone--fraud was practiced on an American citizen here in
the United States, in getting them to invest. In this case it
is in a Lloyd's of London underwriting situation, that in the
bankruptcy proceeding, they would be allowed to assert that
they were defrauded, that the judgment was a result of fraud.
Mr. Scott. Well, I would reclaim my time, and I would ask
the gentleman, why shouldn't this benefit apply to others if it
is such a good idea, and why is it limited to these years, and
does it apply to anybody other than those names of Lloyd's of
London?
Mr. Bachus. I can't answer that. I can tell you that in my
mind, as far as what the language does--I mean, if the
gentleman has another amendment--but in my mind, an American
citizen who believes they have been defrauded deserves their
day in court, and I think the long history of bankruptcy is
that in a proceeding to try to collect a judgment, that they
can assert fraud. And I think really the provision is more
consistent than inconsistent with----
Mr. Scott. I would ask to reclaim my time. I don't see
anything in this provision that has anything to do with
bankruptcy. Can you point out to me what this has to do with
bankruptcy, a proceeding in bankruptcy?
Mr. Bachus. If it deals with bankruptcy. I mean, I don't--I
am just simply telling what the----
Mr. Scott. It doesn't say anything about bankruptcy. I
reclaim my time.
Ms. Waters. Mr. Chairman, I cannot hear the gentleman. Can
he speak into his mike?
Mr. Scott. Reclaiming my time. It says, ``Notwithstanding
any provision of law''----
Mr. Bachus. I don't know whether----
Chairman Sensenbrenner. Will the gentleman from Alabama
please speak into the mike, because the gentlewoman from
California's point is well taken.
Mr. Scott. ``A court within the United States shall not
recognize or enforce any judgment rendered in a foreign
court.'' It doesn't say anything about bankruptcy.
Mr. Bachus. I am simply saying I am not arguing about that.
What I am simply saying is the reasoning behind it. You said
could anyone explain it.
Ms. Jackson Lee. Will the gentleman yield?
Mr. Bachus. And I am explaining it by saying that this
deals with--it is narrowly constructed to deal with simply
saying you cannot enforce a foreign judgment which was gained
as a result of a fraudulent misrepresentation made here in the
United States to an investor, and that that investor would have
its day in court here.
Mr. Scott. Well, reclaiming my time, I am a little lost as
to what it is doing in a bankruptcy bill, but I will yield to
the gentlelady from Texas.
Ms. Jackson Lee. I think the gentleman has a sort of struck
the court of the issue of the amendment that I presented. I
think that it tampers with state insurance law. It stifles quid
pro quo of having US judgments enforced, as well as foreign
judgments enforced. I too was trying to find a relationship to
the bankruptcy code, and that is why I was offering to say that
we would do well to have this language stricken as it is not
relative to this code, but as well, it puts at a second class
position, judgments that US citizens would want to enforce,
because of the way it would be implemented. And I would ask
that we work together for an amendment subsequent to this
hearing and this markup to have this language addressed and
removed.
Chairman Sensenbrenner. Does the gentlewoman want to
withdraw her amendment at this time?
Ms. Jackson Lee. Mr. Chairman, can I secure from the--do I
understand--let me not--do I understand from Mr. Gekas and the
Chair that we can work together for such an amendment moving to
the floor, and I would like to work with them?
Chairman Sensenbrenner. Well, I will give you a commitment
that the rule that I asked for the Rules Committee to grant
will allow this amendment to be offered. I have an open mind on
whether or not personally to support it, but I do believe that
this issue should be brought to the floor.
Ms. Jackson Lee. All right. I thank the gentleman. You and
Mr. Gekas. Mr. Gekas, are you intending to jointly offer it, or
would you join me, or would you support the amendment that I
would like to have before Rules Committee?
Mr. Gekas. I will appear before the Rules Committee with
the chairman at the appropriate time, and urge that this
proposition be put up under their consideration to be made an
order. I will continue, at this juncture, to oppose its
inclusion subject to whatever I learn between now and then, but
in either event, I will urge that we have it made an order.
Chairman Sensenbrenner. Would the gentlewoman care to
withdraw the amendment at this time?
Ms. Jackson Lee. And I am not trying to be overly
persistent, Mr. Chairman. I will withdraw it, but I intend to
offer such an amendment. I am trying to understand if the
chairman and the ranking will be supporting the amendment that
I would be offering to strike the language?
Chairman Sensenbrenner. The amendment is withdrawn.
Ms. Jackson Lee. Mr. Chairman, I was asking an inquiry.
Chairman Sensenbrenner. The gentleman from Massachusetts.
Ms. Jackson Lee. Mr. Chairman, I am sorry. I was asking an
inquiry. I was concerned about the amendment that I have
offered and withdrawn. Is it my understanding that if offered
in Rules Committee, if I offer it in Rules Committee as it is,
that I would have the support of the chairman and Mr. Gekas for
it to move forward?
Chairman Sensenbrenner. Yes. To have it made an order.
Ms. Jackson Lee. I understand.
Chairman Sensenbrenner. That both Mr. Gekas and I have said
that you would have an opportunity to offer it on the floor.
Ms. Jackson Lee. I appreciate that, Mr. Chairman.
Chairman Sensenbrenner. I can't speak for any other member,
but I can say that I am not sure whether I would support the
amendment on the floor.
Ms. Jackson Lee. I understand.
Chairman Sensenbrenner. But I will protect the
gentlewoman's right to get a vote on it on the floor.
Ms. Jackson Lee. And, Mr. Chairman, I withdraw the
amendment at this time.
Chairman Sensenbrenner. The amendment is withdrawn.
Ms. Jackson Lee. Thank you.
Chairman Sensenbrenner. For what purpose does the gentleman
from Massachusetts, Mr. Delahunt, seek recognition?
Mr. Delahunt. Mr. Chairman, I have an amendment at the
desk. It is labeled Delahunt 004, and ask for its
consideration.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 333, offered by Mr. Delahunt.
Page 169, line 3, strike ``during the 2-year period.''
Chairman Sensenbrenner. Without objection, the amendment is
considered as read, and the gentleman from Massachusetts is
recognized for 5 minutes.
Mr. Delahunt. Thank you, Mr. Chairman. This amendment would
eliminate, in my mind, the most significant loophole in the
bankruptcy code, by placing a meaningful national cap on the
so-called homestead exemption. And I say ``meaningful'', Mr.
Chairman, because $100,000 cap that is currently in the bill is
conditioned by a series of exemptions that assure that those
who engage in flagrant abuse of the bankruptcy system by
sheltering homestead assets can continue to do so. Amendment
this amendment would extend that cap to $250,000.
I heard during the hearings the concerns that were
expressed by the gentleman from Indiana, Mr. Hostettler, and I
concur with him. And I should emphasize that $250,000 I think
is most generous, and refers clearly, obviously, to the equity
that the debtor should have in his or her primary residence.
But in exchange, it eliminates the exemptions for
transactions conducted within the 2 years preceding the
bankruptcy filing, and for that--another condition that I found
unacceptable, for transactions occurring prior to that time
within a single state of residency.
Now, the rationale we had been given for the so-called
needs-based provisions proposed in H.R. 333, is to eliminate
abuses of the bankruptcy law, abuses which proponents of the
legislation have characterized as the use of the bankruptcy
code as a, quote, unquote, ``financial planning tool.'' I want
to be clear, I don't necessarily subscribe to that theory. Yet,
while the bill focuses about whether small debtors can manage
to pay $20 a month in chapter 13, it leaves untouched the most
notorious abuse of the consumer bankruptcy system, the
financial planning strategy, if you will, whereby debtors
purchase expensive homes in states with unlimited homestead
exemptions, declare bankruptcy, and continue to enjoy a life of
luxury, while their creditors get zero or very little.
Now, if we are truly serious, if we are sincere about
curtailing abuses, it seems to me that this is the place to
start. For example, with the owner of the failed Ohio S&L who
paid off only a fraction of 300 million in bankruptcy claims,
while keeping his multimillion dollar ranch in Florida, or the
convicted Wall Street financier, who filed bankruptcy while
owing some 50 million in debts and fines, but still kept his $5
million Florida mansion, complete with 11 bedrooms and 21
baths, or the movie actor, Burt Reynolds, who declared
bankruptcy in 1996, claiming more than $10 million in debt.
Burt Reynolds kept a $2.5 million home, appropriately named
Valhalla, while his creditors received less than 20 cents on
the dollar.
If there is ever a case for a national standard, this is
it. Without a national cap, debtors who live in the 37 States,
rather, that cap the exemption at $40,000 or less, are free to
locate to one of the five so-called debtors' paradises and have
no cap at all.
If the amendment is adopted, it will have no effect on the
45, 45 states that cap the exemption at $250,000 or less, but
it will discourage residents of those jurisdictions from moving
to one of the 7 States with a higher cap or no cap at all in
order to take care of this enormous loophole.
If we are serious about curbing this flagrant abuse of the
bankruptcy system, my amendment, I would suggest, respectfully,
is the only way to do it. I urge my colleagues to support it,
and I would yield back the balance of my time.
[The Amendment offered by Mr. Delahunt follows:]
Chairman Sensenbrenner. For what purpose does the gentleman
from Pennsylvania seek recognition?
Mr. Gekas. I move to strike the last word.
Chairman Sensenbrenner. Recognized for 5 minutes.
Mr. Gekas. I have to say that if the gentleman from
Massachusetts is really interested in curbing abuse in this
particular segment of bankruptcy law, that he would support our
bill enthusiastically because otherwise, he is supporting the
status quo, which the status quo is the one that Burt Reynolds
is flying high on and these millionaires. There is the abuse,
the one that we are curbing, by permitting in our language only
a 2-year period of new residence to qualify for any kind of an
exemption, therefore, erasing for all time the abuse to which
the gentleman refers. It is odd to me that he would not be
clapping with enthusiasm that we have a homestead exemption
that curbs Burt Reynolds forever. And therefore, I ask for a
vote no on this provision. There is no question about serious--
--
Mr. Delahunt. If the gentleman would yield?
Mr. Gekas. I am not yielding yet, Bill. I will yield to
you. Don't worry, Bill.
Mr. Delahunt. Thank you.
Mr. Gekas. This particular section has been debated and
redebated and over debated since the beginning of the
bankruptcy reform effort 5 years ago, and it is always a bone
of contention.
We do have to take into consideration States' rights in
these momentous decisions that we make, and on a political
basis--I don't mean Republican or Democrat, but on a political
basis for the purpose of bankruptcy, Texas and Florida are
important keys to a continued overall broad support of this
legislation. I acknowledge that. And I was willing to fight for
originally retention of the current status of homestead
exemption, but because of the good offices of the members from
Florida and the members from Texas, who were willing to yield
on this point, still preserving the overall State homestead
exemption that they have enjoyed for so long, and which in the
case of Texas at least is part of their constitution, we
crafted this reform measure, which amply meets the challenge to
which the gentleman from Massachusetts refers.
I urge him to remove the status quo, to get Burt Reynolds
out of our hair and vote for our bill.
Mr. Delahunt. If the gentleman will yield, I will get Burt
Reynolds out of his hair. Will the gentleman yield?
Mr. Gekas. I yield.
Mr. Delahunt. I thank the gentleman for yielding, and I
want to indicate to him that I do respect his acknowledgement
that this is a political decision based upon the votes of
members from Florida and Texas, because to be honest, that is
really all that it is about, no more. To suggest that any
individual can go to either one of those States and purchase a
home for any amount of money, pay off any mortgage over a
period of time, and live there without having the possibility
of that particular residence being subject to a bankruptcy
claim, I suggest to you is absolutely outrageous. And folks and
debtors and creditors from all of the other 45 States in this
Nation are paying for that particular abuse.
Now the gentleman talks about states' right, but I am sure
that the gentleman would also acknowledge that Congress,
pursuant to the Constitution--I think it's article 1, section
8, has the authority to mandate uniform bankruptcy laws for
this country. It is embraced within our Constitution. Now is
the time to do it. The 2 years that the gentleman refers to
that is in the current legislation would not in any way hinder
the sophisticated, astute, deadbeat, scam artist that wanted to
circumvent the system.
Mr. Gekas. I yield--I seize back the balance of my time,
and say anyone who wants to gain the system has a great
opportunity to do so in every single line of this mammoth bill
that we are proposing. What we are trying to do is the best we
can to eliminate or to reduce the number of scams and the
amount of impact it would have on our economic system. This is
a good compromise that we have. Florida and Texas are to be
commended in joining with us in the promulgation of this
homestead exemption. I ask everybody to vote no on this
amendment.
Chairman Sensenbrenner. The time of the gentleman has
expired.
For what purpose does the gentlewoman from Wisconsin seek
recognition?
Ms. Baldwin. Move to strike the last word.
Chairman Sensenbrenner. The gentlewoman is recognized for 5
minutes.
Ms. Baldwin. Yield to the gentleman from Massachusetts, Mr.
Delahunt.
Mr. Delahunt. I thank my friend from Wisconsin for
yielding.
You know, Mr. Chairman, and I think we really should
reflect for a moment on what we're doing in terms of this
particular amendment. As I'm sure most of my colleagues are
aware, that IRA's, pension dollars are exempt under the
provisions of H.R. 333, up to $1 million, $1 million. I think
we can all imagine a scenario where, again, a sophisticated,
astute, white-collar criminal, because that's really what these
folks are, could go to one of these States and clearly, with
the assistance of those who understand the system, purchase a
primary residence without a mortgage and live very comfortable
on the income, the income from the $1 million--the interest on
the income from the $1-million pension asset that's exempted by
this statute. That, I suggest to you, is just bad. It's bad
public policy, and at the same time, simultaneously, there are
other provisions in this bill where we end up chasing people
who are lucky to be earning $40- or $50,000 a year and have a
family to support. It is unconscionable, I respectfully
suggest, and I think it will further, further bring into
disrepute the bankruptcy system, and we should pass this
particular amendment and save face.
Mr. Watt. Will the gentlelady yield, Ms. Baldwin?
Chairman Sensenbrenner. The time belongs to the gentlelady
from Wisconsin.
Mr. Watt. Will the gentlelady yield?
Ms. Baldwin. Yes.
Mr. Watt. For the purpose of asking Mr. Delahunt a
question, we debate this last year or whenever we did this bill
before, and it's a very difficult issue. I agree with the
gentleman that we ought to have a national standard, whether
it's inside the 2 years or outside the 2 years. I'm not sure I
agree with him that $250,000 is high enough to cover----
Mr. Delahunt. If the gentleman would yield.
Mr. Watt. I'm happy to yield. I was going to ask the
gentleman whether he might entertain increasing that amount to
$500,000.
Mr. Delahunt. You know, given the realities, and again, Mr.
Gekas, I want to acknowledge the fact that he put it out on the
record, this is a political decision. Of course, I would
recognize it because I think we're putting ourselves in a
situation, where the confidence of the American people and the
integrity of this process is truly at risk when we can pass a
bill that creates the potential scenario that I just described.
I'd be happy to entertain that as a motion, if that's an
amendment offered by the gentleman.
Mr. Watt. Maybe you should just do it yourself, since
you're willing to do it. I mean, I'm willing to author it.
Mr. Delahunt. I'd ask unanimous consent to raise the
national cap from $250- to $500,000.
Chairman Sensenbrenner. Without objection, the modification
to the amendment is agreed to. Hearing none, so ordered.
Mr. Watt. Would the gentlelady continue to yield?
Chairman Sensenbrenner. The time belongs to the gentlewoman
from Wisconsin.
Mr. Watt. Thank you, Mr. Chairman.
This is where we are here. We are trying to get people to
stop abusing the Bankruptcy Code. We're making a concerted
effort to do that, but it's quite obvious that we have a
different standard for rich people who abuse the Bankruptcy
Code than we have for poor people who abuse the Bankruptcy
Code.
Now, as I said in the hearing the other day, I have some
concern about this whole means test provision because I think
what we are doing with the means test is setting up two
different systems, two different structures for----
Chairman Sensenbrenner. The gentlewoman's time has expired.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the
gentleman----
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman from North Carolina
is recognized for 5 minutes.
Mr. Watt. Thank you, Mr. Chairman, and I hope not to take
the 5 minutes.
I think what we are going to end up with is, in effect, a
pauper's court for--that handles chapter 7 bankruptcies,a need
a higher-income bankruptcy court that handles chapter 13
bankruptcies. We are doing this in the name of getting rid of
abuse in the system, but we are setting up two bankruptcy
systems in this country under this bill. And I understand why
the means test is in the bill. That was a political decision to
buy support for the bill, but if somebody abuses the bankruptcy
laws, and we can write a system to ferret out the abuses, and
that's our objective, we ought to write a bill that does that
and that ought apply to rich people, it ought to apply to poor
people.
Mr. Delahunt. Would the gentleman yield?
Mr. Watt. I'll yield to the gentleman.
Mr. Delahunt. I thank the gentleman for yielding.
You know the gentleman from Pennsylvania talked about
States' rights. And as he well knows, and as my colleagues on
the committee know, that the States have been--have their own
list of exemptions that can vary from the list of Federal
exemptions, and in some cases, the differences are significant.
I wonder how the gentleman from Pennsylvania would respond or
react to a proposal to allow the States, not just simply to
establish their own standards and their own levels, in terms of
exemptions of assets, but income. If, for example, the people
in the Commonwealth of Massachusetts wanted to opt out, I think
that's the operative term, opt out of the means testing, would
the gentleman, at that point in time, recognize, would he
accept that amendment and recognize the right of the people of
Massachusetts to make that decision, in terms of their debtors,
the individuals that find themselves in dire financial straits
through no fault of their own?
Mr. Gekas. If the gentleman would yield, we've already
provided that the people of Massachusetts can decide the
figures of a median income. It's in our bill.
Mr. Delahunt. I understand that. I understand----
Mr. Gekas. Every State can do that, and we honor that.
Mr. Delahunt. No, I'm talking about opting out of the so-
called means test aspect of H.R. 333 and maintain their own
calculation in terms of whether the debtor should go to--should
stay in 7 or go to chapter 13.
Mr. Gekas. I am in the process of trying to complete a
process by which the Federal bankruptcy laws will be changed to
try to--to try to minimize the abuses, as the gentleman from
North Carolina said. We're going to fail in some respects.
We're always going to have those who could game the system, but
we're doing the best we can----
Mr. Delahunt. I understand we're going to have people who
will always game the system. In fact, there's an interesting
article, relative to the same use of the language ``gaming the
system'' back in the 1930's, when concerns were expressed about
the then-current Bankruptcy Act, but what I'm talking about is
the gentleman who just moments ago spoke to the issue of
States' rights in terms of homestead exemptions, willing to
entertain a motion which would allow the individual States to
opt out of the so-called means test that's being proposed in
H.R. 333. I ask, just for the sake of consistency.
Mr. Gekas. My answer is no, but it's not inconsistent.
Mr. Watt. Let me just finish the point I'm making. I think
everybody understands now that this bill sets up a two-tier
system, and I hope everybody understands that this is not
really all about people who are abusing the system. Basically,
we are providing much, much greater protections for rich people
in this bill----
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Watt [continuing]. Than we are for people who meet
other criteria.
Mr. Wexler. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from Florida seek recognition?
Mr. Wexler. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Wexler. Thank you, Mr. Chairman. I will be brief. As
Mr. Watt has said, this issue was discussed and debated ad
nauseam last session.
I just, as a Member of Congress who represents Florida, who
represents Palm Beach and Broward Counties, the issue of
homestead protection is as important in my area of the country
as any other. And I would just like to add that for every one
scoundrel, for lack of a better word, that seeks to move from
the Northeast or the Midwest or what have you to Florida to
protect his or her assets in this million-dollar home that was
referred to in Florida, and certainly there have been those
characters, and undeniably there would be some in the future,
but for every one of those, there are possibly 700/800/1,200/
1,400, I don't know how many hundreds if not thousands of
people that move to Florida with a moderate amount of savings
or even a greater than moderate amount of savings, buy a home
in their sixties or seventies, and then medical catastrophe
strikes, and the only thing or one of the few things that
protect them from having to move from their home or sell their
home is a homestead exemption that was placed in the Florida
Constitution.
So, while the depiction is of the scoundrel that's looking
to escape whatever ills he or she has committed and moves to
Florida or somewhere else where there's a constitutional, State
constitutional protection, there are thousands of older people
and others where economic catastrophe strikes, and that is the
purpose of this kind of protection.
Now that does not get to the argument that Mr. Watt raises,
which is this dual aspect of this bill. Mr. Watt may be
entirely correct, but even if he is, I don't believe that
that's a justification for striking from the State of Florida
those that the citizens of Florida and other States have
provided for their residence, so that the one asset they have
can remain their one asset no matter what economic, health or
other catastrophe may strike.
Mr. Watt. Will the gentleman yield?
Mr. Wexler. Certainly.
Mr. Watt. I just want to point to the gentleman that's the
very reason that I asked Mr. Delahunt to raise the limit from
$250- to $500-. I'm still not sure that $500,000 is high
enough. I agree, but I hope the gentleman will also agree that
those same kind of medical catastrophes impact just as bad and
worse on the poor people that we are relegating to a second
class under this bill, and that's the only point that I'm
having trouble with her. You know, I have no problem with
trying to protect legitimate, people who are not gaming the
bankruptcy system. I thought that's what we were setting out to
accomplish.
Mr. Delahunt. If my friend would yield----
Mr. Watt. And this bill doesn't do that.
Mr. Wexler. If I could just answer, at least from this one
member's perspective, I agree with Mr. Watt. And I think in
each instance, when the opportunity arises to protect those
citizens in your State and others who are in those situations,
I vote with you. What I'm asking is, in this instance, in this
case, this amendment specifically would affect those residents
of States like Florida, and I'm asking it doesn't help one iota
that particular person that Mr. Watt is concerned about, and I
concur with his concern, it doesn't help them one bit if the
72-year-old in Palm Beach County who just got diagnosed with
cancer and has now got enormous bills, gets thrown out of their
home. It doesn't help that person----
Mr. Delahunt. If my friend would yield.
Mr. Wexler [continuing]. One bit. Certainly.
Mr. Delahunt. I certainly wouldn't want to see anyone
thrown out of their home. And if it would allay the concerns
you expressed, I'm willing to go to a million dollars just to,
for once, establish some sort of norm. Clearly----
Chairman Sensenbrenner. Will the gentleman yield?
Mr. Delahunt. I yield.
Chairman Sensenbrenner. May I use you as a reference in
case I need to get an auctioneer's license in conducting this
auction here today? [Laughter.]
Mr. Delahunt. Well, I definitely would serve as a
reference----
Chairman Sensenbrenner. I thank you.
Mr. Delahunt. And I would suggest this is an auction, Mr.
Chairman. Thank you.
Mr. Scarborough. Property is expensive in Palm Beach, a
million is not enough.
Chairman Sensenbrenner. Does the gentleman yield back the
balance of his time?
Mr. Scarborough. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from Florida, Mr. Scarborough, seek recognition?
Mr. Scarborough. I concur with Mr. Wexler for once. I'm
keeping my mouth shut. [Laughter.]
Chairman Sensenbrenner. For what purpose does the gentleman
from Virginia, Mr. Scott, seek recognition?
Mr. Scott. I move to strike the last word, Mr. Chairman.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Scott. Mr. Chairman, we're talking about throwing
people out in the cold, out of their million-dollar mansions,
some multi-million-dollar mansions. I remind the committee that
we just threw poor single parents with children out in the
street a few minutes ago, just for purposes of reference.
I'd like to ask the gentleman from Massachusetts, Bill, a
question. As I understand the present law, your exemption under
the homestead is limited only by State law and some States it's
totally unlimited. Under the bill, you keep your State law for
your unlimited exemptions, limited only by $100,000 for
everything you've gotten within the last 2 years.
Mr. Delahunt. That's been amended now to $500,000.
Mr. Scott. And under your amendment you get to keep all of
your State homestead exemptions, unlimited, except for an
aggregate total of $500,000.
Mr. Delahunt. As it relates just simply to the primary
residence.
Mr. Scott. Just simply to the----
Mr. Delahunt. If the gentleman will continue to yield, as I
indicated, this is simply a homestead exemption. You know, in
this bill there is also a provision for a million-dollar
protection exemption on a pension fund. So combine that with
the value of equity up to $500,000, and with all due respect to
my colleagues from Florida and Texas, I dare say no one is
going to be tossed out on the street.
Mr. Scott. I would ask the gentleman some States have
property exempt other than real estate. I don't see where the
limitation under State and local law is limited in the bill to
real estate. If you've got other things it may be exempt for
other reasons, because it just says property under State or
local law. It doesn't say real estate.
Mr. Delahunt. Well, again, this amendment is intended to
refer specifically to the prime--the exemption that is provided
by most States, in varying degrees of value of equity to the
primary residence.
Mr. Bachus. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from Alabama seek recognition?
Mr. Bachus. Mr. Chairman----
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Bachus. Now this amendment, now that it's been amended
to a half-million dollars, it actually----
Chairman Sensenbrenner. Could the gentleman speak into the
mike because we've had some----
Mr. Bachus. What you're saying is that now you could have a
half-million-dollar exemption. And before it was a $100,000
exemption, but you're talking about the legislation----
Mr. Scott. Two years.
Mr. Bachus. But that is, the 2-year limitation is designed
to catch people from making transfers in anticipation of
bankruptcy.
Mr. Delahunt. But if the gentleman would yield, what I
would suggest that if we're serious, first, there should be a
uniform national standard, but if that's unacceptable, I don't
think anyone, in fact, I have in another, I have another
amendment that I will offer at a different point in time, which
would expand the 2-year look-back provision for transactions to
5 years because it's clear that those individuals who act most
egregiously, who, in fact, those high-profile cases that I
believe really undermine the confidence of the American people
in the integrity of the system, with the resources available to
them, their level of sophistication, they can drag it out for 2
years.
Mr. Bachus. I understand, but you're actually increasing
the exemption for these people. You've taken it from $100,000
to a half million----
Mr. Delahunt. No.
Mr. Bachus [continuing]. Which I would think is doing the
exact opposite of what you're arguing----
Mr. Delahunt. No, because the $100,000, okay, is subject to
the 2-year limitation, but does not apply, okay, to
transactions within the State. So, for example, if you lived in
one community and wanted to--if--and you wanted to move to
another community, that limitation would not be applicable.
Mr. Bachus. I think we're moving in the wrong direction. I
think this amendment----
Mr. Delahunt. I concur, but, again, I'm dealing with Mr.
Gekas----
Mr. Bachus. I understand you're pointing out----
Mr. Delahunt. [continuing]. Mr. Gekas said the political
reality. In some ways, we're I think trying to present a
picture that this is what it is.
Mr. Bachus. I understand, but obviously it undermines the
intent of the bill.
Chairman Sensenbrenner. Does the gentleman yield back? Does
the gentleman from Alabama yield back?
Mr. Bachus. Yes.
Chairman Sensenbrenner. The question is on the amendment,
as modified, offered by the gentleman from Massachusetts, Mr.
Delahunt.
Those in favor will signify by saying aye.
Opposed, no.
The noes appear to have it.
Mr. Delahunt. Roll call.
Chairman Sensenbrenner. Roll call is requested.
Those in favor of the Delahunt amendment, as modified,
will, as your names are called, answer aye; those opposed, no,
and the clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no. Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no. Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no. Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Scarborough?
Mr. Scarborough. No.
The Clerk. Mr. Scarborough, no. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no. Mr. Issa?
Mr. Issa. Absolutely no. [Laughter.]
The Clerk. Mr. Issa, absolutely no. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no. Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye. Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye. Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
Ms. Jackson Lee. Pass.
The Clerk. Ms. Jackson Lee, pass. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye. Mr. Wexler?
[No response.]
The Clerk. Mr. Wexler, no. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye. Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Ms. Jackson Lee. How am I recorded, Mr. Chairman?
Chairman Sensenbrenner. The gentlewoman from Texas, Ms.
Jackson Lee?
Ms. Jackson Lee. No.
Chairman Sensenbrenner. Jackson Lee is a no.
The Clerk. Jackson Lee, no.
Chairman Sensenbrenner. Are there other members who wish to
record or to change their votes? If not, the clerk will report.
The Clerk. Mr. Chairman, there are 6 ayes and 18 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments? For what purpose does the
gentlewoman from Wisconsin seek recognition?
Ms. Baldwin. Thank you, Mr. Chairman. I have an amendment
at the desk, Baldwin 003.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Three?
Ms. Baldwin. Three.
The Clerk. Amendment to H.R. 333 offered by Ms. Baldwin.
Ms. Baldwin. Mr. Chairman, I ask that the amendment be
considered as read.
Chairman Sensenbrenner. Without objection, so ordered, and
the gentlewoman is recognized for 5 minutes.
Ms. Baldwin. Thank you, Mr. Chairman. I offer this
amendment on behalf of myself and my colleague from Wisconsin,
Mr. Kleczka. This amendment was adopted by this committee
during last year's consideration of bankruptcy legislation in
the form of H.R. 833. Unfortunately, this provision was not
ultimately included in the conference report, and therefore was
not made a part of H.R. 333 that's before us today.
The amendment is fairly simple. Under the current
Bankruptcy Code, wages and benefits earned, even after a
bankruptcy has been initiated, are payable as administrative
expenses and are accorded first-priority treatment. However,
this provision of current law has been interpreted by some
courts to deny any priority treatment of payment awards of back
pay, which accrues after a bankruptcy is filed, to workers who
have been discharged in violation of Federal law.
What this means is that back pay awarded under Federal
laws, such as whistleblower laws, the Family and Medical Leave
Act, and Federal Mine Safety Act, the Uniformed Services
Employment and Reemployment Act are all treated as general,
unsecured claims in the corporation's bankruptcy. This, of
course, means that workers who are entitled to back pay or
other compensation may never actually receive it. I believe
that awards of back pay, resulting from an employer's violation
of Federal law, should be treated the same as other wages
earned after bankruptcy has been initiated, and this amendment
would do exactly that, making back pay part of the
administrative expenses in a bankruptcy settlement.
Mr. Chairman, this loophole in current law should be fixed.
The amendment would make it more likely that workers who are
entitled to back pay actually receive it. It would treat back
pay the same as other wages earned after bankruptcy, which is
entirely fair.
Mr. Chairman, if there is no objection, I would like to
submit a letter from Mr. Kleczka to be made a part of our
record.
Chairman Sensenbrenner. Without objection.
[The letter of Mr. Kleczka follows:]
Ms. Baldwin. And I ask the committee's approval of this
amendment, especially since we did it 2 years ago. I'd like to
see it happen again.
Chairman Sensenbrenner. Will the gentlewoman yield back?
Ms. Baldwin. Yes.
Chairman Sensenbrenner. The gentleman from Pennsylvania?
Mr. Gekas. I thank the chair. I move to strike the last
word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. I would join in the request to have the letter
from Jerry Kleczka made part of the record. The lady is correct
that 2 years ago we did adopt this amendment, and we were happy
with it, but to explain my position here is that, similar to
some other positions that I've undertaken, I want bankruptcy
reform to pass. I want this bill to pass.
We have noted that this particular issue was a point of
friction when the conference occurred twice now, and we
succumbed to the entreaties of the other body to remove that
portion of it because there were some questions on it for the
rationale that impels us to move ahead in the adoption of this
bill. So I will again here oppose the amendment, ask the people
on the committee to reject it, to vote no, but here I extend
again----
Ms. Baldwin. Would the gentleman yield?
Mr. Gekas [continuing]. After I extend to the lady the
proposition that we, together, will seek out the truth in this
particular amendment between now and the floor of the House,
and perhaps confer with our Senate brethren to see where we
stand on it. I don't know where we stand at the moment. I ask
for a no vote. I will yield.
Ms. Baldwin. Will the gentleman yield?
Mr. Gekas. I'll yield.
Ms. Baldwin. Thank you. In order to be fruitful in those
discussions, it certainly would be helpful to me to have some
light shed on why this particular provision was a point of
friction in conference; after all, it passed unanimously in
this committee and this House last time, and with no objection
it went very smoothly.
Mr. Gekas. Recalling my time. The moment I learn why the
friction occurred, I will expose it fully to the lady. I will
provide a memo and other evidence.
Ms. Baldwin. In the meantime, I think a favorable vote in
this committee would strength to our getting back into the
final version.
Mr. Gekas. I do believe you believe that. [Laughter.]
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Gekas. I do.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentlewoman from Wisconsin, Ms. Baldwin.
Those in favor will say aye.
Opposed no.
The noes appear to have it.
Ms. Baldwin. Recorded vote.
Chairman Sensenbrenner. A roll call is requested and will
be ordered. The question is on the Baldwin amendment. Those in
favor will, as your names are called, answer aye; those
opposed, no, and the clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
[No response.]
The Clerk. Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no.
Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no.
Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no.
Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Mr. Scarborough?
[No response.]
The Clerk. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
[No response.]
The Clerk. Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there additional members in the
room who wish to record or to change their vote?
The gentleman from North Carolina, Mr. Coble.
Mr. Coble. No.
Chairman Sensenbrenner. The gentleman from Ohio, Mr.
Chabot.
Mr. Chabot. No.
Chairman Sensenbrenner. The gentleman from Florida, Mr.
Keller.
Mr. Keller. No.
Chairman Sensenbrenner. The gentleman from Indiana, Mr.
Hostettler.
Mr. Hostettler. No.
Chairman Sensenbrenner. Further members who wish to record
or change their vote? If none, the Clerk will report.
The Clerk. Mr. Chairman, there are 3 ayes and 15 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments? The gentlewoman from
Wisconsin, Ms. Baldwin.
Ms. Baldwin. Thank you, Mr. Chairman.
I have an amendment at the desk. This would be Baldwin 2.
Chairman Sensenbrenner. The Clerk will report the
amendment.
The Clerk. Amendment to H.R. 333 offered by Ms. Baldwin,
page 357----
Ms. Baldwin. Mr. Chairman, I ask that the amendment be
considered as read.
Chairman Sensenbrenner. Without objection, so ordered, and
the gentlewoman from Wisconsin is recognized for 5 minutes.
Ms. Baldwin. Thank you, Mr. Chairman.
I am pleased to offer this amendment to update the
definition of ``family farmer'' in the Bankruptcy Code in order
to permit more farmers to file under chapter 12.
My amendment does three simple things in order to enable
more of our family farmers to qualify for chapter 12 bankruptcy
protections. Those protections, of course, help ensure that
family farmers will not have to liquidate their farming
operation, but will be able to continue to keep on with their
family business.
First, the amendment will increase from 1.5 million to 3
million, the amount of aggregate debt that may be accrued by
the family farmer. This is necessary primarily because we have
not updated this limit to eligibility under chapter 12 since
its enactment, and regrettably, many family farmers' debt
exceeds the current statutory limit.
Second, the amendment will reduce from 80 percent to 65
percent the amount of debt that must be related to the farming
operation. Again, this expanded definition will allow more
families to keep their farms under chapter 12 rather than
having to liquidate their farm assets, and this is particularly
important, for example, when medical debt from injury or
illness contributes to a bankruptcy filing.
Finally, under current law, the person or family must earn
more than 50 percent of gross income from farming in the year
immediately prior to the filing of the bankruptcy. This
amendment, instead, would look at one of the last 3 years prior
to the bankruptcy filing instead of limiting it self to the
prior year. This change is very important because it is not at
all unusual for one spouse to work in a non-farm job to secure
health or other benefits for the entire family and, of course,
extra income.
Additionally, in a year prior to declaring bankruptcy, non-
farm income can easily exceed farm-related income since low
prices such as low milk prices or crop failures can
dramatically reduce gross income in any given year.
Looking at one of the 3 years prior to the bankruptcy
filing will keep true farm families from being denied chapter
12 protections.
Thank you, Mr. Chairman, and I hope that we can help farm
families by approving this amendment. I yield back any
remaining time.
[The Amendment offered by Ms. Baldwin follows:]
Chairman Sensenbrenner. The gentleman from Pennsylvania,
Mr. Gekas.
Mr. Gekas. I rise to speak in opposition to the amendment.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Gekas. This, too, as the previous amendment offered by
the lady from Wisconsin, was the subject, and continues to be
the subject, of great debate, but the final language that we
have in our bill is as a result of a well-settled compromise
and back-and-forth solution to this particular problem.
The result at conference was to eliminate the extra million
and a half that the lady is alluding to in her amendment, and,
thus, we are ready to support the compromise. It seems to fit
all parties except perhaps the lady from Wisconsin.
So, rather than upset, again, the delicate balance that we
have striven so fervently to accomplish, I ask the members to
vote no, and I will, again, accord the lady the extra
consultation that we might require to inquire whether or not
this can be modified at a later stage.
Chairman Sensenbrenner. The gentleman yield back? The
gentleman yield back the balance of his time?
Mr. Gekas. I do.
Chairman Sensenbrenner. Question is on the amendment
offered by the gentlewoman from Wisconsin. Those in favor will
signify by saying aye.
Opposed, no.
The no appears to have it. Roll call will be ordered. The
question is on the Baldwin Amendment No. 13. Those in favor
will as your names are called answer aye; those opposed, no.
And the Clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
[No response.]
The Clerk. Mr. Barr?
[No response.]
The Clerk. Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no.
Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
[No response.]
The Clerk. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Mr. Scarborough?
[No response.]
The Clerk. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Additional members who wish to
record or to change their votes?
The gentleman from Ohio, Mr. Chabot.
Mr. Chabot. No.
Chairman Sensenbrenner. The gentleman from South Carolina,
Mr. Graham.
Mr. Graham. No.
Chairman Sensenbrenner. The gentleman from Georgia, Mr.
Barr.
Mr. Barr. No.
Chairman Sensenbrenner. Anybody else? If not, the Clerk
will report.
The Clerk. Mr. Chairman, there are 4 ayes and 13 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Further amendments?
For what purpose does the gentleman from California, Mr.
Schiff, seek recognition?
Mr. Schiff. Reference to amendments at the desk.
Chairman Sensenbrenner. Will the gentleman tell the Clerk
which amendment he wishes to have read?
Mr. Schiff. The first is 004 offered by myself and Ms.
Waters.
Chairman Sensenbrenner. The Clerk will report the
amendment.
Mr. Schiff. Amendment to H.R. 333 offered by Mr. Schiff and
Ms. Waters, page 10, after line 17, insert the following, I-5,
in addition----
Chairman Sensenbrenner. Without objection, the amendment
will be considered as read, and the gentleman from California
is recognized for 5 minutes.
Mr. Schiff. Thank you, Mr. Chairman and members.
This amendment exempts foster care expenses from the means
test definition of disposable income. Foster care payments are
meant to help the family pay for certain expenses related to
accepting a foster child on a temporary basis, and while foster
care is specifically addressed in the bill in certain places,
it is excluded from those expenses exempted from the means
test.
There is a very lengthy list of others which are not
neglected in those sections; for example, care and support of
the elderly, the chronically ill. We even, for example, exclude
the expenses for a dependent child up to the age of 18 for
$1,500 per year per child to attend a private, elementary, or
secondary school, and I think if we are going to be excluded
from a debtor's monthly expenses, expenses for up to $1,500 per
child for a private school, we certainly ought to be excluding
the expenses related to foster care. This amendment would
ensure that expenses necessary to care for a foster child are
included in the list. There are a lot of children, as this
committee well knows, in foster care, a lot of families that
have difficulty meeting their financial commitments even with
the foster care support, and, Mr. Chairman, I would ask that we
include this amendment and yield back the balance of my time.
[The Amendment offered by Mr. Shiff and Mrs. Waters
follows:]
Chairman Sensenbrenner. The gentleman from Pennsylvania,
Mr. Gekas.
Mr. Gekas. I ask for 5 minutes.
Chairman Sensenbrenner. The gentleman is recognized.
Mr. Gekas. Move to strike the last word.
Mr. Chairman and members, I ask the members to vote no on
this provision. For the gentleman's edification, it is our
belief and, therefore, we assert that the phraseology that we
use throughout the sections that are pertinent to his amendment
cover other necessary expenses, and if that wouldn't be
enough--we believe it is--to cover the care of foster children,
the IRS standards that are employed do include foster children
as well. So I ask for a no vote.
Mr. Watt. Mr. Chairman, could you yield on that point?
Chairman Sensenbrenner. Yes.
Mr. Watt. Could you tell us where that provision is? I
don't--I know where the other necessary expenses are, but I
don't see anything in this bill that suggests that a foster
child is counted as a child in the determination of expenses.
Mr. Gekas. Naturally, you would not see it because what I
tried to maintain is that by incorporating by reference the IRS
standards, as we do in the----
Mr. Watt. But under IRS standards, is it--I mean, foster
children are not children either, right?
Mr. Gekas. Yes, they are.
Mr. Watt. I don't think so, Mr. Chairman, but----
Mr. Gekas. That's the--that's the assertion that we have
made throughout.
Mr. Watt. Will the gentleman yield?
Mr. Gekas. Yes.
Mr. Watt. The gentleman has made a number of assertions
throughout, a number of which I have disagreed with.
Mr. Gekas. No question about that,
Mr. Watt. And this is--this is yet another one.
Mr. Gekas. No question, and if any of my assertions----
Mr. Watt. I don't think that's the case.
Mr. Gekas [continuing]. Can be disproved, we will meet that
when the time comes. I am not hard-headed about it. I thank the
gentleman.
I yield back the balance of my time.
Chairman Sensenbrenner. The question is on----
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from Virginia seek recognition?
Mr. Scott. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Scott. And I would ask the gentleman from Pennsylvania,
if we find out that the IRS regulations do not include foster
children, would it be the intent of the gentleman from
Pennsylvania to support this amendment somewhere between here--
--
Mr. Gekas. If we find out that that's not the case, we will
review it and act accordingly.
I thank the Chair.
Mr. Schiff. Will the gentleman yield?
Mr. Gekas. I yield back the balance of my time.
Mr. Schiff. Will the gentleman yield?
Chairman Sensenbrenner. The time belongs to the gentleman
from Virginia. Only he can yield it.
The question is on the Schiff amendment.
Mr. Scott. Wait a minute.
Mr. Schiff. If the gentleman would yield for a moment?
Mr. Scott. I yield to the gentleman from California.
Chairman Sensenbrenner. Okay. The gentleman recaptures his
time even though the Chair has pushed the button, and go ahead.
Mr. Schiff. Thank you, Mr. Chairman.
As I understand it, there are references throughout the
bill to foster care children, and I think if that is the case,
then if you omit the reference to foster care in this
paragraph, you are kind of begging the question about why
references are made elsewhere and not provided for here. That
might create a presumption if this ever came to litigation that
it was intentionally excluded from this section.
And if, as you suggest, that it is included in the IRS
regulations, then this would merely be redundant. If not, then
it would serve a very useful purpose, particularly if it is
excluded elsewhere and the presumption is that it was
intentionally excluded from this section.
Mr. Gekas. Who has the time?
Chairman Sensenbrenner. The time belongs to the gentleman
from Virginia.
Mr. Gekas. Would the gentleman yield?
Mr. Scott. I yield to the gentleman from Pennsylvania.
Mr. Gekas. If, as I said, the references are made in other
portions, the subject matter is so different where we use
foster children that they do not by virtue of the fact that you
believe it is not in this particular section make it necessary
to include this, but rather the subject matter is so different
than we believe it is already covered as I have stated.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from California, Mr. Schiff. Those in
favor will signify by saying aye.
Opposed, no.
The noes appear to have it. The noes have it, and the
amendment is not agreed to.
Are there further amendments?
For what purpose does the gentleman from California, Mr.
Schiff, seek recognition?
Mr. Schiff. Mr. Chairman, Amendment 001.
Chairman Sensenbrenner. The Clerk will report the
amendment.
The Clerk. Amendment to H.R. 333 offered by Mr. Schiff,
page 17, line 8, strike ``and the debtor's spouse''----
Chairman Sensenbrenner. Without objection, the amendment
will be considered as read, and the gentleman from California
will be recognized for 5 minutes.
Mr. Schiff. Mr. Chairman and members, this amendment
provides a safe harbor to exclude a spouse's income from the
means test.
Bankruptcy experts tell us that a large percentage of
bankruptcy filings are the result of family problems, a
separation, divorce, et cetera. Unfortunately, children often
suffer under these circumstances, and the way the bill is
currently drafted, even though the parents might be legally
separated and one spouse files for bankruptcy, even though that
spouse has no access to the income of the other spouse and may
be estranged from the other spouse, the second spouse's income
is nonetheless included in the means test. This can have a very
direct and negative impact on the children, among others, in
that family, and preclude that parent from the relief of
bankruptcy. This appears to be an oversight in the current bill
and can be remedied with this amendment.
I yield back the balance of my time and urge an aye vote on
the amendment.
[The Amendment offered by Mr. Schiff follows:]
Chairman Sensenbrenner. The gentleman from Pennsylvania,
Mr. Gekas.
Mr. Gekas. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized.
Mr. Gekas. I ask the members to vote no on this amendment,
but I hasten to say that the gentleman may have struck a cord
of error here in which, again, we became frozen in time, as it
were, during the conference to preserve the unity of the bill.
It may have been an oversight. We are not certain of that.
We are going to double-check. We are going to ask for a no
vote. We are going to try to defeat your amendment, and then we
will consult to see what the future holds for your proposed
amendment.
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Gekas. I yield back.
Chairman Sensenbrenner. Question?
Mr. Scott. Mr. Chairman? Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Scott.
Mr. Scott. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Scott. Mr. Chairman, the gentleman's amendment seems to
me to make excellent sense. This is the original determination
of presumption of abuse to determine whether or not a person's
income is above or below the State median income to determine
where they go in bankruptcy. It seems to me ridiculous to
include in that calculation the income of a spouse that may
have been--may be deserted, may be long gone, someone that you
don't have any access to their money, and account that income
to force a person out of chapter 7 into chapter 13 when the
person filing has very little, if any, income at all. It seems
to me absolutely ridiculous, and if this markup means anything,
it seems to me that we would consider the amendment and not put
everything off until such time as if this markup is
meaningless.
Mr. Gekas. If the gentleman would yield?
Mr. Scott. I will yield.
Mr. Gekas. I am considering it. I just spoke to the fact
that I am considering it.
Mr. Scott. Well, if it is a good amendment, let's adopt it.
Mr. Gekas. I am asking you to consider my position of
wanting to double-check, and, therefore, I am asking for a no
vote. It is not being--I am not being cruel to you, but you are
trying to be cruel to me. Therefore, I ask for a no vote. I
pledge to the gentleman that we are going to look at this
between now and the floor.
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Scott. Well, I assume I will yield back. I mean, the
point of the gentleman has been made, that we are not going to
consider any amendment however meritorious until he can check
with whoever.
I yield back.
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman.
I have to say that this is extremely frustrating. We got a
committee here that has--I don't know how many members we got.
Thirty-seven members, I am told.
We are told that it is our responsibility to mark up a bill
and to evaluate arguments for and against it, and, yet, time
after time after time, we have been told that--and it has been
demonstrated. In fact, I think Mr. Scarborough's lone vote for
one amendment today is the sole and only vote from the other
side for any amendment regardless of how meritorious it is.
It makes us wonder what it is we are doing here, and then
if we stay here and try to do our job, then we get accused of
being dilatory and, you know, trying to draw the--obstructive,
whatever the words are, and trying to draw the process out, and
at some point, I am sure somebody is going to get angry because
tomorrow we are going to be here going through what appears to
be a charade. It is a charade.
I don't think I have seen this. I mean, obviously, the
committee has worked its will throughout all the 8-plus years I
have been on this committee, but I don't think I have ever seen
a bill come to our committee and have the person who is
controlling the bill say over and over again----
Mr. Gekas. Move to strike that phrase from the record.
Chairman Sensenbrenner. The gentleman--the gentleman will
suspend. If the gentleman from Pennsylvania asked that the
gentleman's words be taken down, the gentleman will----
Mr. Gekas. Well, no, I have never used that word except in
conjunction with Boulder. That is the only time I ever used
that word.
Chairman Sensenbrenner. With what? Without objection, the
word ``damn'' will be stricken from the record. Hearing none,
so ordered, and the gentleman from North Carolina may continue.
Mr. Watt. There is something offensive to me about being
told--and I don't think I have ever seen this happen in this
committee over and over again by the person who is controlling
the bill; that I don't give a darn how much--I don't give a
darn how much sense or merit your amendment has. Either I have
some deal with somebody else or I'm not bright enough myself to
evaluate what is being proposed, and to have over and over
again just absolute misrepresentations made about what the
state of the law is--I mean, I hope you are going to go back
now, Mr. Gekas, and look at--I finally did get the definition
of ``child.'' Under the Income Tax Code, it says nothing about
step--foster children. You know, you just represent stuff as if
we are just stupid, and you are treating us now as if we are
stupid and you are right on the verge, I would tell you, of
getting me to start treating you all the same way.
Mr. Gekas. Would the gentleman yield for a moment?
Chairman Sensenbrenner. The time belongs to the gentleman
from North Carolina.
Mr. Watt. I am happy to yield to him.
Mr. Gekas. I have always felt, and I still continue to
feel--and I think the gentleman will agree that part of the
legislative process and the committee work is when confronted
with a provision or a set of words or a comma or other parts of
a proposed piece of legislation that we pause, we look around,
we say would you withdraw that amendment or I will accept it on
the condition that--and we do this constantly. It is part of
the process, and it is part of the give-and-take. Any illusion
to the contrary is abusive on your part as to what we are
trying to do for----
Mr. Watt. Well, I'm sure we were--I was sure we were going
to get to the point where this whole process was my fault all
of a sudden. I had no doubt about that.
Mr. Gekas. And we're all on the same----
Chairman Sensenbrenner. The time of the gentleman has
expired.
Mr. Watt. Okay. Well, I'm getting ready to make it my fault
now.
Chairman Sensenbrenner. And the question is on the adoption
of Schiff Amendment No. 15. Those in favor will say aye.
Those opposed will say no.
Chairman Sensenbrenner. The noes appear to have it.
Mr. Watt. I ask for a recorded vote.
Chairman Sensenbrenner. A recorded vote is ordered. The
question is on Schiff Amendment No. 15. Those in favor will as
your names are called answer aye; those opposed, no. And the
Clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no.
Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no.
Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
[No response.]
The Clerk. Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no.
Mr. Bachus?
[No response.]
The Clerk. Mr. Scarborough?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. The gentleman from Alabama.
The Clerk. Mr. Bachus?
Mr. Bachus. No.
The Clerk. No.
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Coble.
Mr. Coble. No.
Chairman Sensenbrenner. The gentleman from Arkansas.
The Clerk. Mr. Coble, no.
Mr. Hutchinson. No.
The Clerk. Mr. Hutchinson, no.
Chairman Sensenbrenner. Any further members who wish to
record or to change their votes? If not, the Clerk will report.
The Clerk. Mr. Chairman, there are 5 ayes and 13 nays.
Chairman Sensenbrenner. The amendment is not agreed to.
Are there further amendments? For what purpose does the
gentleman from Virginia, Mr. Scott, seek----
Mr. Scott. Mr. Chairman, I think the gentleman from
California had one additional amendment.
Chairman Sensenbrenner. For what purpose does the gentleman
from California seek recognition?
Mr. Schiff. Mr. Chairman, at the risk of provoking other
Boulder Dam good debate, I have one last amendment to offer,
003.
Chairman Sensenbrenner. The Clerk will report the
amendment.
The Clerk. Amendment to H.R. 333 offered by Mr. Schiff,
page 19, line 23, strike----
Chairman Sensenbrenner. Without objection----
Mr. Watt. I object.
Mr. Schiff. Mr. Chairman, members, this amendment would----
Chairman Sensenbrenner. The Clerk will continue to read.
The Clerk. And insert ``studies,'' page 120, after 16,
insert the following. C. Study. Not later than 1 year after the
date of enactment of this act, the Controller General of the
United States shall conduct a study to determine any effects of
the bankruptcy bill on the ability of a parent to pay child
support or the ability of a parent to collect child support.
This study shall include cases where custodial parents are the
debtors in bankruptcy cases and where child support obligers
are the debtors in bankruptcy cases. D. Report. Not later than
1 year after the date of enactment of this act, the Controller
General shall submit to the President Pro Tem of the Senate and
the Speaker of the House of Representatives a report containing
the results of the study required by Subsection (c).
Chairman Sensenbrenner. The gentleman from California is
recognized for 5 minutes.
[The Amendment offered by Mr. Schiff follows:]
Mr. Schiff. Thank you, Mr. Chairman.
This amendment would authorize the--a study by the GAO to
determine any effects that the bill will have on an ability of
a parent to pay child support or an ability of the parent to
collect child support. Probably the most--one of the most
significant concerns about the bill is a collateral consequence
of the bill where those trying to collect child support will be
placed in either indirect or direct competition with credit
card companies or others who are in a much stronger position to
collect on outstanding debts than those that are entitled to
child support. This amendment would merely require the conduct
of a study so we can determine after a suitable period of time
elapses if there has been an adverse impact. I know that the
author feels that many of the amendments in the bill will help
those attempting to collect child support, and I think that is
probably true, but on the whole, I think it is still unclear
what the impact will be on those who rightfully have a child
support and have not been able to collect on it. So this would
give us a good and an objective analysis and help us determine
whether subsequent legislation as a follow-up would be prudent.
I will yield back the balance of my time and thank the
chairman for allowing me to offer the amendment.
Mr. Gekas. Mr. Chairman, I ask for a no vote.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman.
Chairman Sensenbrenner. For what purpose do you rise?
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Thank you, Mr. Chairman.
I suppose the gentleman who is controlling the bill can't
entertain the notion of a study either or perhaps we don't care
what impact the bankruptcy laws and the changes we are making
are going to have on the people of America. Perhaps that is
what we are saying to the American people today that we don't
really care about doing our job, that some people have gotten
together behind closed doors, outside the committee process,
and worked a deal and that the powerful interests of this
country are going to proceed regardless of what the people say
about the equity of the bankruptcy laws of our country.
Perhaps we are saying we don't care about having two
systems of bankruptcy in this country, one for the poor and one
for the rich.
Perhaps we don't--we are saying to the American people we
don't care that we are now going to send a resounding message
that it is all right for rich people to abuse the system, but
when poor people start to abuse the system, we got to draw
the--draw the curtains down.
This is--you know, we--I don't know how we are supposed to
react here, you know, and I'm sure--I understand you all are
getting ready to call the question. Call it because we are
engaged in a charade. At least the question being called will--
will let the American people know that you all don't care about
the process, but understand sometime during this term, you are
going to have to consider a bill unless you are going to call
the question every time. I am going to be here. I am not going
anywhere. I have no desire to get off the Judiciary Committee.
I haven't asked to get off the Judiciary Committee. I will be
here, and if this is the way we are going to conduct the
business of this committee, let me assure each and every one of
you now that every time the gavel is rapped, I will be sitting
right here, and every time you call the previous question, I am
going to be sitting right here, but between those times, if
that is the way we are going to conduct the business of this
committee, then you can expect me to play by those same kind of
rules, and if you don't understand that, I will say it over
again because I got two or three more minutes, since I ain't
got nothing to do but filibuster here.
Let the word go out right now. If we can't operate and do
our jobs in this committee, I will not participate in this
charade that you are playing, and so understand it, and if you
don't understand it, I think you will before long.
I yield back.
Chairman Sensenbrenner. The time of the gentleman has
expired. The question is on the amendment offered by the
gentleman from California, Mr. Schiff. Those in favor will
signify by saying aye; those opposed, no. The noes appear to
have it.
Mr. Watt. Record the vote.
Chairman Sensenbrenner. A recorded vote is ordered. The
question is on Schiff Amendment No. 16. Those in favor will as
your names are called answer aye; those oppose, no. And the
Clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no.
Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no.
Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
[No response.]
The Clerk. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no.
Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no.
Mr. Bachus? Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Mr. Scarborough?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Coble.
Mr. Coble. No.
Chairman Sensenbrenner. The gentleman from Arkansas, Mr.
Hutchinson.
Mr. Hutchinson. No.
Chairman Sensenbrenner. Any further members in the room who
wish to record or to change their votes? If not, the Clerk will
report.
The Clerk. Mr. Chairman, there are 5 ayes and 16 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
For what purpose does the gentleman from Alabama wish to
seek recognition?
Mr. Bachus. Mr. Chairman, I think that you know that I----
Chairman Sensenbrenner. Move to strike the last word?
Mr. Bachus. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Bachus. I think that you know that I am not someone who
just goes along to get along, and on occasions, I have had my
differences with proposals on both sides of the aisle.
However, I do want to say, and I feel constrained to say,
that I think the conduct of this hearing at least, unless I
have missed something, has been very orderly. I think it has
been very business like. We--this hearing, we have moved along.
We have allowed everyone to have their 5 minutes. We have
played by the rules. We hadn't bent the rules for anyone. In
fact, I find it quite refreshing, and I would say to the
members on the other side of the aisle--and I mean this in all
sincerity--I must have missed something because I thought that
we were conducting a very orderly and courteous hearing, and
the only time that the Chair has intervened is when somebody
violated the rules.
Having said that, I want to speak very briefly in favor of
the need for amendments to the netting and the commercial
banking, bankruptcy provisions of the act before us. I think it
is an issue that needs to be addressed. These amendments are
primarily concerned with the cross-product netting and
commercial bankruptcy provisions of the bill, and several of
the amendments have been made necessary by enactment this year
of the Commodity Futures Modernization Act, but in each case,
these are issues that are matters of concern not only for this
committee, but also for the Financial Services mmittee. And as
a member of both committees, I have a particular interest in
seeing that these issues are addressed.
And, Mr. Chairman, I think that these technical and
confirming amendments will make important improvements to the
legislation, and I want to say that the chairman of the
Financial Services Committee, Mr. Oxley, shares my desire to
see them included.
So I would simply ask that you work with us and with
Chairman Oxley to see that these issues are addressed, not that
a referral is made to Financial Services. We said earlier we
wanted to avoid that and----
Chairman Sensenbrenner. Will the gentleman from Alabama
yield?
Mr. Bachus. I yield.
Chairman Sensenbrenner. Let me say that the staff has
already been working with the staff of the Financial Services
Committee. I certainly do wish to work in very close
conjunction with Chairman Oxley to prevent a sequential
referral of this legislation, and I appreciate the good offices
of the gentleman from Alabama to accomplish that goal.
Mr. Bachus. Thank you, and with that, I would like to
introduce my written statement in that regard and yield back
the balance of my time.
Chairman Sensenbrenner. Without objection, the written
statement will be included as a part of the record.
[The prepared statement of Mr. Bachus follows:]
Prepared Statement of Hon. Spencer Bachus, a Representative in Congress
from the State of Alabama
Mr. Chairman, I would just like to take a moment to speak in favor
of amendments to the Netting Commercial Bankruptcy Provisions in the
Bankruptcy Reform Act. This is an issue that needs to be addressed.
There are additional conforming amendments to this legislation that
I believe we should adopt for several reasons. Some are necessary in
order to address issues that have been raised by bankruptcy experts,
and others would improve the legislation by taking into account new
developments since the legislation was first introduced. In each case,
these are issues that are matters of concern for both this Committee
and the Committee on Financial Services. As a member of both
committees, I have a particular interest in seeing these issues
addressed.
These amendments are principally concerned with the cross-product
netting and commercial bankruptcy provisions of the bill. Several of
the amendments were made necessary by enactment last year of the
Commodity Futures Modernization Act.
Mr. Chairman, I think that these technical and conforming
amendments will make important improvements in this legislation and I
believe that the Chairman of the Financial Services Committee, Mr.
Oxley, shares my desire to see them included.
Mr. Chairman, I'd like to ask if you would allow me to work with
you and Chairman Oxley to see that these issues are addressed.
Thank you.
Chairman Sensenbrenner. The Chair now recognizes himself
and has an amendment at the desk, and the Clerk will report the
amendment.
The Clerk. Amendment to H.R. 333 offered by Mr.
Sensenbrenner, page 174, line 5, strike ``30.76'' and insert
``33.87''; page 316, strike line 16 and insert the following,
one, by redesignating section 407 as 407(a); beginning on page
330, strike line 19 and all that follows through line 10 on
page 331 and make such technical and conforming changes as may
be appropriate; page 356, beginning on line 5, strike ``and
amendment by this act is reenacted'' and insert ``is hereby
reenacted and as here reenacted is amended by this act''; page
356, line 20, strike ``2001'' and insert ``2004''; page 368,
line 4, strike ``and (38)'' and insert ``(38)'' and ``54A'';
page 380, strike lines 19 through 21 and insert the following,
E, effective dates, one, except as provided in paragraph 2,
this section and the amendments made by this section shall take
effect on the date of the enactment of this act, two, with
respect to the temporary bankruptcy judgeship authorized by the
District of South Carolina under paragraph 8 of the Bankruptcy
Judgeship Act of 1992, 28 USC 152 Note Subsection (c)(1) as it
applies to the extension specified in subparagraph (d) of such
subsection shall take effect immediately before December 31,
2000.
[The Amendment offered by Mr. Sensenbrenner follows:]
Chairman Sensenbrenner. The Chair recognizes himself for 5
minutes.
The amendment makes four types of conforming revisions to
H.R. 333, and this language has been given to the minority last
night.
The first revision pertains to section 325(c) of the bill
which amends section 406(b) of the Judiciary Appropriations
Act. The section, however, was amended by Public Law 106-113
with respect to the stated percentage of fees. The amendment
simply conforms the percentage figure in the bill to that which
is specified under current law.
The second set of revisions consists of a series of
conforming amendments necessitated by the enactment of the
Commodity Futures Modernization Act of 2000 on December 21st of
2000. It is my understanding that those revisions are
acceptable to the Financial Services Committee, and we look
forward to continuing cooperation with Chairman Oxley and that
committee.
The third set of revisions is necessitated only because of
the passage of time. The amendment to section 1001 of the bill
which reenacts chapter 12 of the Bankruptcy Code, it makes it a
permanent form of bankruptcy relief for family farmers, revises
the language of this provision to take into account that
chapter 12 expired as of July 1, 2000. The amendment to section
1002 which is key to a provision in the Bankruptcy Code that
requires certain dollar amounts in the Code to be automatically
adjusted at specified 3-year intervals extends a specified date
so that the provision does not have a retroactive effect.
The final revision concerns section 1224 of the bill which
in pertinent part extends five existing temporary judgeships
including one in the District of South Carolina. As the term of
the South Carolina judgeship expired on December 31, 2000, the
bill would not have its intended effect with respect to that
judgeship. My amendment simply reinstates the judgment position
and extends it retroactively.
And I yield back the balance of my time.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from North Carolina seek recognition?
Mr. Watt. Mr. Chairman, I ask for a separate vote on each
section of the amendment.
Chairman Sensenbrenner. The Chair says that the gentleman
is able to do that as a matter of right. However, how does the
gentleman from North Carolina wish to divide the question?
Mr. Watt. I wish to divide it the first line, the second
two lines, the next three lines, the next three lines, the next
one line, the next two lines, the next two lines, and then all
of page 2.
Chairman Sensenbrenner. I don't think that works. The last
two lines----
Mr. Watt. I'm sorry. That's--that's right.
Chairman Sensenbrenner. The last two lines on the bottom of
page----
Mr. Watt. The last two lines and all of page 2. I'm sorry.
Chairman Sensenbrenner. Okay. The question is on the first
part of the technical amendment which relates to page 174, line
5. Those in favor will signify by saying aye.
Opposed, no.
The ayes have it, and the amendment is----
Mr. Watt. I ask for a recorded vote.
Chairman Sensenbrenner. Okay. The Clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. Aye.
The Clerk. Mr. Gekas, aye.
Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. Aye.
The Clerk. Mr. Smith, aye.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye.
Mr. Barr?
[No response.]
The Clerk. Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. Aye.
The Clerk. Mr. Hutchinson, aye.
Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
Mr. Graham. Aye.
The Clerk. Mr. Graham, aye.
Mr. Bachus?
Mr. Bachus. Aye.
The Clerk. Aye? Mr. Bachus, aye.
Mr. Scarborough?
Mr. Scarborough. Aye.
The Clerk. Mr. Scarborough, aye.
Mr. Hostettler?
Mr. Hostettler. Aye.
The Clerk. Mr. Hostettler, aye.
Mr. Green?
Mr. Green. Aye.
The Clerk. Mr. Green, aye.
Mr. Keller?
Mr. Keller. Aye.
The Clerk. Mr. Keller, aye.
Mr. Issa?
Mr. Issa. Aye.
The Clerk. Mr. Issa, aye.
Ms. Hart?
Ms. Hart. Aye.
The Clerk. Ms. Hart, aye.
Mr. Flake?
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye.
Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff? Mr. Schiff?
Mr. Schiff. Aye.
Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Additional members? The gentleman
from Georgia, Mr. Barr.
Mr. Barr. No. [Laughter.]
Aye.
The Clerk. Mr. Barr, aye.
Chairman Sensenbrenner. The gentleman from Utah, Mr.
Cannon.
Mr. Cannon. Aye.
Chairman Sensenbrenner. More enlightened.
The gentleman from Virginia, Mr. Goodlatte.
Mr. Goodlatte. Aye, aye.
Chairman Sensenbrenner. Aye, aye.
Anybody else?
The Clerk will report.
The Clerk. Mr. Chairman, there are 22 ayes, no nays.
Chairman Sensenbrenner. And the--and part one of the
amendment is agreed to.
The question is on page two which relates to page 316.
Those in favor will say aye.
Opposed, no.
The ayes appear to have it. The ayes have it and----
Mr. Nadler. I ask for a recorded vote.
Chairman Sensenbrenner. A recorded vote will be ordered.
Those in favor will vote aye. Those opposed will vote no. And
the Clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. Aye.
The Clerk. Mr. Gekas, aye.
Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye.
Mr. Barr?
Mr. Barr. Aye.
The Clerk. Mr. Barr, aye.
Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. Aye.
The Clerk. Mr. Hutchinson, aye.
Mr. Cannon?
Mr. Cannon. Aye.
The Clerk. Mr. Cannon, aye.
Mr. Graham?
Mr. Graham. Aye.
The Clerk. Mr. Graham, aye.
Mr. Bachus?
Mr. Bachus. Aye.
The Clerk. Aye.
Mr. Scarborough?
Mr. Scarborough. Aye.
The Clerk. Mr. Scarborough, aye.
Mr. Hostettler?
Mr. Hostettler. Aye.
The Clerk. Mr. Hostettler, aye.
Mr. Green?
Mr. Green. Aye.
The Clerk. Mr. Green, aye.
Mr. Keller?
Mr. Keller. Aye.
The Clerk. Mr. Keller, aye.
Mr. Issa?
Mr. Issa. Aye.
The Clerk. Mr. Issa, aye.
Ms. Hart?
Ms. Hart. Aye.
The Clerk. Ms. Hart, aye.
Mr. Flake?
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler? Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye.
Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Additional members in the room who
wish to record or to change their votes? If not, the Clerk will
report.
Mr. Goodlatte. Mr. Chairman, have I been recorded?
Chairman Sensenbrenner. Mr. Goodlatte.
The Clerk. Mr. Goodlatte, aye.
Mr. Chairman, there are 21 ayes and no nays.
Chairman Sensenbrenner. And part two is agreed to.
The question is now on the adoption of part three of the
technical amendment which relates to the language beginning on
page 330.
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from----
Mr. Nadler. I am not sure if this should be a motion or a
unanimous consent request that we take the other section of
this amendment en bloc.
Mr. Watt. Mr. Chairman, I will withdraw, and Mr. Cannon
says he has a plane to catch. So I will--I will withdraw my
request to----
Chairman Sensenbrenner. Without objection, the question is
on the remaining parts of the technical amendment. Those in
favor will signify by saying aye.
Opposed, no.
The ayes have it, and the remaining parts of the technical
amendment are adopted.
For what purpose does the gentleman from Pennsylvania seek
recognition?
Mr. Gekas. Mr. Chairman, I have a motion at the desk.
[The information referred to follows:]
Prepared Statement of Hon. Sheila Jackson Lee, a Representative in
Congress from the State of Texas
Mr. Chairman, I am submitting this statement to express my
displeasure and strong opposition to the motion that was presented by
the Republican Judiciary Committee Leadership to ``move the previous
question'' which prevented me and other Democrats from offering
amendments that would improve the bill.
Mr. Chairman, throughout the day, you and Chairman Gekas stated
that you supported a number of amendments that were offered to improve
the Bankruptcy Reform Bill, such as the amendment I offered to strike
language in the bill that would bar the enforcement of certain foreign
judgments. You stated however, Mr. Chairman, that while you supported
my amendment, you would not vote in favor of it during the mark-up
because you did not want to tamper with the bill. I agreed to withdraw
this amendment, with assurances from you and Chairman Gekas that you
would work with me to ensure it is included in the rules to be debated
on the floor.
While I appreciate your commitment to protect this amendment for
debate on the floor, I believe that the work ethic that has been the
pride of the committee throughout the years was undermined today when
good amendments that would better the bill were defeated with the
excuse that the bill should be preserved ``as-is.''
The political process that the legislative body has followed for
years promotes the offering of amendments, and the robust debate that
follows to better craft and reshape legislation to benefit all
Americans. Mr. Chairman, the Gestapo tactics that were used during the
mark-up of the bankruptcy bill destroyed not only the minority party
who sought to improve the bill, but also the American people, whose
interests we represent.
Mr. Chairman, I was only allowed to offer 2 amendments to the
Bankruptcy Reform Bill before the motion was passed to move the
previous question, which prevented further amendments and further
debate on this very important bill. Had an opportunity been allowed to
adequately analyze, debate and amend H.R. 333, I had 8 additional
crucial amendments to offer to the bill. They may not have been
accepted, but a true democratic process would have allowed for a robust
full debate and scrutiny by all interested members of the Judiciary
Committee. The additional amendments I would have offered are as
follows:
1. Lan amendment to include an exception from limitation on
``cramdowns'' for domestic support obligations,
2. Lan amendment to include an exception from the reaffirmation
provisions on ``cramdowns'' for domestic support obligations.
3. Lan amendment striking the economically biased means test
from the bill,
4. Lan amendment to expand the means test to apply to business
debts,
5. Lamendment to make public school expenses an allowable
expense under the means test,
6. Lan amendment to page 15 line 2 of HR 333 striking (the
court) ``may'' and inserting (the court) ``will,'' to make the
courts responsibility stronger if creditors bring frivolous
actions against creditors,
7. Lan amendment modifying the burden of proof creditors must
shoulder to ``substantially justified,'' to fairly proportion
the prima facie case a creditor must prove bring a cause of
action against a debtor.
8. Lan amendment to include disaster relief benefits as a
recognizable income in the ``means test,''
Mr. Chairman, the amendments I would have offered to the
reaffirmation and limitation provisions of H.R. 333 would have provided
protection to domestic support for women and children taking them out
of the field of competition with creditors.
H.R. 333 places economically vulnerable women and children who are
forced into bankruptcy, and those who are owed support by men who file
for bankruptcy at greater risk by increasing the rights of many
creditors, including credit card companies, finance companies, auto
lenders and others over that of the women and children. Thousands of
women and children will be held hostage by H.R. 333 because this bill
effectively increases the rights of creditors over these vulnerable
women and children, and sets up a competition for scarce resources
between parents and children owed support and commercial creditors both
during and after bankruptcy. Therefore, single parents facing financial
crises often caused by divorce, nonpayment of support, loss of a job,
uninsured medical expenses or domestic violence would find it harder to
regain their economic stability through the bankruptcy process.
This fact is not something new, whose light has recently been cast
over the dark future of bankruptcy reform that would follow H.R. 333.
The fact that H.R. 333 would effectively place women and children in a
gladiator's arena with creditors to do battle for child support money
owed by former spouses who file bankruptcy has been articulated by
national organizations such as the National Women's Law Center, the
National Association of Consumer Bankruptcy Attorney's, the National
Organization for Women, a coalition of bankruptcy professors and
bankruptcy judges and the National Association of Attorney's General's
to name but a few. How, anyone could argue against the drastic effects
and hardships that the language in this bill will cause on the
vulnerable women and children in this country is beyond me.
I have consistently said that the greatest challenge before us in
the bankruptcy reform efforts is solving the widely recognized
inadequacies of the law in the area of consumer bankruptcy. As it has
always been in the Congress, the key to this process, is, of course,
successfully balancing the priorities of creditors, who desire a
general reduction in the amount of debtor filing fraud, and debtors,
who desire fair and simple access to bankruptcy protections when they
need them. H.R. 333 does not accomplish this goal.
I would have also offered an amendment replacing the means-testing
standard in the legislation with a standard that more accurately
reflects current law or, better put, least hurts those consumers who
earnestly need to file for bankruptcy.
The means-testing standard is inadequate for those who are least
equipped to conform to such a drastic alteration from current law and
would be a disaster for middle-income and low-income families in
America. The principal problem with the means test is that the rigid
one-size-fits-all test in determining eligibility for Chapter 7 and the
operation of Chapter 13 will often operate in an arbitrary fashion.
Access to bankruptcy would be more difficult, especially for low-
income filers without legal assistance. The means test within HR 333
would make filings more complex, and the IRS formula it incorporates
discriminates against lower-income individuals and families. The ``safe
harbor'' provision that is supposed to protect some low-income families
from the application of the IRS standards will not protect many single
mothers, because it is based on the combined income of the debtor and
the debtor's spouse--even if they are separated and the mother who is
filing for bankruptcy is receiving no support from the non-debtor
spouse from whom she is separated.
Mr. Chairman, under my amendment, a more flexible standard would
have allowed the debtor to have the ability to repay debts from future
debts, which is not possible under the legislation as written. I think
such a change in the standard would have been warmly welcomed for
middle-income and low-income filers.
Mr. Chairman, I would have also offered an amendment to expand the
``means test'' to apply to business debts to ensure that business
debtors are treated as favorably as non-business debtors within the
framework of the means-testing standard contained in the bill. My
amendment essentially expands the means-test to apply to business
debts.
Let me explain a few of the glaring difficulties with treatment of
business debtors under HR 333. First, the bill relies upon IRS
collection standards, which lay out no comprehensive or specific
standards for the deduction of living expenses. In fact, the bill even
fails to provide specific guidance concerning the appropriateness of
deducting part or all of the funds a debtor may expend for items such
as health care (both medical expenses and health insurance), taxes, and
accounting and legal fees, among other things.
The 1973 Commission on Bankruptcy Laws similarly considered and
rejected industry calls for mandatory Chapter 13s, noting that Congress
itself rejected similar proposals in 1967, and observed: ``[b]usiness
debtors are not subject to any limitation on the availability of
straight bankruptcy relief, including discharge from debts, and it was
pointed out, quite apart from bankruptcy, business debtors are able to
incorporate and to limit their liability to their investments in
corporate assets . . .'' See Report of the Commission on Bankruptcy
Laws, H.R. Doc. No. 137, Part I, 93rd Congress, 15859 (1973) (citations
omitted) (emphasis added).
The bottom line is that business debtors incur a windfall if the
legislation is not amended. There are several consumer provisions in
the bill that will exact hardships on all debtors, regardless of income
level or degree of culpability. This will harm consumers, especially
low-income filers and place them on an unfair playing field when
compared to business debtors.
Mr. Chairman, the approach regarding business and non-debtors
within HR 333 must be revisited if bankruptcy reform is realized this
year.
Mr. Chairman, I would have also offered an amendment to page 10,
line 14 of H.R. 333 to merely add a debtor's monthly public school
expenses as an allowable expense under the means test. My amendment
would put public school expenses at an equal footing with that of
private school expenses which is already included in the bill.
The principal problem with the means test is that the rigid one-
size-fits-all test in determining eligibility for Chapter 7 and the
operation of Chapter 13 will often operate in an arbitrary fashion.
Access to bankruptcy would be more difficult, especially for low-
income filers who are not able to meet the requirements because they
cannot list public school expenses as an allowable expense as would
their private school counterparts. The ``safe harbor'' provision that
is supposed to protect some low-income families from the application of
the IRS standards will not protect many single mothers, because it is
based on the combined income of the debtor and the debtor's spouse--
even if they are separated and the mother who is filing for bankruptcy
is receiving no support from the non-debtor spouse from whom she is
separated. As the Committee knows, the majority of low-income families
send their children to public schools (as opposed to higher-income
people) because they cannot afford the private school tuition. It would
seem that if the true intent of this bill were to assist all Americans,
a provision recognizing public school tuition would have accompanied
the recognition of private school tuition as an allowable expense under
the ``means test,'' however, this is not the case.
Under my amendment, low-income people will have a more flexible
standard (that is consistent with that of high-income people) that
would allow the debtor to have a fair opportunity to financial
recourse, which is not possible under the legislation as written. I
think such a change in the standard would be warmly welcomed for
middle-income and low-income filers. We cannot in good conscience allow
such an unbalanced approach to prevail.
Mr. Chairman, I would have also offered two amendments that would
curtail frivolous law suits by creditors against debtors. The first
amendment would have struck the word ``may'' and insert ``shall'' on
page 15, line 2, of the bill, and the second amendment would have
struck the words ``violated'' and all that followed through
``procedure,'' and insert ``was not substantially justified'' to page
15, line 10, of the bill.
Mr. Chairman, these two very important amendments would have given
American courts direction by specifically mandating that they must act
strongly against creditors who bring frivolous actions for the sole
purpose of coercing debtors into payment agreements on the creditors
terms.
H.R. 333 currently increases the burden that a debtor must shoulder
while tearing down the checks that are in place to prevent creditors
from engaging in abusive practices. Consumer bankruptcy expert Henry
Somber has stated that the provisions of H.R. 333 increase the
opportunity for creditors to file the types of abusive fraud complaints
which have been found by many courts to be baseless and unjustified
attempts to coerce reaffirmation's by debtors who cannot afford to
defend them.
The burden to defend against these actions will fall mainly upon
low income debtors who are unsophisticated, do not have the time,
budget flexibility, or attorney advice to defeat such frivolous
actions.
My amendment would have given a force of action to the courts by
placing checks on debtors seeking to abuse the judiciary by filing
frivolous suits.
Mr. Chairman, I would have also offered an amendment to include
``disaster relief'' as a recognizable expense under the ``means test.''
Disaster relief is not recognizable as something you can write off in
HR 333 as income. That is simply ill conceived. We should be able to
deduct disaster relief as a recognizable expense under the means-test
because it is just as important as other considerations that were
placed worked together in the bill.
This would have restored some fundamental fairness to the
legislation, particularly when we think of the tragic accidents that
occur with regular frequency in America.
Mr. Chairman, if means-testing and other consumer provisions will
harm low-income and middle-income people, then HR 333 is sure to have
an undesirable effect on consumers that are victims of disasters. While
it is unclear whether how such costs will affect the overall bankruptcy
system, it is clear that excluding disaster assistance from allowable
expenses under the means-test in HR 333 is an unfortunate and
unnecessary component of the bill.
Mr. Chairman, as I stated at the opening of my statement, I believe
that justice did not prevail during the mark-up of this very important
bill. The political process and American democracy was trampled on when
amendments and the robust debate that would have followed to better
craft and reshape this legislation was prevented. Mr. Chairman, for the
good of the political process within the Judiciary Committee, the U.S.
House of Representatives, and the American people, I implore you to
ensure that this not happen again.
Mr. Chairman, in closing I reiterate my displeasure and strong
opposition to the motion that was presented by the Republican Judiciary
Committee Leadership's to ``move the previous question'' which
prevented me and other Democrats from offering amendments to improve
this very important bill.
Chairman Sensenbrenner. The Clerk will report the motion.
The Clerk. Motion----
Mr. Watt. I reserve point of order, Mr. Chairman.
Chairman Sensenbrenner. The Clerk will report the motion.
Mr. Watt. I reserve a point of order, Mr. Chairman.
Chairman Sensenbrenner. As I said, the Clerk will report
the motion.
The Clerk. Motion by Mr. Gekas, previous question.
Chairman Sensenbrenner. Read the--read the motion.
The Clerk. Mr. Chairman, I move the previous question on
the bill.
Chairman Sensenbrenner. The question is on ordering the
previous question.
Mr. Nadler. Parliamentary inquiry.
Chairman Sensenbrenner. The gentleman will state his
parliamentary inquiry.
Mr. Nadler. Is the maker of the motion aware there are
other amendments here to be offered which you would deny the
opportunity of?
Chairman Sensenbrenner. That is not a parliamentary
inquiry.
Mr. Nadler. It is an inquiry of the----
Chairman Sensenbrenner. The motion for the previous
question----
Mr. Nadler. Mr. Chairman, further parliamentary inquiry.
Chairman Sensenbrenner. The motion for the previous
question is----
Mr. Nadler. Mr. Chairman, parliamentary inquiry.
Chairman Sensenbrenner. The gentleman from New York State's
inquiry.
Mr. Nadler. Can we expect this to be the bipartisanship on
this committee from now on?
Chairman Sensenbrenner. That is not----
Mr. Nadler. Is this the way we are setting off this
session?
Chairman Sensenbrenner. That is not--that is not a
parliamentary inquiry.
Mr. Nadler. To hobble and silence the minority?
Chairman Sensenbrenner. That is not a parliamentary
inquiry.
Mr. Bachus. Regular order.
Chairman Sensenbrenner. That is not a parliamentary
inquiry. The motion is non-debatable. Those in favor of
ordering the previous question will say aye.
Opposed, no.
The ayes appear to have it.
Mr. Watt. I ask for a recorded vote.
Chairman Sensenbrenner. The Clerk will call the roll. Those
in favor of ordering the previous question will as your names
are called answer aye; opposed, no. And the Clerk will call the
roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. Aye.
The Clerk. Mr. Gekas, aye.
Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. Aye.
The Clerk. Mr. Goodlatte, aye.
Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye.
Mr. Barr?
Mr. Barr. Aye.
The Clerk. Mr. Barr, aye.
Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. Aye.
The Clerk. Mr. Hutchinson, aye.
Mr. Cannon?
Mr. Cannon. Aye.
The Clerk. Mr. Cannon, aye.
Mr. Graham?
Mr. Graham. Aye.
The Clerk. Mr. Graham, aye.
Mr. Bachus?
Mr. Bachus. Aye.
The Clerk. Mr. Bachus, aye.
Mr. Scarborough?
Mr. Scarborough. Aye.
The Clerk. Mr. Scarborough, aye.
Mr. Hostettler?
Mr. Hostettler. Aye.
The Clerk. Mr. Hostettler, aye.
Mr. Green?
Mr. Green. Aye.
The Clerk. Mr. Green, aye.
Mr. Keller?
Mr. Keller. Aye.
The Clerk. Mr. Keller, aye.
Mr. Issa?
Mr. Issa. Aye.
The Clerk. Mr. Issa, aye
Ms. Hart?
Ms. Hart. Aye.
The Clerk. Ms. Hart, aye.
Mr. Flake?
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. No.
The Clerk. Mr. Nadler, no.
Mr. Scott?
Mr. Scott. No.
The Clerk. Mr. Scott, no.
Mr. Watt?
Mr. Watt. No.
The Clerk. Mr. Watt, no.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. No.
The Clerk. Ms. Baldwin, no.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. No.
The Clerk. Mr. Schiff, no.
Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Members in the room who wish to
record or change their vote? The gentleman from North Carolina.
Mr. Coble. Aye.
The Clerk. Mr. Coble, aye.
Chairman Sensenbrenner. Other members who wish to record or
to change their vote? If not, the Clerk will report.
Mr. Nadler. Mr. Chairman? Mr. Chairman?
Chairman Sensenbrenner. The----
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. The Chair will recognize the
gentleman from Michigan to change his vote.
Mr. Conyers. No.
Mr. Nadler. Mr. Chairman?
The Clerk. Mr. Conyers, no.
Chairman Sensenbrenner. The gentleman from New York.
Mr. Nadler. I wish to change my vote to aye.
The Clerk. Mr. Nadler changes his vote to aye.
Chairman Sensenbrenner. The Clerk will report.
The Clerk. Mr. Chairman? Mr. Chairman, there are 18 ayes
and 5 nays.
Chairman Sensenbrenner. And the previous question is
ordered----
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from New York seek recognition?
Mr. Nadler. Move to reconsider the vote by which the motion
passed.
Mr. Gekas. Mr. Chairman, I move to lay the motion on the
table.
Chairman Sensenbrenner. The question is on tabling the
motion to reconsider the vote ordering the previous question.
Those in favor will say--those in favor will as your names are
called vote aye. Those opposed will vote no, and the Clerk will
call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. Aye.
The Clerk. Mr. Gekas, aye.
Mr. Coble?
Mr. Coble. Aye.
The Clerk. Mr. Coble, aye.
Mr. Smith?
Mr. Smith. Aye.
The Clerk. Mr. Smith, aye.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. Aye.
The Clerk. Mr. Goodlatte, aye.
Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye.
Mr. Barr?
Mr. Barr. Aye.
The Clerk. Mr. Barr, aye.
Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. Aye.
The Clerk. Mr. Hutchinson, aye.
Mr. Cannon?
Mr. Cannon. Aye.
The Clerk. Mr. Cannon, aye.
Mr. Graham?
Mr. Graham. Aye.
The Clerk. Mr. Graham, aye.
Mr. Bachus?
Mr. Bachus. Aye.
The Clerk. Mr. Bachus, aye.
Mr. Scarborough?
Mr. Scarborough. Aye.
The Clerk. Mr. Scarborough, aye.
Mr. Hostettler?
Mr. Hostettler. Aye.
The Clerk. Mr. Hostettler, aye.
Mr. Green?
Mr. Green. Aye.
The Clerk. Mr. Green, aye.
Mr. Keller?
Mr. Keller. Aye.
The Clerk. Mr. Keller, aye.
Mr. Issa?
Mr. Issa. Aye.
The Clerk. Mr. Issa, aye
Ms. Hart?
Ms. Hart. Aye.
The Clerk. Ms. Hart, aye.
Mr. Flake?
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye.
Mr. Conyers?
Mr. Conyers. No.
The Clerk. Mr. Conyers, no.
Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. No.
The Clerk. Mr. Nadler, no.
Mr. Scott?
Mr. Scott. No.
The Clerk. Mr. Scott, no.
Mr. Watt?
Mr. Watt. No.
The Clerk. Mr. Watt, no.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
Ms. Jackson Lee. No.
The Clerk. Ms. Jackson Lee, no.
Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. No.
The Clerk. Ms. Baldwin, no.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. No.
The Clerk. Mr. Schiff, no.
Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Are there any members in the room
who wish to either record or to change their votes? If not, the
Clerk will report.
The Clerk. Mr. Chairman, there are 18 ayes and 7 nays.
Chairman Sensenbrenner. The motion to table the motion to
reconsider is agreed----
Mr. Nadler. Mr. Chairman, could the Clerk report that,
please? What was that? Repeat that. What was that figure?
Chairman Sensenbrenner. The Clerk will repeat the----
The Clerk. Eighteen ayes and 7 nays.
Chairman Sensenbrenner. And the motion to table the motion
to reconsider is agreed to.
The question now occurs on the motion to report the bill
H.R. 333 favorably as amended.
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. Those in favor----
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
seek recognition? The previous question has been ordered.
All in favor will say aye.
Opposed, no.
The ayes appear to have it. The ayes have it.
Mr. Watt. Mr. Chairman, I ask for a recorded vote.
Chairman Sensenbrenner. A recorded vote will be ordered.
Those in favor of ordering the bill favorably reported will
signify by saying aye; those opposed, no. And the Clerk will
call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. Aye.
The Clerk. Mr. Gekas, aye.
Mr. Coble?
Mr. Coble. Aye.
The Clerk. Mr. Coble, aye.
Mr. Smith?
Mr. Smith. Aye.
The Clerk. Mr. Smith, aye.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. Aye.
The Clerk. Mr. Goodlatte, aye.
Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye.
Mr. Barr?
Mr. Barr. Aye.
The Clerk. Mr. Barr, aye.
Mr. Jenkins?
[No response.]
The Clerk. Mr. Hutchinson?
Mr. Hutchinson. Aye.
The Clerk. Mr. Hutchinson, aye.
Mr. Cannon?
Mr. Cannon. Aye.
The Clerk. Mr. Cannon, aye.
Mr. Graham?
Mr. Graham. Aye.
The Clerk. Mr. Graham, aye.
Mr. Bachus?
[No response.]
The Clerk. Mr. Scarborough?
Mr. Scarborough. Aye.
The Clerk. Mr. Bachus?
Mr. Bachus. Aye.
The Clerk. Mr. Bachus, aye.
Mr. Hostettler?
I got you.
Mr. Hostettler. Aye.
The Clerk. Mr. Hostettler, aye.
Mr. Green?
Mr. Green. Aye.
The Clerk. Mr. Green, aye.
Mr. Keller?
Mr. Keller. Aye.
The Clerk. Mr. Keller, aye.
Mr. Issa?
Mr. Issa. Finally, aye.
The Clerk. Mr. Issa, aye
Ms. Hart?
Ms. Hart. Aye.
The Clerk. Ms. Hart, aye.
Mr. Flake?
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye.
Mr. Conyers?
Mr. Conyers. No.
The Clerk. Mr. Conyers, no.
Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
Mr. Boucher. Aye.
The Clerk. Mr. Boucher, aye.
Mr. Nadler?
Mr. Nadler. No.
The Clerk. Mr. Nadler, no.
Mr. Scott?
Mr. Scott. No.
The Clerk. Mr. Scott, no.
Mr. Watt?
Mr. Watt. No.
The Clerk. Mr. Scott--Watt, no.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
Ms. Jackson Lee. No.
The Clerk. Ms. Jackson Lee, no.
Ms. Waters?
Ms. Waters. No.
The Clerk. Ms. Waters, no.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. No.
The Clerk. Ms. Baldwin, no.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. No.
The Clerk. Mr. Schiff, no.
Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Are there additional members in the
room who wish to record or to change their votes? If not, the
Clerk will report.
The Clerk. Mr. Chairman, there are 19 ayes and 8 nays.
Chairman Sensenbrenner. And the motion is agreed to. The
bill is favorably reported.
Without objection----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner [continuing]. The bill will be
favorably----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner [continuing]. Reported----
Mr. Watt. Mr. Chairman, I object.
Chairman Sensenbrenner. The objection is heard. We will
take care of that in the Rules Committee.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. Without objection, the chairman has
authorized to move to go to conference.
Mr. Watt. I object.
Mr. Scott. Mr. Chairman? Mr. Chairman, reserving the right
to object.
Chairman Sensenbrenner. The objection is heard. The Chair--
the gentleman from Texas, Mr. Smith.
Mr. Smith. Mr. Chairman, pursuant to----
Chairman Sensenbrenner. Will you turn your mike on, please?
Mr. Smith. I'm sorry.
Mr. Chairman, pursuant to Clause 1 of House Rule 22, I move
that the chairman be authorized to make such motions in the
House as may be necessary to go to conference with the Senate
on H.R. 333.
Mr. Scott. Mr. Chairman, reserving the right to object.
Chairman Sensenbrenner. This is a motion. The question is
on the adoption----
Mr. Scott. Move to strike the last word.
Mr. Watt. Mr. Chairman, I move to strike the last word.
Mr. Scott. Last word on the amendment--on the motion.
Chairman Sensenbrenner. The gentleman from Virginia.
Mr. Scott. Mr. Chairman, I oppose the motion because I was
not able to offer amendments, one of which would have exempted
from monthly expenses new illnesses or disabilities incurred by
family members, another--allow making sure that it was the
trustee to determine private school expenses, another that
would have limited small businesses exemption from frivolous
and coercive litigation, another to put renter-own contracts on
the same level as other installment contracts, a study of the
effect of this bill on homicide, suicide, and civil
commitments. A reasonable expense limitation is in the bill at
10 percent. That is unreasonable, particularly for small
estates, and, again--and in calculating the--your current
income to exclude in the last 6 months that receipt of lump
sum--non-recurring lump sums such as gifts inheritances and
litigation recoveries. None of these have been considered
because of the motion to close debate on the previous question,
and, therefore, I would oppose the motion of the gentleman from
Texas.
I yield back.
Ms. Jackson Lee. Mr. Chairman? Mr. Chairman? Mr. Chairman?
This way, Mr. Chairman. Look this way. Mr. Chairman?
Mr. Smith. Mr. Chairman, I would like to withdraw the
motion.
Chairman Sensenbrenner. The motion is withdrawn. All
members will be given 2 days as provided by House Rules in
which----
Ms. Jackson Lee. Mr. Chairman?
Chairman Sensenbrenner [continuing]. To submit additional
dissenting supplemental or minority views.
We have another bill that----
Ms. Jackson Lee. Mr. Chairman, can you object at this time
or is the objection ongoing?
Chairman Sensenbrenner. For the 2 days that is provided in
House Rules, it does not require unanimous consent, but does
have to be stated by the Chair at the time the bill is
reported.
Ms. Jackson Lee. And so, Mr. Chairman, for clarification
sake, understanding the rule, if you want to submit your basis
for objections, can I submit them in writing into the record?
Chairman Sensenbrenner. They will be within 2 days. If they
are submitted within 2 days, every member has the right to
submit whatever they would like to, and that is printed as a
part of the committee report.
Ms. Jackson Lee. Thank you, Mr. Chairman. I would like to
continue my objection to the bill.
Chairman Sensenbrenner. Okay. We duly note it.
Ms. Waters. Mr. Chairman?
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. All members will be given 2 days as
provided by House Rules in which to submit additional
dissenting supplemental or minority rules.
For what purpose does the gentleman from New York seek
recognition?
Mr. Nadler. To make a statement, Mr. Chairman.
Mr. Chairman, this markup session was noticed for 2 days,
today and tomorrow. I have no objection to shortening it to 1
day. I would like to go home. But what was done to destroy the
rights of the minority and the rights of the American people
that we represent by moving the previous question so that
amendments could not be offered; amendments, the contents of
which you don't know.
One amendment I would have offered would have been to
correct a technical correction. The way the bankruptcy bill
reads now in educational loan fraud section, the debts of the
victims of the fraud are non-dischargeable, but the debts of
the criminals are dischargeable. That was a simple drafting
error. I am sure no one meant it. It was upside-down. It should
have been the other way around. That amendment could not be
offered.
I would have offered an amendment to substitute Mr. Gekas'
language from last year where we had a reasonable definition of
household goods in last year's bill to the unreasonable
definition in this year's bill.
I would have offered an amendment to remove the language in
this year's bill that was not in last year's bill that we never
saw until the conference committee that applies all of the non-
discharge provisions of chapter 7 to business bankruptcies in
chapter 11 with no good reason and with disastrous effects on
small businesses.
Now, the fact is in my 8 years of service here, I don't
recall the previous question having been called in this
committee except 4 years ago on the same bill, and the chairman
then was apologetic and said that he was under orders from the
Speaker to get the bill out by a date certain and we had had
about 6 or 7 days of markup by then. And he made a promise to
us to go to the Rules Committee and ask that amendments that
haven't had a chance be offered because of that motion would be
made an order on the floor.
Now, this is the first major bill of the session. The
majority trampled over the rights of the minority by calling
the previous question. So we couldn't even offer the
amendments. I hope this will not happen again. If it does
happen again, then we are obviously going to have a war in this
committee, and I hope that won't happen.
Chairman Sensenbrenner. The Chair will respond to the
gentleman from New York and others.
The Chair and the members of this committee have been very
patient, and we went through 16 amendments that were offered by
the minority where there was a full and a fair debate.
We got to the sixteenth amendment, and one of the members
of the committee objected to the standard motion that an
amendment be considered as read and open for amendment at any
point. At that time, the Chair told the minority party staff
that if this was to be continued, we would move the previous
question.
I was informed by the minority party staff that the member
who objected intended to continue objecting to waiving the
readings of amendments that were offered. This committee is
going to do its business. This committee is not going to be
subjected into dilatory tactics. I would hope that the
bipartisan olive branch that I as chairman have offered to the
minority on a lot of procedural things will be reciprocated by
all of the members of the minority party, and if that is the
case, we can move on fairly smoothly, but if it is not the
case, then the majority will have to do its job alone.
The committee stands adjourned.
[Whereupon, at 5:13 p.m., the committee was adjourned.]
DISSENTING VIEWS
Although we would support a responsible and balanced
bankruptcy reform effort that remedies debtor and creditor
abuses in a balanced manner, we cannot support H.R. 333 in its
present form. We believe the bill, while modestly improved from
the legislation reported by the committee last Congress,
remains flawed. We oppose the bill because it is likely to harm
low income consumers, women and children reliant on alimony and
child support, and employees of troubled businesses, among
other vulnerable groups. The risks that this legislation poses
are far too grave, particularly at a time when our nation is
experiencing an economic slowdown, if not an outright
recession.
We would also note that the legislation is being brought to
the floor under a continuing specter of procedural abuse.
Although 2 days were scheduled for markup, the majority called
the previous question on the first day, blocking the ability of
the Democrats to offer more than two-thirds of their proposed
amendments.\1\ Of the amendments that Democrats did offer,
every single one, including those proposing only studies or
curing obvious technical flaws in the bill, were voted down on
purely partisan lines. This comes on top of the egregious
breach in procedures last Congress, when the majority inserted
the bankruptcy bill into a defunct State Department
authorization conference (H.R. 2415) without the benefit of a
single meeting of conferees.\2\
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\1\ This is the second time in the history of this legislation,
which is now in its third Congress, that the majority has cut off
consideration by calling the previous question while Democratic
amendments were pending at the desk.
\2\ Notwithstanding a unanimous vote by the House instructing the
conferees to hold a meeting, the conference report was filed with the
Rules Committee a few hours after the vote.
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H.R. 333 is an omnibus bankruptcy bill that includes titles
concerning consumer bankruptcy, business bankruptcy, municipal
bankruptcy, tax, and bankruptcy administration. Although some
of the bill's titles and provisions are non-controversial and
stem from recommendations of the congressionally-created
National Bankruptcy Review Commission (which completed its 2-
year review of the bankruptcy laws in October 1997), provisions
in the titles relating to consumer and business bankruptcies
and tax matters constitute a significant and dangerous
departure from historical bankruptcy procedures.
The legislation has engendered widespread opposition among
groups concerned about bankruptcy policy. Groups which have
opposed, or have expressed serious concerns with, H.R. 333 or
its predecessor versions, include the following:
(1) groups concerned about the preservation of jobs
and the rights of workers, including the AFL-CIO; the
American Federation of State, County, and Municipal
Employees; the United Auto Workers; the Union of
Needletrades, Industrial and Textile Employees; the
Service Employees; the United Steel Workers; and the
Teamsters; \3\
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\3\ Written statement of Damon Silvers, Office of the General
Counsel, AFL-CIO, Feb. 8 Hearing on H.R. 333, the ``Bankruptcy Abuse
Prevention and Consumer Protection Act of 2001 before the House Jud.
Comm., (February 8, 2001)(Hereafter: ``February 8, 2001 Hearing'');
Letter from Charles M. Loveless, Director of Legislation, AFSCME, to
Members of Congress (Apr. 19, 1999); Letter from Alan Reuther,
Legislative Director, UAW, to Members of Congress (Apr. 26, 1999);
Letter from Ann Hoffman, Legislative Director, UNITE, to the Honorable
John Conyers, Jr., Ranking Member, House Comm. on the Judiciary (May 4,
1998).
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(2) groups of non-partisan bankruptcy lawyers, judges,
and academics, including the Judicial Conference of the
United States, National Bankruptcy Conference , the
American Bankruptcy Institute, the National Conference
of Bankruptcy Judges, the National Association of
Chapter 13 Trustees, the National Association of
Bankruptcy Trustees, the Commercial Law League of
America, the American College of Bankruptcy, and the
National Association of Consumer Bankruptcy Attorneys;
\4\
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\4\ Written statement of Edward R. Becker on behalf of the Judicial
Conference of the United States, Feb. 8, 2001 Hearing on S. 220, the
Bankruptcy Reform Act of 2001; statement of Ralph Mabey, National
Bankruptcy Conference, Feb. 8, 2001 Hearing; written statement of the
Honorable William Houston Brown, ABI; Hearing on H.R. 833, the
``Bankruptcy Reform Act of 1999,'' Before the House Subcomm. on
Commercial and Admin. Law, 106th Cong., 1st Sess. (Mar. 17, 1999)
[hereinafter, ``March 17, 1999 Hearing'']; (written statement of the
Honorable Randall J. Newsome, NCBJ; Id. (written statement of Henry E.
Hildebrand, III, NACTT); Id. (written statement of Robert H.
Waldschmidt, NABT); Letter from Mark Sheriff, President of the
Commercial Law League of America, to Members of the House and Senate
(Feb., 2001); Letter from Raymond L. Shapiro, Chair, American College
of Bankruptcy, to Members of Congress (Apr. 26, 1999); Letter from
Norma Hammes, President, NACBA, to Members of Congress (Apr. 26, 1999).
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(3) groups concerned about the rights of women,
children, seniors, and victims of crimes and torts,
including the National Women's Law Center, the National
Partnership for Women and Families, the National
Organization for Women, the Association for Children
for Enforcement of Support, the California Women's Law
Center, Mothers Against Drunk Driving, the National
Organization for Victim Assistance, the National
Abortion and Reproductive Rights Action League, the
National Victim Center, the National Council of Senior
Citizens, and the Committee to Preserve Social Security
and Medicare; \5\ and
---------------------------------------------------------------------------
\5\ Letter from Patricia Ireland, President, NOW, to the Honorable
John Conyers, Jr., Ranking Member, House Comm. on the Judiciary (May
15, 1998); Letter from Geraldine Jensen, President, ACES, to the
Honorable George W. Gekas, Chair, House Subcomm. on Commercial and
Admin. Law (Mar. 17, 1999); Letter from Abby J. Leibman, Executive
Director, California Women's Law Center, to the Honorable Dianne
Feinstein, Senate Comm. on the Judiciary (Apr. 27, 1998); Letter from
Karolyn V. Nunnallee, National President, MADD, to Members of Congress
(Apr. 26, 1999); Letter from Marlene A. Young, Executive Director,
NOVA, to the Honorable Henry J. Hyde, Chair, House Comm. on the
Judiciary (Apr. 26, 1999); Letter from David Beatty, Director of Public
Policy, The National Center for Victims of Crime, to the Honorable
Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin.
Law (Apr. 28, 1999); Letter from Dan Schulder, Director Legislation,
National Council of Senior Citizens, to the Honorable Jerrold Nadler,
Ranking Member, House Subcomm. on Commercial and Admin. Law (June 9,
1998); Letter from Martha A. McSteen, President, National Committee to
Preserve Social Security and Medicare, to the Honorable Jerrold Nadler
(Feb. 14, 2001); Letter from Deborah Briceland-Betts, Executive
Director, OWL, to the Honorable Melvin L. Watt, Ranking Member,
Subcommittee on Commercial and Administrative Law (Feb. 14, 2001).
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(4) consumer and civil rights organizations, including
the Leadership Conference on Civil Rights, National
Consumer Law Center, Consumers Union, the Consumer
Federation of America, U.S. Public Interest Research
Group, Public Citizen, the Alliance for Justice, and
the National Council of Senior Citizens.\6\
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\6\ Letter from the Leadership Conference on Civil Rights to
Members of Congress (Apr. 21, 1999); Letter from Gary Klein, Senior
Attorney, National Consumer Law Center, to Members of Congress (Apr.
23, 1999); Press Release of National Consumer Law Center, Consumer
Federation of America, Consumers Union, and U.S. PIRG (Apr. 19, 1999);
Press Release of Consumers Union and the Consumers Federation of
America (Feb. 14, 2001); Letter from Frank Clemente, Legislative
Director, Public Citizen, to House Comm. on the Judiciary (May 11,
1998); Letter from Nan Aron, President, Alliance for Justice, to
Members of the Senate Comm. on the Judiciary (Apr. 23, 1998); Letter
from Dan Schulder, Director Legislation, National Council of Senior
Citizens, to the Honorable Jerrold Nadler, Ranking Member, House
Subcomm. on Commercial and Admin. Law (June 9, 1998).
Section I of these Dissenting Views describes our concerns
regarding the lack of empirical justification for the
legislation. Section II describes concerns with the consumer
provisions, including, most notably, the means test. Section
III discusses flaws in the business provisions, and Section IV
turns to the tax sections of H.R. 333.
i. lack of empirical justification
Close scrutiny of the quantitative evidence concerning the
causes, costs, and effects of bankruptcy reveals that at best,
the proponent's empirical justifications are overblown, and at
worst, they are misstated. H.R. 333's proponents have sought to
justify the bill's enactment based on claims (1) the United
States is experiencing a dramatic growth in the number of
bankruptcy filings, and (2) credit industry-funded studies by
Professor Michael Staten of Georgetown University's Credit
Research Center (CRC),\7\ Ernst & Young,\8\ and the WEFA \9\
group that purport to demonstrate that the bankruptcy laws
allow many relatively high income individuals to avoid debts
they could otherwise pay and that this avoidance imposes
substantial costs on the economy. However, the vast weight of
the data and studies contradict the proponents' rationales and
instead shows that non bankruptcy law factors are the root
cause of increased bankruptcy filings.
---------------------------------------------------------------------------
\7\ John M. Barron & Michael E. Staten, Purdue University Credit
Research Center, Personal Bankruptcy: A Report on Petitioners' Ability
to Pay (Oct. 1997) (concluding that 5% of chapter 7 debtors could repay
all of their non-priority, non-housing debt over 5 years, 10% could
repay at least 78% of such debt, and 25% could repay 30% of their
debt).
\8\ Policy Economics and Quantitative Analysis Group, Chapter 7
Bankruptcy Petitioner's Ability to Repay: Additional Evidence from
bankruptcy Petition Files, Ernst & Young LLP (Feb. 1998).
\9\ WEFA Group Resource Planning Service, The Financial Costs of
Personal Bankruptcy 4 (Feb. 1998) (calculated that ``financial losses
due to 1997 personal bankruptcies totaled more than $44 billion. . . .
Unsecured nonpriority losses totaled almost $35 billion in 1997 . . .
[and] passing such financial losses on to consumers in terms of higher
prices would cost the average household over $400 annually;'' and that
the needs based proposal in the bill ``should decrease financial costs
due to bankruptcy . . . from 8% to 17% annually'').
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Analysts with the Congressional Budget Office,\10\ the
General Accounting Office,\11\ and the Federal Deposit
Insurance Corporation all have called into question the
conclusions of studies cited by the bill's supporters. These
critiques are based on a number of grounds, including numerous
flaws in the analysis and the assumptions underlying the
studies. These analyses indicate that the rise in bankruptcies
is more properly attributable to a number of changes unrelated
to the bankruptcy laws, such as unexpected medical costs,
family crises like divorce, loss of high paying full time jobs,
and most notably, the deregulation of credit card interest
rates and the dramatic increase in credit card solicitations
and overall consumer debt.\12\ It also has been shown that the
average income of persons filing for bankruptcy has declined
from the 1980's, further contradicting assertions of widespread
abuse by high-income individuals.\13\
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\10\ Kim J. Kowalewski, Evaluations of Three Studies Submitted to
the National Bankruptcy Review Commission 4 (Oct.6, 1997). Kim
Kowalewski of the Congressional Budget Office, at the request of the
National Bankruptcy Review Commission, conducted a review of three
economic analyses of this question. Kowalewski concluded that a 1996
VISA study did not support such a conclusion and, in fact, ``because
the social trends variable is flat during 1995 and early 1996 . . .
social factors played no role behind the increase in personal
bankruptcies in that period.''
\11\ At the request of Senators Charles Grassley and Richard
Durbin, the General Accounting Office examined the CRC study and found
five areas of concern: (1) data supplied by the debtors regarding their
income expenses, and debts and the stability of their income and
expenses over a 5-year period were not validated, (2) the report did
not define the universe of debts for which it estimated debtors'
ability to pay, (3) payments on non-housing debts that debtors stated
they intended to reaffirm were not included in debtor expenses in
determining the net income debtors had, (4) the CRC did not account for
the considerable variation among the 13 locations used in the analysis,
and (5) a scientific random sampling methodology was not used to select
the 13 bankruptcy locations or the bankruptcy petitions used in the
analysis. General Accounting Office, Personal Bankruptcy: The Credit
Research Center Report on Debtors' Ability to Pay, GAO/GGD-98-47 (Feb.
1998).
\12\ The Federal Deposit Insurance Corporation (``FDIC'') contested
many of assertions made in the above-noted studies. Federal Deposit
Insurance Corp., Bank Trends (Mar. 1998); Lawrence M. Ausubel, Credit
Card Defaults, Credit Card Profits, and Bankruptcy, 71 American
Bankruptcy L.J. 249 (1997). The FDIC observed a strong correlation
between credit card default rates and personal bankruptcies, both of
which increased in the 1990's. The FDIC found that, because of and
following interest rate deregulation in 1978, credit card companies
became more profitable and credit card lenders were able to extend more
unsecured credit to less creditworthy borrowers. See also, David A.
Moss, The Rise of Consumer Bankruptcy: Evolution, Revolution, or Both,
Spring, American Bkcy L. J, Spring 311 (1999) (review of empirical
evidence indicates that increased availability of credit, rather than
declining stigma, are the most likely source of the recent increase in
bankruptcy filings).
\13\ American Bankruptcy Institute, 18 ABI Journal 1 (Apr. 1999);
Lawrence M. Ausubel, University College London, A Self-Correcting
``Crisis'': The Status of Personal Bankruptcy in 1999 1 (Mar. 10,
1999).
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One of the most revealing studies was performed by the non-
partisan American Bankruptcy Institute, which commissioned
Professors Marianne B. Culhane and Michaela M. White of the
Creighton University School of Law to conduct a study a
comprehensive database of chapter 7 cases.\14\ The study
estimated that a mere 3.6% of the debtors had sufficient
income, after deducting allowable living expenses, to pay all
of their non-housing secured debts, all of their unsecured
priority debts, and at least 20% of their unsecured nonpriority
debts. Moreover, in making their calculations, Professors
Culhane and White assumed that 100% of the debtors in chapter
13 would complete a 5-year repayment plan even though more than
two-thirds of voluntary chapter 13 plans currently do not
complete.
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\14\ March 17, 1999 Hearing (written statement of Marianne B.
Culhane); Marianne B. Culhane & Michaela M. White, Taking the New
Consumer Bankruptcy Model for a Test Drive: Means-Testing Real Chapter
7 Debtors (Mar. 8, 1999).
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The American Bankruptcy Institute study also showed that,
while the credit industry estimates it may be eligible recover
$4 billion under the rigid standards of the means test,
creditors would receive only $450 million in actual
collections. The Executive Office of United States Trustees in
the Justice Department conducted a study that reached similar
results, estimating that passage of the legislation probably
would have netted creditors no more than 3% of the $400 per
household they claim to be losing. These figures indicate that
the credit industry funded studies may have overstated the
``problem'' by as much as 500%.
It is also important to note we have never received any
evidence that the credit card industry likely would pass on any
of the ``savings'' from bankruptcy law changes to individual
consumers. Instead the evidence shows that credit card
companies, which represent by far the most profitable sector of
the commercial banking business,\15\ tend to maintain high
interest rates, even when their own cost of credit
declines.\16\ The lack of competition in this industry has
caught even the Justice Department's attention, which has
brought an antitrust suit against VISA and MasterCard in the
Southern District of New York.\17\
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\15\ In 1993, credit card banks were nearly four times as
profitable as all commercial banks. Despite the slight decrease in the
average credit card interest rate, credit card banks remain twice as
profitable as commercial banks. March 16, 1999 Hearing (written
statement of the Honorable Joe Lee) (citing Federal Reserve Board, The
Profitability of Credit Card Operations of Depository Institutions
(Aug. 1997)).
\16\ In 1996, Professor James Medoff, the Meyer Kestnbaum Professor
of Labor and Industry at Harvard University, pointed out that, between
1980 and 1992, when the Federal funds rate (the interest that banks
charge for overnight loans) fell from 13.4% to 3.5%, a drop of nearly
10 percentage points, the average credit card interest rate rose from
17.3% to 17.8%. Professor Medoff suggests that during the 1980's, when
interest rates were high, lenders learned a valuable lesson; consumer
debtors in general pay very little attention to interest rates. March
16, 1999 Hearing (written statement of the Honorable Joe Lee at 1)
(citations omitted).
\17\ Kenneth N. Gilpin, ``Antitrust Suit Filed Against VISA and
MasterCard,'' N.Y. Times, Oct. 8, 1998, at C1.
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ii. consumer provisions
A. Current Law and Proposed Changes
Under current law, individuals facing financial difficulty
may seek a variety of forms of relief under the bankruptcy
laws, with chapter 7 (liquidation) being by far the most common
form of relief sought. Under this chapter, debtors are required
to forfeit all of their property other than their ``exempt''
assets (i.e., deemed necessary for the debtor's maintenance, as
determined under Federal or State law, at the State's option)
in exchange for receiving a discharge of their unsecured debts.
Creditors are entitled to receive any net proceeds from the
sale of the debtor's nonexempt property, subject to the
statutory priority schedule.\18\ The Bankruptcy Code does not
permit the discharge of certain debts whose payments are
considered to be important to society. Some of this debt is of
the same nature as priority debt (e.g., family support
obligations and taxes), but the law also excepts from discharge
debts incurred through the debtor's misconduct, such as debts
arising from fraud and intentional injuries.\19\
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\18\ For example, the costs of administering the estate are
entitled to the first priority, and payments of alimony, child support,
and taxes are entitled to later priorities, with general unsecured debt
entitled to any residual assets left over. 11 U.S.C. Sec. 507(a).
\19\ 11 U.S.C. Sec. 523(a).
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While there are no specific financial criteria for
determining who may seek chapter 7 relief, Sec. 707(b) of the
Bankruptcy Code grants the court the discretion to deny relief
where the filing is found to be a ``substantial abuse.'' \20\
Under Sec. 707(b), however, there is a presumption in favor of
granting relief to the debtor. This stems in part from the
costs and potential hardships associated with developing
excessive barriers to chapter 7 eligibility, the belief that
the ``honest but unfortunate debtor'' \21\ should be entitled
to a ``fresh start,'' the importance of encouraging risk-taking
and entrepreneurship, and avoiding situations where it is
impossible for individuals to escape aggressive creditor
collection tactics.\22\ Section 707(b) is not the only
provision in the Bankruptcy Code that prevents individuals from
misusing chapter 7. For example, creditors may request that
certain debts be held nondischargeable under Sec. 523(a) or
that the debtor be denied a discharge altogether under
Sec. 727.
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\20\ The Code does not define the term ``substantial abuse,'' which
is used in Sec. 707(b), although, some courts have found that the
ability to pay an appreciable proportion of one's debts over 3 years,
using future income, could constitute ``substantial abuse.'' See, e.g.,
Fonder v. United States, 974 F.2d 996 (8th Cir. 1992) (debtor could pay
89% of unsecured debts in 3 years); In re Krohn, 886 F.2d 123 (6th Cir.
1989) (ability to pay portion of debts from ``ample income'' in excess
of $80,000 per year); In re Walton, 866 F.2d 981 (8th Cir. 1989)
(ability to pay two thirds of debts in 3 years).
\21\ Local Loan v. Hunt, 292 U.S. 234 (1934).
\22\ There are a number of disincentives to filing for bankruptcy,
such as the fact that a person filed for a chapter 7 bankruptcy will be
disclosed on a debtor's credit report, and the law's prohibitions on
repeat chapter 7 filings for 6 years.
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A separate bankruptcy alternative available to individual
debtors is chapter 13, formerly known as a wage earner's
plan.\23\ Under chapter 13, a debtor is permitted to retain his
or her property, but is required to pay to creditors over a 3-5
year period out of future income at least as much as the
creditors would have received under a chapter 7 liquidation,
and is also required to pay all priority debts in full. To
accomplish this, the debtor must propose a plan, administered
by a trustee, that pays creditors in full or that devotes the
debtor's ``disposable income'' after accounting for necessary
support of the debtor, his or her family, or a business. In
order to encourage the use of chapter 13 plans, which are
currently voluntary to the debtor, Congress determined that
persons who meet their chapter 13 obligations are entitled to a
broader discharge of their unpaid debts than is available under
chapter 7. This ``superdischarge'' results in the discharge of
several types of debt that chapter 7 does not discharge. In
addition, debtors are permitted to retain property whether or
not the property is encumbered by liens and the debtor
committed a prepetition default, so long as the chapter 13 plan
cures any arrearages. In this manner, debtors can use chapter
13 to save their homes from foreclosure. In addition, in
chapter 13 a debtor is permitted to bifurcate a loan on
personal property, such as an automobile, into secured and
unsecured portions based on its present value, and treat only
the secured portion as a secured claim that must be paid in
full with interest.\24\ Also, chapter 13 plans can provide for
the payment of priority debts, such as taxes and family support
obligations, before payment on general unsecured debts.
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\23\ The eligibility requirements for chapter 13 may be found in 11
U.S.C. Sec. 109(e). To be eligible for chapter 13, an individual must
have regular income and unsecured debts of less than $269,250 and
secured debts of less than $807,750. These numbers were indexed for
inflation in April 1998. Individuals who exceed these thresholds may
reorganize their affairs under chapter 11.
\24\ This is known as a ``stripdown.'' Specifically, except for
certain home mortgages, a debtor in chapter 13 may be able to bifurcate
a debt to a secured creditor, treating only the current value of the
collateral as secured, even if it is less than the full amount of the
loan, and treating the remaining debt as unsecured.
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H.R. 333 would institute a number of major changes to
consumer bankruptcy, in general, and chapter 7 and 13 in
particular, that may reduce the number of bankruptcy filings
(but will not reduce the number of cases of financial hardship)
and that are designed to increase pay-outs to non-priority
unsecured creditors, particularly credit card companies, as
well as to certain secured lenders, especially those extending
credit for automobile loans.
1. Means Testing
The most far-reaching change, set forth in section 102 of
the bill, would institute a so-called ``means testing''
approach to consumer bankruptcy.\25\ This new standard would
create a presumption of abuse of the bankruptcy system and deny
chapter 7 relief to debtors who fail a ``means test.'' The
means test applies only to debtors with primarily consumer
debts. The means test in general works as follows:
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\25\ Subsection (a) of section 102 amends section 707(b) of the
Bankruptcy Code to permit a court, on its own motion, or on motion of
the United States trustee, private trustee, bankruptcy administrator,
or party in interest, to dismiss a chapter 7 case for abuse if it was
filed by an individual debtor whose debts are primarily consumer debts.
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First, the debtor's ``current monthly income'' is computed.
This is the average of the debtor(s)' monthly income over the
last 6 months before the bankruptcy, excluding Social Security
benefits and war crimes reparations.
Second, the following are subtracted from the current
monthly income:
a. total priority debts divided by 60
b. the scheduled payments on secured debts over the
next 60 months, divided by 60
c. arrears on secured debts such as mortgages and car
payments
d. monthly expenses permitted by the Internal Revenue
Service collection guidelines, with possible 5%
increase for food and clothing allowances if
demonstrated to be ``reasonable and necessary'', long-
term care expenses for the elderly or disabled,
expenses due to domestic violence, and private school
expenses up to $1500 per child annually \26\ if there
is an explanation of why they are reasonable and
necessary.
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\26\ The bill discriminates against public education by failing to
allow parents to deduct comparable public school expenses (such as for
enrichment programs, books and the like). Representative Jackson Lee
had intended to offer an amendment to cure this disparity, but she was
prevented from offering the amendment when the majority moved the
previous question.
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e. if debtor is eligible for chapter 13, hypothetical
administrative expenses for chapter 13, but only up to
10% of projected plan payments.
All of the calculations must be done as part of the
debtor's schedules. If after deducting the allowed expenses,
the debtor has enough ``disposable income'' over 60 months to
pay $10,000 ($166.67 per month) or 25% of the nonpriority
unsecured debts (unless the disposable income is less than $100
per month), the debtor is presumed to be abusing chapter 7.
If a debtor is presumed to be abusing chapter 7, the U.S.
trustee must move to dismiss or file a report about why no
motion is filed. Any creditor may also move to dismiss under
the means test. However, no motion under Sec. 707(b) may be
filed if the current monthly income of the debtor and the
debtor's spouse is less than the State median income.\27\ If a
motion is filed under the means test, the court has little
discretion to deny it. The presumption of abuse can be overcome
only if there are ``special circumstances'' that can be
documented that require adjustment of the debtor's income or
expenses for which there is ``no reasonable alternative.''
---------------------------------------------------------------------------
\27\ However, due to a drafting error, the income of the debtor's
spouse is counted regardless of whether the case is a joint case, and
even if the spouse is separated and contributing nothing to the
debtor's household. To address this clear drafting error,
Representative Schiff offered an amendment to ensure that the spouse's
income is not counted if the couple is legally separated.
Representative Gekas voiced his opposition to correcting the error at
the markup: ``I hasten to say that the gentleman may have struck a cord
of error here in which, again, we became frozen in time, as it were,
during the conference to preserve the unity of the bill. It may have
been an oversight.'' Nevertheless, the amendment was rejected on a
straight party-line vote.
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Although the means test is only applicable above median
income,\28\ all debtors must complete the means test
calculations. This gives rise to the possibility that trustees
or U.S. trustees will bring motions for abuse under
Sec. 707(b)'s new looser standard (``totality of the
circumstances'' or ``bad faith'') and use the means test
calculations to support the argument that the debtor could
afford to pay creditors, especially since chapter 7 trustees
could receive compensation under the chapter 13 plan.
---------------------------------------------------------------------------
\28\ Two forms of ``safe harbors'' are recognized under section
102(a). One provides that only a judge, United States trustee,
bankruptcy administrator, or private trustee may bring a motion under
section 707(b) of the Bankruptcy Code if the chapter 7 debtor's income
(or in a joint case, the income of debtor and the debtor's spouse) does
not exceed the State median family income for a family of equal or
lesser size (adjusted for larger sized families), or the State median
family income for one earner in the case of a one-person household. The
second safe harbor provides that no motion under section 707(b)(2) may
be filed by a judge, United States trustee, bankruptcy administrator,
private trustee, or other party in interest if the debtor and the
debtor's spouse combined have income that does not exceed the State
median family income for a family of equal or lesser size (adjusted for
larger sized families), or the State median family income for one
earner in the case of a one-person household.
---------------------------------------------------------------------------
The bill also converts the Chapter 13 plan requirements for
debtors with income above the State median into a mandatory
approach based upon IRS expense standards rather than a
flexible approach under the current section 1325 to determine
disposable income. Accordingly, under section 102(h) of the
bill, debtors would be required to dedicate all of their
available income to unsecured debt, again after allowing
deductions for secured and priority debts and living expenses
per the means test and its IRS collection standards, even if
the debtor's actual expenses are reasonable but exceed the IRS
permitted, but arbitrarily-created, expenses.\29\ Although the
provisions clarifying the means test allow for adjustments in
currently monthly income and expenses for ``special
circumstances'' this requires the debtor to file a motion with
the court, which may be challenged by the trustee or any
creditor, with the burden of proof lying with the debtor.\30\
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\29\ H.R. 333, Sec. 102(h) (proposed amendment to 11 U.S.C.
Sec. 1325(b)).
\30\ H.R. 333, Sec. 102 (proposed amendment to 11 U.S.C. Sec. 707).
---------------------------------------------------------------------------
The bill also goes on for these debtors to calculate the
means test using expenses over 5 years rather than 3 years.
This guarantees that, if the means test pushes a debtor into
chapter 13, the repayment capacity assumptions would force the
debtor into a 5-year repayment plan. This legislation also
greatly curtails the broader discharge currently available to
debtors who have successfully completed a chapter 13 plan,
eliminating a significant inducement for voluntary debtor
participation in chapter 13.
2. Exceptions to Discharge & Loan Bifurcations
H.R. 333 would make two significant additions to the types
of debts that a debtor may not discharge under chapters 7 or 13
and proscribes a debtor's ability to bifurcate a loan into
secured and unsecured portions based upon the value of the
collateral.
Section 310 would allow a creditor to presumptively
challenge the dischargeability of debts of $250 or more in the
aggregate (as opposed to $1,075 under current law) or more owed
to a single creditor for ``luxury goods or services'' incurred
within 90 days prior to the bankruptcy filing (as opposed to 60
days under current law).\31\ Additionally, Sec. 310 also makes
presumptively nondischargeable cash advances aggregating at
least $750 incurred within 70 days before the order for relief,
to one or more creditors in an open-ended credit plan. This
means that, if a debtor uses several cards to purchase basic
household needs (there is no requirement that these cash
advances be used for luxury goods) over a 70 day period, even
if the debt to each creditor is a fraction of the $750
threshold, all the debts would be nondischargeable. (Current
law makes cash advances aggregating more than $1075
nondischargeable if they are incurred more than 90 days before
the filing.\32\
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\31\ H.R. 333, Sec. 310 (proposed amendment to 11 U.S.C.
Sec. 523(a)(2)(C)).
\32\ 11 U.S.C. Sec. 523(a)(2)(C).
---------------------------------------------------------------------------
Section 314 adds another exception to discharge when the
``debtor incurred the debt to pay a tax to a governmental unit
that would be nondischargeable.'' \33\ Therefore, regardless of
the debtor's intent, any debts incurred to pay a
nondischargeable tax debt--for example, by electronic tax
filing--would be nondischargeable.\34\
---------------------------------------------------------------------------
\33\ H.R. 333, Sec. 314 (proposed amendment to 11 U.S.C.
Sec. 523(a)).
\34\ H.R. 333, Sec. 315.
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Section 306 would also largely eliminate the possibility of
loan bifurcations in chapter 13 cases. As noted above, under
current law a debtor is permitted to bifurcate a loan between
the secured and unsecured portions, and to treat only the
secured portion as a priority debt. The legislation prevents
such bifurcations (including with regard to interest and
penalty provisions) with respect to any loan for the purchase
of a vehicle in the 5 years before bankruptcy, as well as all
loans secured by other property incurred within 1 year before
bankruptcy.
3. Domestic Support
Sections 211-219 of the bill make a number of changes to
current law purportedly intended to enhance the status of child
support and alimony payments in bankruptcy. These changes are
presumably being made in an effort to offset the considerable
criticism the legislation has received from child and spouse
support advocates. However, the most significant effect is to
give priority to child support debts assigned to the State.\35\
---------------------------------------------------------------------------
\35\ Under current law, such debts are non-dischargeable, but are
not a priority.
---------------------------------------------------------------------------
Section 211 creates a new definition of ``domestic support
obligation.'' In addition to applying to debts owed on account
of child support and alimony, which are largely covered by
current law, the new definition includes alimony and child
support debts owed or recoverable to a governmental unit. This
definition is in turn relevant to new sections of the
Bankruptcy Code that give certain enhanced rights to the
holders of domestic support obligations in terms of priorities,
payments, automatic stay, preferences, and foreclosure.
Section 212 grants alimony and child care creditors a first
priority in bankruptcy (they are currently seventh, although
most of the higher priority debts are seen rarely in consumer
bankruptcy cases). Section 213 prevents the confirmation of a
reorganization plan unless the debtor has paid all domestic
support obligations. Section 214 provides that the automatic
stay does not prevent legal actions enforcing wage orders for
domestic support obligations and similar actions. Section 215
makes nondischargeable all domestic support obligations,
including obligations owed to government support agencies.
Section 216 permits nondischargeable domestic support
obligations to be collected from property--notwithstanding
State laws making that property exempt from collection or
attachment--after bankruptcy. Section 217 makes clear that a
transfer that was a bona fide payment for a domestic support
obligation will not be considered a fraudulent prepetition
transfer. Section 218 specifies that alimony and child support
payments are not included in the definition of disposable
income in chapter 12 and 13 cases. Finally, section 219 of the
bill requires chapter 7 and chapter 13 trustees to send written
notice to recipients of alimony and child support payments, and
to the local and State child support agencies, notifying them
that a debtor of such payments has filed for bankruptcy.
4. Other Anti-Debtor Provisions
The legislation makes a host of additional changes to the
consumer provisions of the bankruptcy laws. The majority of the
provisions are designed to increase creditor pay outs and would
greatly harm low- and middle-class debtors. As Harvard Law
Professor Elizabeth Warren writes, the bill ``has more than 120
pages of amendments affecting consumer cases, and they all head
in the same direction: They give a few creditor interests more
opportunities to try to recover from their debtors while they
reduce the protection for other creditors and debtors.'' \36\
Last Congress, Chairman Hyde himself noted that the bill
contains at least 75 provisions detrimental to debtors and
favorable to creditors. Among other things, the bill extends
the period permitted between chapter 7 filings from 6 years
(under current law) to 8 years; \37\ expands the ability of
residential landlords to evict tenants without seeking
permission from the court; \38\ and significantly narrows the
definition of household goods exempt from repossession in
bankruptcy.\39\
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\36\ March 11, 1999 Hearing (written statement of Professor
Elizabeth Warren).
\37\ H.R. 333, Sec. 312.
\38\ H.R. 333, Sec. 311.
\39\ H.R. 333, Sec. 313.
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B. Principal Problems with Proposed Changes
1. H.R. 333's Means Testing is Arbitrary and Unworkable in
Practice
It is important to recall that the National Bankruptcy
Review Commission's majority specifically rejected the so-
called ``means testing'' approach,\40\ observing:
---------------------------------------------------------------------------
\40\ Only two members of the National Bankruptcy Review Commission
signed onto a dissenting statement supporting the consideration of
various means testing options. National Bankruptcy Review Commission,
Final Report: Bankruptcy--The Next Twenty Years (Oct. 20, 1997)
(Chapter 5, Additional Dissent to Recommendations for Reform of
Consumer Bankruptcy Law Submitted by the Honorable Edith H. Jones and
Commissioner James I. Shepard).
The credit industry has sought means testing
consistently for at least 30 years, but Congress has
consistently refused to change the basic structure of
the consumer bankruptcy laws. . . . Access to chapter 7
and to chapter 13, the central feature of the consumer
bankruptcy system for nearly 60 years, should be
preserved.\41\
---------------------------------------------------------------------------
\41\ Bankruptcy: The Next Twenty Years, National Bankruptcy Review
Commission Final Report 90-91 (Oct. 20, 1997).
The 1973 Commission on Bankruptcy Laws similarly considered
and rejected industry calls for mandatory chapter 13's, noting
that Congress had itself rejected similar proposals in 1967,
---------------------------------------------------------------------------
and observed:
[B]usiness debtors are not subject to any limitation on
the availability of straight bankruptcy relief,
including discharge from debts, and it was pointed out
that, quite apart from bankruptcy, business debtors are
able to incorporate and to limit their liability to
their investments in corporate assets. To force
unwilling wage earners to devote their future earnings
to payment of past debts smacked to some of debt
peonage, particularly when business debtors could not
be subjected to the same kind of regimen under the
Bankruptcy Act. . . . The Commission concluded that
forced participation by a debtor in a plan requiring
contributions out of future income has so little
prospect for success that it should not be adopted as a
feature of the bankruptcy system.\42\
---------------------------------------------------------------------------
\42\ Report of the Commission on Bankruptcy Laws, H.R. Doc. No.
137, Part I, 93rd Congress, 158-59 (1973) (citation omitted).
The principal problem with the means test is that the rigid
one-size-fits-all test used in determining eligibility for
chapter 7 and the operation of chapter 13 will often operate in
an arbitrary fashion. Many of these flaws were highlighted last
Congress by Chairman Hyde when he unsuccessfully sought to
delete the use of the rigid IRS standards and instead
substitute a more fact specific test based on the court's
assessment of the facts and circumstances. First, the bill
relies upon IRS collection standards, which lay out no
comprehensive or specific standards for the deduction of living
expenses. Part of the problem arises from the fact that the IRS
standards referenced by the bill are not automatic in many
cases. Although the IRS does set forth national standards for
some expenses, such as food and clothing,\43\ and local
standards for expenses such as housing and transportation,\44\
it leaves the determination of ``other necessary expenses'' to
the discretion of the relevant IRS employee.\45\ This means
that the bill fails to provide specific guidance concerning the
appropriateness of deducting part or all of the funds a debtor
may expend for items such as health care (both medical expenses
and health insurance), taxes, and accounting and legal fees,
among other items. As a result, the means test could have the
effect of requiring the payment of unsecured debt before
allowing for payment of certain necessities such as health
care.
---------------------------------------------------------------------------
\43\ IRS Manual Sec. 5323.432.
\44\ IRS Manual Sec. 5323.433.
\45\ IRS Manual Sec. 5323.12.
---------------------------------------------------------------------------
Even more importantly the bill allows the court no
discretion to take into account the circumstances which led to
the filing in determine whether abuse should be presumed and
the debtor forced into a chapter 13 repayment plan. Thus an
individual facing financial problems because he or she lost her
job or suffered the death of a spouse is treated in the same
manner as someone who has deliberately incurred excessive
debts. Even a person who has incurred large debts because of an
unexpected health care emergency will be forced into chapter 13
without any court discretion if he or she has income above the
applicable State median.
Moreover, where the IRS has specific local expense
standards, those standards do not always provide adequately for
normal expenses. For example, the permitted automobile expense
in the San Francisco Bay area for two cars is only $373 per
month, even though most families could barely cover the cost of
automobile insurance, let alone car payments, gasoline, tolls,
and insurance under this amount.\46\ Ironically, Congress
itself has recognized the inadequacy of such collection
standards. The Internal Revenue Service Restructuring and
Reform Act of 1998 directs the IRS to ``determine, on the basis
of the facts and circumstances of each taxpayer, whether the
use of the schedules . . . is appropriate'' and to ensure that
they not be used ``to result in the taxpayer not having
adequate means to provide for basic living expenses.'' \47\
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\46\ Hearing on H.R. 3150, the ``Bankruptcy Reform Act of 1998,''
Before the House Subcomm. on Commercial and Admin. Law, 105th Cong., 2d
Sess. (Mar. 10, 1998) (written statement of the Honorable Randall J.
Newsome, U.S. Bankruptcy Judge, Northern District of California).
\47\ Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. No. 105-206, Sec. 3462 (1998).
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The seemingly arbitrary allowances for such expenses points
to another problem with the means test under H.R. 333--its bias
against debtors without secured debts. This is because the bill
allows all secured debt payments to be deducted from monthly
income, but limits rental and lease payments to the amount
permitted by the IRS standards. This means that persons renting
apartments and leasing cars may not be able to deduct the full
amount of their housing and transportation costs in bankruptcy,
while persons with mortgages and automobile debt will be able
to do so.\48\ There is no legitimate policy rationale for this
discrepancy, which appears to punish personally-responsible
individuals who tightened their belts and tried to live
modestly within their means and nonetheless had to resort to
bankruptcy.
---------------------------------------------------------------------------
\48\ Higher income debtors can also easily plan around the means
test by, for example, purchasing a new expensive car shortly before
bankruptcy, or deferring tax and child support payments, thereby
increasing priority claims.
---------------------------------------------------------------------------
Also, it is important to note that the IRS collection
standards can change the manner in which the bankruptcy laws
are applied. The collection standards serve as internal
guidelines for the IRS; they are not regulations that are
subject to the Administrative Procedures Act. As such, the IRS
does not need to provide notice and comment when introducing
new standards or when changing the existing ones. If the
bankruptcy law was amended to incorporate the collection
standards, as H.R. 333 proposes, and IRS were to change the
collection standards in the future, the alteration in the
standards would completely change how the Bankruptcy Code is
applied. In effect, H.R. 333 would delegate authority to the
IRS to change the Bankruptcy Code.
It is no answer to assert, as the legislation's proponents
have done, that the ``glitches'' in the collection standards
can be resolved through the bill's allowance that ``the
presumption of abuse may only be rebutted by demonstrating
special circumstances that justify additional expenses or
adjustments of current monthly income for which there is no
reasonable alternative.'' \49\ This is a new standard with no
clear definition. It is unclear how the courts will apply it.
Establishing ``special circumstances'' will not be simple or
cost or risk-free. Special circumstances may be established
only upon a debtor's motion to the court.\50\ It is the
debtor's burden to show special circumstances. The debtor must
present detailed documentation for expenses for adjustments to
income and a detailed explanation of the special circumstances
which make such expenses or adjustment to income the only
reasonable alternative for the debtor. These requirements make
it very difficult for debtors to claim special circumstances,
since many expenses are paid in cash and cannot be documented.
This risk provides a tremendous disincentive for debtors to
claim special circumstances, let alone incur the legal costs
the debtor himself is required to pay to bring the motion.
---------------------------------------------------------------------------
\49\ H.R. 333, Sec. 102, (proposed new 11 U.S.C.
Sec. 707(b)(2)(B)(i)).
\50\ H.R. 333, Sec. 102 (proposed amendment to 11 U.S.C.
Sec. 707(b)(2)(B)).
---------------------------------------------------------------------------
There are also several serious interpretive problems caused
by the drafting of the means test, which combines debt payment
amounts with IRS allowances. For example, it is not clear
whether a debtor who has two payments remaining on a secured
car loan is allowed the IRS car ownership allowance for the
remaining 58 months. If not, the debtor may have no funds to
replace a car that is already seven or 8 years old at the
outset of the 5 year period and is essential for a long commute
to work. Also, the IRS home ownership allowance includes
mortgage and utility payments. If a debtor's mortgage payment
exceeds the IRS allowance, it is not clear whether any amount
is allowed for utility payments.
Finally, the current chapter 13 completion rate is less
than one-third \51\ for voluntary plans which are voluntary and
with disposable income tests that are less rigid than that
proposed in this bill. By making chapter 13 the only avenue for
bankruptcy relief for some individuals and imposing the bill's
strict income and expense tests, the bill will undoubtedly
result in an even smaller proportion of successful chapter 13
plans.
---------------------------------------------------------------------------
\51\ National Bankruptcy Review Commission, Final Report:
Bankruptcy--The Next Twenty Years 90-91 (Oct. 20, 1997).
---------------------------------------------------------------------------
2. Means Testing Will be Costly and Bureaucratic
The bill's attempt to impose rigid financial criteria on
debtors' eligibility for chapter 7 and the operation of chapter
13 will impose substantial new costs on the bankruptcy system--
both the portions paid for by private parties (through payment
for private chapter 7 and chapter 13 trustees and higher
attorneys' fees) and the Federal Government (through the
bankruptcy courts and the U.S. Trustees Program). These costs
may well exceed the presumed savings under the bill.
The Congressional Budget Office's evaluation of last
Congress' version of this legislation indicated that over the
next 5 years the legislation could cost the private sector over
$3 billion. The lion's share of the costs would be imposed on
private trustees who administer bankruptcy estates, providers
of debt relief counseling services, and attorneys. Much of this
is attributable to the complexity and paperwork burdens
associated with the means test.
In addition, the CBO estimated that the bill's cost to the
Federal Government would be $333 million over the next 5 years.
Again, part of this cost estimate derives from implementing the
complex and paperwork heavy means testing program. Henry E.
Hildebrand, Chair of the Legislative Committee of the National
Association of Chapter Thirteen Trustees, highlighted these
costs when he estimated that:
Assuming that one out of nine cases filing for chapter
7 relief would be contested and further assuming that
the contest would require about 2 hours of pretrial
preparation and 1 hour of court time, the litigation
would require 276,000 additional hours, about 90,000 of
which would occupy the court.\52\
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\52\ Henry E. Hildebrand, The Hidden Costs of Bankruptcy Reform 2
(1998)(unpublished manuscript on file with the Committee on the
Judiciary, minority staff).
A related concern is the many, many new opportunities for
litigation and confusion created by the bill. Judge Randall
Newsome testified on behalf of the National Conference of
Bankruptcy Judges that at least 16 potential sources of
litigation are contained in the means testing provisions alone,
and that another 42 litigation points have been identified in
the other consumer provisions, noting that ``[t]his is probably
only the tip of the iceberg.'' \53\
---------------------------------------------------------------------------
\53\ March 17, 1999 Hearing (written statement of the Honorable
Randall J. Newsome, President, National Conference of Bankruptcy Judges
at 1).
---------------------------------------------------------------------------
Another source of higher costs for the government is the
requirement that one in every 250 cases in each Federal
district be randomly audited by independent certified public
accountants or independent licensed public accountants, at
taxpayer expense under generally-accepted auditing
standards.\54\ CBO estimated it will cost the Federal
Government $58 million over 5 years to effectuate this
requirement. It is unclear whether such costs will yield any
comparable benefits. For example, the Honorable William Houston
Brown, a U.S. Bankruptcy Judge in the Western District of
Tennessee, testified on behalf of the ABI that the audits
required ``are likely to be very expensive, and such formal
audits are likely unnecessary to determine significant
misstatements in debtors' petitions and schedules.'' \55\
---------------------------------------------------------------------------
\54\ H.R. 333, Sec. 602.
\55\ March 17, 1999 Hearing (testimony of the Honorable William
Houston Brown).
---------------------------------------------------------------------------
3. Means Testing and the Other Consumer Provisions Will
Harm Low- and Middle-Income People
a. Concerns Regarding the Means Test It is incorrect to
assume that the effect of H.R. 333's harmful provisions would
be limited to individuals seeking bankruptcy relief who earn
more than the regional median income. First, there are
numerous, significant flaws in the manner in which State median
income is calculated. For a variety of reasons the median
income figure required under H.R. 333 will be outdated and
understated. The first problem is that the bill states that
household income is to be based on the most recent Census
Bureau figures available as of January 1. But as of January 1,
the Census has information available for only the second year
prior to the date. Accordingly, during this year, 2001, census
figures are available for only 1999, not 2000. At times of
inflation, this 2-year lag could result in a significant
increase in the number of individuals who are the subject of
motions to dismiss or convert and who may earn more than the
outdated median income figure being used. In addition, the
starting point for the calculation of median income may be
overstated.
An even more serious problem derives from the fact that the
State median income information is currently only published by
the census bureau once per decade, meaning the median income
information could be as much as 10 years out of date. This is
why Representative Meehan offered an amendment to allow for
upward adjustment of the Census figures to reflect changes in
the Consumer Price Index. Despite agreement by members of the
majority with the amendment in principle, Representative Gekas
opposed the measure, contending that the Census Bureau's
ability to adjust the figure upward was sufficient to address
the concern, and the amendment was defeated on a party-line
vote.
In addition, Representatives Waters and Watt offered
amendments designed to relieve individuals in poverty from
having to demonstrate their median income falls well below the
threshold in the means test and allowing such individuals to
avoid the associated paperwork requirements. To ensure that
this provision would not be abused, Representative Watt
modified Ms. Waters original amendment to require the debtor to
declare under penalty of perjury that the debtor's income fell
below the poverty line for the year preceding the filing. This
amendment was again defeated on a mostly party line vote, with
only Rep. Scarborough voting for the amendment--the only
Republican vote cast during the entire markup for a Democratic
amendment.
Another flaw in the median income formula is that the test
measures a debtor's income based upon how much the debtor
earned in the 6 months prior to bankruptcy. If the debtor lost
a good job in month three and has been working at a low-wage
job ever since, the income from that good job, and help from
family members, would be counted as if that is what his future
income would be. The debtor would be expected to pay out of
income that may no longer exist. Also, the means test will
pickup a variety of revenue sources--such as disaster
assistance, and Veterans' benefits--which will result in lower-
and middle-income individuals being cast as bankruptcy
``abusers'' with income above the median. Also, due to an
apparent drafting error, under the definition of ``projected
income'' used in chapter 13, a debtor is required to use his or
her previous 6 months income in determining the amount of
payments he or she can make, regardless of whether or not that
income stream is still available, even if the debtor's income
is below the applicable median income.
In addition, due to the fact that H.R. 333, unlike current
law, will permit creditors and other parties-in-interest to
bring motions to dismiss or convert, more aggressive and well-
funded creditors will have extremely wide latitude to use such
motions as a tool for making bankruptcy an expensive,
protracted, and contentious process for honest debtors, their
families, and other creditors. Creditors could use such motions
as leverage to obtain reaffirmation agreements so that their
unsecured debts survive bankruptcy.\56\ These threats will not
be limited to individuals with income above the median.
---------------------------------------------------------------------------
\56\ It is also important to note that the sanctions against
creditors who file abusive motions against debtors under Sec. 707(b)
are weak. The court may grant attorney's fees and costs only under a
rule 9011 standard or if the motion was brought solely to coerce a
debtor to waive bankruptcy rights, an almost impossible standard to
meet. (If the motion was brought both for illegally coercive purposes
and other purposes, fees would not be awarded.) Moreover, in motions
brought by small businesses with small claims, no fees are awarded even
if rule 9011 is violated. H.R. 333, Sec. 102 (proposed amendments to 11
U.S.C. Sec. 707(b)(2)(B)).
---------------------------------------------------------------------------
Collectively, provisions forcing large number of
individuals from chapter 7 into forced repayment plans under
chapter 13 will have the effect of relegating large numbers of
otherwise middle-income families into poverty level
subsistence. This is because they will have no way of avoiding
their crushing debt load, whether it was derived from a medical
emergency or irresponsible credit card borrowing aggravated by
high interest and penalty rates. Such individuals will actually
be much worse off than other impoverished families because
their nominal income is higher than the median income level and
they cannot qualify for programs such as the earned income tax
credit, school lunch programs, food stamps, or other
subsistence provided to families with income below the poverty
level.\57\
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\57\ A recent study, by the University of Maryland Department of
Economics, illuminates the phenomenon of ``informal bankruptcy'',
whereby debtors, especially those who are difficult to find or those
with few attachable assets, may choose simply to stop making payments
altogether and enter the underground economy. Amanda E. Dawsey and
Lawrence M. Ausubel, Informal Bankruptcy, U. MD. Dept. Econ., Jan.
2001, at 2. This then puts the burden on the creditors to collect.
While informal bankruptcy lacks the legal protections afforded by
(formal) bankruptcy, the incentives of informal bankruptcy cannot be
underestimated, not the least of which is the lack of any
administrative or legal costs initially. Importantly, little
consideration has been given to informal bankruptcy with respect to
legislation, yet in 1996 some 65.2 % of credit card loans were charged
off for reasons other than bankruptcy. 1997 Annual Bankruptcy Survey,
Visa U.S.A. Inc., September 1998.
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b. Other Concerns As noted above, the bill grants
nondischargeable status to a wider range of cash advances and
debts incurred for so-called luxury goods and debts incurred to
pay nondischargeable tax debts. These new exceptions from
discharge obviate many of the benefits that debtors may realize
from filing for bankruptcy under chapter 7 or 13 and increase
the opportunity for creditor abuse. In a communication to the
Congress, the Clinton administration wrote that it is
``generally inappropriate to make post-bankruptcy credit card
debt a new category of nondischargeable debt. . . . We remain
skeptical that the current protections against fraud and debt
run-up prior to bankruptcy are ineffective and that the
additional debts made nondischargeable by [the legislation]
meet the standard of an overriding public purpose.'' \58\
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\58\ Letter from Jacob J. Lew, Director, Office of Management and
Budget, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm.
on Commercial and Admin. Law 2 (Mar. 23, 1999).
---------------------------------------------------------------------------
Consumer bankruptcy expert Henry Sommer also has explained
that such provisions:
increase the opportunity for creditors to file the
types of abusive fraud complaints which have been found
by many courts to be baseless and unjustified attempts
to coerce reaffirmations by debtors who cannot afford
to defend them. The new presumptions of
nondischargeability will fall mainly on low income
debtors who are unsophisticated, do not have the time,
budget flexibility, or attorney advice to plan their
bankruptcy cases carefully, have to file on short
notice to prevent utility shutoffs or other impending
creditor actions and will not have the funds to defend
dischargeability complaints.'' \59\
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\59\ Hearing on Consumer Bankruptcy Issues in H.R. 3150, the
``Bankruptcy Reform Act of 1999,'' Before the House Subcomm. on
Commercial and Admin. Law, 105th Cong., 2d Sess. (Mar. 10, 1998)
(written statement of Henry J. Sommer).
The new ban on loan bifurcations for car loans less than 5
years old will further obviate the possibility of obtaining a
fresh start through bankruptcy. Many creditors with security
interests in household goods on credit extended in the year
before bankruptcy will similarly be able to threaten
repossession if they are not paid in full. Since an automobile
depreciates rapidly when it leaves the showroom, it typically
declines below its value and secured debt by several thousand
dollars the day after it is bought. In essence, a lender with a
secured loan which is underwater would be unjustly enriched by
being able to treat the unsecured portion of that loan as fully
secured to the detriment of other unsecured creditors. Such a
prohibition on automobile bifurcation is likely to render many
chapter 13 plans unfeasible because a debtor may be able to
repay the entire secured value, but not the entire purchase
price of the car along with penalties. The provision also
permits the lender to come out of the bankruptcy in a superior
position than if it had foreclosed on the loan, the usual rule
that applies in bankruptcy cases.
Several other consumer provisions also will exact
significant hardships on all debtors, regardless of income
level or degree of culpability. For example, by allowing
landlords to continue eviction or unlawful detainer actions,
and exempting them from the automatic stay regardless of the
circumstances, the bill will force many battered women and
families with children and seniors out on to the streets,
without ever having an opportunity to use bankruptcy to catch
up on their rent.\60\
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\60\ Because the bill's automatic stay provision could lead to the
eviction of low-income individuals who are in bankruptcy,
Representative Waters offered an amendment that would exempt senior
citizens or single parents with minor children, either of whose incomes
fall below the applicable median, and battered spouses, whose physical
well-being would be threatened if relief from the stay is granted.
Representative Gekas opposed the amendment, stating that ``her language
vitiates, removes, erases what we have put in as combatants to the
automatic stay in the previous portion of the statute.'' On the
contrary, the amendment did not operate to exempt anyone other than the
named individuals from the exclusion, and Representative Waters offered
to clarify her amendment to clarify the point. Nonetheless, the
amendment was defeated on a party-line vote. Representative Scott had
intended to offer an amendment to eliminate the automatic stay
provision entirely, but he was prevented from offering his amendment
due to the Majority's abrupt termination of the markup.
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To cite but a few additional examples of new restrictions
the bill imposes on consumers, section 106 makes pre-bankruptcy
credit counseling mandatory regardless of the causes; section
302 imposes new limits on repeat filing; section 304 prohibits
``ride through'' of secured claims; section 305 authorizes new
automatic stay relief for secured creditors or lessors of
personal property; section 309 allocates all payments made to
under secured creditors in chapter 13 cases first to the
unsecured portion of the debt and makes other pro-creditor
changes; section 312 extends the period between bankruptcy
filings from six to 8 years; section 313 sets forth a new
narrower definition of exempt household goods; sections 315 and
316 impose new notice and tax return filing obligations along
with mandatory dismissal requirements; section 327 values
secured claims at higher amounts than current law; section 1230
denies discharge or plan confirmation for failing to file tax
returns; and section 1232 includes special protections for pawn
brokers.
4. The Consumer Provisions Will Have a Significant, Adverse
Impact on Women, Children, Minorities, and Seniors,
as well as Victims of Crimes and Severe Torts
a. Women and Children H.R. 333 will have an adverse impact
upon single mothers and their children, both as debtors and as
creditors. On the debtor side, the means test will make it far
more difficult for women to access the bankruptcy system. For
example, women whose average income was at the median during
the last 180 days, before the support checks stopped, may be
denied access to chapter 7 and forced into restrictive chapter
13 repayment plans. In addition, the bill will also make it
more difficult for women to hold onto the car they need to get
to work if it was purchased or used as collateral in the last 5
years if a creditor claims a security interest in such items.
The new nondischargeability categories also are problematic--
even if a single mother filing for bankruptcy believes they do
not apply, it will be more difficult for her to litigate a
credit card company's claim of nondischargeability.
On the creditor side, the bill will have a particularly
adverse impact on the payment of domestic support to women and
children. The basic problem arises from the fact that
bankruptcy and insolvency are by definition a zero-sum game.
There is only so much money available to be divided among the
creditors. Since H.R. 333 provides new advantages to large
corporate creditors such as credit card companies, it will work
to the ultimate disadvantage of single parents with children as
they come into contact with the bankruptcy system as creditors
seeking alimony and child support payments. These problems are
by no means insignificant given that an estimated 243,000-
325,000 bankruptcy cases involved child support and alimony
orders during the most recent years.\61\
---------------------------------------------------------------------------
\61\ Teresa Sullivan et al., Consumer Debtors Ten Years Later: A
Financial Comparison of Consumer Bankrupts 1981-91, 68 AM. BANKRUPTCY
L.J. 121 (1994).
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Under current law, alimony and child support are treated as
priority debt and are not subject to discharge.\62\ This
preferential treatment dates from as early as 1903 and is based
on Congress' determination that the payment of these debts is
so important to society that it should come ahead of most
general creditors. Although H.R. 333 does not revoke this
special treatment, viewed as a whole, the legislation will have
the effect of diminishing the likelihood of full payment of
alimony and child support. This arises as a result of several
features of the bill: its creation of significant new
categories of nondischargeable debt, provision of additional
leverage for creditors to obtain reaffirmation of debts, the
extension of the length and onerousness of chapter 13 plans,
and the bill's general limitations on the availability of
chapter 7 relief.
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\62\ 11 U.S.C. Sec. Sec. 507(a)(7) & 523(a)(5).
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Collectively considered, these changes will help foster an
environment where unsecured and credit card debt is far more
likely to compete against alimony and child support obligations
in the State law collection process post-discharge, where
bankruptcy priorities have no effect.\63\ As a Congressional
Research Service Memorandum analyzing predecessor legislation
concluded under [a predecessor] bill ``child support and credit
card obligations could be `pitted against' one another. . . .
Both the domestic creditor and the commercial credit card
creditor could pursue the debtor and attempt to collect from
post-petition assets, but not in the bankruptcy court.'' \64\
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\63\ As the President of the American Academy of Matrimonial
Lawyers observed, ``[i]f a Chapter 7 case the nondischargeability of
the credit card debt will mean that the debtor does not truly have a
`fresh start' and will be unable to pay all his remaining obligations;
most specifically, support obligations and potentially a property
settlement payment. In a Chapter 13 case the credit card debts are
treated equally with support obligations when devising a payment plan,
thus the support obligation receives a pro-rate payment only while
under existing law they have a priority.'' Letter from Charles C.
Schoenberg to Rep. Gerald Nadler (Feb. 7, 2001).
\64\ Congressional Research Service, Impact of Consumer Bankruptcy
Reform Proposals on Child Support Obligations (May 13, 1998).
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Of course, outside of the bankruptcy court is precisely the
arena where sophisticated credit card companies have the
greatest advantages. While Federal bankruptcy court provides a
strict set of priority and payment rules and generally seeks to
provide equal treatment of creditors with similar legal rights,
State law collection is far more akin to ``survival of the
fittest.'' Whichever creditor engages in the most aggressive
tactic--be it through repeated collection demands and letters,
cutting off access to future credit, garnishment wages or
foreclose on assets--is most likely to be repaid.
It is for these reasons that groups concerned about the
payment of alimony and child support have expressed their
strong opposition to the bill and its predecessors. Professor
Karen Gross of New York Law School stated succinctly that ``the
proposed legislation does not live up to its billing; it fails
to protect women and children adequately.'' \65\ Joan
Entmacher, on behalf of the National Women's Law Center,
testified that ``the child support provisions of the bill fail
to ensure that the increased rights the bill would give to
commercial creditors do not come at the expense of families
owed support.'' \66\ Marshall J. Wolf, , the past Chair of the
Family Law Section of the American Bar Association recently
wrote, ``[t]he means testing, credit card nondischargeability,
reaffirmation provisions, and limits on dischargeability
features of . . . H.R. 333 will attack these women and children
by placing disposable funds available to them at further risk.
The credit card industry, whose debt may be protected from
discharge by . . . H.R. 333, will not hesitate to attach the
bank account of a woman whose monetary lifeblood, her child
support check, is deposited into such an account!'' \67\
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\65\ March 18, 1999 Hearing (written statement of Karen Gross, New
York Law School).
\66\ Id. (written statement of Joan Entmacher, National Women's Law
Center).
\67\ Letter from Marshall J. Wolf to Sen. Edward Kennedy (Feb. 6,
2001).
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Assertions by the legislation's supporters that any
disadvantages to women and children under H.R. 333 are offset
by supposedly pro-child support provisions are not persuasive.
It is useful to recall the context in which these provisions
were added. First, in the 105th Congress, the bill's proponents
adamantly denied that the bill created any problems with regard
to alimony and child support.\68\ Although the proponents have
now changed course, the child support and alimony provisions
included do not respond to the provisions in the bill causing
the problem--namely the provisions limiting the ability of
struggling, single mothers to file for bankruptcy; enhancing
the bankruptcy and post-bankruptcy status of credit card debt;
and making it more difficult for debtors to eliminate debts and
focus on domestic support obligations. In some instances, the
new sections are even counterproductive in furthering the goal
of payment of support obligations to ex-spouses and children.
---------------------------------------------------------------------------
\68\ Letter from Representative George W. Gekas, et al., to Members
of Congress (Apr. 29, 1998).
---------------------------------------------------------------------------
For example, section 211 provides a definition of
``domestic support obligation'' that includes funds owed to
government units. If the government is acting as the debt
collector for a woman or child, this is appropriate; the
benefits of this inure to women and children directly. However,
if the government is collecting for its own benefit (say, for
example, the woman recipient is on welfare and the government
is collecting arrearages to reimburse State or Federal
expenditures), then the result may be to put the government
collection agency in direct competition with single mothers and
children, particularly in chapter 13.
Section 212 purportedly increases to first priority from
seventh priority obligations for domestic support, including
debts owed to the government. It is misleading to suggest that
moving up to ``first priority'' to ``seventh priority'' makes a
significant difference: the debts that have second through
sixth priorities almost never appear in consumer cases.\69\
However, knocking out the first priority for administrative
expenses incurred by the trustee could have the unintended
effect of thwarting the original purpose of the provision.
Putting support claims ahead of administrative expenses in
priority may prevent trustees from liquidating assets because
trustees need to use estate funds to liquidate property. If the
trustee is not assured that the estate can cover the expenses
of liquidating property, the trustee may have to abandon the
property back to the debtor, resulting in the domestic support
obligations receiving no distribution--the opposite of bill's
intent.\70\
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\69\ Those priorities--which would likely apply in less than 1% of
all cases--deal with debts of grain storage facility operators, debts
of fishermen, employee wage claims, retail layaway claims, and the
like. 11 U.S.C. Sec. 507(a).
\70\ Rep. Waters had planned to offer an amendment on this issue,
but was prevented because the Majority unilaterally cut off debate.
---------------------------------------------------------------------------
Section 213, which requires that chapter 13 plans provide
for child support owed to the State as well as to families
before the debtor receives any bankruptcy discharge, may reduce
the likelihood that a feasible plan can be confirmed. When
combined with the other increased payments that must be made to
secured creditors under Chapter 13, the requirement that State
arrears as well as family arrears must be paid in full if the
plan does not extend to 5 years would make it more difficult
for a debtor to get a Chapter 13 plan confirmed and
successfully completed, and could, therefore, adversely affect
the family.
Section 214 creates additional exceptions to the automatic
stay that, like other provisions in the bill, have the
potential of placing women and children at a disadvantage.
First, these provisions apply only to income withholding orders
issued by government agencies under the Social Security Act,
even though an estimated 40-50% of all child support cases, and
all alimony-only cases, are enforced privately, not by
government child support agencies. Second, income withholding
is helpful only if such orders are placed against debtors with
regular income. Yet, in 1997, more than four out of ten cases
in State child support systems across the country lacked a
support order.\71\
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\71\ March 18, 1999 Hearing (written statement of Joan Entmacher,
National Women's Law Center) (citing U.S. Dept. of Health and Human
Servs., Office of Child Support Enforcement, Preliminary Data Report:
Child Support Enforcement FY 1997 (Aug. 1998).
---------------------------------------------------------------------------
Section 215, which makes all property settlement
obligations nondischargeable, also could have unintended
consequences in practice. For example, under this provision, a
financially-troubled ex-spouse who is owed alimony and child
support could be forced to compete with another ex-spouse who
is not in need of support but had a settlement agreement
dealing with business debts. Alternatively, a financially-needy
ex-spouse who files for bankruptcy may be left with
nondischargeable debt owed to her wealthier ex-spouse because
of a property settlement. Again, the result is the needy spouse
and child could be placed at a disadvantage by these changes.
Section 216, which allows domestic support creditors to
levy otherwise exempt homesteads and other exempt property,
also does not go far enough. Like the other provisions, it is
effective only if a single mother goes to the time and expense
of hiring an attorney to enforce her new rights. It also grants
State and local governments the right to pursue claims in
possible competition with the single mother.
Finally, section 217's insulation of payments to the
government from preference actions also may hurt an ex-spouse
and child of the debtor. This is because those funds, which
were preferentially paid to the government, otherwise may have
been available for ongoing support payments.
Representatives Conyers and Waters sought to mitigate these
concerns when they offered an amendment to section 310 to
ensure that this new dischargeability for luxury goods and ATM
cash advances would not apply if these new limitations on
discharge would impair the debtor's ability to pay domestic
support obligations. In opposing the amendment, Representative
Gekas incorrectly asserted that the amendment does not
``enhance the situation we've already cured.'' On the contrary,
section 310 would place the single mother seeking money for
food into direct competition with credit card debt. The
amendment was defeated on a party-line vote.
The legislation also totally ignores another very serious
problem facing women as a result of the Bankruptcy Code--the
fear that violent and reckless individuals will be able to bomb
abortion clinics and eliminate their liability from that action
through the bankruptcy process. Although the current bankruptcy
laws prevent discharge for ``willful and malicious injuries,''
\72\ it is unclear whether this standard applies to a clinic
bombing where a particular victim was not targeted.\73\ It is
also unclear whether the law applies to damages resulting for
barricading clinic entrances. At the same time, notorious
clinic bomber and ``Operation Rescue'' found Randall Terry has
specifically filed for bankruptcy in order to void a $1.6
million judgment he owed to the National Organization for Women
and Planned Parenthood,\74\ and many of the notorious
``Nuremberg files'' defendants have filed for bankruptcy.
---------------------------------------------------------------------------
\72\ 11 U.S.C. Sec. 523(a)(6).
\73\ Kawaauchau v. Geiger, 523 U.S. 57 (1998) (holding that the
actor must intend the consequences of the act, injury to someone or
something, not just the act, itself).
\74\ Operation Rescue Founder Files for Bankruptcy due to Lawsuits,
Wash. Post, Nov. 8, 1998, at A29; An Anti-Abortion Leader Files for
Bankruptcy, N.Y. Times, Nov. 8, 1998, at 45.
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No appellate court has considered the issue of
dischargeability of these debts. However, victims who have
achieved Federal court judgments for violations of the clinic
access law have been compelled to chase convicted criminals who
have deliberately and publicly used the bankruptcy laws to
avoid payment. According to one representative of a abortion
clinic violence, it took more than 3,000 hours of attorney time
to pursue such a claim in bankruptcy court.\75\
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\75\ See statement of Maria T. Vullo, Feb. 8, 2001 Hearing on S.
220, the Bankruptcy Reform Act of 2001 before Sen. Jud. Comm.
---------------------------------------------------------------------------
We believe it is irresponsible to allow the Bankruptcy Code
to be used to void debts of this nature committed by violent
individuals in violation of Federal law. As the National
Abortion and Reproductive Rights Actions League has written,
``[d]ebtors whose debts arise from their own clinic violence
are not honest debtors and should not be able to escape the
financial liabilities incurred by their illegal conduct.'' \76\
Senator Hatch (R-UT) also noted in defending the confirmation
of the Attorney General, that even a staunch anti-abortion
advocate such as Senator Ashcroft supported the amendment,
which passed the Senate by a vote of 80-17.
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\76\ Memorandum of NARAL 8 (Mar. 30, 1999).
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b. Minorities, Seniors, and Victims of Crimes and Severe
Torts H.R. 333 will also have a disparate impact upon
minorities and victims of crimes and torts. The Leadership
Conference on Civil Rights has warned that, under the
predecessor legislation, ``African American and Hispanic
American families, suffering from discrimination in home
mortgage lending and in housing purchases and facing inequality
in hiring opportunities, wages, and health insurance coverage
[will be less able to] turn to bankruptcy to stabilize their
economic circumstances.'' \77\ We know this because the
economic struggle for Hispanic American and African American
homeowners is harder than for any other group. While 68% of
whites own their own homes, only 44% of African Americans and
Hispanic Americans own their homes. Both African American and
Hispanic American families are likely to commit a larger
fraction of their take-home pay for their mortgages, and their
homes represent virtually all their family wealth. It is no
surprise, then, that African American and Hispanic American
homeowners are six hundred percent more likely to seek
bankruptcy protection when a period of unemployment or
uninsured medical loss puts them at risk for losing their
homes.\78\ Experience has also shown that minorities are also
particular targets of predatory lenders.
---------------------------------------------------------------------------
\77\ Letter from LCCR to Members of Congress (Apr. 21, 1999).
\78\ Id.
---------------------------------------------------------------------------
Similar concerns have been raised on behalf of seniors, who
could lose their retirement savings if forced into chapter 13
plans. The National Council of Senior Citizens has warned that
legislation of this nature:
would have a harsh impact on a group of people who are
often subject to job loss or catastrophic health costs;
instead of ameliorating these problems, this bill will
only exacerbate them. . . . Since 1992, more than a
million people over the age of 50 have filed for
bankruptcy; in 1997, an estimated 280,000 older
Americans filed. For them it is particularly hard. If
they are forced into prolonged repayment schedules,
they may not be able to maintain or accumulate savings
for retirement. As you know, approximately two third of
voluntary, Chapter 13 workout plans fail, and we
believe that retirement savings must be protected for
that purpose.\79\
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\79\ Letter from Dan Schulder, Director Legislation, National
Council of Senior Citizens, to the Honorable Jerrold Nadler, Ranking
Member, House Subcomm. on Commercial and Admin. Law (June 9, 1998).
With regard to the concerns of victims' groups, it is
important to note that current law provides for the
nondischargeability of debts for obligations arising out of
willful or malicious injury, death or personal injury caused by
the operation of a motor vehicle, or criminal restitution
payments.\80\ However, making more credit card debt
nondischargeable, encouraging more reaffirmations of general
unsecured debt, and discouraging more financially-troubled
individuals from seeking debt relief will place these
individual creditors at a relative disadvantage. As the
National Organization for Victim Assistance has written, ``more
exempted creditors with rights to the same finite amount of
resources means lower payments to all. Inevitably, for victim-
creditors, that means either a smaller return on the
restitution owed, or a longer period of repayment, or both.''
\81\ The National Center for Victims of Crime has similarly
observed, ``to equate contractual losses of a commercial
creditor with . . . personal obligations [for victim claims as
the legislation does] is to belittle their importance and to
directly reduce the likelihood that crime victims will ever be
financially restored, despite obtaining an order of restitution
or a civil judgment.'' \82\ Mothers Against Drunk Driving
(``MADD'') has also complained that if ``individuals [whose
lives] have been shattered financially and emotionally by the
death or serious injury of their family members . . . have to
compete with credit card debt holders for the limited post-
discharge income of debtors available [as the predecessor
legislation requires], they may themselves end up in
bankruptcy.'' \83\ MADD also noted that in contrast to crash
victims, ``lending institutions have the ability to provide
some degree of protection to themselves when they issue credit
cards to individuals and they are in a better financial
position to absorb losses, which to them is a cost of doing
business.'' \84\
---------------------------------------------------------------------------
\80\ 11 U.S.C. Sec. Sec. 523(a)(6), (9), (13).
\81\ Letter from Marlene A. Young, Executive Director, NOVA, to the
Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 26,
1999).
\82\ Letter from David Beatty, Director of Public Policy, The
National Center for Victims of Crime, to the Honorable Jerrold Nadler,
Ranking Member, House Subcomm. on Commercial and Admin. Law (Apr. 28,
1999).
\83\ Letter from Karolyn V. Nunnallee, National President, MADD, to
Members of Congress (Apr. 26, 1999).
\84\ Id.
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5. The Bill Does not Address Abuses of the Bankruptcy
System by Creditors
Perhaps the bill's most glaring omission is its failure to
fully address the problem of abusive lending practices. At the
same time the legislation responds to every conceivable debtor
excess--whether real or imagined--it largely ignores the
transgressions of the credit industry. The only significant
``reform'' with regard to lending industry disclosure is that
requirement that credit card companies provide the consumer
with an ``800'' number to call to ascertain payment information
along with unrealistic examples of credit card debt paydowns
(which may not reflect the actual situation of the debtor and
thus prove misleading), and as a series of boilerplate warnings
regarding real estate loans and teaser rates.\85\
---------------------------------------------------------------------------
\85\ H.R. 333, Title XIII.
---------------------------------------------------------------------------
As noted at the outset, the overwhelming weight of
authority establishes that it is the massive increase in
consumer debt, not any change in bankruptcy laws, which has
brought about the increases in consumer filings. Indeed, there
is an almost perfect correlation between the increasing amount
of consumer debt and the number of consumer bankruptcy filings.
For example, between 1993 and 1998, bank credit card loans in
the United States more than doubled from $223 billion to nearly
$500 billion, and personal bankruptcy filings increased
accordingly.\86\ The same basic correlation holds from 1946
through 1998, as the below chart indicates:
---------------------------------------------------------------------------
\86\ March 16, 1999 Hearing (written statement of Joe Lee, Charts
5-6). In 1993, banks issued credit card loans in the amount of $223
billion; in the same year, there were approximately 900,000 consumer
bankruptcy filings. Id. (citing the FDIC and the Administrative Office
of the U.S. Courts). In 1998, banks issued $455 billion in credit card
loans; that year, there were 1.4 million consumer bankruptcy filings.
Id.
Review of this data indicates that the primary factor that
led to the increase in bankruptcy filings after 1978 was not
the enactment of the revised bankruptcy laws, but the
deregulation of credit. The deregulation resulted from the
Supreme Court decision in Marquette National Bank of
Minneapolis v. First Omaha Service Corp.,\87\ which held that
out-of-state banks were not subject to the usury laws of the
State where the consumer was located. This decision led credit
card concerns to relocate to States with lax usury laws that
gave banks the ability to charge exorbitant interest rates in
all 50 States. Subsequently, other legal changes permitted a
broad range of new entities to get into the ever-growing, and
lucrative, credit card business.\88\ Among other things, we
know that it was this unprecedented increase in high-cost
credit, not the changed bankruptcy laws, that led to the change
by virtue of Canada's experience. In Canada, bankruptcy filings
began to explode in the late 1960's, simultaneous with the
entry of VISA and MasterCard into that nation and the growth in
credit card lending. There was no change in Canada's laws that
could account for the increase.
---------------------------------------------------------------------------
\87\ 439 U.S. 299 (1978).
\88\ See March 16, 1999 Hearing (written statement of Joe Lee at 1-
3).
---------------------------------------------------------------------------
This deregulation of credit and the accompanying explosion
in credit availability--the number of credit card solicitations
in 1998 reached 3.5 billion, an increase of 15 percent from the
prior year \89\--and consumer debt, have been accompanied by a
wide variety of credit card abuses. For example, solicitations
of minors and college students are a particular problem. Credit
card companies purposefully solicit students and other minors
who have little ability to pay their debts. Illustrative of the
seriousness with which credit card companies target students is
the following topic from the 1998 Card Marketing Conference:
---------------------------------------------------------------------------
\89\ Press Release of the National Consumer Law Center, Consumers
Union, Consumer Federation of America, and U.S. PIRG (Apr. 19, 1999).
Targeting Teens: ``You Never Forget Your First Card!''
Most teens never forget their first love. Nor do they
forget the issuer who dares to accept their
application. Their brand loyalty and propensity to
spend make consumers in their mid- to late-teens priced
prospects for many card issuers.\90\
---------------------------------------------------------------------------
\90\ Id. (quoting Agenda for Card Marketing Conference ``98 (Nov.
9-11, 1998)). Between 1990 and 1995, the average student credit card
debt more than doubled from $900 to $2,100. By 1997, graduate students
averaged seven cards and carried a total balance of $5,800. That is in
addition to school loans, which are increasingly being used to pay off
students' credit card debt. To support average post-college debts and
other expenses, graduates need to earn more than $38,000--$4,000 more
than the national average. ``Bankrupt at 24, Susan Carpenter, LA Times
January 24, 2001.
The credit card tactics are myriad, including offering gifts
such as mugs, Slinkees, T-shirts, and Frisbees.\91\ Campus
groups managing credit card tables receive large cash payments
from credit card companies.\92\ Such tactics apparently work,
as 61% of students responsible for their own bills have
indicated that they received credit cards at college.\93\ Some
colleges have become so fed up with card marketing practices
that they banned the credit card companies from their campus
\94\--although they cannot stop mail solicitations.
---------------------------------------------------------------------------
\91\ Id.
\92\ Id.
\93\ U.S. Public Interest Research Group, The Campus Credit Card
Trap: Results of a PIRG Survey of College Students and Credit Cards
(Sept. 1998).
\94\ Press Release of the National Consumer Law Center, Consumers
Union, Consumer Federation of America, and U.S. PIRG (Apr. 19, 1999).
---------------------------------------------------------------------------
To make matters worse, credit card companies even go so far
as to solicit business from the developmentally disabled.\95\
One developmentally-disabled man, aged 35, has the reading and
mathematic skills of a second-grader and an annual income of
$7,000 from Social Security disability benefits; nevertheless,
he has thirteen credit cards, generating a debt of $11,745.\96\
When his counselor asked the bank to lower his credit limit to
$500, his limit was instead raised to $4,900.\97\ Credit card
companies have no answer for how this occurs other than to say
that they screen all applicants to ensure they can handle the
risk; \98\ clearly, however, credit card companies have not
been doing a sufficient job of screening their applicants.
Unfortunately, H.R. 333 does nothing to meaningfully discourage
any of these practices.
---------------------------------------------------------------------------
\95\ Dan Herbeck, Where Credit Isn't Due: Developmentally-Disable
Become Victims, Buffalo News, Apr. 7, 1998, at 1A.
\96\ Id.
\97\ Id.
\98\ Id.
---------------------------------------------------------------------------
The bill also ignores the problem of credit card companies
lending to individuals with already substantial debts and
little prospect of repayment. Gary Klein of the National
Consumer Law Center noted ``offering additional credit . . . to
families already struggling to pay their debts hurts not only
borrowers, but also the borrowers' honest creditors if the new
credit pushes the family over the edge. Similarly, failure by
one creditor to seriously consider payment arrangements outside
bankruptcy for families facing hardship may lead to a
bankruptcy filing which affects all creditors.'' \99\ One
credit card company goes so far as to solicit debt counselors
and offers them $10 for each chapter 7 client who requests a
VISA card.\100\
---------------------------------------------------------------------------
\99\ March 11, 1999 Hearing (written statement of Gary Klein,
National Consumer Law Center).
\100\ Letter from American Bankruptcy Service to Michael Schwartz
(Dec. 18, 1998).
---------------------------------------------------------------------------
A particularly pernicious credit card practice occurs in
the so-called ``subprime'' market, where lenders seek out
riskier borrowers and offer home equity financing at loan to
value ratios in excess of 100%. Another lending abuse targets
low income and minority neighborhoods with ``serial''
refinancing loans that carry high interest rates and other
onerous terms.\101\ In essence this causes poor individuals to
place their homes at risk in order to finance their credit card
purchases.
---------------------------------------------------------------------------
\101\ March 18, 1999 Hearing (written statement of Damon A.
Silvers, AFL-CIO, n.9 (citing Debra Nussbaum, ``Lenders Laud the Value
of Home Sweet Equity,'' N.Y. Times, Mar. 22, 1998, Sec. 3 at 10;
Richard W. Stevenson, ``How Serial Refinancings Can Rob Equity,'' N.Y.
Times, Mar. 22, 1998, Sec. 3 at 10. See also Julia Patterson Forrester,
``Mortgaging the American Dream: A critical Evaluation of the Federal
Government's Promotion of Home Equity Financing,'' 69 Tulane L. Rev.
373 (1994))).
---------------------------------------------------------------------------
These problems are compounded by the fact that credit card
companies fail to disclose clearly on their account statements
the total amount and total time it would take to pay off
balances if only the minimum amount due was paid each month.
Unlike mortgage loans and car loans, credit card loans do not
disclose the amortization rates or the total interest that will
be paid if the cardholder makes only the minimum monthly
payment. As a result, using a typical minimum monthly payment
rate on a credit card, it could take 34 years to pay off a
$2,500 loan, and total payments would exceed 300 percent of the
original principle. This is why many lenders encourage minimum
payments that do not pay down the loan.
Finally, the legislation fails to address adequately the
problem of abuse in the area of reaffirmation agreements, by
for example, banning their use with respect to unsecured and
dischargeable loans. Although it requires lengthy and confusing
``disclosures'' intended to assure that debtors entering into a
reaffirmation agreement understand all aspects of signing the
agreement, it allows creditors to refuse to disgorge funds
received even in many cases of illegality and exempts credit
unions from all the disclosure requirements and from any
restrictions on unduly burdensome reaffirmations. This failing
is especially glaring in view of the fact that the bill will
provide numerous opportunities for creditors to coerce
reaffirmations making the provisions of this bill, which will
render it more difficult to obtain effective remedies against
abusive creditors like Sears, even less defensible.\102\
---------------------------------------------------------------------------
\102\ See Leslie Kaufman, Sears to Pay Fine of $60 Million in
Bankruptcy Fraud Lawsuit, N.Y. Times, Feb. 10, 1999, at C2.
---------------------------------------------------------------------------
III. BUSINESS PROVISIONS
Under current law, businesses may use chapter 11 of the
Bankruptcy Code in an effort to obtain relief from the
creditors while they seek to develop a plan to reorder their
affairs and pay as much of their debts as their operations will
allow. Under this chapter, businesses obtain an ``automatic
stay,'' which forestalls creditor collection efforts. During
this time period, debtors have an opportunity to examine their
contracts and leases and determine which ones to assume and
which ones to reject (with rejection leading to a claim for
damages). Debtors are subject to a number of requirements
during this period, such as the formation of creditor
committees and various ongoing financial disclosures.
The goal of chapter 11 is to determine whether there is
ongoing business value that can be preserved to pay off
creditors while maintaining as many jobs and contractual
relationships as possible. To this end, the debtor is given an
exclusive 120-day period (unless lengthened or shortened for
cause) in which to develop a reorganization plan that satisfies
a host of statutory requirements and convince a majority of the
creditors that the plan is in their best interests and is
preferable to a liquidation ``fire sale.''
In 1994, Congress enacted two exceptions to the general
rules of chapter 11. The first related to ``small businesses,''
defined as entities engaged in commercial or business
activities whose aggregate debts do not exceed $2 million.
Debtors that voluntarily elect to be treated as small
businesses are permitted to dispense with creditor committees,
receive only a 100-day plan exclusivity period, and are
entitled to more flexible provisions for disclosure and
solicitation for acceptances of their proposed reorganization
plan. In 1994, Congress also developed a special set of rules
applicable to ``single asset real estate,'' generally defined
as cases in which the principal asset is a single piece of real
estate subject to debt of no more than $4 million. In cases
falling within this definition, secured creditors are permitted
to foreclose on their collateral unless the debtor files a
reorganization plan which is likely to be confirmed or
commences payment on the secured loan within a 90-day period.
This exception to chapter 11 procedures was justified on the
grounds that single asset real estate cases were seen as
essentially private two-party loan disputes, which did not
implicate ongoing businesses or jobs.
A. General Business Concerns
The business provisions of the bill would effectuate a
number of changes in the manner in which corporations,
partnerships and other business entities are permitted to
reorganize their financial affairs. Groups such as the AFL-CIO
and the National Bankruptcy Conference have raised numerous
concerns regarding the business titles of the legislation and
their likely negative impact on financially troubled
businesses, particularly during an economic downturn as we are
presently experiencing. These include concerns about the
expansion of remedies available to secured creditors in the
transportation industry; \103\ the imposition of mandatory
deadlines for extensions of ``exclusivity''; \104\ amendments
regarding asset securitization limiting the assets available to
a debtor during a bankruptcy case; \105\ limits on repeat
filings for troubled small businesses,\106\ and provisions
giving utility companies an enhanced position in
bankruptcy.\107\ In general, the AFL-CIO has warned:
---------------------------------------------------------------------------
\103\ March 18, 1999 Hearing (written statement of Damon A.
Silvers, AFL-CIO); March 17, 1999 Hearing (written statement of Kenneth
Klee, National Bankruptcy Conference).
\104\ H.R. 333, Sec. 411.
\105\ H.R. 333, Sec. 912.
\106\ H.R. 333, Sec. 441.
\107\ H.R. 333, Sec. 417.
When this committee last considered by matter in 1999,
our economy was going through an unprecedented period
of growth and prosperity. Today, we are in far more
uncertain times, and large employers throughout the
United State are seeking the protection of the
bankruptcy laws. Ten major steelmakers have filed for
bankruptcy since 1998. Already 10,000 jobs have been
lost at these firms alone during this period. Since
September 1, 2000, major retail, apparel and textile
firms, paper manufacturers and airlines have filed
under Chapter 11--firms such as LTV and Wheeling-
Pittsburgh Steel, Pillowtex, Bradlees, Montgomery Ward,
TWA, Owens-Corning and Armstrong Industries. Hundred of
thousands of jobs and the economic future of
communities all across America directly depend on these
firms being able to successfully reorganize. While the
reasons for each bankruptcy are unique to the firm and
the industry, such as these firms' futures depends on
the successful functions of the business bankruptcy
system. In these circumstances, America's working
families cannot be exposed to the risks of H.R. 333, a
one-sided, ill-considered revision of the bankruptcy
code.\108\
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\108\ Feb. 8, 2001 Hearing (written statement of Damon Silvers,
Associate General Counsel, AFL-CIO).
Similar concerns relate to the power of creditors who lease
retail property. Section 404 grants lessors of commercial
property the ability to coerce debtor-tenants into deciding
prematurely whether to assume or reject a lease. In a retail
insolvency, a debtor may need to wait beyond the 210-day
period--120 days with the ability to gain a 90-day extension
upon a motion for cause and with the lessor's consent--until
the holiday season is complete to determine which locations
have a realistic chance to succeed; a trustee or debtor in
possession may decide to assume and reject some of the leases
based upon this practical experience. If the trustee or debtor
in possession assumes a nonresidential lease in chapter 11, and
the case subsequently converts to chapter 7, under the bill,
the rent due for a 1-year period following rejection of the
lease becomes an administrative expense for compensation,
gaining priority over all other unsecured claims and limiting
the opportunity for other unsecured creditors to receive
compensation. By giving the lessor veto power at the end of 210
days, as the bill now does, the legislation would have the
effect of giving a single creditor inordinate bargaining power
among creditors and with the debtor.
Another significant problem stems from language added in
last year's conference which vastly expands the opportunity of
creditors to assert that their debt is nondischargebable in a
corporate reorganization. Section 321(d) of the bill subjects
corporations to the same exceptions to discharge rules as
individuals are under section 523 of the Bankruptcy Code. The
section 523 exceptions to discharge were drafted with
individuals, not corporations, in mind, and many of the
provisions involve matters--such as specific intent--which are
not appropriate for a large business. The changes made by
section 321(d) could have the effect of making it much more
difficult for companies to be able to restructure debts
involving, for example, liability actions where fraud may be
alleged. In turn, this would make reorganization far more
difficult, costing many innocent workers their jobs.
B. Small Business Provisions
With respect to small business, H.R. 333 would expand the
definition of covered small business to those companies having
debts of less than $3 million,\109\ subsuming more than 80% of
all chapter 11 cases.\110\ It would also make the small
business requirements mandatory (rather than optional) and
mandate the operation of numerous additional requirements on
debtors.\111\ For example, under H.R. 333, small business
debtors would be required to provide balance sheets, statements
of operations, cash-flow statements, and income tax returns
within 3 days after filing a bankruptcy petition, the time
period the debtor has the exclusive right to file a plan of
reorganization would be modified (to 180 days without the
possibility of extension), and the standards for being able to
seek an extension of this time period would be substantially
narrowed.\112\
---------------------------------------------------------------------------
\109\ H.R. 333, Sec. 432 (proposed amendment to 11 U.S.C.
Sec. 101(51D)).
\110\ See March 18, 1999 Hearing (written statement of Jere W.
Glover, Chief Counsel for Advocacy, SBA).
\111\ H.R. 333, Sec. 436 (proposed 11 U.S.C. Sec. 1116).
\112\ H.R. 333, Sec. 437 (proposed amendment to 11 U.S.C.
Sec. 1121(e)).
---------------------------------------------------------------------------
It is for these reasons that both the AFL-CIO and a number
of other organizations representing both debtor and creditor
interests are opposed to, or have serious concerns with, the
small business provisions of the bill. The AFL-CIO testified:
The Bankruptcy Code already contains several provisions
applicable to small businesses. These are principally
designed to streamline the bankruptcy process for less
complex cases, and apply on a voluntary basis to
businesses with debts not exceeding $2 million. In
sharp contrast, the proposed amendments in H.R. 333 are
mandatory, anti-reorganization and hostile to small
business. They would add strict time limits and
extensive mandatory requirements for filing and
confirming a reorganization plan. Chapter 11 cases
could be converted or dismissed from bankruptcy
altogether for failure to meet these and other new
requirements. Harsh new rules limiting subsequent
bankruptcy filings are also proposed, despite the lack
of any credible evidence that ``serial filing'' is a
problem among business bankruptcies. As burdensome as
these new strictures would be, they are made more
onerous by severely limiting the court's exercise of
discretion to manage these cases. Rules for obtaining
relief from these provisions create a high burden for
the debtor and would curtail the court's authority to
meet the exigencies of a particular case.\113\
---------------------------------------------------------------------------
\113\ Feb. 8, 2001 Hearing (written statement of Damon Silvers,
Associate General Counsel, AFL-CIO).
It is important to recall that Congress has previously
enacted laws that have made it far more difficult for debtors
to unduly delay filing a plan of reorganization, and these
appear to have had a salutary effect. The proposed rigid
deadline in the bill go much farther and will undoubtedly work
to detriment of debtors involved in complex reorganizations and
force unnecessary liquidations and job losses. In turn, these
changes will lead to the premature liquidation of small
businesses with the attendant loss of jobs.
C. Single-Asset Real Estate Provisions
A similar concern relates to single-asset real estate
(``SARE'') debtors. The legislation would significantly expand
the definition of SARE by eliminating the $4 million debt cap
pursuant to a ``technical correction'' in section 1201(5) of
Title XIII of H.R. 333, would take in SARE bankruptcies below
that cap and treat them as small businesses.
As a result of these changes, a much wider range of real
estate operations would be required to conform with the SARE
and small business requirements when they seek to reorganize,
notwithstanding the fact that those requirements were drafted
with a much smaller and simpler entity in mind. Large operating
entities such as Rockefeller Center, as well as hotels and
nursing homes or any business with a significant real estate
component, could be considered SARE and put back on the track
set forth in Sec. 362(d)(3) of the Bankruptcy Code. It would
also create new incentives for lenders to require that all of
their real estate borrowers place their holdings in the single
asset form in order to avoid ordinary bankruptcy rules in the
future. The AFL-CIO noted, ``the significant limiting factor in
the application of these rules has been the $4 million cap.
[Eliminating] the cap would place a wide variety of properties
. . . at risk of foreclosure and threaten jobs at these
properties. Absent rules that specifically exclude properties
housing significant business enterprises, there should be no
expansion in the definition of single asset real estate
debtor.'' \114\
---------------------------------------------------------------------------
\114\ March 18, 1999 Hearing (written statement of Damon A.
Silvers, Associate General Counsel, AFL-CIO).
---------------------------------------------------------------------------
By design, the SARE changes will ``broaden[] the scope of
single asset real estate debtors subject to rules which
increase the threat of disruptive summary foreclosures of
commercial property.'' \115\ This, in turn, would likely lead
to significant job losses. Even if a hotel or nursing home
remains in existence, the new owner would not necessarily be
required to honor any previously negotiated collective-
bargaining agreements applicable to employees at the facility.
In the case of a large real estate operation, premature
foreclosure could also allow the new owner to terminate many
leases, leading to further job losses to the extent the
business is relying on these leases.
---------------------------------------------------------------------------
\115\ Letter from Peggy Taylor, Director of Legislation, AFL-CIO,
to the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary
(Apr. 20, 1999).
---------------------------------------------------------------------------
IV. TAX PROVISIONS
The Bankruptcy Code seeks to effectuate a delicate balance
between the rights of the Internal Revenue Service and State
tax agencies to the repayment of any taxes, interest, and
penalties owed them, and the rights of other creditors and the
ability of individuals and corporations to be financially
rehabilitated for the benefit of all parties. Title VII of the
bill, on balance, manifests a strong preference for the IRS and
other taxing authorities to the detriment of other participants
in the bankruptcy system. Concerns have been expressed that,
not only does H.R. 333 generally enhance the rights and
position of the IRS and State authorities in bankruptcy, but
the bill grants the IRS certain rights in bankruptcy cases that
it does not enjoy outside of bankruptcy, and vests the IRS with
new enforcement powers that ordinary creditors do not posses.
Of particular concern is the fact that the bill varies in many
significant respects from the nonpartisan, and often unanimous,
recommendations of the Bankruptcy Commission and its Tax
Advisory Committee.
Arguably one of the bill's most important provisions
affecting business bankruptcies appears in Section 708 of Title
VII. This section provides that a corporation will not be
discharged from a tax or customs duty where the debtor made a
fraudulent return or willfully attempted to evade or defeat the
tax or duty. More significantly, by referencing any debt in
section 523(a)(2) of the Code, the provision could even
encompass claims that were fraudulently incurred that are not
tax claims. In its critique of section 708, the National
Bankruptcy Conference wrote:
A rule such as the one proposed in Sec. 708 advantages
one creditor at the expense of others. It is a recipe
for certain mischief, especially in large
reorganizations. There is no public policy reason to
grant this kind of leverage to some creditors as the
purpose in making these assertions transparently will
likely be to obtain a better deal that other
creditors.\116\
---------------------------------------------------------------------------
\116\ National Bankruptcy Conference, Report on H.R. 2415, 106th
Cong., 2d Sess (H. Rept. 106-970) at 16 (2001).
In addition, Paul Asofsky, who served as the Chair of the
Task Force on the Tax Recommendations of the National
Bankruptcy Review Commission of the American Bar Association's
Tax Section, testifying about predecessor legislation on behalf
of the American Bar Association's Section on Taxation, observed
that: ``[T]here are many provisions in this legislation with
which we agree as a matter of principle, but the specific
provisions are either ambiguously drafted or cut against the
grain of the principal proposal, causing us to oppose what
should be noncontroversial proposals.'' \117\
---------------------------------------------------------------------------
\117\ March 18, 1999 Hearing (written statement of Paul Asofsky).
---------------------------------------------------------------------------
Mr. Asofsky provided a somewhat more detailed discussion of
his concerns in a letter to the subcommittee.\118\ Section 704
of H.R. 333 provides for a significantly higher uniform
interest rate to be applied to tax claims in a bankruptcy case.
The Tax Advisory Committee, which included governmental
representatives, concluded that the rate for all types of tax
claims should be the regular tax deficiency rate for Federal
income tax purposes. The bill, however, provides that the rate
shall be determined by applicable bankruptcy law. Of greater
concern, local governments can set their own interest rates,
many of which are substantially higher than either of the IRS
rates.\119\
---------------------------------------------------------------------------
\118\ Letter from Paul Asofsky to the Honorable Jerrold Nadler,
Ranking Member, House Subcomm. on Commercial and Admin. Law (Feb. 5,
1999) [hereinafter Asofsky Letter].
\119\ Id. at 3-4.
---------------------------------------------------------------------------
Section 707 severely limits the ``superdischarge''
available to debtors in chapter 13. It would prevent a debtor
from discharging tax debts, which is now permitted in chapter
13, but not in chapter 7. Eliminating the benefit of the
superdischarge also eliminates the single greatest incentive
for an individual debtor to choose chapter 13. As Mr. Asofsky
observed,
[T]he problem faced by many taxpayers who are
delinquent in their obligations is that the IRS
standard allowances for installment payment agreements
\120\ clearly do not leave many taxpayers with the
minimum amounts necessary to provide for basic
necessities, and so called ``offers in compromise'' are
very difficult to obtain. Thus, for the most desperate
of taxpayers, the chapter 13 superdischarge affords a
safety net which is the only thing that provides them
with the possibility of living somewhat of a normal
life in dignity . . . elimination of the chapter 13
superdischarge would be devastating to large numbers of
unfortunate individual debtors.\121\
---------------------------------------------------------------------------
\120\ These are the same standards used in the means test in
section 102 of H.R. 333.
\121\ Asofsky Letter at 4.
Section 717 requires disclosure of the tax consequences of
a chapter 11 plan of reorganization. Although originally an
uncontroversial idea, the bill adds extra requirements which
will likely cause confusion and may be impossible for debtors
to comply with fully. The section now requires ``a discussion
of the potential material Federal tax consequences of the plan
to the debtor, any successor to the debtor, and a hypothetical
investor typical of the holders of claims or interest in the
case.'' The use of a vague term such as ``discussion''--
although an improvement over the requirement in the earlier
version of a ``full discussion''--will likely lead to extensive
litigation as these statements are scrutinized. In some
instances, the precise tax consequences of a plan at all levels
of government, and for a ``typical'' holder of claim, may be
difficult to produce with great precision.\122\
---------------------------------------------------------------------------
\122\ Id. at 5-6.
---------------------------------------------------------------------------
Finally, section 718 requires that a debtor actually have
commenced an action against the taxing authority to determine
the amount of a disputed tax before a setoff can be prevented.
Absent such an action by the debtor, a governmental entity
generally is free to ``setoff'' any prepetition refund with a
liability. The Advisory Committee had recommended that such
setoff should only be permitted in cases where the liability
was undisputed. The bill goes much further and to the
disadvantage of the debtor and other, non-governmental
creditors.
CONCLUSION
For more than 100 years, Congress has carefully considered
the bankruptcy laws and legislated on a deliberate and
bipartisan basis. In the past, Congress has elected also to
preserve carefully an insolvency system that provides a fresh
start for honest, hard-working debtors, protects on-going
businesses and jobs, and balances the rights of and between
debtors and creditors. Because H.R. 333 departs from these
principles, we respectfully dissent.
John Conyers, Jr.
Howard L. Berman.
Jerrold Nadler.
Melvin L. Watt.
Sheila Jackson Lee.
Anthony D. Weiner.
Bobby Scott.
Zoe Lofgren.
Maxine Waters.
William D. Delahunt.
Tammy Baldwin.
ADDITIONAL DISSENTING VIEWS
In addition to the concerns raised in the general
dissenting views, we are disappointed by the committee's
refusal to put an end to one of the most notorious abuses of
the bankruptcy system--the ``financial planning'' strategy by
which debtors purchase expensive homes in states which allow an
unlimited homestead exemption under 11 U.S.C. Sec. 522 (b) (2)
(A), declare bankruptcy, and continue to enjoy a life of luxury
while their creditors get little or nothing.
During the committee markup, Mr. Delahunt offered an
amendment to eliminate this abuse--and implement a key
recommendation of the National Bankruptcy Review Commission
\1\--by placing a $250,000 national cap on the homestead
exemption.\2\ At the request of Mr. Watt, Mr. Delahunt sought
and received unanimous consent to modify his amendment to set
the cap at $500,000. The amendment thus would have increased
the cap so as to accommodate every one of the 45 states that
place a cap on the exemption. But in exchange for this more
generous dispensation, it sought to remove from the bill two
loopholes which undercut the cap, effectively ensuring that it
will have no effect on the activities of the individuals who
have abused the exemption in the past. These loopholes exempt
from the cap (1) transactions occurring more than 2 years prior
to the bankruptcy filing; and (2) transactions occurring within
the 2-year pre-filing period which transfer equity from one
principal residence to another principal residence within the
same state.\3\
---------------------------------------------------------------------------
\1\ Recommendation 1.2.2 (Homestead Property), Nat'l Bankr. Rev.
Comm'n, Final Report: Bankruptcy: The Next Twenty Years 125 (1997).
\2\ During the 106th Congress, Mr. Delahunt offered an amendment at
the subcommittee markup of H.R. 833 which would have placed a $100,000
national cap on the homestead exemption. Mr. Watt proposed that the cap
be set at $250,000, and with this modification the Delahunt amendment
was agreed to by a vote of 10-2. At full committee, Ms. Jackson-Lee
offered an amendment to negate the Delahunt-Watt provision to the
extent that it purports to ``modify or supersede any provision of State
constitutional law that prohibits forced sale of a homestead for the
payment of debts.'' Mr. Bryant offered a substitute amendment providing
that the cap shall not apply in states which ``opt out'' by enacting a
subsequent statute. After extensive debate, the Bryant amendment was
agreed to by a vote of 18-15.
During the 105th Congress, Mr. Delahunt had offered a similar
amendment at the full committee markup of H.R. 3150 which was agreed to
by voice vote. However, during floor consideration, the House agreed,
by a vote of 222-204, to an amendment by Messrs. Gekas, Smith of Texas
and McCollum, which eliminated the Delahunt provision and put in its
place a provision that reduced the value of an interest in exempt
property ``to the extent such value is attributable to any portion of
any property that the debtor disposed of in the 730-day period ending
on the date of the filing of the petition, with the intent to hinder,
delay, or defraud a creditor.'' A version of this provision expanding
the 730-day period to 7 years has been retained as section 308 of the
present bill.
\3\ It is these qualifications which caused the National Bankruptcy
Conference to criticize the homestead provision that was included in
the conference report on H.R. 2415 in the 106th Congress and is
retained in H.R. 333. (``[T]his legislation lacks the straightforward
solution to this abuse--a dollar cap on the value of the homestead that
can be shielded in bankruptcy. For this reason, H.R. 2415 does not
change the outcome of many of the cases that the press has singled out
as the clearest case of bankruptcy abuse.'') National Bankruptcy
Conference, Report on H.R. 2415 14-15.
---------------------------------------------------------------------------
As the bill presently stands, it runs counter to the stated
goals of bankruptcy reform, perpetuating an abuse so flagrant
and notorious as to bring the entire system into disrepute.
Proponents of the ``means test,'' and other provisions included
in H.R. 333, seek to eliminate what some have characterized as
the use of the Bankruptcy Code as a ``financial planning
tool.'' Yet if we are truly serious about reform, we cannot
confine our attention to those at the bottom of the economic
ladder.
Rather, we should start with individuals like Marvin
Warner, a former ambassador to Switzerland and the owner of a
failed Ohio Savings & Loan, who paid off only a fraction of
$300 million in bankruptcy claims while keeping his multi-
million-dollar horse ranch near Ocala, Florida.\4\
---------------------------------------------------------------------------
\4\ Larry Rohter, Rich Debtors Finding Shelter Under a Populist
Florida Law, N.Y. Times, July 25, 1993, at A1.
---------------------------------------------------------------------------
Or Martin A. Siegel, a former Wall Street investment banker
convicted of insider trading. While facing a $2.75 billion
civil suit, he bought a $3.25 million, 7,000-square-foot
beachfront home in Ponte Vedra Beach.\5\
---------------------------------------------------------------------------
\5\ Id.
---------------------------------------------------------------------------
Or former baseball commissioner Bowie Kuhn, whose Manhattan
law firm went into bankruptcy. After creditors seized his
weekend house in the Hamptons and were about to attach his $1.2
million home in Ridgewood, New Jersey, Kuhn acquired a million-
dollar house in Florida with five bedrooms and five baths.\6\
---------------------------------------------------------------------------
\6\ Id.
---------------------------------------------------------------------------
Or Dr. Carlos Garcia-Rivera, a Miami physician with no
malpractice insurance, who was named in four separate
malpractice actions, filed for bankruptcy protection, and kept
a $500,000 home with a 100-foot swimming pool.\7\
---------------------------------------------------------------------------
\7\ David J. Morrow, Key to a Cozier Bankruptcy: Location,
Location, Location, N.Y. Times, Jan. 7, 1998, at A1.
---------------------------------------------------------------------------
Or the Dallas developer, Talmadge Wayne Tinsley, who filed
under chapter 7 after incurring $60 million in debts. Tinsley
objected to the Texas law that permitted him to keep only one
acre of his $3.5 million, 3.1-acre magnolia-lined estate. But
that acre included a five-bedroom, six-and-a-half-bath mansion
with two studies, a pool and a guest house.\8\
---------------------------------------------------------------------------
\8\ Id.
---------------------------------------------------------------------------
Or the movie actor, Burt Reynolds, who declared bankruptcy
in 1996, claiming more than $10 million in debt. Reynolds kept
a $2.5 million home--appropriately named ``Valhalla''--while
his creditors received 20 cents on the dollar.\9\
---------------------------------------------------------------------------
\9\ Eliot Kleinberg, Reynolds Gets Out from under Bankruptcy, The
Palm Beach Post, Oct. 8, 1998.
---------------------------------------------------------------------------
Or Paul Bilzerian, who used Florida's unlimited homestead
exemption to avoid his creditors. He filed for bankruptcy in
1991, and filed again last month. He retains his $5 million
Florida home, and can completely avoid the $200 million in debt
owed his creditors, including the IRS.\10\
---------------------------------------------------------------------------
\10\ Written statement of Brady C. Williamson at 6, Hearing on S.
220 before the Sen. Jud. Comm., Feb. 8, 2001.
---------------------------------------------------------------------------
The situation in Florida has become so notorious that one
Miami bankruptcy judge told the New York Times, ``You could
shelter the Taj Mahal in this state and no one could do
anything about it.'' \11\ As the Wall Street Journal noted
recently concerning the Kuhn case, ``the bill that Congress
will soon send to a welcoming President Bush would make [pre-
bankruptcy planning using the unlimited homestead exemption]
more diifficult, but that's symbolic. Few people anticipating
bankruptcy have the cash to pull off that maneuver.\12\
---------------------------------------------------------------------------
\11\ Judge A. Jay Cristol, quoted in Rohter, supra note 3.
\12\ David Wessel, A Law's Muddled Course, The Wall Street Journal,
at 1 (Feb. 22, 2001).
---------------------------------------------------------------------------
This is a national problem that demands a uniform solution.
Without a nationwide cap, debtors who live in the 45 states
that cap the exemption at $200,000 or less are free to relocate
to one of the five so-called ``debtors' paradises'' that have
no cap at all.\13\
---------------------------------------------------------------------------
\13\ The following are the state exemption levels (per household,
i.e., for joint debtors with two dependents), as of January 1, 2000. In
18 jurisdictions, the debtor may choose between the state exemption and
a Federal exemption (currently $16,150 per debtor):
Unlimited: Florida, Iowa, Kansas, South Dakota, Texas
$200,000: Minnesota
$125,000: Nevada
$100,000: Arizona, Massachusetts, Rhode Island
$80,000: North Dakota
$75,000: California, Connecticut, Mississippi, Vermont
$60,000: New Mexico, Montana
$54,000: Alaska
$50,000: Idaho
$40,000: Wisconsin, Utah (if jointly owned), Washington
$33,000: Oregon
$30,000: Colorado, Hawaii, New Hampshire, Virgin Islands
$20,000: Utah (if individually owned)
$15,000: Indiana, Louisiana
$12,500: Maine, Nebraska
$10,000: New York, North Carolina, South Carolina, Wyoming
$8,000: Missouri
$7,500: Illinois, Tennessee
$6,500: Virginia
$5,000: Alabama, Delaware, Georgia, Kentucky, Ohio,
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$0: District of Columbia, New Jersey
Source: John H. Williamson, Attorney's Handbook on Consumer Bankruptcy
and Chapter 13 (2000).
Some have suggested that a Federal cap is a ``violation of
states' rights.'' \14\ Yet the Bankruptcy Code is a Federal
statutory scheme, and the system it envisions is one which is
administered by the Federal courts. To defer to the states on
such a matter is like legislating a Federal income tax and
leaving it to the state legislatures to determine what will
count as a business deduction. Such an arrangement invites
forum shopping and encourages gross inequities in the treatment
of debtors who live in different states.
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\14\ See, e.g., Letter from 21 members of the Texas Congressional
Delegation to Chairman Henry Hyde and Ranking Member John Conyers, Jr.
(Apr. 19, 1999) (on file with the House Judiciary Committee).
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It is important to recognize that the proposed Delahunt
amendment would have no effect whatsoever on the 45
jurisdictions that currently place their own cap on the
exemption. But it will discourage residents of those
jurisdictions from moving to one of the five states with no cap
at all in order to take advantage of this enormous loophole in
the law.
Nor will unscrupulous debtors be unduly hindered by
provision in section 308 of the bill, which disallows the
exemption if the individual converted the property within 7
years of the filing of the petition but only to the extent that
the nonexempt assets were converted ``with the intent to
hinder, delay, or defraud a creditor.'' Those already resident
in a state with no exemption cap are unaffected by the
limitation except for ``any amount of interest that was
acquired by the debtor during the 2-year period preceding the
filing of the petition which exceeds the aggregate $100,000 in
value.'' \15\ Interests transferred from another in-state
residence are exempted from that limitation.\16\ And wealthy
debtors from other states who are sophisticated enough to plan
ahead can simply wait the 730 days and then file their
petition. Debtors who have owned their homestead for 2 years or
more can continue to use it to ``hinder, delay, or defraud''
their creditors out of millions of dollars.
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\15\ Sec. 322(a).
\16\ Id.
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During the committee debate, some speakers argued that
these abuses are not common. That is true. We do not suggest
that they are daily occurrences. But the fact that a particular
form of misconduct occurs infrequently is not an argument that
it should be condoned. By condoning these spectacular abuses by
a handful of wealthy debtors, we bring the fairness and
rationality of the entire system into disrepute.
John Conyers, Jr.
Howard L. Berman.
Jerrold Nadler.
Melvin L. Watt.
Anthony D. Weiner.
Barney Frank.
Bobby Scott.
Maxine Waters.
William D. Delahunt.
Tammy Baldwin.