[House Report 109-31]
[From the U.S. Government Publishing Office]
109th Congress Rept. 109-31
HOUSE OF REPRESENTATIVES
1st Session Part 1
_______________________________________________________________________
Union Calendar No. 14
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005
----------
R E P O R T
of the
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
to accompany
S. 256
together with
DISSENTING, ADDITIONAL DISSENTING, AND ADDITIONAL MINORITY VIEWS
April 8, 2005.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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109th Congress Rept. 109-31
HOUSE OF REPRESENTATIVES
1st Session Part 1
_______________________________________________________________________
Union Calendar No. 14
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005
__________
R E P O R T
of the
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
to accompany
S. 256
together with
DISSENTING, ADDITIONAL DISSENTING, AND ADDITIONAL MINORITY VIEWS
April 8, 2005.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Union Calendar No. 14
109th Congress Rept. 109-31
HOUSE OF REPRESENTATIVES
1st Session Part 1
======================================================================
BANKRUPTCY ABUSE PREVENTION AND
CONSUMER PROTECTION ACT OF 2005
_______
April 8, 2005.--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, ADDITIONAL DISSENTING VIEWS,
AND ADDITIONAL MINORITY VIEWS
[To accompany S. 256]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the bill
(S. 256) to amend title 11 of the United States Code, and for
other purposes, having considered the same, reports favorably
thereon without amendment and recommends that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 3
Hearings......................................................... 22
Committee Consideration.......................................... 22
Votes of the Committee........................................... 22
Committee Oversight Findings..................................... 33
New Budget Authority and Tax Expenditures........................ 33
Congressional Budget Office Cost Estimate........................ 33
Performance Goals and Objectives................................. 47
Constitutional Authority Statement............................... 47
Section-by-Section Analysis and Discussion....................... 47
Changes in Existing Law Made by the Bill, as Reported............ 155
Committee Jurisdiction Letters................................... 370
Markup Transcript................................................ 373
Dissenting Views................................................. 537
Additional Dissenting Views...................................... 591
Additional Minority Views........................................ 597
Purpose and Summary
S. 256, the ``Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005,'' 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 ensure that the system is fair for
both debtors and creditors.
With respect to the interests of creditors, the proposed
reforms respond to many of the factors contributing to the
increase in consumer bankruptcy filings, such as lack of
personal financial accountability,\1\ the proliferation of
serial filings, and the absence of effective oversight to
eliminate abuse in the system. The heart of the bill's consumer
bankruptcy reforms consists of the implementation of an income/
expense screening mechanism (``needs-based bankruptcy relief''
or ``means testing''), which is intended to ensure that debtors
repay creditors the maximum they can afford. S. 256 also
establishes new eligibility standards for consumer bankruptcy
relief and includes provisions intended to deter serial and
abusive bankruptcy filings. It substantially augments the
responsibilities of those charged with administering consumer
bankruptcy cases as well as those who counsel debtors with
respect to obtaining such relief. In addition, the bill caps
the amount of homestead equity a debtor may shield from
creditors, under certain circumstances.
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\1\ 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. 98 (1999) (statement of Prof. Todd Zywicki).
S. 256 also includes various consumer protection reforms.
The bill penalizes a creditor who unreasonably refuses to
negotiate a pre-bankruptcy debt repayment plan with a debtor.
It strengthens the disclosure requirements for reaffirmation
agreements (agreements by which debtors obligate themselves to
repay otherwise dischargeable debts) so that debtors will be
better informed about their rights and responsibilities. The
legislation requires certain monthly credit card billing
statements to include specified explanatory statements
regarding the increased amount of interest and repayment time
associated with making minimum payments. The bill requires
certain home equity loan and credit card solicitations to
include enhanced consumer disclosures. It also prohibits a
creditor from terminating an open end consumer credit plan
simply because the consumer has not incurred finance charges on
the account. S. 256 allows debtors to shelter from the claims
of creditors certain education IRA plans and retirement pension
funds. It requires debtors to receive credit counseling before
they can be eligible for bankruptcy relief so that they will
make an informed choice about bankruptcy, its alternatives, and
consequences. The bill also requires debtors, after they have
filed for bankruptcy, to participate in financial management
instructional courses so they can hopefully avoid future
financial distress.
With respect to business bankruptcy, S. 256 includes
several significant provisions intended to heighten
administrative scrutiny and judicial oversight of small
business bankruptcy cases, which often are the least likely to
reorganize successfully. In addition, it contains provisions
designed to reduce systemic risk in the financial marketplace,
the enactment of which Federal Reserve Board Chairman Alan
Greenspan described as being ``extremely important.'' \2\ The
bill includes heightened protections for family farmers facing
financial distress and allows family fishermen to qualify for a
specialized form of bankruptcy relief currently available only
to family farmers. The bill also includes provisions concerning
transnational insolvencies, bankrupt health care providers, the
treatment of tax claims, and data collection. In response to
the exponential increase in bankruptcy filings, the bill
authorizes the creation of 28 additional bankruptcy judgeships.
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\2\ Letter from Alan Greenspan, Chairman, Federal Reserve Board, to
F. James Sensenbrenner, Jr., Chairman, Committee on the Judiciary
(Sept. 3, 2002) (on file with the Subcommittee on Commercial and
Administrative Law).
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Background and Need for the Legislation
On February 1, 2005, Senator Charles Grassley (R-IA) (for
himself and seven original cosponsors) introduced S. 256, the
``Bankruptcy Abuse Prevention and Consumer Protection Act of
2005.'' Thereafter, F. James Sensenbrenner, Jr., Chairman of
the House Committee on the Judiciary, (for himself and 60
original cosponsors) introduced legislation (H.R. 685)
identical to S. 256 on February 9, 2005.
S. 256, as introduced, is substantively identical to
legislation that the House passed in the prior Congress on two
separate occasions with overwhelming bipartisan support.\3\ It
is also substantively similar to a modified version of a
bankruptcy reform conference report that the House passed in
the 107th Congress by a vote of 244 to 116.\4\
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\3\ On March 19, 2003, the House passed H.R. 975, the ``Bankruptcy
Abuse Prevention and Consumer Prevention Act of 2003,'' by a vote of
315 to 113. 149 Cong. Rec. H2099-00 (daily ed. Mar. 19, 2003).
Thereafter, the House, on January 28, 2004, passed S. 1920, as amended,
the text of which was substituted with the text of H.R. 975, as passed
by the House, by a vote of 265 to 99. 150 Cong. Rec. H218-19 (daily ed.
Jan. 28, 2004).
\4\ H.R. Rep. No. 107-617 (2002). The modifications consisted of
the deletion of two provisions, one dealing with unlawful protest
activities and the other authorizing additional bankruptcy judgeships.
The text of the conference report, as modified, was introduced as H.R.
5545, the ``Bankruptcy Abuse Prevention and Consumer Protection Act of
2003.'' H.R. 5545, 107th Cong. (2002). In turn, the text of H.R. 5545
was substituted as an amendment to H.R. 333. The House, thereafter,
passed H.R. 333, as amended. 148 Cong. Rec. H8876-77 (daily ed. Nov.
14, 2002).
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FACTORS SUPPORTING BANKRUPTCY REFORM
Representing the most comprehensive set of reforms in more
than 25 years, S. 256's consumer bankruptcy provisions respond
to several factors. First, the recent escalation of consumer
bankruptcy filings does not appear to be just a temporary
event, but part of a generally consistent upward trend.\5\ In
1998, for example, bankruptcy filings exceeded one million for
the first time in our nation's history. Over the past decade,
the number of bankruptcy filings has nearly doubled to more
than 1.6 million cases filed in fiscal year 2004.\6\ As a
result, there is a growing perception that bankruptcy relief
may be too readily available and is sometimes used as a first
resort, rather than a last resort.\7\ Despite the view of
opponents of bankruptcy reform that abuse in the system is not
widespread and that most bankruptcy filings result from causes
beyond debtors' control, such as family illness, job loss or
disruption, or divorce,\8\ the Committee concluded that reforms
were nevertheless necessary.
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\5\ Press Release, Administrative Office of the U.S. Courts, Record
Breaking Bankruptcy Filings Reported in Calendar Year 2002, at 1 (Feb.
14, 2003) (noting that ``[b]ankruptcy filings continue to break
historic records'').
\6\ See Press Release, Administrative Office of the U.S. Courts,
Bankruptcy Filings Down in Fiscal Year 2004, at 1 (Dec. 3, 2004)
(noting that ``[d]espite the drop in filings, bankruptcies remain at
historic highs, well above the 1.5 million record first set in 2002'');
Becky Yerak, Bankrupt Filings in E. Mich. Skyrocket; High Debt, Slow
Economy Spur 22% Increase in 2002, Biggest Jump in the United States,
The Detroit News, Feb. 24, 2003, at 1A (noting that in the Eastern
District of Michigan alone, bankruptcy filings for 2002 increased by 22
percent over the prior year).
\7\ See, e.g., Becky Yerak, Bankrupt Filings in E. Mich. Skyrocket;
High Debt, Slow Economy Spur 22% Increase in 2002, Biggest Jump in the
United States, The Detroit News, Feb. 24, 2003, at 1A (noting that
``[t]he stigma of filing for bankruptcy continues to abate while, at
the same time, lenders impose few if any credit restrictions'').
\8\ See, e.g., Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005: Hearing on S. 256 Before the Senate Comm. on the
Judiciary, 109th Cong. (2005) (statement of Prof. Elizabeth Warren).
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Second, there are significant losses asserted to be
associated with bankruptcy filings. As one witness explained
during the Senate Judiciary Committee's hearing on S. 256
earlier this year:
Like all other business expenses, when creditors are
unable to collect debts because of bankruptcy, some of
those losses are inevitably passed on to responsible
Americans who live up to their financial obligations.
Every phone bill, electric bill, mortgage, furniture
purchase, medical bill, and car loan contains an
implicit bankruptcy ``tax'' that the rest of us pay to
subsidize those who do not pay their bills. Exactly how
much of these bankruptcy losses is passed on from
lenders to consumer borrowers is unclear, but economics
tells us that at least some of it is. We all pay for
bankruptcy abuse in higher down payments, higher
interest rates, and higher costs for goods and
services.\9\
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\9\ Bankruptcy Abuse Prevention and Consumer Protection Act of
2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th
Cong. (2005) (prepared statement of Prof. Todd Zywicki).
According to some analyses, the increase in consumer bankruptcy
filings has adverse financial consequences for our nation's
economy. For instance, it was estimated that in 1997 alone more
than $44 billion of debt was discharged by debtors who filed
for bankruptcy relief,\10\ a figure when amortized on a yearly
basis amounts to a loss of at least $110 million every day.\11\
These losses, according to one estimate, translate into a $400
annual ``tax'' on every household in our nation.\12\ In 2003,
the Nilson Report (a credit industry newsletter) announced that
issuers of proprietary and general purpose credit cards ``lost
$18.9 billion in 2002 from consumer bankruptcy filings,'' an
increase of 15.1 percent over the prior year.\13\ The Credit
Union National Association (CUNA) reported that credit unions,
as of 2002, lost ``nearly $3 billion from bankruptcies'' since
Congress began its consideration of bankruptcy reform
legislation in 1998.\14\ CUNA estimates that over 40% of all
credit union losses in 2004 will be bankruptcy-related, and
those losses will total approximately $900 million.\15\
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\10\ Bankruptcy Reform Act of 1998 (Pt. I): Hearings on H.R. 3150
Before the Subcomm. on Commercial and Administrative Law of the House
Comm. on the Judiciary, 105th Cong. 147 (1998) (statement of Mark
Lauritano, Senior Vice President, WEFA, Inc.).
\11\ 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) (statement of Dean
Sheaffer on behalf of the National Retail Federation).
\12\ Bankruptcy Reform Act of 1998 (Pt. I): Hearings on H.R. 3150
Before the Subcomm. on Commercial and Administrative Law of the House
Comm. on the Judiciary, 105th Cong. 147 (1998) (statement of Mark
Lauritano, Senior Vice President, WEFA, Inc.).
\13\ Bankruptcy Losses on Cards, The Nilson Report, Jan. 2003, at
1.
\14\ John K. McKechnie, III, Letter to Editor, Credit Union J. 6
(June 24, 2002); see William R. Mapother, Counseling Could Overturn
Losses, Credit Union Mag. 34 (Dec. 2002) (quoting CUNA President Dan
Mica).
\15\ Bankruptcy Abuse Prevention and Consumer Protection Act of
2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th
Cong. (2005) (prepared statement of Kenneth Beine).
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A third factor motivating comprehensive reform is that the
present bankruptcy system has loopholes and incentives that
allow and--sometimes--even encourage opportunistic personal
filings and abuse. A civil enforcement initiative undertaken in
2002 by the United States Trustee Program (a component of the
Justice Department charged with administrative oversight of
bankruptcy cases) has ``consistently identified'' such problems
as ``debtor misconduct and abuse, misconduct by attorneys and
other professionals, problems associated with bankruptcy
petition preparers, and instances where a debtor's discharge
should be challenged.'' \16\ According to the United States
Trustee Program, ``Abuse of the system is more widespread than
many would have estimated.'' \17\ Such abuse ultimately hurts
consumers as well as creditors.
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\16\ Antonia G. Darling & Mark A. Redmiles, Protecting the
Integrity of the System: the Civil Enforcement Initiative, Am. Bankr.
Institute J. 12 (Sept. 2002).
\17\ J. Christopher Marshall, Civil Enforcement: An Early Report,
Journal of the Nat'l Ass'n of Bankr. Trustees (NABTalk) 39 (Fall 2002).
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A fourth factor relates to the fact that some bankruptcy
debtors are able to repay a significant portion of their debts,
according to several studies.\18\ Current law, however, has no
clear mandate requiring these debtors to repay their debts.
Accordingly, ``[w]hile there is a universal agreement among the
courts that an individual debtor's ability to repay his or her
debts from future earnings is, at the very least, a factor in
determining whether substantial abuse would occur in a chapter
7 case, there are differences among the courts as to the extent
to which they rely on a debtor's ability to repay.'' \19\
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\18\ See, e.g., Bankruptcy Reform Act of 1999 (Pt. 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 have 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'').
\19\ Robert C. Furr & Marc P. Barmat, 11 U.S.C. Section 707(b)--The
U.S. Trustee's Weapon Against Abuse, Nat'l Ass'n Bankr. Trustees
(NABTalk) 11, 14 (Winter 2002-03).
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PRIOR CONGRESSIONAL CONSIDERATION OF BANKRUPTCY REFORM
Proposed reforms to bankruptcy law and practice have been
under consideration by Congress for nearly eight years \20\ and
have generally enjoyed broad support from the business
community, banking and financial services industries as well as
other groups such as family farmers and child support
enforcement agencies. In Congress, support for bankruptcy
reform legislation has likewise been overwhelming, bipartisan
and bicameral.
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\20\ Comprehensive bankruptcy reform legislation (H.R. 2500, the
``Responsible Borrower Protection Bankruptcy Act'') was first formally
introduced in the House on September 18, 1997. H.R. 2500, 105th Cong.
(1997).
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Since the 105th Congress, the House has passed bankruptcy
reform legislation on eight separate occasions. 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 veto-proof margins.\21\ In the 106th Congress, the
House passed H.R. 833, the successor to H.R. 3150, by a veto-
proof margin of 313 to 108 \22\ and agreed to the conference
report \23\ by voice vote.\24\ Although the Senate subsequently
passed this legislation by a vote of 70 to 28,\25\ President
Clinton pocket-vetoed it. In the 107th Congress, the House
again registered its overwhelming support for bankruptcy reform
on two more occasions. On March 1, 2001, the House passed H.R.
333, the ``Bankruptcy Abuse Prevention and Consumer Protection
Act,'' by a vote of 306 to 108.\26\ The House thereafter passed
a modified version of the conference report on H.R. 333, as
previously noted.\27\ In the last Congress, the House passed
H.R. 975, the ``Bankruptcy Abuse Prevention and Consumer
Protection Act of 2003,'' by a vote of 315 to 113 and S. 1920,
which consisted of the text of H.R. 975, as passed by the
House, by a vote of 265 to 99.\28\
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\21\ 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).
\22\ 145 Cong. Rec. H2771 (daily ed. May 5, 1999).
\23\ H.R. Rep. No. 106-970 (2000).
\24\ 146 Cong. Rec. H9840 (daily ed. Oct. 12, 2000).
\25\ 146 Cong. Rec. S11730 (daily ed. Dec. 7, 2000).
\26\ 147 Cong. Rec. H600-01 (daily ed. Mar. 1, 2001).
\27\ See supra note 3.
\28\ 149 Cong. Rec. H2099-00 (daily ed. Mar. 19, 2003);150 Cong.
Rec. H218-19 (daily ed. Jan. 28, 2004).
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Likewise, the Senate has on numerous occasions expressed
strong bipartisan support for bankruptcy reform legislation. In
the 105th Congress, the Senate passed bankruptcy reform
legislation by a vote of 97 to 1.\29\ In the 106th Congress,
the Senate passed similar legislation by a vote of 83 to 14
\30\ and a subsequent conference report by a vote of 70 to
28.\31\ In the 107th Congress, the Senate passed a bankruptcy
reform bill by a vote of 82 to 16.\32\ Last month, the Senate
passed S. 256, as amended, by a vote of 74 to 25.\33\
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\29\ 144 Cong. Rec. S10767 (daily ed. Sept. 23, 1998).
\30\ 146 Cong. Rec. S255 (daily ed. Feb. 2, 2000).
\31\ 146 Cong. Rec. S11730 (daily ed. Dec. 7, 2000).
\32\ 147 Cong. Rec. S2379 (daily ed. Mar. 15, 2001).
\33\ 151 Cong. Rec. S2474 (daily ed. Mar. 10, 2005).
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The Committee and the Subcommittee on Commercial and
Administrative Law (Subcommittee), beginning in the 105th
Congress, have held a total of 18 days of hearings on the
operation of the bankruptcy system and the need for reform.\34\
Eleven of these hearings were devoted solely to consideration
of S. 256's predecessors, H.R. 3150 (105th Congress), H.R. 833
(106th Congress), H.R. 333 (107th Congress), and H.R. 975
(108th Congress). 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.
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\34\ The dates and subject matters of these hearings are as
follows:
April 16, 1997:
Hearing on the operation of the bankruptcy system and status report
from the National Bankruptcy Review Commission.
April 30, 1997:
Hearing on H.R. 764, the ``Bankruptcy Amendments of 1997,'' and H.R.
120, the ``Bankruptcy Law Technical Corrections Act of 1997.''
October 9, 1997:
Hearing on H.R. 2592, the ``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, the ``Religious Liberty and Charitable Donation
Protection Act of 1997.''
March 10-11, 18-19, 1998:
Hearings on H.R. 3150, the ``Bankruptcy Reform Act of 1998,'' H.R.
3146, the ``Consumer Lenders and Borrowers Bankruptcy Accountability
Act of 1998,'' and H.R. 2500, the ``Responsible Borrower Protection
Bankruptcy Act.''
March 11-12, 18-19, 1999:
Hearings on H.R. 833, the ``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.''
March 4, 2003:
Hearing on H.R. 975, the ``Bankruptcy Abuse Prevention and Consumer
Protection Act of 2003'' and the need for bankruptcy reform.
The Senate likewise has held numerous hearings on the
subject of bankruptcy reform and related issues. Since the
105th Congress, the Senate has held eleven hearings, including
a hearing held earlier this year on S. 256.\35\ In fact, the
inaugural hearing on H.R. 833 during the 106th Congress was
held jointly by the Subcommittee together with the Senate
Subcommittee on Administrative Oversight and the Courts on
March 11, 1999,\36\ marking the first time in more than 60
years that a bicameral hearing was held on the subject of
bankruptcy reform.\37\
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\35\ The Subcommittee on Administrative Oversight and the Courts of
the Senate Committee on the Judiciary conducted the following hearings:
April 11, 1997:
Hearing on the increase in personal bankruptcies and the crisis in
consumer credit.
August 1, 1997:
Hearing to review the negative impact of bankruptcy on educational
funding.
August 8, 1997:
Hearing regarding bankruptcy laws for family farmers.
September 22, 1997:
Hearing on the Bankruptcy Code's effect on religious freedom and a
review of the need for additional bankruptcy judgeships.
October 21, 1997:
Hearing to review the recommendations of the National Bankruptcy
Review Commission.
December 7, 1997:
Hearing regarding international bankruptcy laws.
March 11, 1998:
Hearing on S. 1301, ``The Consumer Bankruptcy Reform Act: Seeking
Fair and Practical Solutions to the Consumer Bankruptcy Crisis.''
May 19, 1998:
Hearing to review business bankruptcy issues.
March 11, 1999:
Hearing on H.R. 833, the ``Bankruptcy Reform Act of 1999,'' held
jointly with the Subcommittee on Commercial and Administrative Law of
the House Committee on the Judiciary.
November 2, 1999:
Oversight hearing on additional bankruptcy judgeship needs held
jointly with the Subcommittee on Commercial and Administrative Law of
the House Committee on the Judiciary.
February 10, 2005:
Hearing on S. 256, the ``Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005.''
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\36\ Representatives on behalf of the Commercial Law League of
America, CUNA, 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: 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).
\37\ Senators testifying at the hearing included Charles Grassley
(R-IA), Joseph Biden (D-DE) and Christopher Dodd (D-CT). House Members
included Jim Moran (D-VA), Pete Sessions (R-TX) and Nick Smith (R-MI).
Id.
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It is also important to note that bankruptcy reform
legislation is the product of extensive bipartisan and
bicameral negotiation and compromise. For example, conferees
during the 106th Congress spent nearly seven months engaged in
an informal conference to reconcile differences between the
House and Senate passed versions of bankruptcy reform
legislation. In the 107th Congress, conferees formally met on
three occasions and ultimately agreed--after an 11-month period
of negotiations--to a bipartisan conference report.\38\
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\38\ H.R. Rep. No. 107-617 (2002). Signatories on behalf of the
House included: F. James Sensenbrenner, Jr. (R-WI), Henry Hyde (R-IL),
George Gekas (R-PA), Lamar Smith (R-TX), Steve Chabot (R-OH), Bob Barr
(R-GA), Rick Boucher (D-VA), Michael Oxley (R-OH), Spencer Bachus (R-
AL), Billy Tauzin (R-LA), Joe Barton (R-TX), John Boehner (R-OH), and
Michael Castle (R-DE). Signatories on behalf of the Senate included:
Patrick Leahy (D-VT), Joe Biden (D-DE), Charles Schumer (D-NY), Orrin
Hatch (R-UT), Chuck Grassley (R-IA), Jon Kyl (R-AZ), Mike DeWine (R-
OH), Jeff Sessions (R-AL), and Mitch McConnell (R-KY).
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On February 10, 2005, the Senate Committee on the Judiciary
held a hearing on S. 256 that provided an opportunity to review
the reasons why the current bankruptcy system needs reform and
how this legislation would implement those reforms.\39\
Testimony was received from eight witnesses, including: Kenneth
Beine on behalf of CUNA; Maria Vullo, a partner with the New
York law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP;
Malcom Bennett on behalf of the National Multi Housing Council/
National Apartment Association; Philip Strauss on behalf of the
National Child Support Enforcement Association; Dave McCall on
behalf of the United Steel Workers of America, AFL-CIO; R.
Michael Stewart Menzies, Sr. on behalf of the Independent
Community Bankers of America; Prof. Elizabeth Warren, Leo
Gottlieb Professor of Law at Harvard Law School; and Prof. Todd
J. Zywicki, Visiting Professor of Law at Georgetown University
Law Center.
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\39\ Bankruptcy Abuse Prevention and Consumer Protection Act of
2005: Hearing on S. 256 Before the Subcomm. on Administrative Oversight
and the Courts of the Senate Comm. on the Judiciary, 109th Cong.
(2005).
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Among the matters considered at the hearing were: (1) the
adequacy of the current bankruptcy system with respect to the
detection of fraud and abuse; (2) how abuse and fraud in the
current bankruptcy system impact on American businesses and our
nation's citizens generally; (3) whether the legislation
adversely impacts individuals deserving of bankruptcy relief;
(4) whether the proposed reforms would assist those who are
charged with administrative oversight of bankruptcy cases and
law enforcement matters; and (5) whether, given current
economic circumstances, the need for comprehensive bankruptcy
reform still exists.
On February 17, 2005, the Senate Judiciary Committee marked
up S. 256 and ordered the bill, as amended, to be favorably
reported by a vote of 12 to 5. Over the course of the markup,
five amendments were passed. These amendments consisted of the
following:
1. an amendment by Senator Edward Kennedy (D-MA)
clarifying that a debtor's reasonably necessary
expenses for health insurance, disability insurance,
and health savings accounts for the debtor and for the
debtor's spouse and dependents are allowed expenses
under the bill's needs-based test;
2. an amendment by Senator Kennedy limiting retention
bonuses, severance pay, and other payments to insiders
of the debtor, under certain circumstances;
3. an amendment by Senator Russell Feingold (D-WI)
increasing the monetary threshold with respect to the
venue of a proceeding to recover a consumer debt;
4. an amendment by Senator Patrick Leahy (D-VT)
clarifying that a debt based on a Federal or state
securities law violation is nondischargeable; and
5. an amendment by Senator Kennedy requiring the
United States trustee to apply to the court for the
appointment of a chapter 11 trustee if there are
reasonable grounds to suspect fraud, under certain
circumstances.
On March 10, 2005, the Senate passed S. 256, as amended, by
a vote of 74 to 25. Nearly 130 amendments were filed. Of the
amendments that were offered, 24 failed, 24 were withdrawn,
eight were passed either by vote or unanimous consent. The
amendments that were accepted consisted of the following:
1. an amendment by Senator Jeff Sessions (R-AL)
clarifying that the special circumstances exception to
the bill's needs-based test includes a debtor with a
serious medical condition or a debtor on active duty in
the military to the extent these factors justify
adjustment to income or expenses as well as clarifying
the safe harbor from the needs-based test with respect
to veterans;
2. an amendment by Senator Leahy restricting public
access to certain personal information regarding an
individual contained in bankruptcy case files to the
extent the court finds that disclosure of such
information would create undue risk of identity theft
or other unlawful injury to such individual or the
individual's property;
3. an amendment by Senator Arlen Specter (R-PA)
increasing the filing fees for chapter 7 and chapter 11
bankruptcy cases, reducing the filing fees for chapter
13, and adjusting the allocation of such fees among
various governmental entities;
4. an amendment by Senator Feingold providing for the
automatic periodic adjustment for inflation of certain
monetary amounts specified in the Bankruptcy Code;
5. an amendment by Senator Feingold authorizing a
court to: (a) seal all public records pertaining to a
fraudulent involuntary bankruptcy petition, under
certain circumstances, (b) prohibit any consumer
reporting agency from issuing any consumer report
containing any reference to such petition; and (c)
expunge all records pertaining to such petition upon
the expiration of the statute of limitations for the
crimes associated with the filing of a fraudulent
involuntary bankruptcy petition. It also amends the
Federal criminal statute to make it a criminal offense
to file a fraudulent involuntary bankruptcy petition;
\40\
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\40\ This amendment is similar to legislation considered by the
House in the 108th Congress. H.R. 1529, 108th Cong. (2003). The bill
was ordered favorably reported without amendment by the House Judiciary
Committee, H.R. Rep. No. 108-110 (2003), and passed by voice vote by
the House. 149 Cong. Rec. H5104 (daily ed. June 10, 2003). The
principal difference between this legislation and section 332 of the
Act is that the bill would have permitted the court to expunge the case
upon dismissal of the fraudulent involuntary petition.
6. an amendment by Senator Feingold creating an
exception to the bill's mandatory consumer credit
counseling and financial management training
requirements for a debtor who is unable to complete
these requirements because of incapacity, disability,
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or active duty in a military combat zone;
7. an amendment by Senator Richard Durbin (D-IL)
creating an exception from the bill's needs-based test
for a disabled veteran whose indebtedness occurred
primarily during a period when the individual was on
active duty or performing a homeland defense activity;
and
8. an amendment by Senator James Talent (R-MO)
authorizing a bankruptcy trustee to avoid any transfer
of property by a debtor to a self-settled trust made
within ten years preceding the filing of the debtor's
bankruptcy case if the debtor is a beneficiary of such
trust and the debtor made such transfer with actual
intent to hinder, delay, or defraud a creditor.
HIGHLIGHTS OF BANKRUPTCY REFORMS
Consumer Creditor Bankruptcy Protections.
Needs-Based Reforms. Chapter 7 is a form of bankruptcy
relief by which an individual debtor receives an immediate
unconditional discharge of personal liability for certain debts
in exchange for relinquishing his or her nonexempt assets to a
bankruptcy trustee for liquidation and distribution to
creditors.\41\ 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. 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.\42\
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\41\ 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).
\42\ Bankruptcy Act of 1898, 30 Stat. 544 (1898) (repealed 1978).
The rationale of an unconditional discharge was explained by Congress
more than 100 years ago:
[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
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his creditors and letting him start anew.
H.R. Rep. No. 55-65, at 43 (1897).
The concept of needs-based bankruptcy relief has long been
debated in the United States. President Herbert Hoover, for
instance, recommended to Congress in 1932, ``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.''
\43\ 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 propose a plan to
repay creditors out of future earnings.\44\
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\43\ President's Special Message to the Congress on Reform of
Judicial Procedure, 69 Pub. Papers 83, 90 (Feb. 29, 1932).
\44\ Chandler Act of 1938, 52 Stat. 840 (1938).
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Over the ensuing years, there continued to be repeated
expressions of support for and opposition to means-testing
bankruptcy reform.\45\ In 1967, various organizations
testifying before Congress in support of such reform included
the American Bar Association, the American Bankers Association,
the Chamber of Commerce of the United States, CUNA, the
National Federation of Independent Businesses, and the American
Industrial Bankers Association.\46\ 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.'' \47\ The
Bankruptcy Reform Act of 1978 \48\ retained the principle that
a debtor's decision to choose relief premised on repayment to
creditors should be ``completely voluntary.'' \49\
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\45\ 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'').
\46\ Hearings on H.R. 1057 and H.R. 5771 Before the Subcomm. No. 4
of the House Comm. on the Judiciary, 90th Cong. (1967).
\47\ 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 159
(1973).
\48\ Pub. L. No. 95-598, 92 Stat. 2549 (1978).
\49\ 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 the Bankruptcy Code as originally enacted in 1978
provided that a chapter 7 case could only be dismissed for
``cause,'' the Code was amended in 1984 to permit the court to
dismiss a chapter 7 case for ``substantial abuse.'' \50\ This
provision, codified in section 707(b) of the Bankruptcy
Code,\51\ was added ``as part of a package of consumer credit
amendments designed to reduce perceived abuses in the use of
chapter 7.'' \52\ 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.'' \53\ In 1986,
section 707(b) was further amended to allow a United States
trustee (a Department of Justice official) to move for
dismissal.\54\
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\50\ Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.
L. No. 98-353, Sec. 312, 98 Stat. 333, 335 (1984).
\51\ 11 U.S.C. Sec. 707(b).
\52\ 6 Lawrence P. King et al., Collier on Bankruptcy
Sec. 707.LH[2], at 707-30 (15th ed. rev. 2002).
\53\ Id. at Sec. 707.04.
\54\ Bankruptcy Judges, United States Trustees, and Family Farmer
Bankruptcy Act of 1986, Pub. L. No. 99-554, Sec. 219, 100 Stat. 3088,
3101 (1986).
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The utility of section 707(b) is limited for several
reasons. Under current law, neither the court nor the United
States trustee is required to file a motion to dismiss a
chapter 7 case for substantial abuse under section 707(b). In
addition, other parties in interest, such as chapter 7 trustees
and creditors, are prohibited from filing such motions. In
fact, section 707(b) specifies that a motion under that
provision may not even be made ``at the request or suggestion
of any party in interest.'' \55\ The standard for dismissal--
substantial abuse--is inherently vague, which has lead to its
disparate interpretation and application by the bankruptcy
bench.\56\ 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; \57\ others do not.\58\ A further reason
militating against filing section 707(b) motions is that the
Bankruptcy Code codifies a presumption that favors granting a
debtor a discharge.\59\
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\55\ 11 U.S.C. Sec. 707(b).
\56\ 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); Robert C. Furr & Marc P.
Barmat, 11 U.S.C. Section 707(b)--The U.S. Trustee's Weapon Against
Abuse, Nat'l Ass'n Bankr. Trustees (NABTalk) 11, 14 (Winter 2002-03).
\57\ See, e.g., Zolg v. Kelly (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'').
\58\ 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 [sic] 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.
\59\ 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 since the 105th Congress,
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 were
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).
Needs-based reforms would amend 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 other party in interest (including
a creditor), to dismiss a chapter 7 case for abuse if it was
filed by an individual debtor whose debts are primarily
consumer debts. Alternatively, the chapter 7 case could be
converted to a case under chapter 11 or chapter 13 on consent
of the debtor.
In addition, these reforms contemplate replacing the
current law's presumption in favor of the debtor with a
mandatory presumption of abuse that would arise under certain
conditions. As amended, section 707(b) of the Bankruptcy Code
would require a court to presume that abuse exists if the
amount of the debtor's remaining income, after certain expenses
and other specified amounts are deducted from the debtor's
current monthly income (a defined term) \60\ 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. Section 102 mandates that the
debtor's expenses include reasonably necessary expenditures for
health insurance, disability insurance, and health savings
accounts for the debtor, the debtor's spouse, and dependents of
the debtor. In addition, the debtor's expenses must include
those 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 to other specified expenses,\61\
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 \62\ as Necessary Expenses \63\
under the National \64\ and Local Standards \65\ categories and
the debtor's actual monthly expenditures for items categorized
as Other Necessary Expenses.\66\
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\60\ Section 102(b) of the bill 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 six-month period
preceding the bankruptcy filing. 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. It also
excludes payments to victims of international terrorism or domestic
terrorism (as defined in 18 U.S.C. Sec. 2331) on account of their
status as victims of such terrorism.
\61\ Under section 102(a), a debtor's monthly expenses may also
include:
an additional five percent of the food and clothing expense
allowances under the Internal Revenue Service National Standards
---------------------------------------------------------------------------
expenses category, if demonstrated to be reasonable and necessary;
the debtor's average monthly payments on account of secured
debts, including any additional payments to secured creditors that a
chapter 13 debtor must make to retain possession of a debtor's primary
residence, motor vehicle, or other property necessary for the support
of the debtor and the debtor's dependents that collateralizes such
debts;
claims and expenses entitled to priority under section 507 of
the Bankruptcy Code, such as child support and alimony;
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 otherwise unable to pay such expenses;
housing and utility expenses in excess of those specified by
the Internal Revenue Service, under certain circumstances;
the actual administrative expenses (including reasonable
attorneys' fees) of administering a chapter 13 plan for the district in
which the debtor resides up to ten percent of projected plan payments,
as determined under schedules issued by the Executive Office for United
States Trustees; and
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, under certain circumstances.
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\62\ Internal Revenue Service, Internal Revenue Manual--Financial
Analysis Handbook pt. 5.15.1 (rev. May 1, 2004).
\63\ The Internal Revenue Manual defines the term ``necessary
expenses'' as expenses:
that are necessary to provide for a taxpayer's and his or
her family's health and welfare and/or production of
income. The expenses must be reasonable. The total
necessary expenses establish the minimum a taxpayer and
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family need to live.
Id. at pt. 5.15.1.7.
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\64\ The Internal Revenue Manual's ``National Standards'' establish
standards for five types of expenses: food (includes all meals, home
and away), housekeeping supplies (includes laundry and cleaning
supplies; other household products such as cleaning and toilet tissue,
paper towels and napkins; lawn and garden supplies; postage and
stationary), apparel and services (includes shoes and clothing, laundry
and dry cleaning, and shoe repair), personal care products and services
(includes hair care products, haircuts, oral hygiene products, electric
personal care appliances), and miscellaneous (a discretionary allowance
of $100 for one person and $25 for each additional person in a
taxpayer's family). Except for miscellaneous expenses, these expense
standards are derived from Bureau of Labor Statistics Consumer
Expenditure Survey and are stratified by income and household size. Id.
at pt. 5.15.1.8.
\65\ ``Local Standards,'' under the Internal Revenue Manual,
establish expense standards for housing (e.g., mortgage or rent,
property taxes, interest, parking, necessary maintenance and repair,
homeowner's or renter's insurance, and homeowner dues and condominium
fees) and transportation expenditures (e.g., vehicle insurance, vehicle
payment, maintenance, fuel, state and local registration, parking fees,
tolls, driver's license fees, and public transportation). Utilities
(e.g., gas, electricity, water, fuel, oil, bottled gas, wood and other
fuels, trash and garbage collection, septic cleaning, and telephone)
are included under the housing expense category. Housing standards are
established for each county within a state. Transportation standards
are determined on a regional basis. Id. at pt. 5.15.1.9.
\66\ The Internal Revenue Manual does not establish monetary
amounts with regard to necessary expenses that it characterizes as
``Other Expenses.'' Rather, it provides a non-exclusive list of these
expenses, that must otherwise satisfy the ``necessary expense test,''
described in note 63 supra. The list includes expenditures for certain
accounting and legal fees, child care, dependent care for an elderly or
disabled person, health care, taxes, court-ordered payments, life
insurance, involuntary deductions (e.g., union dues, uniforms, work
shoes), charitable contributions, and certain education expenses. Id.
at pt. 5.15.1.10.
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The means test permits the mandatory presumption of abuse
to be rebutted only if: (1) the debtor demonstrates special
circumstances justifying 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 caused 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.\67\ Special circumstances include such factors
as whether the debtor has a serious medical condition or is on
active duty in the Armed Services to the extent these factors
justify adjustment to income or expenses.
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\67\ The debtor must itemize and provide documentation of each
additional expense or income adjustment as well as explain 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 constitute an abuse,
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 the debtor's counsel in
filing the chapter 7 case violated Federal Rule of Bankruptcy
Procedure 9011,\68\ S. 256 authorizes the court to order the
attorney to reimburse the trustee for all reasonable costs in
prosecuting the motion, including reasonable attorneys' fees.
In addition, the court may assess an appropriate civil
penalty.\69\
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\68\ Fed. R. Bankr. P. 9011. This rule is the bankruptcy analog to
Federal Rule of Civil Procedure 11, which authorizes a court to impose
sanctions against an attorney or party who commences a frivolous
actions or files other inappropriate documents in violation of this
Rule's requirements.
\69\ Section 102(a) of S. 256 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 and 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'' apply to the means test. One
provides that only a judge, United States trustee, bankruptcy
administrator, or private trustee may file a motion to dismiss
a chapter 7 case under section 707(b) of the Bankruptcy Code if
the 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 a chapter 7 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 (including the circumstance where the
debtor is a veteran) 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.\70\ In addition, the bill
includes a safe harbor from the bill's needs-based test for a
disabled veteran whose indebtedness occurred primarily during a
period when the individual was on active duty (as defined in 10
U.S.C. Sec. 101(d)(1)) or performing a homeland defense
activity (as defined in 32 U.S.C. Sec. 901(1)).
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\70\ In a case that is not a joint case, current monthly income of
the debtor's spouse is not considered if the debtor and the debtor's
spouse are separated under applicable nonbankruptcy law or the debtor
and the debtor's spouse are living separate and apart (other than for
the purpose of evading this provision) and the debtor files a statement
under penalty of perjury containing certain specified information.
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Other Reforms Dealing with Abuse. S. 256 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, S. 256 prevents
the discharge of debts based on fraud, embezzlement, and
malicious injury in a chapter 13 case. Other abuse reforms
include a provision authorizing the court to dismiss a chapter
7 case filed by an individual debtor convicted of a crime of
violence or a drug trafficking crime on motion of the victim,
under certain circumstances. And, the court, as a condition of
confirming a chapter 13 plan, must find that the debtor filed
the chapter 13 case in good faith.
The bill also restricts the so-called ``mansion loophole.''
Under current bankruptcy law, debtors living in certain states
can shield from their creditors virtually all of the equity in
their homes. In light of this, some debtors actually relocate
to these states just to take advantage of their ``mansion
loophole'' laws. S. 256 closes this loophole for abuse by
requiring a debtor to be a domiciliary in the state for at
least two years before he or she can claim that state's
homestead exemption; the current requirement can be as little
as 91 days.\71\ The bill further reduces the opportunity for
abuse by requiring a debtor to own the homestead for at least
40 months before he or she can use state exemption law; current
law imposes no such requirement.\72\ S. 256 prevents securities
law violators and others who have engaged in criminal conduct
from shielding their homestead assets from those whom they have
defrauded or injured. If a debtor was convicted of a felony,
violated a securities law, or committed a criminal act,
intentional tort, or engaged in reckless misconduct that caused
serious physical injury or death, the bill overrides state
homestead exemption law and caps the debtor's homestead
exemption at $125,000. To the extent a debtor's homestead
exemption was obtained through the fraudulent conversion of
nonexempt assets (e.g., cash) during the ten-year period
preceding the filing of the bankruptcy case, S. 256 requires
such exemption to be reduced by the amount attributable to the
debtor's fraud.
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\71\ See 11 U.S.C. Sec. 522(b)(2)(2)(A).
\72\ If the debtor owns the homestead for less than 40 months, the
provision imposes a $125,000 homestead cap. In effect, this provision
overrides state exemption law authorizing a homestead exemption in
excess of this amount and allows such law to control if it authorizes a
homestead exemption in a lesser amount.
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S. 256 also authorizes a trustee to avoid any transfer of
property that a debtor made to a self-settled trust (of which
the debtor is a beneficiary) within the ten-year period
preceding the filing of the debtor's bankruptcy case if the
debtor made the transfer with actual intent to hinder, delay,
or defraud a creditor of the debtor.
Protections for Creditors--In General. S. 256 includes
provisions intended to provide greater protections for
creditors, while ensuring that the claims of those creditors
entitled to priority treatment, such as spousal and child
support claimants, are not adversely impacted. These include
provisions: (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; and (3)
implementing various provisions designed to improve the
accuracy of the information contained in debtors' schedules,
statements of financial affairs. They also clarify 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).
Enforcement of Family Support Obligations. S. 256 accords
domestic and child support claimants a broad spectrum of
special protections. The legislation creates a uniform and
expanded definition of domestic support obligations to include
debts that accrue both before or after a bankruptcy case is
filed. It gives the highest payment priority for these debts
(current law only accords them a seventh-level priority),\73\
with allowance for the payment of trustee administrative
expenses, under certain conditions. In addition, the bill
mandates that a debtor must be current on postpetition domestic
support obligations to confirm a chapter 11, chapter 12 (family
farmer) or chapter 13 plan of reorganization. To facilitate the
domestic support collection efforts by governmental units, the
legislation 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. The legislation, 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.
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\73\ 11 U.S.C. Sec. 507(a)(7).
---------------------------------------------------------------------------
Protections for Secured Creditors. S. 256's protections for
secured creditors include a prohibition against bifurcating a
secured debt incurred within the 910-day 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, S. 256 prohibits
bifurcation of specified secured debts if incurred during the
one-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.\74\ S. 256 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.
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\74\ Redemption is a method by which a chapter 7 debtor can retain
certain types of personal property by paying the holder of a lien on
such property the allowed amount of the holder's secured lien. 11
U.S.C. Sec. 722.
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Protections for Lessors. With respect to the interests of
lessors, S. 256 requires chapter 13 debtors to remain current
on their personal property leases and to 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 large and small residential
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 Bankruptcy Protections. The bill's consumer
protections include provisions strengthening professionalism
standards for attorneys and others who assist consumer debtors
with their bankruptcy cases. S. 256 mandates that certain
services and specified notices be given to consumers by
professionals and others who provide bankruptcy assistance. To
ensure compliance with these provisions, the bill institutes
various enforcement mechanisms.
In addition, S. 256 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.
S. 256 contains provisions to help debtors better
understand their rights and obligations with respect to
reaffirmation agreements. To enforce these protections, the
bill requires the Attorney General to designate a United States
Attorney for each judicial district and a FBI agent for each
field office to have primary law enforcement responsibility
regarding abusive reaffirmation practices, among other matters.
The legislation also expands a debtor's ability to exempt
certain tax-qualified retirement accounts and pensions. It
creates a new provision that allows a consumer debtor to exempt
certain education IRAs and state tuition plans for his or her
child's postsecondary education from the claims of creditors.
Most importantly, S. 256 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 \75\--before they decide to file for bankruptcy
relief. The bill also requires debtors, after they file for
bankruptcy relief, to receive financial management training
that will provide them with guidance about how to manage their
finances, so that they can avoid future financial difficulties.
The mandatory credit counseling and financial management
training requirements do not apply if the debtor is unable to
complete these requirements because of incapacity or
disability, or because he or she is on active duty in a
military combat zone.
---------------------------------------------------------------------------
\75\ Under current law, for example, a bankruptcy filing may be
reported on a consumer's credit report for ten years. 15 U.S.C.
Sec. 1681c (2002).
---------------------------------------------------------------------------
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.
Highlights of Business Bankruptcy Reforms.
S. 256 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. S. 256 establishes a
new form of bankruptcy relief for transnational insolvencies
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. S. 256 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. For the first time, it also allows certain family
fishermen to qualify for chapter 12 relief.
Protections Against Excessive Payments To a Debtor's
Insiders and Fraud by a Debtor's Management. S. 256
significantly restricts a corporate debtor's ability to pay
bonuses, severance payments, and other payments to insiders of
the debtor after the bankruptcy case is filed and requires the
court to approve any such payment. In addition, it requires the
United States trustee to apply for the appointment of a trustee
if there are reasonable grounds to suspect that current members
of a chapter 11 debtor's governing body, chief executive
officer, chief financial officer, or members of the debtor's
governing body who selected the debtor's chief executive
officer or chief financial officer participated in actual
fraud, dishonesty, or criminal conduct in the management of the
debtor or the debtor's public financial reporting.
Protections for Employees. S. 256 provides heightened
protections for employees. It requires certain back pay awards
granted as a result of a debtor's violation of Federal or state
law to receive one of the highest payment priorities in a
bankruptcy case. In addition, the bill streamlines the
appointment of an ERISA administrator for an employee benefit
plan, under certain circumstances, to minimize the disruption
that results when an employer files for bankruptcy relief. S.
256 also increases the monetary cap on wage and employee
benefit claims entitled to priority under the Bankruptcy Code
from $4,650 to $10,000 and lengthens the reachback period for
wage claims from 90 days to 180 days. The bill amends the
Bankruptcy Code to facilitate the recovery of avoidable
transfers and excessive pre- and post-petition compensation,
such as bonuses, paid to insiders of a debtor. In addition, S.
256 limits the ability of chapter 11 debtors to unilaterally
terminate retiree benefit plans on the eve of bankruptcy.
Small Business/Single Asset Real Estate Debtors. S. 256
includes provisions with respect to small business and single
asset real estate debtors largely derived from recommendations
of the National Bankruptcy Review Commission.\76\
---------------------------------------------------------------------------
\76\ See generally Report of the National Bankruptcy Review
Commission, at 303-706 (Oct. 20, 1997).
---------------------------------------------------------------------------
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. S. 256 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.
With regard to the Bankruptcy Code's treatment of single
asset real estate debtors, S. 256 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, S. 256
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. S. 256 contains a series of provisions
pertaining to the treatment of certain financial transactions
under the Bankruptcy Code and relevant banking laws.\77\ These
provisions are intended to reduce ``systemic risk'' in the
banking system and financial marketplace.\78\ 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, to
allow the expeditious termination or netting of certain types
of financial transactions. Many of these provisions are derived
from recommendations issued by the President's Working Group on
Financial Markets \79\ and revisions espoused by the financial
industry.
---------------------------------------------------------------------------
\77\ In addition to the Bankruptcy Code, the bill amends the
Federal Deposit Insurance Act, the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, the Federal Deposit Insurance
Corporation Improvement Act of 1991, the Federal Reserve Act, and the
Securities Investor Protection Act of 1971.
\78\ The report on H.R. 4393, a bill substantially similar to title
IX of S. 256 that was introduced in the 105th Congress, 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
---------------------------------------------------------------------------
the risk of an inter-market disruption.
H.R. Rep. No. 105-688, pt. 1, at 2 (1998).
---------------------------------------------------------------------------
\79\ 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.
---------------------------------------------------------------------------
Family Farmers and Family Fishermen. S. 256 helps small
family farmers facing financial distress. While current
bankruptcy law has a specialized form of bankruptcy relief--
chapter 12--that is specifically designed for family farmers,
its benefits for farmers are limited because of its restrictive
eligibility requirements. S. 256 responds to this problem in
several key respects: it more than doubles the debt eligibility
limit and requires it to be periodically adjusted for
inflation; it lowers the requisite percentage of a farmer's
income that must be derived from farming operations; and it
gives farmers more flexibility with respect to how certain
creditors can be repaid. As a result, many more deserving
family farmers facing financial hard times will be able to
avail themselves of chapter 12. In addition, S. 256 makes
chapter 12 a permanent component of the bankruptcy laws and
extends the benefits of this form of bankruptcy relief to
family fishermen.
Transnational Insolvencies. In response to the increasing
globalization of business enterprises and operations, S. 256
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. They reflect consensus
recommendations of the National Bankruptcy Review
Commission.\80\
---------------------------------------------------------------------------
\80\ Report of the National Bankruptcy Review Commission, at 351-70
(Oct. 20, 1997).
---------------------------------------------------------------------------
Protections for Small Business Owners. Under current
bankruptcy law, a business can be sued by a bankruptcy trustee
and forced to pay back--as a preferential transfer--monies
previously paid to it by a firm that later files for bankruptcy
protection. S. 256 contains provisions making it easier--
particularly for small businesses--to defend against these
suits. These provisions largely reflect recommendations of the
National Bankruptcy Review Commission.\81\
---------------------------------------------------------------------------
\81\ Id. at 793-803.
---------------------------------------------------------------------------
Health Care Providers. S. 256 adds a provision to the
Bankruptcy Code intended to give patients of bankrupt health
care providers various protections. These include provisions
specifying requirements for the disposal of patient records so
that a patient's privacy and the confidentiality of such
records when they are in the custody of a health care business
in bankruptcy are protected. 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 state agency. If warranted, it also
authorizes the court to order the appointment of an ombudsman
to monitor 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.
Privacy Protections. Under current law, nearly every item
of information filed in a bankruptcy case is made available to
the public. S. 256 restricts public access to certain personal
information pertaining to an individual contained a bankruptcy
case file to the extent the court finds that disclosure of such
information would create undue risk of identity theft or other
unlawful injury to the individual or the individual's property.
In addition, the bill prohibits the disclosure of the names of
the debtor's minor children and requires such information to be
kept in a nonpublic record, which can be made available for
inspection only by the court and certain other designated
entities. Further, S. 256 prohibits the sale of customers'
personally identifiable information by a business debtor unless
certain conditions are satisfied.
Additional Bankruptcy Judgeships. S. 256 authorizes 28
additional bankruptcy judgeships on a temporary basis and
extends three currently existing temporary judgeships.\82\ This
provision responds to the 59 percent increase in the caseload
of bankruptcy judges since 1992, reported by the Administrative
Office of the United States Courts.\83\
---------------------------------------------------------------------------
\82\ Districts authorized additional bankruptcy judgeships under S.
256 include the following: Eastern District of California (one),
Central District of California (three), Delaware (four), Southern
District of Florida (two), Southern District of Georgia (one), Maryland
(three), Eastern District of Michigan (one), Southern District of
Mississippi (one), New Jersey (one), Nevada (one), Eastern District of
New York (one), Northern District of New York (one), Southern District
of New York (one), Eastern District of North Carolina (one), Eastern
District of Pennsylvania (one), Middle District of Pennsylvania (one),
Puerto Rico (one), South Carolina (one), Western District of Tennessee
(one), Eastern District of Virginia (one).
\83\ Press Release, Administrative Office of the U.S. Courts,
Record Breaking Bankruptcy Filings Reported in Calendar Year 2002 (Feb.
14, 2003) (noting that ``no new bankruptcy judgeships have been created
since 1992'').
---------------------------------------------------------------------------
Miscellaneous Provisions. Under current law, an appeal from
a bankruptcy court decision must be heard by a Federal district
court or bankruptcy appellate panel before it may be heard by a
Federal court of appeals. S. 256 authorizes a direct appeal
from a bankruptcy court decision to the court of appeals, under
certain circumstances. Other general provisions include
allowing attorneys to share compensation with bona fide public
service attorney referral programs, and mandating that a
bankruptcy court conduct scheduling conferences in a bankruptcy
case if necessary to further its expeditious and economical
resolution. In addition, the bill requires the United States
Trustee Program to compile various statistics regarding chapter
7, 11 and 13 cases and to make these data available to the
public. S. 256 also permits a court to seal all public records
pertaining to a fraudulent involuntary bankruptcy petition,
under certain circumstances, and to prohibit a consumer
reporting agency from issuing a consumer report containing any
reference to such petition.
Hearings
The Committee on the Judiciary held no hearings on S. 256.
Committee Consideration
On March 16, 2005, the Committee met in open session and
ordered favorably reported the bill S. 256 without an amendment
by a recorded vote of 22 to 13, a quorum being present.
Votes of the Committee
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee notes that the
following roll call votes occurred during the Committee's
consideration of S. 256.
1. An amendment by Mr. Conyers disallowing: (a) claims
resulting from an assignment of a debtor's right to receive
military pay, or military pension or disability benefits; (b)
certain claims owed by a servicemember or a dependent of a
servicemember that are either secured or conditioned upon a
personal check held for future deposit or electronic access to
a bank account; or (3) claims owed by a servicemember or
dependent of a servicemember requiring the payment of interest
and other charges in excess of 36 percent. The amendment also
allows the discharge of certain debts based on the debtor's
right to receive military pay, or military pension or
disability benefits. Defeated 15 to 20.
ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis...................................................... X
Mr. Hostettler.................................................. X
Mr. Green.......................................................
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren..................................................... X
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Smith....................................................... X
Mr. Van Hollen.................................................. X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 15 20
----------------------------------------------------------------------------------------------------------------
2. An amendment by Mr. Watt and Mr. Delahunt disallowing a
claim for a debt based on an extension of credit on which the
annual rate of interest in excess of 50 percent was imposed or
in excess of a limit on allowable interest under applicable
nonbankruptcy law. Defeated 9 to 15.
ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus......................................................
Mr. Inglis......................................................
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller......................................................
Mr. Issa........................................................ X
Mr. Flake.......................................................
Mr. Pence.......................................................
Mr. Forbes......................................................
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman......................................................
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters......................................................
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Mr. Weiner......................................................
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Smith (Washington)..........................................
Mr. Van Hollen..................................................
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 9 15
----------------------------------------------------------------------------------------------------------------
3. An amendment by Mr. Watt amending section 102 of the
bill to permit a debtor to claim as an expense, in addition to
elementary and secondary school educational expenses, the
actual tuition costs per each child (exclusive of room and
board) to attend a postsecondary education institution, and
certain other educational programs. Defeated 10 to 17.
ROLLCALL NO. 3
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)...............................................
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis......................................................
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Flake.......................................................
Mr. Pence.......................................................
Mr. Forbes......................................................
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman......................................................
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters......................................................
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Smith (Washington)..........................................
Mr. Van Hollen..................................................
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 10 17
----------------------------------------------------------------------------------------------------------------
4. An amendment by Mr. Nadler amending sections 404, 411,
417, 436, 437, and 438 of the bill to permit the court, under
specified circumstances, to extend certain time periods
specified therein. Defeated 13 to 18.
ROLLCALL NO. 4
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis...................................................... X
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Flake.......................................................
Mr. Pence.......................................................
Mr. Forbes......................................................
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler...................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Smith (Washington).......................................... X
Mr. Van Hollen..................................................
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 13 18
----------------------------------------------------------------------------------------------------------------
5. An amendment by Mr. Schiff amending section 102 of the
bill to prohibit a judge, United States trustee, trustee, or
other party in interest from dismissing a chapter 7 case on the
basis of the debtor's ability to repay if the debtor is an
identity theft victim, under certain circumstances. Defeated 13
to 15.
ROLLCALL NO. 5
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis...................................................... X
Mr. Hostettler..................................................
Mr. Green....................................................... X
Mr. Keller......................................................
Mr. Issa........................................................
Mr. Flake.......................................................
Mr. Pence.......................................................
Mr. Forbes......................................................
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Smith (Washington).......................................... X
Mr. Van Hollen.................................................. X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 13 15
----------------------------------------------------------------------------------------------------------------
6. An amendment by Mr. Delahunt amending Bankruptcy Code
section 548 to authorize a trustee to avoid a transfer of an
interest of a debtor made within the ten-year period preceding
the bankruptcy filing to an asset protection trust if the
amount of the transfer or aggregate amount of all transfers
during such period exceeds $125,000, with certain exceptions.
Defeated 10 to 15.
ROLLCALL NO. 6
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)...............................................
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus......................................................
Mr. Inglis......................................................
Mr. Hostettler.................................................. X
Mr. Green.......................................................
Mr. Keller...................................................... X
Mr. Issa........................................................
Mr. Flake....................................................... X
Mr. Pence.......................................................
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert.....................................................
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan......................................................
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez.....................................................
Mr. Smith (Washington)..........................................
Mr. Van Hollen..................................................
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 10 15
----------------------------------------------------------------------------------------------------------------
7. An amendment by Mr. Berman and Mr. Meehan amending
Bankruptcy Code section 522 to create a uniform Federal
homestead exemption floor in the amount of $150,000 for a
medically distressed debtor. Defeated 13 to 18.
ROLLCALL NO. 7
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)...............................................
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot......................................................
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis...................................................... X
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Flake....................................................... X
Mr. Pence.......................................................
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert.....................................................
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler...................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez.....................................................
Mr. Smith (Washington)..........................................
Mr. Van Hollen.................................................. X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 13 18
----------------------------------------------------------------------------------------------------------------
8. An amendment by Mr. Nadler amending Bankruptcy Code
section 523(a) to provide that a debt that results from any
judgment, order, consent order, or decree entered in any
Federal or state court or contained in any settlement agreement
entered into by the debtor that arises from: (a) the violation
of certain specified offenses under title 18 of the United
States Code; (b) an offense under state law that would be a
civil rights crime (as described in the preceding clause); (c)
a violation under 42 U.S.C. Sec. 1983; or (d) the intentional
actions of a debtor that violate a valid court order enforcing
a civil rights law described in (a) or (b). It also amends
Bankruptcy Code section 523(a)(13) to include an order of
restitution under the criminal law of a state. Defeated 11 to
17.
ROLLCALL NO. 8
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis......................................................
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller......................................................
Mr. Issa........................................................
Mr. Flake.......................................................
Mr. Pence.......................................................
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler...................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez.....................................................
Mr. Smith (Washington)..........................................
Mr. Van Hollen..................................................
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 11 17
----------------------------------------------------------------------------------------------------------------
9. An amendment by Mr. Meehan amending section 102 of the
bill to provide that the needs-based requirements under
Bankruptcy Code section 707(b)(2)(A) through (C) (as amended by
section 102) shall not apply to, and the court may not dismiss
or convert a chapter 7 case filed by, a debtor who is a
disabled veteran based on any form of means testing, under
certain specified circumstances. Defeated 12 to 19.
ROLLCALL NO. 9
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis...................................................... X
Mr. Hostettler.................................................. X
Mr. Green.......................................................
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Flake.......................................................
Mr. Pence.......................................................
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt....................................................
Mr. Wexler......................................................
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Smith (Washington)..........................................
Mr. Van Hollen.................................................. X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 12 19
----------------------------------------------------------------------------------------------------------------
10. An amendment by Ms. Jackson Lee amending section 102 of
the bill to increase the amount of actual expenses a chapter 7
debtor may claim under the provision's needs-based test for
certain educational costs for a debtor's dependent child from
$1,500 to $3,000. Defeated 12 to 21.
ROLLCALL NO. 10
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis...................................................... X
Mr. Hostettler..................................................
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Flake.......................................................
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan......................................................
Mr. Delahunt....................................................
Mr. Wexler......................................................
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Smith (Was1hington)......................................... X
Mr. Van Hollen.................................................. X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 12 21
----------------------------------------------------------------------------------------------------------------
11. Three en bloc amendments by Ms. Jackson Lee as follows:
(a) amending Bankruptcy Code section 523(a) to provide that a
debt arising from certain sex offenses in which the victim was
an individual who had not attained the age of 17 years is
nondischargeable; (b) amending Bankruptcy Code section 523(a)
to provide that a debt arising from a judicial, administrative,
or other action related to the consumption or consumer purchase
of a tobacco product that is based in whole or in part on false
pretenses, a false representation, or actual fraud is
nondischargeable; and (c) amending section 708 of the bill to
provide that the confirmation of a chapter 11 plan under
Bankruptcy Code section 1141 does not discharge a debtor that
is corporation from a debt specified in Bankruptcy Code section
523(a)(9). Defeated 9 to 20.
ROLLCALL NO. 11
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis...................................................... X
Mr. Hostettler..................................................
Mr. Green.......................................................
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Flake.......................................................
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler......................................................
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt....................................................
Mr. Wexler......................................................
Mr. Weiner...................................................... X
Mr. Schiff......................................................
Ms. Sanchez.....................................................
Mr. Smith (Washington)..........................................
Mr. Van Hollen.................................................. X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 9 20
----------------------------------------------------------------------------------------------------------------
12. Motion to report S. 256 favorably. Passed 22 to 13.
ROLLCALL NO. 12
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Inglis...................................................... X
Mr. Hostettler..................................................
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Smith (Washington)..........................................
Mr. Van Hollen.................................................. X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 22 13
----------------------------------------------------------------------------------------------------------------
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.
New Budget Authority and Tax Expenditures
In compliance with clause 3(c)(2) of Rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of budget authority, or tax expenditures or
revenues contained in the cost estimate prepared by the
Director of the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of Rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, S. 256, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 4, 2005.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 256, the
``Bankruptcy Abuse Prevention and Consumer Protection Act of
2005,'' as reported by the House Committee on the Judiciary.
This version of S. 256 is identical to the legislation as
passed by the Senate on March 10, 2005.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Gregory
Waring (for Federal spending), who can be reached at 226-2860,
Annabelle Bartsch (for Federal revenues), who can be reached at
226-2720, Melissa Merrell (for the State and local impact), who
can be reached at 225-3220, and Paige Piper/Bach (for the
private-sector impact), who can be reached at 226-2940.
Sincerely,
Douglas Holtz-Eakin.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
S. 256--Bankruptcy Abuse Prevention and Consumer Protection Act of
2005.
SUMMARY
CBO estimates that implementing S. 256 would result in
gross discretionary costs of $392 million over the 2006-2010
period, primarily to pay for increased responsibilities of the
United States Trustees (U.S. Trustees), assuming appropriation
of the necessary amounts. At the same time, the act would
increase the fees charged for filing certain bankruptcy cases
and would change how some of these fees are currently recorded
in the budget during the first 5 years after enactment. We
estimate that implementing the act would increase the amount of
bankruptcy fees that are treated as an offset to appropriations
by $75 million over the 5-year period, resulting in an
estimated net increase in discretionary spending of
approximately $318 million over this period.
In addition, CBO estimates that enacting S. 256 would
increase revenues by about $60 million over the 2006-2010
period and by about $140 million over the 2006-2015 period
primarily because of provisions that temporarily amend the
Treasury's allocation of filing fees. Finally, enactment of S.
256 would authorize additional judgeships, and we estimate that
the mandatory pay and benefits for those positions would cost
$26 million over the next 5 years and $45 million over the
2006-2015 period.
On balance and assuming appropriation of the necessary
amounts to implement the act, CBO estimates that its enactment
would increase budget deficits by about $280 million over the
2006-2010 period.
S. 256 contains two intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA), but CBO estimates
that the costs would be insignificant and would not exceed the
threshold established in UMRA ($62 million in 2005, adjusted
annually for inflation). Overall, CBO expects that enacting
this bill would benefit State and local governments by
enhancing their ability to collect outstanding obligations in
bankruptcy cases.
S. 256 would impose private-sector mandates, as defined in
UMRA, on bankruptcy attorneys, creditors, bankruptcy petition
preparers, debt-relief agencies, consumer reporting agencies,
and credit and charge-card companies. CBO estimates that the
direct costs of those mandates would exceed the annual
threshold established by UMRA ($123 million in 2005, adjusted
annually for inflation).
MAJOR PROVISIONS
In addition to establishing means-testing for determining
eligibility for chapter 7 bankruptcy relief, S. 256 would:
Require the Executive Office for the U.S.
Trustees to establish a test program to educate debtors
on financial management;
Authorize 28 new temporary judgeships and
extend four existing judgeships;
Permit courts to waive chapter 7 filing fees
and other fees for debtors who could not pay such fees
in installments;
Require that at least one of every 250
bankruptcy cases under chapter 13 or chapter 7 be
audited by an independent certified public accountant;
Require the Administrative Office of the
United States Courts (AOUSC) to receive and maintain
tax returns for certain chapter 7 and chapter 13
debtors;
Require the AOUSC and the U.S. Trustees to
collect and publish certain statistics on bankruptcy
cases; and
Increase chapter 7 and chapter 11 bankruptcy
filing fees, decrease chapter 13 filing fees, and
change the budgetary treatment of such fees over a
specified period of time.
Other provisions would make various changes affecting the
bankruptcy provisions for municipalities and the treatment of
tax liabilities in bankruptcy cases.
ESTIMATED COST TO THE FEDERAL GOVERNMENT
As shown in Table 1, CBO estimates that implementing S. 256
would result in a net increase in discretionary spending of
about $318 million over the 2006-2010 period, subject to future
appropriation actions. In addition, we estimate that mandatory
spending for the salaries and benefits of bankruptcy judges
would increase by less than $100,000 in 2005 and by $26 million
over the 2006-2010 period. Enacting the legislation's
provisions for adjusting filing fees would increase revenues by
about $60 million over the next 5 years. The costs of this
legislation fall within budget function 750 (administration of
justice).
TABLE 1. ESTIMATED BUDGETARY EFFECTS OF S. 256
By Fiscal Year, in Millions of Dollars
------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010
------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Means-Testing (Section 102)
Estimated Authorization 0 16 24 39 39 36
Level
Estimated Outlays 0 14 23 39 39 36
Studies by U.S. Trustees, GAO,
and SBA (Sections 103, 230,
and 443)
Estimated Authorization 0 1 * 0 0 0
Level
Estimated Outlays 0 1 * 0 0 0
Debtor Financial Management
Training (Section 105)
Estimated Authorization 0 3 1 0 0 0
Level
Estimated Outlays 0 2 1 * 0 0
Credit Counseling
Certification (Section 106)
Estimated Authorization 0 4 7 8 8 7
Level
Estimated Outlays 0 4 6 8 8 7
Maintenance of Tax Returns
(Section 315)
Estimated Authorization 0 2 2 2 2 2
Level
Estimated Outlays 0 2 2 2 2 2
Changes in Bankruptcy Filing
Fees (Sections 325 and 418)
Estimated Authorization 0 -46 -49 6 7 7
Level
Estimated Outlays 0 -46 -49 6 7 7
U.S. Trustee Site Visits
(Section 439)
Estimated Authorization 0 3 3 3 3 3
Level
Estimated Outlays 0 3 3 3 3 3
Compiling and Publishing Data
(Sections 601-602)
Estimated Authorization 0 1 7 8 8 8
Level
Estimated Outlays 0 1 7 8 8 8
Audit Procedures (Section 603)
Estimated Authorization 0 0 16 17 17 16
Level
Estimated Outlays 0 0 16 17 17 16
Additional Judgeships--Support
Costs (Section 1223)
Estimated Authorization * 8 17 17 18 18
Level
Estimated Outlays * 7 16 17 18 18
FTC Toll-Free Hotline (Section
1301)
Estimated Authorization 0 2 1 1 1 1
Level
Estimated Outlays 0 2 1 1 1 1
Total Discretionary Changes
Estimated Authorization * -6 29 101 103 98
Level
Estimated Outlays * -10 26 101 103 98
CHANGES IN DIRECT SPENDING
Additional Judgeships (Section
1223)
Estimated Budget Authority * 3 6 6 6 6
Estimated Outlays * 3 5 6 6 6
CHANGES IN REVENUES
Changes in Revenue from Filing
Fees
Estimated Revenues 0 -6 -12 30 24 24
------------------------------------------------------------------------
NOTES: GAO = Government Accountability Office; SBA = Small Business
Administration; FTC = Federal Trade Commission. * = less than
$500,000.
BASIS OF ESTIMATE
For this estimate, CBO assumes that S. 256 will be enacted
by July 2005 and that the amounts necessary to implement the
act will be appropriated for each fiscal year. Many of the
act's new provisions would be effective 180 days after
enactment. However, a few provisions would be effective 18
months after enactment. CBO assumes those provisions would take
effect in fiscal year 2007.
Spending Subject to Appropriation
Most of the estimated increases in discretionary spending
under S. 256 would be required to fund the additional workload
that would be imposed on the U.S. Trustees. Those increases
would be partially offset for fiscal years 2006 and 2007 by
changes in bankruptcy filing fees that would be recorded as
offsetting collections under the act. CBO estimates that
implementing S. 256 would result in a net increase in
discretionary costs of about $318 million over the 2006-2010
period, with most of the increase falling after 2007.
Means-Testing (Section 102). This section would establish a
system of means-testing for determining a debtor's eligibility
for relief under chapter 7. Under the proposed means test, if
the amount of debtor income remaining after certain expenses
and other specified amounts are deducted from the debtor's
current monthly income exceeds the threshold specified in
section 102, then the debtor would be presumed ineligible for
chapter 7 relief. A debtor who could not demonstrate ``special
circumstances,'' which would cause the expected disposable
income to fall below the threshold, could file under other
chapters of the bankruptcy code.
Although the private trustees would be responsible for
conducting the initial review of a debtor's income and expenses
and filing the majority of motions for dismissal or conversion,
CBO expects that the workload of the U.S. Trustees would
increase under the means-testing provision. The U. S. Trustees
would provide increased oversight of the work performed by the
private trustees, file additional motions for dismissal or
conversion, and take part in additional litigation that is
expected to occur as the courts and debtors debate allowable
expenses and other related issues. Although CBO cannot predict
the amount of such litigation, we expect that, during the first
few years following enactment of the act, the amount of
litigation could be significant as parties test the new law's
standards. In subsequent years, litigation could begin to
subside as precedents are established. Based on information
from the U.S. Trustees, CBO estimates that the U.S. Trustees
would require 200 additional attorneys, paralegals, and
analysts to address the increased workload. As a result, CBO
estimates that implementing this provision would cost about
$150 million over the 2006-2010 period, assuming appropriation
of the necessary funds.
Studies by the U.S. Trustees, Government Accountability
Office (GAO), and Small Business Administration (SBA) (Sections
103, 205, 230, and 443). Section 103 would require the U.S.
Trustees to conduct a study regarding the use of Internal
Revenue Service expense standards for determining a debtor's
current monthly expenses and the impact of those standards on
debtors and bankruptcy courts. Section 230 would require GAO to
conduct a study regarding the feasibility of requiring trustees
to provide the Office of Child Support Enforcement information
about outstanding child support obligations of debtors. Section
205 would require GAO to conduct a study on the treatment of
consumers by creditors with respect to reaffirmation
agreements. Section 443 would require the Administrator of SBA,
in consultation with the Attorney General, the U.S. Trustees,
and the AOUSC, to conduct a study on small business bankruptcy
issues. Based on information from the U.S. Trustees, GAO, and
SBA, CBO estimates that completing the necessary studies would
cost about $1 million in 2006 and less than $500,000 in 2007,
subject to the availability of appropriated funds.
Debtor Financial Management Test Training Program (Section
105). This section would require the U.S. Trustees to establish
a test training program to educate debtors on financial
management. The test training program would be authorized for
six judicial districts over an 18-month period. Based on
information from the U.S. Trustees, CBO estimates that about
90,000 debtors would participate if such a program were
administered by the U.S. Trustees in fiscal years 2006 and
2007. At a projected cost of about $40 per debtor, CBO
estimates that implementing this provision would cost nearly $4
million over the 2006-2007 period.
Credit Counseling Certification (Section 106). This section
would require the U.S. Trustees to certify, on an annual basis,
that certain credit counseling services could provide adequate
services to potential debtors. Based on information from the
U.S. Trustees, CBO estimates that the U.S. Trustees would
require additional attorneys and analysts to handle the greater
workload associated with certification. CBO estimates that
implementing this provision would cost $33 million over the
2006-2010 period.
Maintenance of Tax Returns (Section 315). This section
would authorize the AOUSC to receive and retain debtors' tax
returns for the year prior to the commencement of the
bankruptcy for chapter 7 and chapter 13 filings. Such
collection and storage of tax returns would commence only at
the request of a creditor. Based on information from the AOUSC,
CBO expects that creditors will request tax information in
about 25 percent of such cases. CBO estimates that implementing
section 315 would cost $10 million over the 2006-2010 period to
store and provide access to about two million tax returns.
Changes in Bankruptcy Filing Fees (Sections 325 and 418).
Section 325 would increase chapter 7 and chapter 11 bankruptcy
filing fees, decrease the chapter 13 filing fee, and change the
distribution of such fees during the first 5 years after
enactment. Considering the expected reduction in the use of
chapter 7 because of means-testing and a provision in section
418 that would allow fee waivers, CBO estimates that
implementing the new fee structure and changes in fee
classifications would result in a net increase in offsetting
collections totaling $75 million over the 2006-2010 period.
Current Law Filing Fees. Under current law, the filing fee
for chapter 7 and chapter 13 is $155 and is divided between the
U.S. Trustee System Fund (recorded as an offsetting
collection), the AOUSC (recorded as an offsetting receipt), the
private trustee assigned to the case, and the remainder is
recorded as a governmental receipt (i.e., revenue). The filing
fee for chapter 11 relief is currently set at $800 and is
divided between the U.S. Trustee System Fund and the AOUSC, and
the remainder is also recorded as a governmental receipt.
Section 325 would change the filing fees for chapters 7, 13,
and 11 to $200, $1,000, and $150, respectively.
Distribution of Filing Fees. During the first 2 years after
enactment, the S. 256 would allow the U.S. Trustee System Fund
to retain (as an offset to appropriations) a larger portion of
the current-law chapter 7, 13, and 11 filing fees. At the same
time, the act would temporarily reduce for 2 years the
percentage of current-law filing fees allocated to the AOUSC,
and, because current law sets the private trustee's portion of
the filing fee at a flat amount ($45), no portion of the
current-law filing fees would be recorded as governmental
receipts during fiscal years 2006 and 2007. After 2 years, the
distribution of the filing fees under S. 256 would revert to
the distribution formula in current law.
Under S. 256, the general fund of the Treasury would
receive any increase in bankruptcy filing fees due to enactment
of the legislation over the 2006-2010 period. Beginning in
2011, the full amount of the proposed fees would be allocated
according to the formula specified in current law. Of the $200
fee for chapter 7 filers, about $55 would be recorded as an
offsetting collection to the appropriation for the U.S.
Trustees System Fund, and almost $68 would be recorded as an
offsetting receipt and spent without further appropriation by
the AOUSC. The private trustee assigned to the case would
receive $45 and the remainder of the fee would be recorded as a
governmental receipt. Of the $150 fee for a chapter 13 case,
the U.S. Trustee System Fund would receive about $41, and the
AOUSC would receive almost $51 per case to spend without
further appropriation. Finally, of the $1,000 fee per chapter
11 case, the U.S. Trustee System Fund would receive $500, the
AOUSC would receive $250, and the remainder of the fee would be
recorded as a governmental receipt.
Fee Waivers. Section 418 would permit a bankruptcy court or
district court to waive the chapter 7 filing fee and other fees
for a debtor who is unable to pay such fees in installments.
Based on information from the AOUSC, CBO expects that, in
fiscal year 2006, chapter 7 filing fees would be waived for
about 3.5 percent of all chapter 7 filers and that the
percentage waived would gradually increase to about 10 percent
by fiscal year 2009.
U.S. Trustee Site Visits in Chapter 11 Cases (Section 439).
This section would expand the responsibilities of the U.S.
Trustees in small business bankruptcy cases to include site
visits to inspect the debtor's premises, review records, and
verify that the debtor has filed tax returns. Based on
information from the U.S. Trustees, CBO estimates that
implementing section 439 would require about 20 additional
analysts to conduct over 2,300 site visits each year. CBO
estimates that implementing this provision would cost about $15
million over the 2006-2010 period for the salaries, benefits,
and travel expenses associated with those additional personnel.
Compilation and Publication of Bankruptcy Data and
Statistics (Sections 601-602). Beginning 18 months after
enactment, the act would require the AOUSC to collect data on
chapter 7, chapter 11, and chapter 13 cases and the U.S.
Trustees to make such information available to the public. CBO
estimates that it would cost about $32 million over the 2006-
2010 period to meet these requirements. Of the total estimated
cost, about $25 million would be required for additional legal
clerks, analysts, and data base support. The remainder would be
incurred by the U.S. Trustees for compiling data and providing
Internet access to records pertaining to bankruptcy cases.
Audit Procedures (Section 603). Beginning 18 months after
enactment, S. 256 would require that at least one out of every
250 bankruptcy cases under chapter 7 and chapter 13, plus other
selected cases under those chapters, be audited by an
independent certified public accountant. Based on information
from the U.S. Trustees, CBO estimates that less than 1 percent
of about 1.6 million cases a year would be subject to potential
audits. Each audit would cost roughly $1,000 (in 2005 dollars).
CBO also expects that the U.S. Trustees would need about 10
additional analysts and attorneys to support the follow-up work
associated with the audits. We estimate that implementing this
provision would cost $66 million over the 2006-2010 period.
Additional Judgeships--Support Costs (Section 1223). This
provision would extend four temporary bankruptcy judgeships and
authorize 28 new temporary bankruptcy judgeships. Based on
information from the AOUSC, CBO assumes that about half of the
28 new positions would be filled by the beginning of fiscal
year 2006 and the rest would be filled by the start of fiscal
year 2007. Also, we anticipate that all four temporary
judgeships would be filled by fiscal year 2007. We expect that
discretionary expenditures for support costs associated with
each judgeship would average about $500,000 annually (in 2005
dollars). CBO estimates that the administrative support of
additional bankruptcy judges would cost less than $200,000 in
fiscal year 2005 and $76 million over the 2006-2010 period.
(Salaries and benefits for the judges are classified as
mandatory spending, and those costs are described below.)
Federal Trade Commission Toll-Free Hotline (Section 1301).
This section would require the Federal Trade Commission (FTC)
to operate a toll-free number for consumers to calculate how
long it would take to pay off a credit card debt if they were
to make only the minimum monthly payments. Based on information
from the FTC about the demand for similar services, CBO expects
that the FTC would receive about 20,000 calls each month. CBO
estimates that the equipment and personnel necessary to serve
this volume of inquires would cost $2 million in 2006 and $6
million over the 2006-2010 period, subject to appropriation of
the necessary amounts.
Direct Spending and Revenues
By adding additional judgeships and changing the budgetary
classification of bankruptcy filing fees, CBO estimates that
enacting S. 256 would increase direct spending by about $45
million over the 2006-2015 period and increase revenues by
approximately $140 million over the 2006-2015 period as shown
in Table 2.
TABLE 2. ESTIMATED CHANGES IN DIRECT SPENDING AND REVENUES UNDER S. 256
By Fiscal Year, in Millions of Dollars
----------------------------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
----------------------------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING
Additional Judgeships (Section
1223)
Estimated Budget Authority * 3 6 6 6 6 6 5 3 3 2
Estimated Outlays * 3 5 6 6 6 6 5 3 3 2
CHANGES IN REVENUES
Changes in Revenue from Filing Fees
Estimated Revenues 0 -6 -12 30 24 24 16 16 16 16 16
----------------------------------------------------------------------------------------------------------------
NOTE: * = less than $500,000.
Additional Judgeships (Section 1223). CBO estimates that
enacting the means-testing provision (section 102) would impose
some additional workload on the courts. Section 128 would
authorize 28 new temporary bankruptcy judgeships and extend
four existing temporary judgeships. Based on information from
the AOUSC and other bankruptcy experts, CBO expects that the
increase in the number of bankruptcy judges would be sufficient
to meet the increased workload. Assuming that the salary and
benefits of a bankruptcy judge would average about $177,000 a
year (in 2005 dollars), CBO estimates that the mandatory costs
associated with the salaries and benefits of those additional
judgeships would be less than $100,000 in fiscal year 2005,
about $26 million over the 2006-2010 period, and about $45
million over the 2006-2015 period.
Changes in Bankruptcy Filing Fees (Sections 102, 325, and
418). Section 325 would increase the fees charged for filing
bankruptcy cases and change the classification of where
bankruptcy filing fees are recorded in the budget. Under
current law, filing fees are divided between the U.S. Trustee
System Fund, the AOUSC, the private trustee assigned to the
case, and the remainder are recorded as governmental receipts
(i.e., revenues). The percentage of the fees allocated to those
different parts of the budget varies by chapter.
During the first 5 years of the new fee structure proposed
in S. 256, the increase in the chapter 7, chapter 11, and
chapter 13 filing fees above the amounts expected to be
collected under current law would be recorded as revenues.
During the first 2 years after enactment of S. 256, however,
the portion of the fees charged under current law for chapters
7, 13, and 11 that are now recorded as revenues would be
recorded as offsetting collections or offsetting receipts. The
allocation of those fees would return to the same allocation as
under current law after 2 years. In sum, CBO estimates that
enacting S. 256 would increase revenues by about $60 million
over the 2006-2010 period and by about $144 million over the
2006-2015 period. (The change in offsetting receipts would be
matched by additional spending, resulting in no net change in
direct spending.)
Tax Provisions (Title VII). Title VII of S. 256 would alter
several provisions related to tax claims. It would alter the
treatment of certain tax liens, disallow the discharge of taxes
resulting from fraudulent tax returns under chapter 11 or
chapter 13 of the bankruptcy code, require periodic cash
payments of priority tax claims, and specify the rate of
interest on tax claims. Title VII also would change the status
of assessment periods for tax claims and would alter various
administrative requirements. Based on information from the
Internal Revenue Service and the Joint Committee on Taxation,
CBO estimates that these provisions would increase revenues,
but that any increase would be negligible.
ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
S. 256 contains intergovernmental mandates as defined in
UMRA, but CBO estimates that any resulting costs would not be
significant and would not exceed the threshold established in
UMRA ($62 million in 2005, adjusted annually for inflation).
Overall, CBO expects that enacting this act would benefit State
and local governments by enhancing their ability to collect
outstanding obligations in bankruptcy cases.
Mandates
Section 227 of the act would preempt State laws governing
contracts between a debt relief agency and a debtor but only to
the extent that those State laws are inconsistent with the
Federal requirements set forth in S. 256. Such preemptions are
mandates as defined in UMRA. Because the preemption would not
require States to take any action, CBO estimates that the costs
to comply with this mandate would not be significant.
Section 719 would require State and local income tax
procedures to conform to the Internal Revenue Code with regard
to dividing tax liabilities and responsibilities between the
estate and the debtor, the tax consequences of partnerships and
transfers of property, and the taxable period of the debtor.
CBO estimates that this provision would increase costs for the
administration of State and local tax laws but would not
require State and local tax rates to conform to the Federal
rates. Such administrative costs would not be significant and
would likely be offset by increased collections by State and
local governments.
Other Impacts
The changes to bankruptcy law in the act would affect State
and local governments primarily as creditors and holders of
claims against debtors for taxes or child support payments. In
addition, it would change some of the State statutes that
govern which of a debtor's assets are protected from creditors
in a bankruptcy proceeding.
According to the Federation of Tax Administrators, while
total bankruptcy filings have increased in the last decade, the
proportion of claims collected by States from taxpayers in
bankruptcy has remained relatively constant--about 5 percent of
claims owed. CBO cannot predict how much more money might be
collected under this legislation; however, we think that it is
likely that State and local governments would collect a greater
share of future claims than they would under current law.
Domestic Support Obligations. S. 256 would enhance a
State's ability to collect domestic support obligations,
including child support. Domestic support obligations owed to
State or local governments would be given priority over all
other claims except those same obligations owed to individuals.
The act would make those debts nondischargeable (not able to be
written-off at the end of bankruptcy). The act also would
require that filers under chapter 11 and 13 cases pay domestic
support obligations owed to government agencies or individuals
in order to receive a discharge of outstanding debts. In
addition, under S. 256, the automatic stay that is triggered by
filing bankruptcy would not apply to domestic support
obligations owed by debtors or withheld from regular income as
it currently does. The act also would require bankruptcy
trustees to notify individuals with domestic support claims of
their right to use the services of a State child support
enforcement agency and to notify the agency that it has done
so. The last known address of the debtor would be a part of the
notification.
Exemptions. Although bankruptcy is regulated according to
Federal statute, States are allowed to provide debtors with
certain exemptions for property, insurance, and other items
that are different from those allowed under the Federal
bankruptcy code. (Exempt property remains in possession of the
debtor and is not available to pay off creditors.) In some
States debtors can choose the Federal or State exemption; other
States require a debtor to use only the State exemptions. The
act would reduce the value of a debtor's homestead exemption
under certain circumstances. It also would place a monetary cap
on the value of certain property that the debtor may claim as
exempt under State or local law. The act would exempt certain
types of retirement and education savings as well as
contributions to specified employee benefit plans.
These exemption standards would apply regardless of the
State policy on exemptions. The new property-value limitations
could make more money available to creditors in some cases,
while the exemptions on some retirement, education, and other
savings generally would make less money available.
Time Limits on Tax Collection. Under some circumstances, a
tax claim can qualify for priority status, making it more
likely that a State or local government can collect the debt.
However, this status is granted only if a tax is assessed
within a specific period of time from the date of the
bankruptcy filing. If that filing is subsequently dismissed and
a new filing is made, the tax claim may lose its priority
status. The act would make adjustments to this provision,
allowing more time to pass in some circumstances, thus
increasing the likelihood that State or local tax claims would
maintain their priority status.
Taxes and Administrative Expenses. Under current law,
certain expenses and the priority of claims reduce the funds
that would otherwise be available to pay tax liens on property.
The act would increase the priority of those liens in certain
circumstances against certain expenses and claims, thereby
making it more likely that funds would remain available to
cover tax obligations. The act would allow State and local
governments to claim administrative expenses for costs incurred
by closing a health care business. The act would provide for a
more uniform interest rate on all tax claims and administrative
expenses, determined in accordance with applicable
nonbankruptcy law rather than at the discretion of a bankruptcy
judge.
Tax Return Filing. A number of provisions in the act would
require debtors to have filed tax returns before a bankruptcy
case may continue. Those provisions would help States identify
potential claims in bankruptcy cases where they may be owed
delinquent taxes.
Priority of Payments. In some circumstances under current
law, debtors have borrowed money or incurred some new
obligation that is dischargeable (able to be written-off at the
end of bankruptcy) to pay for an obligation that would not be
dischargeable. S. 256 would give the new debt the same priority
as the underlying debt. If the underlying debt had a priority
higher than that of State or local tax liabilities, State and
local governments could lose access to some funds. However, it
is possible that the underlying debt could be for a tax claim,
in which case, the taxing authority would face no loss. Because
it is unclear what types of nondischargeable debts are covered
by new debt and the degree to which this new provision would
discourage such activity, CBO can estimate neither the
direction nor the magnitude of the provision's impact on States
and localities.
Municipal Bankruptcy. Title V would clarify regulations
governing municipal bankruptcy actions and allow municipalities
that have filed for bankruptcy to liquidate certain financial
contracts.
Fuel Tax Claims. Under current law, all States owed fuel
tax under the International Fuel Tax Agreement must file
separate claims against debtors under the bankruptcy code. A
provision in title VII would allow a State designated under the
agreement to file a single claim on behalf of all States owed
the fuel taxes. That provision would simplify the filing
process.
Single Asset Cases. Title XII includes a provision that
would allow expedited bankruptcy proceedings in certain cases
where the debtor's principal asset is some form of real estate.
Enacting this provision could benefit State and local
governments to the extent that real property is returned to
productive tax rolls earlier.
ESTIMATED IMPACT ON THE PRIVATE SECTOR
S. 256 would establish means-testing of individual debtors
for determining eligibility for relief under chapter 7 of the
bankruptcy code. Under UMRA, duties arising from participation
in voluntary Federal programs are not mandates. The bankruptcy
process is largely voluntary for debtors, and debtor-initiated
bankruptcies are equivalent to participation in a voluntary
Federal program. Consequently, new duties imposed by the act on
individuals who file as debtors do not meet the definition of
private-sector mandates, and additional cost for debtors would
not be counted as direct costs for purposes of UMRA.
Mandates
S. 256 would impose private-sector mandates on bankruptcy
attorneys, creditors, preparers of bankruptcy petitions, debt-
relief agencies, consumer reporting agencies, and credit and
charge-card companies. Under the act:
Consumer bankruptcy attorneys would have to
make reasonable inquires to confirm that the
information in documents they submit to the court or to
the bankruptcy trustee is well-grounded in fact;
Creditors would have to make disclosures in
their agreements with debtors and provide certain
notices to the courts and debtors;
Preparers of bankruptcy petitions and debt-
relief agencies would also have to provide certain
notices to debtors;
Federal bankruptcy judges would have the
authority to prohibit consumer reporting agencies from
issuing a report containing any information relating to
certain involuntary bankruptcy petitions the court has
dismissed; and
Credit and charge-card companies would have
to disclose specified information in monthly billing
statements, introductory rate offers for new accounts,
Internet-based solicitations, credit extensions secured
by a dwelling, and for late payment deadlines and
penalties.
In addition, the act would prohibit credit and charge-card
companies from terminating a consumer credit account before its
expiration date because the consumer has not incurred finance
charges. CBO estimates that the direct costs of the mandates in
the act would exceed the annual threshold established by UMRA
($123 million in 2005, adjusted annually for inflation).
Requirements For Attorneys. Section 102 of the act would
make bankruptcy attorneys liable for misleading statements and
inaccuracies in schedules and documents submitted to the court
or to the trustee. To avoid sanctions and potential civil
penalties, attorneys would need to verify the information given
to them by their clients regarding the list of creditors,
assets and liabilities, and income and expenditures. Completing
a reasonable investigation of debtors' financial affairs and,
for chapter 7 cases, computing debtor eligibility, would
require attorneys to expend additional effort. Information from
the American Bar Association indicates that this requirement
would increase attorney costs by $150 to $500 per case. Based
on the 1.6 million projected filings under chapter 7
(liquidation) and chapter 13 (rehabilitation), CBO estimates
that the direct cost of complying with this mandate would be
between $240 million and $800 million in fiscal year 2007, the
first full year of implementation, and would remain in that
range through fiscal year 2010. CBO expects that some of the
additional costs incurred by attorneys would most likely be
passed on to their clients.
Notice and Disclosure Requirements. The act would require
certain notices to be disclosed as part of the bankruptcy
process. Section 203 would require a creditor with an unsecured
consumer debt seeking a reaffirmation agreement with a debtor
to provide certain disclosures. The agreement reaffirms the
debt discharged in bankruptcy between a holder of a claim and
the debtor. Those disclosures must be made clearly and
conspicuously in writing and include certain advisories and
explanations. The required disclosures could be incorporated
into existing standard reaffirmation agreements. Section 221
would require preparers of bankruptcy petitions who are not
attorneys to give debtors written notice explaining that the
preparer may not provide legal advice. Section 228 would
require a debt-relief agency providing bankruptcy assistance to
give certain written notices to those assisted and to execute
written contracts. The act also would require such agencies
also to supply certain advisories and explanations regarding
the bankruptcy process. Most attorneys and debt-relief
counselors currently provide similar information, and CBO
estimates that the direct costs of complying with those
mandates would be small.
S. 256 also would require credit lenders to provide
additional disclosures to consumers. It would require credit
and charge-card companies to include certain disclosures in
billing statements with respect to various open-end credit
plans regarding the disadvantages of making only the minimum
payment. Other disclosures would be required to be included in
application and solicitation materials involving introductory
rate offers, Internet-based credit card solicitations, credit
extensions secured by a dwelling, and for late payment
deadlines and penalties. Based on information from credit
lenders, CBO estimates that the incremental costs of complying
with the additional disclosure requirements would not be
substantial.
Prohibition on Consumer Reporting Agencies. Section 332
would give Federal bankruptcy judges the authority to prohibit
consumer reporting agencies from issuing a report containing
any information relating certain involuntary bankruptcy
petitions the court has dismissed. In the event that the court
uses such authority, the duty to comply with the prohibition
would be considered a private-sector mandate under UMRA.
According to industry representatives, the current practice of
consumer reporting agencies is to not report any information
when a court dismisses an involuntary bankruptcy petition.
Therefore, CBO estimates that the cost of complying with such a
mandate would be minimal if any.
Requirement for Closing Credit Accounts. In addition, S.
256 would prohibit termination of a credit account before its
expiration date because the consumer has not incurred finance
charges. According to industry representatives, credit and
charge-card companies do not close accounts based solely on the
fact that a consumer has not incurred any finance charges.
Thus, CBO expects there would be no direct cost to comply with
this prohibition.
Other Impacts on the Private Sector
S. 256 also contains many provisions that would benefit
creditors. Most significant for creditors are provisions that
are expected to shift some debtors from chapter 7 to chapter 13
bankruptcy proceedings and provisions that would expand the
types of debts that would be nondischargeable. By expanding the
types of debts that are nondischargeable, some creditors would
continue to receive payments on debts that would be discharged
under current law. Means-testing in the bankruptcy system would
likely result in more individuals being required to seek relief
under chapter 13 rather than chapter 7. Because chapter 13
requires debtors to develop a plan to repay creditors over a
specified period, the total pool of funds available for
distribution for creditors would likely increase. As long as
the likelihood of repayment by debtors and the pool of funds
increases by an amount greater than the cost to creditors of
administering the new bankruptcy code, creditors would be made
better off under the act.
PREVIOUS CBO ESTIMATE
On February 28, 2005, CBO transmitted a cost estimate for
S. 256 as ordered reported by the Senate Committee on the
Judiciary on February 17, 2005. The House Committee on the
Judiciary approved the same version of S. 256 as passed by the
Senate on March 10, 2005. The Senate-passed version of the
legislation and the version ordered reported by the Senate
Judiciary Committee have different provisions regarding the
distribution of bankruptcy filing fees. Our cost estimates
reflect those differences.
The private-sector mandates and cost estimates in the two
versions of S. 256 are identical, except for the mandate in
section 332 of the House Judiciary version. That mandate,
prohibiting consumer reporting agencies from issuing a report
containing any information relating to certain involuntary
bankruptcy petitions the court has dismissed, was not in the
previous version. CBO estimates that the aggregate cost of
mandates in each version of S. 256 would exceed UMRA's annual
threshold for private-sector mandates.
ESTIMATE PREPARED BY:
Federal Spending: Gregory Waring (226-2860)
Federal Revenues: Annabelle Bartsch (226-2720)
Impact on State, Local, and Tribal Governments: Melissa Merrell
(225-3220)
Impact on the Private Sector: Paige Piper/Bach (226-2940)
ESTIMATE APPROVED BY:
Peter H. Fontaine
Deputy Assistant Director for Budget Analysis
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
Rule XIII of the Rules of the House of Representatives, S. 256
is intended to improve the bankruptcy system by deterring
abuse, setting enhanced standards for bankruptcy professionals,
and streamlining case administration. It authorizes the
appointment of 28 temporary bankruptcy judgeships to address
the 59 percent increase in the caseload of bankruptcy judges
since 1992, when additional bankruptcy judgeships were last
authorized.
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.
Section-by-Section Analysis and Discussion
Sec. 1. Short Title; References; Table of Contents. The short
title of this measure is the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 ( the ``Act'').
TITLE I. NEEDS-BASED BANKRUPTCY
Sec. 101. Conversion. Under current law, section 706(c) of the
Bankruptcy Code provides that a court may not convert a chapter
7 case unless the debtor requests such conversion. Section 101
of the Act amends this provision to allow a chapter 7 case to
be converted to a case under chapter 12 or chapter 13 on
request or consent of the debtor.
Section 102. Dismissal or Conversion. Section 102 implements
needs-based debt relief, the legislation's principal consumer
bankruptcy reform. Under section 707(b) of the Bankruptcy Code,
a chapter 7 case filed by a debtor who is an individual may be
dismissed for substantial abuse only on motion of the court or
the United States trustee. It specifically prohibits such
dismissal at the suggestion of any party in interest.
Section 102 of the Act revises current law in several
significant respects. First, it amends section 707(b) of the
Bankruptcy Code to permit--in addition to the court and the
United States trustee--a trustee, bankruptcy administrator, or
a party in interest to seek dismissal or conversion of a
chapter 7 case to one under chapter 11 or 13 on consent of the
debtor, under certain circumstances. In addition, section 102
of the Act changes the current standard for dismissal from
``substantial abuse'' to ``abuse.'' Section 102 of the Act also
amends Bankruptcy Code section 707(b) to mandate a presumption
of abuse if the debtor's current monthly income (reduced by
certain specified amounts) when multiplied by 60 is not less
than the lesser of 25 percent of the debtor's nonpriority
unsecured claims or $6,000 (whichever is greater), or $10,000.
To determine whether the presumption of abuse applies under
section 707(b) of the Bankruptcy Code, section 102(a) of the
Act specifies certain monthly expense amounts that are to be
deducted from the debtor's ``current monthly income'' (a
defined term). These expense items include:
the applicable monthly expenses for the
debtor as well as for the debtor's dependents and
spouse in a joint case (if the spouse is not otherwise
a dependent) specified under the Internal Revenue
Service's National Standards (with provision for an
additional five percent for food and clothing if the
debtor can demonstrate that such additional amount is
reasonable and necessary) and the IRS Local Standards;
the actual monthly expenses for the debtor,
the debtor's dependents, and the debtor's spouse in a
joint case (if the spouse is not otherwise a dependent)
for the categories specified by the Internal Revenue
Service as Other Necessary Expenses;
reasonably necessary expenses incurred to
maintain the safety of the debtor and the debtor's
family from family violence as specified in section 309
of the Family Violence Prevention and Services Act or
other applicable Federal law, with provision for the
confidentiality of these expenses;
reasonably necessary expenses for health
insurance, disability insurance, and health savings
account expenditures for the debtor, the debtor's
spouse, and dependents of the debtor;
the debtor's average monthly payments on
account of secured debts and priority claims as
explained below; and
if the debtor is eligible to be a debtor
under chapter 13, the actual administrative expenses 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.
With respect to secured debts, Section 102(a)(2)(C) of the
Act specifies that the debtor's average monthly payments on
account of secured debts is calculated as the sum of the
following divided by 60: (1) all amounts scheduled as
contractually due to secured creditors for each month of the
60-month period following filing of the case; and (2) any
additional payments necessary, in filing a plan under chapter
13, 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.
With respect to priority claims, section 102(a)(2)(C) of
the Act specifies that the debtor's expenses for payment of
such claims (including child support and alimony claims) is
calculated as the total of such debts divided by 60.
The provision permits a debtor, if applicable, to deduct
from current monthly income 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
(providing such individual is unable to pay for these
expenses).
Under section 102, a debtor may also deduct the actual
expenses for each dependent child of a debtor to attend a
private or public elementary or secondary school up to $1,500
per child if the debtor: (1) documents such expenses, and (2)
provides a detailed explanation of why such expenses are
reasonable and necessary. In addition, the debtor must explain
why such expenses are not already accounted for under any of
the Internal Revenue Service National and Local Standards, and
Other Expenses categories.
Other expenses that a debtor may claim include additional
housing and utilities allowances based on the debtor's actual
home energy expenses if the debtor documents such expenses and
demonstrates that they are reasonable and necessary.
While the Act replaces the current law's presumption in
favor of granting relief requested by a chapter 7 debtor with a
presumption of abuse (if applicable under the income and
expense analysis previously described), it does provide that
this presumption may be rebutted under certain circumstances.
Section 102(a)(2)(C) of the Act amends Bankruptcy Code section
707(b) to provide that the presumption of abuse may be rebutted
only if: (1) the debtor demonstrates special circumstances,
such as a serious medical condition or a call or order to
active duty in the Armed Forces, to the extent such special
circumstances justify additional expenses or adjustments of
current monthly income for which there is no reasonable
alternative; and (2) the additional expenses or adjustments
cause the product of the debtor's current monthly income
(reduced by the specified expenses) when multiplied by 60 to be
less than the lesser of 25 percent of the debtor's nonpriority
unsecured claims, or $6,000 (whichever is greater); or $10,000.
In addition, the debtor must itemize and document each
additional expense or income adjustment as well as provide a
detailed explanation of the special circumstances that make
such expense or adjustment necessary and reasonable. Further,
the debtor must attest under oath to the accuracy of any
information provided to demonstrate that such additional
expense or adjustment to income is required.
To implement these needs-based reforms, the Act requires
the debtor to file, as part of the schedules of current income
and current expenditures, a statement of current monthly
income. This statement must show: (1) the calculations that
determine whether a presumption of abuse arises under section
707(b) (as amended), and (2) how each amount is calculated.
An exception to the needs-based test applies with respect
to a debtor who is a disabled veteran whose indebtedness
occurred primarily during a period when the individual was on
active duty (as defined in 10 U.S.C. Sec. 101(d)(1)) or
performing a homeland defense activity (as defined in 32 U.S.C.
Sec. 901(1)).
In a case where the presumption of abuse does not apply or
has been rebutted, section 102(a)(2)(C) of the Act amends
Bankruptcy Code section 707(b) to require a court to consider
whether: (1) the debtor filed the chapter 7 case in bad faith;
or (2) the totality of the circumstances of the debtor's
financial situation demonstrates abuse, including whether the
debtor wants to reject a personal services contract and the
debtor's financial need for such rejection.
Under section 102(a)(2)(C) of the Act, a court may on its
own initiative or on motion of a party in interest in
accordance with rule 9011 of the Federal Rules of Bankruptcy
Procedure, order a debtor's attorney to reimburse the trustee
for all reasonable costs incurred in prosecuting a section
707(b) motion if: (1) a trustee files such motion; (2) the
motion is granted; and (3) the court finds that the action of
the debtor's attorney in filing the case under chapter 7
violated rule 9011. If the court determines that the debtor's
attorney violated rule 9011, it may on its own initiative or on
motion of a party in interest in accordance with such rule,
order the assessment of an appropriate civil penalty against
debtor's counsel and the payment of such penalty to the
trustee, United States trustee, or bankruptcy administrator.
This provision clarifies that a motion for costs or the
imposition of a civil penalty must be made by a party in
interest or by the court itself in accordance with rule 9011.
Section 102(a)(2)(C) of the Act provides that the signature
of an attorney on a petition, pleading or written motion shall
constitute a certification that the attorney has: (1) performed
a reasonable investigation into the circumstances that gave
rise to such document; and (2) determined that such document is
well-grounded in fact and 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). In addition, such attorney's signature on the
petition constitutes a certification that the attorney has no
knowledge after an inquiry that the information in the
schedules filed with the petition is incorrect.
Section 102(a)(2)(C) of the Act amends section 707(b) of
the Bankruptcy Code to permit a court on its own initiative or
motion by a party in interest in accordance with rule 9011 of
the Federal Rules of Bankruptcy Procedure to award a debtor
reasonable costs (including reasonable attorneys' fees) in
contesting a section 707(b) motion filed by a party in interest
(other than a trustee, United States trustee or bankruptcy
administrator) if the court: (1) does not grant the section
707(b) motion; and (2) finds that either the movant violated
rule 9011, or the attorney (if any) who filed the motion did
not comply with section 707(b)(4)(C) and such was made solely
for the purpose of coercing a debtor into waiving a right
guaranteed under the Bankruptcy Code to such debtor. An
exception applies with respect to a movant that is a ``small
business'' with a claim in an aggregate amount of less than
$1,000. A small business, for purposes of this provision, is
defined as an unincorporated business, partnership,
corporation, association or organization that engages in
commercial or business activities and employs less than 25
full-time employees. The number of employees of a wholly owned
subsidiary includes the employees of the parent and any other
subsidiary corporation of the parent. Section 102(a)(2)(C) of
the Act clarifies that the motion for costs must be made by a
party in interest or by the court. The use of the phraseology
in this provision, ``in accordance with rule 9011 of the
Federal Rules of Bankruptcy Procedure,'' is intended to
indicate that the procedures for the motion of a party in
interest or a court acting on its own initiative are the
procedures outlined in rule 9011(c).
The Act includes two ``safe harbors'' with respect to its
needs-based reforms. One safe harbor allows only a judge,
United States trustee, or bankruptcy administrator to file a
section 707(b) motion (based on the debtor's ability to repay,
bad faith, or the totality of the circumstances) if the chapter
7 debtor's current monthly income (or in a joint case, the
income of the debtor and the debtor's spouse) falls below 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 Act's second safe harbor only pertains to a motion
under section 707(b)(2), that is, a motion to dismiss based on
a debtor's ability to repay. It does not allow a judge, United
States trustee, bankruptcy administrator or party in interest
to file such motion if the income of the debtor (including a
veteran, as that term is defined in 38 U.S.C. Sec. 101) and the
debtor's spouse is less than certain monetary thresholds. This
provision does not consider the nonfiling spouse's income if
the debtor and the debtor's spouse are separated under
applicable nonbankruptcy law, or the debtor and the debtor's
spouse are living separate and apart, other than for the
purpose of evading section 707(b)(2). The debtor must file a
statement under penalty of perjury specifying that he or she
meets one of these criteria. In addition, the statement must
disclose the aggregate (or best estimate) of the amount of any
cash or money payments received from the debtor's spouse
attributed to the debtor's current monthly income.
Section 102(b) of the Act amends section 101 of the
Bankruptcy Code to define ``current monthly income'' as the
average monthly income that the debtor receives (or in a joint
case, the debtor and debtor's spouse receive) from all sources,
without regard to whether it is taxable income, in a specified
six-month period preceding the filing of the bankruptcy case.
The Act specifies that the six-month period is determined as
ending on the last day of the calendar month immediately
preceding the filing of the bankruptcy case, if the debtor
files the statement of current income required by Bankruptcy
Code section 521. If the debtor does not file such schedule,
the court determines the date on which current income is
calculated.
``Current monthly income'' includes any amount paid by any
entity other than the debtor (or, in a joint case, the debtor
and the debtor's spouse if not otherwise a dependent) on a
regular basis for the household expenses of the debtor or the
debtor's dependents (and, the debtor's spouse in a joint case,
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. In addition, the Act provides that current monthly
income does not include payments to victims of international or
domestic terrorism as defined in section 2331 of title 18 of
the United States Code on account of their status as victims of
such terrorism.
Section 102(c) of the Act amends section 704 of the
Bankruptcy Code to require the United States trustee or
bankruptcy administrator in a chapter 7 case where the debtor
is an individual to: (1) review all materials filed by the
debtor; and (2) file a statement with the court (within ten
days following the meeting of creditors held pursuant to
section 341 of the Bankruptcy Code) as to whether or not the
debtor's case should be presumed to be an abuse under section
707(b). The court must provide a copy of such statement to all
creditors within five days after its filing. Within 30 days of
the filing of such statement, the United States trustee or
bankruptcy administrator must file either: (1) a motion under
section 707(b); or (2) a statement setting forth the reasons
why such motion is not appropriate in any case where the
debtor's filing should be presumed to be an abuse and the
debtor's current monthly income exceeds certain monetary
thresholds.
In a chapter 7 case where the presumption of abuse applies
under section 707(b), section 102(d) of the Act amends
Bankruptcy Code section 342 to require the clerk to provide
written notice to all creditors within ten days after
commencement of the case stating that the presumption of abuse
applies in such case.
Section 102(e) of the Act provides that nothing in the
Bankruptcy Code limits the ability of a creditor to give
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) of the Act adds a provision to Bankruptcy
Code section 707 to permit the court to dismiss a chapter 7
case filed by a debtor who is an individual on motion by a
victim of a crime of violence (as defined in section 16 of
title 18 of the United States Code) or a drug trafficking crime
(as defined in section 924(c)(2) of title 18 of the United
States Code). The case may be dismissed if the debtor was
convicted of such crime and dismissal is in the best interest
of the victim, unless the debtor establishes by a preponderance
of the evidence that the filing of the case is necessary to
satisfy a claim for a domestic support obligation.
Section 102(g) of the Act amends section 1325(a) of the
Bankruptcy Code to require the court, as a condition of
confirming a chapter 13 plan, to find that the debtor's action
in filing the case was in good faith.
Section 102(h) of the Act amends section 1325(b)(1) of the
Bankruptcy Code to specify that the court must find, in
confirming a chapter 13 plan to which there has been an
objection, that the debtor's disposable income will be paid to
unsecured creditors. It also amends section 1325(b)(2)'s
definition of disposable income. As defined under this
provision, the term means income received by the debtor (other
than child support payments, foster care payments, or certain
disability payments for a dependent child) less amounts
reasonably necessary to be expended for: (1) the maintenance or
support of the debtor or the debtor's dependent; (2) a domestic
support obligation that first becomes due after the case is
filed; (3) charitable contributions (as defined in Bankruptcy
Code section 548(d)(3)) to a qualified religious or charitable
entity or organization (as defined in Bankruptcy Code section
548(d)(4)) in an amount that does not exceed 15 percent of the
debtor's gross income for the year in which the contributions
are made; and (4) if the debtor is engaged in business, the
payment of expenditures necessary for the continuation,
preservation, and operation of the business. Section 1325(b)(3)
provides that the amounts reasonably necessary to be expended
under section 1325(b)(2) are determined in accordance with
section 707(b)(2)(A) and (B) if the debtor's income exceeds
certain monetary thresholds.
Section 102(i) of the Act amends Bankruptcy Code section
1329(a) to require the amounts paid under a confirmed chapter
13 plan to be reduced by the actual amount expended by the
debtor to purchase health insurance for the debtor and the
debtor's dependents (if those dependents do not otherwise have
such insurance) if the debtor documents the cost of such
insurance and demonstrates such expense is reasonable and
necessary, and the amount is not otherwise allowed for purposes
of determining disposable income under section 1325(b). If the
debtor previously paid for health insurance, the debtor must
demonstrate that the amount is not materially greater than the
amount the debtor previously paid. If the debtor did not
previously have such insurance, the amount may not be not
materially larger than the reasonable cost that would be
incurred by a debtor with similar characteristics. Upon request
of any party in interest, the debtor must file proof that a
health insurance policy was purchased.
Section 102(j) of the Act amends section 104 of the
Bankruptcy Code to provide for the periodic adjustment of
monetary amounts specified in sections 707(b) and 1325(b)(3) of
the Bankruptcy Code, as amended by this Act.
Section 102(k) adds to section 101 of the Bankruptcy Code a
definition of ``median family income.''
Sec. 103. Sense of Congress and Study. Section 103(a) of the
Act expresses the sense of Congress that the Secretary of the
Treasury has the authority to alter the Internal Revenue
Service expense standards to set guidelines for repayment plans
as needed to accommodate their use under section 707(b) of the
Bankruptcy Code, as amended. Section 103(b) requires the
Executive Office for United States Trustees to submit a report
within two years from the date of the Act's enactment regarding
the utilization of the Internal Revenue Service expense
standards for determining the current monthly expenses of a
debtor under section 707(b) and the impact that the application
of these standards has had on debtors and the bankruptcy
courts. The report may include recommendations for amendments
to the Bankruptcy Code that are consistent with the report's
findings.
Sec. 104. Notice of Alternatives. Section 104 of the Act amends
section 342(b) of the Bankruptcy Code to require the clerk,
before the commencement of a bankruptcy case by an individual
whose debts are primarily consumer debts, to supply such
individual with a written notice containing: (1) a brief
description of chapters 7, 11, 12, and 13 and the general
purpose, benefits, and costs of proceeding under each of these
chapters; (2) the types of services available from credit
counseling agencies; (3) a statement advising that 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 (4) a statement warning that all information supplied
by a debtor in connection with the case is subject to
examination by the Attorney General.
Sec. 105. Debtor Financial Management Training Test Program.
Section 105 of the Act requires the Director of the Executive
Office for United States Trustees to: (1) consult with a wide
range of debtor education experts who operate financial
management education programs; and (2) develop a financial
management training curriculum and materials that can be used
to teach individual debtors how to manage their finances
better. The Director must select six judicial districts to test
the effectiveness of the financial management training
curriculum and materials for an 18-month period beginning not
later than 270 days after the Act's enactment date. For these
six districts, the curricula and materials must be used as the
instructional personal financial management course required
under Bankruptcy Code section 111. Over the period of the
study, the Director must evaluate the effectiveness of the
curriculum and materials as well as consider 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 three months after
concluding such evaluation, the Director must submit to
Congress a report with findings regarding the effectiveness and
cost of the curricula, materials, and programs.
Sec. 106. Credit Counseling. Section 106(a) of the Act amends
section 109 of the Bankruptcy Code to require an individual--as
a condition of eligibility for bankruptcy relief--to 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 be conducted telephonically or via
the Internet) that outlined opportunities for available credit
counseling and assisted the individual in performing a budget
analysis. This requirement does not apply to a debtor who
resides in a district where the United States trustee or
bankruptcy administrator has determined that approved nonprofit
budget and credit counseling agencies in that district are not
reasonably able to provide adequate services to such
individuals. Although such determination must be reviewed
annually, the United States trustee or bankruptcy administrator
may disapprove a nonprofit budget and credit counseling agency
at any time.
A debtor may be temporarily exempted from this requirement
if he or she submits to the court 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 five-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 up to an additional 15 days.
In addition, the mandatory credit counseling requirement
does not apply to a debtor whom the court determines, after
notice and a hearing, is unable to complete this requirement
because of incapacity, disability, or active military duty in a
military combat zone. Incapacity, under this provision, means
the debtor is impaired by reason of mental illness or mental
deficiency so that the debtor is incapable of realizing and
making rational decisions with respect to his or her financial
responsibilities. Disability, under this provision, means the
debtor is so physically impaired as to be unable, after
reasonable effort, to receive credit counseling whether by
participating in person, or via telephone or Internet briefing.
Section 106(b) of the Act amends section 727(a) of the
Bankruptcy Code to deny a discharge to a chapter 7 debtor who
fails to complete a personal financial management instructional
course. 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. In addition, it does not
apply to a debtor whom the court determines, after notice and a
hearing, is unable to complete this requirement because of
incapacity, disability, or active military duty in a military
combat zone.
Section 106(c) of the Act amends section 1328 of the
Bankruptcy Code to deny a discharge to a chapter 13 debtor who
fails to complete a personal financial management instructional
course. This requirement 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. In addition, it does not apply to a
debtor whom the court determines, after notice and a hearing,
is unable to complete this requirement because of incapacity,
disability, or active military duty in a military combat zone.
Section 106(d) of the Act amends section 521 of the
Bankruptcy Code to require a debtor who is an individual to
file with the court: (1) a certificate from an approved
nonprofit budget and credit counseling agency describing the
services it provided the debtor pursuant to section 109(h); and
(2) a copy of the repayment plan, if any, that was developed by
the agency pursuant to section 109(h).
Section 106(e) of the Act adds section 111 to the
Bankruptcy Code requiring the clerk to maintain a publicly
available list of approved: (1) credit counseling agencies that
provide the services described in section 109(h) of the
Bankruptcy Code; and (2) personal financial management
instructional courses. Section 106(e) further provides that the
United States trustee or bankruptcy administrator may only
approve an agency or course provider under this provision
pursuant to certain specified criteria. These include, for
example, if a fee is charged for such services by the agency or
course provider, the fee must be reasonable and such services
must be provided without regard to ability to pay the fee. If
such agency or provider course is approved, the approval may
only be for a probationary period of up to six 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 one-year
period and, thereafter for successive one-year periods, which
has demonstrated during such period that it met the standards
set forth in this provision and can satisfy such standards in
the future.
Within 30 days after any final decision occurring after the
expiration of the initial probationary period or after any
subsequent period, an interested person may seek judicial
review of such decision in the appropriate United States
district court. In addition, the district court, at any time,
may investigate the qualifications of a credit counseling
agency and request the production of documents to ensure the
agency's integrity and effectiveness. The district court may
remove a credit counseling agency that does not meet the
specified qualifications from the approved list. The United
States trustee or bankruptcy administrator must notify the
clerk that a credit counseling agency or instructional course
is no longer approved and the clerk must remove such entity
from the approved list.
Section 106(e) prohibits a credit counseling agency from
providing information to a credit reporting agency as to
whether an individual debtor has received or sought personal
financial management instruction. 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 in an action to recover such damages.
Section 106(f) of the Act amends section 362 of the
Bankruptcy Code to provide that if a chapter 7, 11, or 13 case
is dismissed due to the creation of a debt repayment plan, the
presumption that a case was not filed in good faith under
section 362(c)(3) shall not apply to any subsequent bankruptcy
case commenced by the debtor. It also provides 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.
Sec. 107. Schedules of Reasonable and Necessary Expenses. For
purposes of section 707(b) of the Bankruptcy Code, section 107
of the Act 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 not later than 180 days after
the date of enactment of the Act.
TITLE II. ENHANCED CONSUMER PROTECTION
Subtitle A. Penalties for Abusive Creditor Practices
Sec. 201. Promotion of Alternative Dispute Resolution.
Subsection (a) of section 201 of the Act amends section 502 of
the Bankruptcy Code to permit the court, after a hearing on
motion of the debtor, to reduce a claim based in whole on an
unsecured consumer debt by up to 20 percent if: (1) 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; (2)
the debtor's offer was made at least 60 days before the filing
of the case; (3) the offer provided for payment of at least 60
percent of the debt over a period not exceeding the loan's
repayment period or a reasonable extension thereof; and (4) no
part of the debt is nondischargeable. The debtor has the burden
of proving by clear and convincing evidence that: (1) the
creditor unreasonably refused to consider the debtor's
proposal; and (2) the proposed alternative repayment schedule
was made prior to the expiration of the 60-day period. 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.
Sec. 202. Effect of Discharge. Section 202 of the Act amends
section 524 of the Bankruptcy Code in two respects. First, it
provides that the willful failure of a creditor to credit
payments received under a confirmed chapter 11, 12, or 13 plan
constitutes a violation of the discharge injunction if the
creditor's action to collect and failure to credit payments in
the manner required by the plan caused material injury to the
debtor. This provision does not apply if the order confirming
the plan is revoked, the plan is in default, or the creditor
has not received payments required to be made under the plan in
the manner prescribed by the plan. Second, section 202 amends
section 524 of the Bankruptcy Code to provide that the
discharge injunction does not apply to a creditor having a
claim secured by an interest in real property that is the
debtor's principal residence if the creditor communicates with
the debtor in the ordinary course of business between the
creditor and the debtor and such communication is limited to
seeking or obtaining periodic payments associated with a valid
security interest in lieu of the pursuit of in rem relief to
enforce the lien.
Sec. 203. Discouraging Abuse of Reaffirmation Agreement
Practices. Section 203 of the Act effectuates a comprehensive
overhaul of the law applicable to reaffirmation agreements.
Subsection (a) amends section 524 of the Bankruptcy Code to
mandate that certain specified disclosures be provided to a
debtor at or before the time he or she signs a reaffirmation
agreement. These specified disclosures, which are the only
disclosures required in connection with a reaffirmation
agreement, must be in writing and be made clearly and
conspicuously. In addition, the disclosure 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 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 fully advised the debtor of the legal effect and
consequences of such agreement as well as of any default
thereunder. In those instances where the presumption of undue
hardship applies, the attorney must also certify 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 actual
current monthly 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 must be used.
Notwithstanding any other provision of the Bankruptcy Code,
section 203(a) permits a creditor to accept payments from a
debtor: (1) before and after the filing of a reaffirmation
agreement with the court; or (2) pursuant to a reaffirmation
agreement that the creditor believes in good faith to be
effective. It further provides that the requirements specified
in subsections (c)(2) and (k) of section 524 are satisfied if
the disclosures required by these provisions are given in good
faith.
Where the amount of the scheduled payments due on the
reaffirmed debt (as disclosed in the debtor's statement)
exceeds 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. The court must review such presumption, which can be
rebutted by the debtor by a written statement explaining the
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 if the creditor is a credit union.
Section 203(b) amends title 18 of the United States Code to
require the Attorney General to designate a United States
Attorney for each judicial district and to appoint a Federal
Bureau of Investigation agent for each field office to have
primary law enforcement responsibilities for violations of
sections 152 and 157 of title 18 with respect to abusive
reaffirmation agreements and materially fraudulent statements
in bankruptcy schedules that are intentionally false or
misleading. In addition, section 203(b) provides that the
designated United States Attorney has primary responsibility
with respect to bankruptcy investigations under section 3057 of
title 18. Section 203(b) further provides that the bankruptcy
courts must establish procedures for referring any case in
which a materially fraudulent bankruptcy schedule has been
filed.
Sec. 204. Preservation of Claims and Defenses Upon Sale of
Predatory Loans. Section 204 of the Act adds a provision to
section 363 of the Bankruptcy Code with respect to sales of any
interest in a consumer transaction that is subject to the Truth
in Lending Act or any interest in a consumer credit contract
(as defined in section 433.1 of title 16 of the Code of Federal
Regulations). It provides that the purchaser of such interest
remains subject to all claims and defenses that are related to
such assets to the same extent as that person would be subject
to if the sale was not conducted under section 363.
Sec. 205. GAO Study and Report on Reaffirmation Agreement
Process. Section 205 of the Act directs the Comptroller General
of the United States to report to Congress on how consumers are
treated in connection with the reaffirmation agreement process.
This report must include: (1) the policies and activities of
creditors with respect to reaffirmation agreements; and (2)
whether such consumers are fully, fairly, and consistently
informed of their rights under the Bankruptcy Code. The report,
which must be completed not later than 18 months after the date
of enactment of this Act, may include recommendations for
legislation to address any abusive or coercive tactics found in
connection with the reaffirmation process.
Subtitle B. Priority Child Support
Sec. 211. Definition of Domestic Support Obligation. Section
211 of the Act amends section 101 of the Bankruptcy Code to
define a domestic support obligation as a debt that accrues
before, on, or after the date of the order for relief and that
it includes interest that accrues pursuant to applicable
nonbankruptcy law. As defined in the Act, the term includes a
debt owed to or recoverable by: (1) a spouse, former spouse, or
child of the debtor, or such child's parent, legal guardian, or
responsible relative; or (2) a governmental unit. To qualify as
a domestic support obligation, the debt must be in the nature
of alimony, maintenance, or support (including assistance
provided by a governmental unit), without regard to whether
such debt is expressly so designated. It must be established or
subject to establishment before, on, or after the date of the
order of relief pursuant to: (1) a separation agreement,
divorce decree, or property settlement agreement; (2) an order
of a court of record; or (3) 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.
Sec. 212. Priorities for Claims for Domestic Support
Obligations. Section 212 of the Act amends section 507(a) of
the Bankruptcy Code to accord first priority in payment to
allowed unsecured claims for domestic support obligations that,
as of the petition date, 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 such claim is filed by the claimant or by a
governmental unit on behalf of such claimant, on the condition
that funds received by such unit under this provision be
applied and distributed in accordance with nonbankruptcy law.
Subject to these claims, section 212 accords the same payment
priority to allowed unsecured claims for domestic support
obligations that, as of the petition date, were 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 the claimant assigned the claim
voluntarily for the purpose of collecting the debt), or are
owed directly to or recoverable by a governmental unit under
applicable nonbankruptcy law, on the condition that funds
received by such unit under this provision be applied and
distributed in accordance with nonbankruptcy law. Where a
trustee administers assets that may be available for payment of
domestic support obligations under section 507(a)(1) (as
amended), administrative expenses of the trustee allowed under
section 503(b)(1)(A), (2) and (6) of the Bankruptcy Code must
be paid before such claims to the extent the trustee
administers assets that are otherwise available for the payment
of these claims.
Sec. 213. Requirements To Obtain Confirmation and Discharge in
Cases Involving Domestic Support Obligations. With respect to
chapter 11 cases, section 213(1) adds a condition for
confirmation of a plan. It amends section 1129(a) of the
Bankruptcy Code to provide that if a chapter 11 debtor is
required by judicial or administrative order or statute to pay
a domestic support obligation, then the debtor must pay all
amounts payable under such order or statute that became payable
postpetition as a prerequisite for confirmation.
With respect to chapter 12 cases, section 213(2) of the Act
amends section 1208(c) of the Bankruptcy Code to provide that
the failure of a debtor to pay any domestic support obligation
that first becomes payable postpetition is cause for conversion
or dismissal of the case. Section 213(3) amends Bankruptcy Code
section 1222(a) to permit a chapter 12 debtor to propose a plan
paying less than full payment of all amounts owed for a claim
entitled to priority under Bankruptcy Code section 507(a)(1)(B)
if all of the debtor's projected disposable income for a five-
year period is applied to make payments under the plan. Section
213(4) of the Act amends Bankruptcy Code section 1222(b) to
permit a chapter 12 debtor to propose a plan that pays
postpetition interest on claims that are nondischargeable under
Section 1228(a), but only to the extent that the debtor has
disposable income available to pay such interest after payment
of all allowed claims in full. Section 213(5) amends Bankruptcy
Code section 1225(a) to provide that if a chapter 12 debtor is
required by judicial or administrative order or statute to pay
a domestic support obligation, then the debtor must pay such
obligations pursuant to such order or statute that became
payable postpetition as a condition of confirmation. Section
213(6) amends Bankruptcy Code section 1228(a) to condition the
granting of a chapter 12 discharge upon the debtor's payment of
certain postpetition domestic support obligations.
With respect to chapter 13 cases, section 213(7) of the Act
amends Bankruptcy Code section 1307(c) to provide that the
failure of a debtor to pay any domestic support obligation that
first becomes payable postpetition is cause for conversion or
dismissal of the debtor's case. Section 213(8) amends
Bankruptcy Code section 1322(a) to permit a chapter 13 debtor
to propose a plan paying less than the full amount of a claim
entitled to priority under Bankruptcy Code section 507(a)(1)(B)
if the plan provides that all of the debtor's projected
disposable income over a five-year period will be applied to
make payments under the plan. Section 213(9) amends Bankruptcy
Code section 1322(b) to permit a chapter 13 debtor to propose a
plan that pays postpetition interest on nondischargeable debts
under section 1328(a), but only to the extent that the debtor
has disposable income available to pay such interest after
payment in full of all allowed claims. Section 213(10) amends
Bankruptcy Code section 1325(a) to provide that if a chapter 13
debtor is required by judicial or administrative order or
statute to pay a domestic support obligation, then the debtor
must pay all such obligations pursuant to such order or statute
that became payable postpetition as a condition of
confirmation. Section 213(11) amends Bankruptcy Code section
1328(a) to condition the granting of a chapter 13 discharge on
the debtor's payment of certain postpetition domestic support
obligations.
Sec. 214. Exceptions To Automatic Stay in Domestic Support
Proceedings. Under current law, section 362(b)(2) of the
Bankruptcy Code excepts from the automatic stay the
commencement or continuation of an action or proceeding: (1)
for the establishment of paternity; or (2) the establishment or
modification of an order for alimony, maintenance or support.
It also permits the collection of such obligations from
property that is not property of the estate. Section 214 makes
several revisions to Bankruptcy Code section 362(b)(2). First,
it replaces the reference to ``alimony, maintenance or
support'' with ``domestic support obligations.'' Second, it
adds to section 362(b)(2) actions or proceedings concerning:
(1) child custody or visitation; (2) the dissolution of a
marriage (except to the extent such proceeding seeks division
of property that is property of the estate); and (3) domestic
violence. Third, it permits 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 as well as 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. Fourth, it
authorizes 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. Fifth, it permits the interception of
tax refunds as authorized by sections 464 and 466(a)(3) of the
Social Security Act or analogous state law. Sixth, it allows
medical obligations, as specified under title IV of the Social
Security Act, to be enforced notwithstanding the automatic
stay.
Sec. 215. Nondischargeability of Certain Debts for Alimony,
Maintenance, and Support. Section 215 of the Act amends
Bankruptcy Code section 523(a)(5) to provide that a ``domestic
support obligation'' (as defined in section 211 of the Act) is
nondischargeable and eliminates Bankruptcy Code section
523(a)(18). Section 215(2) amends Bankruptcy Code section
523(c) to delete the reference to section 523(a)(15) in that
provision. Section 215(3) amends section 523(a)(15) to provide
that obligations to a spouse, former spouse, or a child of the
debtor (not otherwise described in section 523(a)(5)) incurred
in connection with a divorce or separation or related action
are nondischargeable irrespective of the debtor's inability to
pay such debts.
Sec. 216. Continued Liability of Property. Section 216(1) of
the Act 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. Section 216(2) and (3) make
conforming amendments to sections 522(f)(1)(A) and 522(g)(2) of
the Bankruptcy Code.
Sec. 217. Protection of Domestic Support Claims Against
Preferential Transfer Motions. Section 217 of the Act makes a
conforming amendment to Bankruptcy Code section 547(c)(7) to
provide that a bona fide payment of a debt for a domestic
support obligation may not be avoided as a preferential
transfer.
Sec. 218. Disposable Income Defined. Section 218 of the Act
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.
Sec. 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 notices to child support claimants and governmental
enforcement agencies. In addition, the Act conforms internal
statutory cross references to Bankruptcy Code section
523(a)(14A) and deletes the reference to Bankruptcy Code
section 523(a)(14) with respect to chapter 13, as this
provision is inapplicable to that chapter.
Section 219(a) requires a chapter 7 trustee to provide
written notice to a domestic support claimant 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 for assistance in
collecting child support during and after the bankruptcy case.
The notice must include the agency's address and telephone
number as well as explain the claimant's right to payment under
the applicable chapter of the Bankruptcy Code. In addition, the
trustee must provide written notice to the claimant and the
agency of such claim and include the name, address, and
telephone number of the child support claimant. At the time the
debtor is granted a discharge, the trustee must notify both the
child support claimant and the 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 was reaffirmed pursuant to Bankruptcy Code
section 524. A claimant or agency may request the debtor's last
known address 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. A
creditor who discloses such information, however, is not liable
to the debtor or any other person by reason of such disclosure.
Subsections (b), (c), and (d) of section 219 of the Act impose
comparable requirements for chapter 11, 12, and 13 trustees.
Sec. 220. Nondischargeability of Certain Educational Benefits
and Loans. Section 220 of the Act 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
Sec. 221. Amendments To Discourage Abusive Bankruptcy Filings.
Section 221 of the Act makes a series of amendments to section
110 of the Bankruptcy Code. First, section 221 clarifies that
the definition of a bankruptcy petition preparer does not
include an attorney for a debtor or an employee of an attorney
under the direct supervision of such attorney. Second, it
amends subsections (b) and (c) 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 (as
prescribed by the Judicial Conference of the United States)
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. Such
notice must be signed by the preparer under penalty of perjury
and the debtor and be filed with any document for filing.
Fourth, the petition preparer is prohibited from giving legal
advice, including with respect to certain specified items.
Fifth, it permits the Supreme Court to promulgate rules or the
Judicial Conference of the United States to issue guidelines
for setting the maximum fees that a bankruptcy petition
preparer may charge for services. Sixth, section 221 requires
the preparer to notify the debtor of such maximum fees.
Seventh, it specifies that the bankruptcy petition preparer
must certify that it complied with this notification
requirement. Eighth, it requires the court to order the
turnover of any fees in excess of the value of the services
rendered by the preparer within the 12-month period preceding
the bankruptcy filing. Ninth, section 221 provides that all
fees charged by a preparer may be forfeited if the preparer
fails to comply with certain requirements specified in
Bankruptcy Code section 110, as amended by this provision.
Tenth, it allows a debtor to exempt fees recovered under this
provision pursuant to Bankruptcy Code section 522(b). Eleventh,
it specifically authorizes the court to enjoin a bankruptcy
petition preparer who has violated a court order issued under
section 110. Twelfth, it generally revises section 110's
penalty provisions and requires such penalties to be paid into
a special fund of the United States trustee for the purpose of
funding the enforcement of section 110 on a national basis.
With respect to Bankruptcy Administrator districts, the funds
are to be deposited as offsetting receipts pursuant to section
1931 of title 28 of the United States Code.
Sec. 222. Sense of Congress. Section 222 of the Act expresses
the sense of Congress that the states should develop personal
finance curricula for use in elementary and secondary schools.
Sec. 223. Additional Amendments to Title 11, United States
Code. Section 223 of the Act amends section 507(a) of the
Bankruptcy Code to accord a tenth-level priority to claims for
death or personal injuries resulting from the debtor's
operation of a motor vehicle or vessel while intoxicated.
Sec. 224. Protection of Retirement Savings in Bankruptcy. The
intent of section 224 is to expand the protection for tax-
favored retirement plans or arrangements that may not be
already protected under Bankruptcy Code section 541(c)(2)
pursuant to Patterson v. Shumate,\84\ or other state or Federal
law. Subsection (a) of section 224 of the Act amends section
522 of the Bankruptcy Code to permit a debtor to exempt certain
retirement funds to the extent 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 that is in effect as of the
date of the commencement of the case. 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 requirements of the Internal Revenue Code, the
debtor may claim the retirement funds as exempt if he or she 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.
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\84\ 504 U.S. 753 (1992).
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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(c) 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
subject to Internal Revenue Code section 72(p) or with respect
to a loan from certain thrift savings plans. Section 224(b)
further provides that this exception may not be used to cause
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 to be construed to be a claim or debt within the
meaning of the Bankruptcy Code.
Section 224(c) amends Bankruptcy Code section 523(a) 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) or with respect
to a loan from certain thrift savings plans. Section 224(c)
further provides that this exception to discharge may not be
used to cause 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 to be construed to be a claim or debt
within the meaning of the Bankruptcy Code.
Section 224(d) amends Bankruptcy Code section 1322 to
provide that a chapter 13 plan may not materially alter the
terms of a loan described in section 362(b)(19) and 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 interests of justice.
Sec. 225. Protection of Education Savings in Bankruptcy.
Subsection (a) of section 225 of the Act amends section 541 of
the Bankruptcy Code to provide that funds placed not later than
365 days before the filing of the bankruptcy case in an
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). Funds deposited between 720 days and 365 days
before the filing date are protected to the extent they do not
exceed $5,000. 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)
amends Bankruptcy Code section 521 to require 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.
Sec. 226. Definitions. Subsection (a) of section 226 of the Act
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 to an assisted person 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 case or
proceeding on behalf of a person; or providing legal
representation in 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 specifically excludes certain entities. First, it
does not apply to a person who is an officer, director,
employee, or agent of a person who provides bankruptcy
assistance or of a bankruptcy petition preparer. Second, it is
not applicable to a nonprofit organization exemption from
taxation under section 501(c)(3) of the Internal Revenue Code.
Third, it is inapplicable to a creditor who assisted such
person to the extent the assistance pertained to the
restructuring of any debt owed by the person to the creditor.
Fourth, the definition does not apply to a depository
institution (as defined in section 3 of the Federal Deposit
Insurance Act), or any Federal or state credit union (as
defined in section 101 of the Federal Credit Union Act), as
well as any affiliate or subsidiary of such depository
institution or credit union. Fifth, 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 is not within the ambit of this definition.
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.
Sec. 227. Restrictions on Debt Relief Agencies. Section 227 of
the Act creates a new provision in the Bankruptcy Code intended
to proscribe certain activities of a debt relief agency. It
prohibits such agency from: (1) failing to perform any service
that it informed an assisted person it would provide; (2)
advising an assisted person to make an untrue and misleading
statement (or that upon the exercise of reasonable care, should
have been known to be untrue or misleading) in a document filed
in a bankruptcy case; (3) misrepresenting the services it
provides and the benefits and risks of bankruptcy; and (4)
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.
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. The chief law enforcement officer of a state who has
reason to believe that a person has violated or is violating
section 526 may seek to have such violation enjoined and
recover actual damages. 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.
Sec. 228. Disclosures. Section 228 of the Act requires a debt
relief agency to provide certain specified 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) the 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.
Sec. 229. Requirements for Debt Relief Agencies. Section 229
adds a provision to the Bankruptcy Code requiring 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 bankruptcy
petition being filed)--to execute a written contract with the
assisted person. The contract must specify 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. 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.
Sec. 230. GAO Study. Section 230 of the Act directs the
Comptroller General of the United States to study and prepare a
report on the feasibility, efficacy and cost of requiring
trustees 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.
Sec. 231. Protection of Personally Identifiable Information.
Section 231 of the Act clarifies that it applies to personally
identifiable information and does not preempt applicable
nonbankruptcy law. In addition, the provision specifies that
court approval must be preceded by the appointment of a privacy
ombudsman to effectuate the intent of this provision.
Subsection (a) amends Bankruptcy Code section 363(b)(1) to
provide that if a debtor, in connection with offering a product
or service, discloses to an individual a policy prohibiting the
transfer of personally identifiable information to persons
unaffiliated with the debtor, and the policy is in effect at
the time of the bankruptcy filing, then the trustee may not
sell or lease such information unless either of the following
conditions is satisfied: (1) the sale is consistent with such
policy; or (2) the court, after appointment of a consumer
privacy ombudsman (pursuant to section 332 of the Bankruptcy
Code, as amended) and notice and hearing, the court approves
the sale or lease upon due consideration of the facts,
circumstances, and conditions of the sale or lease.
Section 231(b) amends Bankruptcy Code section 101 to add a
definition of ``personally identifiable information.'' The term
applies to information provided by an individual to the debtor
in connection with obtaining a product or service from the
debtor primarily for personal, family, or household purposes.
It includes the individual's: (1) first name or initial and
last name (whether given at birth or adoption or legally
changed); (2) physical home address; (3) electronic address,
including an e-mail address; (4) home telephone number; (5)
Social Security account number; or (vi) credit card account
number. The term also includes information if it is identified
in connection with the above items: (1) an individual's birth
date, birth or adoption certificate number, or place of birth;
or (2) any other information concerning an identified
individual that, if disclosed, will result in the physical or
electronic contacting or identification of that person.
Sec. 232. Consumer Privacy Ombudsman. Section 232 implements
the preceding provision of the Act with respect to the
appointment and responsibilities of a consumer privacy
ombudsman. It provides that if a hearing is required under
section 363(b)(1)(B) (as amended), the court must order the
United States trustee to appoint a disinterested person to
serve as the consumer privacy ombudsman and to provide timely
notice of the hearing to such person. It permits the ombudsman
to appear and be heard at such hearing. The ombudsman must
provide the court with information to assist its consideration
of the facts, circumstances and conditions of the proposed sale
or lease of personally identifiable information. The
information may include a presentation of the debtor's privacy
policy, potential losses or gains of privacy to consumers if
the sale or lease is approved, potential costs or benefits to
consumers if the sale or lease is approved, and possible
alternatives that would mitigate potential privacy losses or
costs to consumers. Section 232 prohibits the ombudsman from
disclosing any personally identifiable information obtained in
the case by such individual. In addition, the provision amends
Bankruptcy Code section 330(a)(1) to permit an ombudsman to be
compensated.
Sec. 233. Prohibition on Disclosure of Name of Minor Children.
Section 233 of the Act adds a new provision to the Bankruptcy
Code (section 112) specifying that a debtor may be required to
provide information regarding his or her minor child in
connection with the bankruptcy case, but such debtor may not be
required to disclose the child's name in the public records. It
provides, however, that the debtor may be required to disclose
this information in a nonpublic record maintained by the court,
which may be available for inspection by the United States
trustee, trustee or an auditor, if any. Section 233 prohibits
the court, United States trustee, trustee, or auditor from
disclosing such minor child's name.
Sec. 234. Protection of Personal Information. Bankruptcy Code
section 107, with certain exceptions, provides that all papers
filed in a bankruptcy case are public records. Exceptions
include trade secrets, confidential research, and scandalous or
defamatory matter. Section 234(a) adds a new provision to
section 107 that permits a bankruptcy court to prohibit the
disclosure of certain types of information concerning an
individual to the extent the court finds that disclosure of
such information would create undue risk of identity theft or
other unlawful injury to the individual or the individual's
property. The protected information includes any means of
identification as defined in 18 U.S.C. Sec. 1028(d) that is
contained in a document filed in a bankruptcy case. The
bankruptcy court must provide access to information protected
under this new provision to an entity acting pursuant to the
police or regulatory power of a domestic governmental unit upon
ex parte application demonstrating cause. The provision also
provides that the United States trustee, bankruptcy
administrator, trustee, and any auditor serving pursuant to
section 586(f) of title 28 of the United States Code shall have
access to all information contained in a bankruptcy case and
that such persons shall not disclose information specifically
protected by the court. Section 234(b) amends Bankruptcy Code
section 342(c), which requires a debtor to disclose in any
notice required by the debtor to be given to a creditor to
include the debtor's taxpayer identification number. Section
234(b) requires the debtor only to supply the last four digits
of the taxpayer identification number. If, however, the notice
concerns an amendment that adds a creditor to the schedules of
assets or liabilities, the debtor must include the full
taxpayer identification number in the notice sent to such
creditor. The notice filed with the court must only include the
last four digits of such notice.
TITLE III. DISCOURAGING BANKRUPTCY ABUSE
Sec. 301. Technical Amendments. Section 301 of the Act 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 \85\ to except from discharge the filing fees and
related costs and expenses assessed by a court in a civil case
or appeal. As the result 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 this ambiguity and makes
other conforming changes to narrow its application in
accordance with its original intent.
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\85\ Pub. L. No. 104-134, Sec. 804(b) (1996).
Sec. 302. Discouraging Bad Faith Repeat Filings. Section 302 of
the Act 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 one-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 automatic 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 (but such presumption
may be rebutted by clear and convincing evidence) if: (1) more
than one bankruptcy case under chapter 7, 11 or 13 was
previously filed by the debtor within the preceding one-year
period; (2) the prior chapter 7, 11, or 13 case 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 court order, (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, section 302 provides that a case is presumptively
deemed not to be filed 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 one-year preceding the filing of the
pending case.
Sec. 303. Curbing Abusive Filings. Section 303 of the Act is
intended to reduce abusive filings. Subsection (a) amends
Bankruptcy Code section 362(d) to add a new ground for relief
from the automatic stay. Under this provision, cause for relief
from the automatic stay may be established for a creditor whose
claim is secured by an interest in real property, 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: (1) a transfer of all or part of an ownership interest
in real property without such creditor's consent or without
court approval; or (2) 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 two 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 Bankruptcy Code section 362(b) to
except from the automatic stay an act to enforce any lien
against or security interest in real property within two 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: (1) is ineligible to be a debtor in a
bankruptcy case pursuant to section 109(g) of the Bankruptcy
Code; or (2) 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.
Sec. 304. Debtor Retention of Personal Property Security.
Section 304(1) of the Act 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: (1) 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; (2) orders adequate protection
of the creditor's interest; and (3) 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 full at the time of
redemption.
Sec. 305. Relief from the Automatic Stay When the Debtor Does
Not Complete Intended Surrender of Consumer Debt Collateral.
Paragraph (1) of section 305 of the Act amends Bankruptcy Code
section 362 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 (where the debtor is an individual) 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; or (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. Likewise, the automatic stay is
terminated if the debtor fails to take the action specified in
the statement of intention in a timely manner, 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 to be 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.
Sec. 306. Giving Secured Creditors Fair Treatment in Chapter
13. Subsection (a) of section 306 of the Act amends Bankruptcy
Code section 1325(a)(5)(B)(i) 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) adds a new paragraph to section 1325(a) of
the Bankruptcy Code specifying that Bankruptcy Code section 506
does not apply to a debt incurred within the two and one-half
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
within 910 days preceding the filing of the petition. 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 one-year
period preceding the filing of the bankruptcy case.
Section 306(c)(1) amends section 101 of the Bankruptcy Code
to define the term ``debtor's principal residence'' as a
residential structure (including incidental property) without
regard to whether or not such structure is attached to real
property. The term includes an individual condominium or
cooperative unit as well as a mobile or manufactured home, or a
trailer.
Section 306(c)(2) amends section 101 of the Bankruptcy Code
to define the term ``incidental property'' as property commonly
conveyed with a principal residence in the area where the real
property 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 encompasses all
replacements and additions.
Sec. 307. Domiciliary Requirements for Exemptions. Section 307
of the Act amends section 522(b)(2)(A) of the Bankruptcy Code
to extend the time that a debtor must be domiciled in a state
from 180 days to 730 days before he or she may claim that
state's exemptions. If the debtor's domicile has not been
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. If the effect of this provision is to
render the debtor ineligible for any exemption, the debtor may
elect to exempt property of the kind described in the Federal
exemption notwithstanding the state has opted out of the
Federal exemption allowances.
Sec. 308. Reduction of Homestead Exemption for Fraud. 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: (i) real or
personal property that the debtor or a dependent of the debtor
uses as a residence, (ii) a cooperative that owns property that
the debtor or a dependent of the debtor uses as a residence,
(iii) a burial plot, or (iv) real or personal property that the
debtor or dependent of the debtor claims as a homestead. Where
nonexempt property is converted to the above-specified exempt
property within the ten-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.
Sec. 309. Protecting Secured Creditors in Chapter 13 Cases.
Section 309(a) of the Act amends Bankruptcy Code section
348(f)(1)(B) to provide 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
assumed by the trustee in a timely manner, such property is no
longer property of the estate and the automatic stay under
Bankruptcy Code section 362 with respect to such property is
terminated. With regard to a chapter 7 case in which the debtor
is an individual, 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
gives written notice to the lessor 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 amended). In a
chapter 11 or 13 case where the debtor is an individual lessee
with respect to a personal property lease 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 Bankruptcy Code section
1325(a)(5)(B) to require that periodic payments pursuant to a
chapter 13 plan with respect to a secured claim be made in
equal monthly installments. Where the claim is secured by
personal property, 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.
Sec. 310. Limitation on Luxury Goods. Section 310 amends
section 523(a)(2)(C) of the Bankruptcy Code. Under current law,
consumer debts owed to a single creditor that, in the
aggregate, exceed $1,075 for luxury goods or services incurred
within 60 days before the commencement of the case are presumed
to be nondischargeable. As amended, the presumption applies if
the aggregate amount of consumer debts for luxury goods or
services is more than $500 for luxury goods or services
incurred by an individual debtor within 90 days before the
order for relief. With respect to cash advances, current law
provides that cash advances aggregating more than $1,075 that
are extensions of consumer credit under an open-end credit plan
obtained by an individual debtor within 60 days before the case
is filed are presumed to be nondischargeable. As amended,
section 523(a)(2)(C) presumes that cash advances aggregating
more than $750 and that are incurred within 70 days 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 this term has
under the Consumer Credit Protection Act.
Sec. 311. Automatic Stay. Section 311 of the Act amends section
362(b) of the Bankruptcy Code to except from the automatic stay
a judgment of eviction with respect to a residential leasehold
under certain circumstances. It is the intent of this provision
to create an exception to the automatic stay of section
362(a)(3) to permit the recovery of possession by rental
housing providers of their property in certain circumstances
where a judgment for possession has been obtained against a
debtor/resident before the filing of the petition for
bankruptcy. Section 311 is intended to apply to manufactured
housing communities, where tenants own their own homes and pay
monthly rent to community owners for the land upon which their
home sits. Tenants who fail to pay rent for the land beneath
their homes located in manufactured housing communities would
no longer be able to avoid their rental obligations under the
protection of the automatic stay. It is also the intent of this
section to permit eviction actions based on illegal use of
controlled substances or endangering property in certain
circumstances.
Section 311 gives tenants a reasonable amount of time after
filing the petition to cure the default giving rise to the
judgment for possession as long as there are circumstances in
which applicable nonbankruptcy law allows a default to be cured
after a judgment has been obtained. Where nonbankruptcy law
applicable in the jurisdiction does not permit a tenant to cure
a monetary default after the judgment for possession has been
obtained, the automatic stay of section 362(a)(3) does not
operate to limit action by a rental housing provider to proceed
with, or a marshal, sheriff, or similar local officer to
execute, the judgment for possession. Where the debtor claims
that applicable law permits a tenant to cure after the judgment
for possession has been obtained, the automatic stay operates
only where the debtor files a certification with the bankruptcy
petition asserting that applicable law permits such action and
that the debtor or an adult dependent of the debtor has paid to
the court all rent that will come due during the 30 days
following the filing of the petition. If, within thirty days
following the filing of the petition, the debtor or an adult
dependent of the debtor certifies that the entire monetary
default that gave rise to the judgment for possession has been
cured, the automatic stay remains in effect. If a lessor has
filed or wishes to file an eviction action based on the use of
illegal controlled substances or property endangerment, the
section allows the lessor in certain cases to file a
certification of such circumstance with the court and obtain an
exception to the stay.
For both the judgment based on monetary default and the
controlled substance or endangerment exceptions, the section
provides an opportunity for challenge by either the lessor or
the tenant to certifications filed by the other party and a
timely hearing for the court to resolve any disputed facts and
rule on the factual or legal sufficiency of the certifications.
Where the court finds for the lessor, the clerk shall
immediately serve upon the parties a copy of the court's order
confirming that an exception to the automatic stay is
applicable. Where the court finds for the tenant, the stay
shall remain in effect. It is the intent of this section that
the clerk's certified copy of the docket or order shall be
sufficient evidence that the exception under paragraph 22 or
paragraph 23 is applicable for a marshal, sheriff, or similar
local officer to proceed immediately to execute the judgment
for possession if applicable law otherwise permits such action,
or for an eviction action for use of illegal controlled
substances or property endangerment to proceed. This section
does not provide any new right to either landlords or tenants
relating to evictions or defenses to eviction under otherwise
applicable law.
Section 311 also excepts from the automatic stay a transfer
that is not avoidable under Bankruptcy Code section 544 and
that is not avoidable under Bankruptcy Code section 549. This
amendment responds to a 1997 Ninth Circuit case 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.\86\
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\86\ 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 Bankruptcy
Code section 549(a). 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 Bankruptcy Code section 549(c)
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).
Sec. 312. Extension of Period Between Bankruptcy Discharges.
Section 312 of the Act 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
eight years. It also 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 chapter 7, 11, or 12
case within four years preceding the filing of the subsequent
chapter 13 case. In addition, it prohibits the issuance of a
discharge in a subsequent chapter 13 case if the debtor
received a discharge in a chapter 13 case filed during the two-
year period preceding the date of the filing of the subsequent
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chapter 13 case.
Sec. 313. Definition of Household Goods and Antiques.
Subsection (a) of section 313 of the Act 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. It also specifies various items
that are expressly not household goods. Section 313 specifies a
monetary threshold for the exclusions pertaining to electronic
entertainment equipment, antiques, and jewelry. In addition, it
provides that works of art are not household goods, unless by
or of the debtor or by any relative of the debtor. 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. The report may include
recommendations for amendments to the definition of ``household
goods'' as codified in section 522(f)(4).
Sec. 314. Debt Incurred To Pay Nondischargeable Debts.
Subsection (a) of section 314 of the Act 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. 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 $500 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);
(3) pursuant to section 523(a)(3) of the Bankruptcy Code, debts
that require a 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;
and (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.
Sec. 315. Giving Creditors Fair Notice in Chapters 7 and 13
Cases. Section 315 of the Act amends several provisions of the
Bankruptcy Code. Subsection (a) amends Bankruptcy Code section
342(c) to delete 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. It adds a provision requiring a debtor to send any
notice he or she must provide under the Bankruptcy Code to the
address stated by the creditor and to include in such notice
the current account number, if within 90 days prior to the date
that the debtor filed for bankruptcy relief the creditor in at
least two communications sent to the debtor set forth such
address and account number. 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. Section 315(a) also permits a creditor in a chapter 7
or 13 case (where the debtor is an individual) 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 and the debtor, respectively, must use the
address so specified to provide notice to such creditor.
In addition, section 315(a) specifies that an entity may
file a notice with the court stating an address to be used
generally by all bankruptcy courts for chapter 7 and 13 cases,
or by particular bankruptcy courts, as specified by such
entity. This address must be used by the court to supply notice
in such cases within 30 days following the filing of such
notice where the entity is a creditor. Notice given other than
as provided in section 342 is not effective until it has been
brought to the creditor's attention. If the creditor has
designated a person or organizational subdivision to be
responsible for receiving notices concerning bankruptcy cases
and has established reasonable procedures so that these notices
will be delivered to such person or subdivision, a notice will
not be considered to have been brought to the attention of such
creditor until it has been received by such person or
subdivision. This provision also prohibits the imposition of
any monetary penalty for violation of the automatic stay or for
the failure to comply with the Bankruptcy Code sections 542 and
543 unless the creditor has received effective notice under
section 342.
Section 315(b) amends section 521 to specify additional
duties of a debtor. This provision requires 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 Bankruptcy
Code section 342(b). If the debtor is not represented by
counsel 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, if any, 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) of the Act requires the court to make
the petition, schedules, and statement of financial affairs of
an individual who is a chapter 7 or 13 debtor available to such
creditor.
In addition, section 315(b) requires such debtor to provide
the trustee not later than seven days before the date first set
for the meeting of creditors a copy of his or her Federal
income tax return or transcript (at the election of the debtor)
for the latest taxable period ending prior to the filing of the
bankruptcy case for which a tax return was filed. Should the
debtor fail to comply with this requirement, the case must be
dismissed unless the debtor demonstrates that such failure was
due to circumstances beyond the debtor's control. Upon request,
the debtor must provide a copy of the tax return or transcript
to the requesting creditor at the time the debtor supplies the
return or transcript to the trustee. 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. In addition, the Act clarifies that this provision
applies to Federal income tax returns.
During the pendency of a chapter 7, 11 or 13 case, the
debtor must file with the court, at the request of the judge,
United States trustee, or any party in interest, at the time
filed with the taxing authority, copies of any Federal income
tax returns (or transcripts thereof) that were not filed for
the three-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 one 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 person responsible with the debtor
for the support of the debtor's dependents, the identity of any
person 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 date of enactment of this Act.
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 540 days from the Act's
enactment date, prepare and submit to 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.
Sec. 316. Dismissal for Failure To Timely File Schedules or
Provide Required Information. Section 316 of the Act 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 316
provides that a court may decline to dismiss the case if: (1)
the trustee files a motion before the stated time periods; (2)
the court finds, after notice and a hearing, that the debtor in
good faith attempted to file all the information required under
section 521(a)(1)(B)(iv); and (3) the court finds that the best
interests of creditors would be served by continued
administration of the case.
Sec. 317. Adequate Time To Prepare for Hearing on Confirmation
of the Plan. Section 317 of the Act 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, unless the court determines that it would be in
the best interests of creditors and the estate to hold such
hearing at an earlier date and there is no objection to such
earlier date.
Sec. 318. Chapter 13 Plans To Have a 5-Year Duration in Certain
Cases. Paragraph (1) of section 318 of the Act amends
Bankruptcy Code sections 1322(d) and 1325(b) to specify that a
chapter 13 plan may not provide for payments over a period that
is not less than five years if the current monthly income of
the debtor and the debtor's spouse combined exceeds certain
monetary thresholds. If the current monthly income of the
debtor and the debtor's spouse fall below these thresholds,
then the duration of the plan may not be longer than three
years, unless the court, for cause, approves a longer period up
to five years. The applicable commitment period may be less if
the plan provides for payment in full of all allowed unsecured
claims over a shorter period. Section 318(2), (3), and (4) make
conforming amendments to sections 1325(b) and 1329(c) of the
Bankruptcy Code.
Sec. 319. Sense of Congress Regarding Expansion of Rule 9011 of
the Federal Rules of Bankruptcy Procedure. Section 319 of the
Act expresses a sense of the Congress that Federal Rule of
Bankruptcy Procedure 9011 be modified to require that all
documents (including schedules), whether signed or unsigned,
supplied to the court or the trustee by a debtor may 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.
Sec. 320. Prompt Relief from Stay in Individual Cases. Section
320 of the Act 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.
Sec. 321. Chapter 11 Cases Filed by Individuals. Section 321(a)
of the Act 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 Bankruptcy Code 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 Bankruptcy Code 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 on
account of such claim, as of the plan's effective date, must
not be less than the amount of such claim; or be not less than
the debtor's projected disposable income (as defined in section
1325(b)(2)) to be received during the five-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 added by
the Act), subject to section 1129(a)(14).
Section 321(d)(1) amends Bankruptcy Code section 1141(d) to
provide that a discharge under chapter 11 does not discharge a
debtor who is an individual from any debt excepted from
discharge under Bankruptcy Code section 523. Section 321(d)(2)
of the Act provides that in a chapter 11 individual 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) of the Act amends section 1127 to permit a
plan in a chapter 11case 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. 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: (1) there has been disclosure pursuant to section 1125
(as the court directs); (2) notice and a hearing; and (3) such
modification is approved.
Sec. 322. Limitations on Homestead Exemption. Section 322(a)
amends section 522 of the Bankruptcy Code to impose an
aggregate monetary limitation of $125,000, subject to
Bankruptcy Code 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 1,215-day period preceding the filing of the
petition and the property consists of any of the following: (1)
real or personal property of the debtor or that a dependent of
the debtor uses as a residence; (2) an interest in a
cooperative that owns property, which the debtor or the
debtor's dependent uses as a residence; (3) a burial plot for
the debtor or the debtor's dependent; or (4) real or personal
property that the debtor or dependent of the debtor claims as a
homestead. 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 specified time period) to the debtor's current
principal residence, if both the previous and current
residences are located in the same State.
Section 322(a) further amends section 522 to add a
provision that does not allow a debtor to exempt any amount of
an interest in property described in the preceding paragraph in
excess of $125,000 if any of the following applies:
1. The court determines, after notice and a hearing,
that the debtor has been convicted of a felony (as
defined in section 3156 of title 18), which under the
circumstance demonstrates that the filing of the case
was an abuse of the provisions of the Bankruptcy Code;
or
2. debtor owes a debt arising from:
a. any violation of the Federal securities laws
defined in section 3(a)(47) of the Securities and
Exchange Act of 1934, any state securities laws, or any
regulation or order issued under Federal securities
laws or state securities laws;
b. fraud, deceit, or manipulation in a fiduciary
capacity or in connection with the purchase or sale of
any security registered under section 12 or 15(d) of
the Securities Exchange Act of 1934, or under section 6
of the Securities Act of 1933;
c. any civil remedy under section 1964 of title 18
of the United States Code; or
d. any criminal act, intentional tort, or willful
or reckless misconduct that caused serious physical
injury or death to another individual in the preceding
five years.
An exception to the monetary limit applies to the extent
the value of the homestead property is reasonably necessary for
the support of the debtor and any dependent of the debtor. The
monetary limitation set forth in section 322(a) is subject to
automatic adjustment pursuant to section 104 of the Bankruptcy
Code.
Sec. 323. Excluding Employee Benefit Plan Participant
Contributions and Other Property from the Estate. Section 323
of the Act 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 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.
Sec. 324. Exclusive Jurisdiction in Matters Involving
Bankruptcy Professionals. Section 324 of the Act 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 or rules relating to disclosure requirements under such
provision.
Sec. 325. United States Trustee Program Filing Fee Increase.
Section 325(a) of the Act amends section 1930(a) of title 28 of
the United States Code to increase the chapter 7 filing fee
from $155 to $200 and decrease the chapter 13 filing fee from
$155 to $150. It also increases the chapter 11 filing fee from
$800 to $1,000. Subsection 325(b) amends section 589a of title
28 of the United States Code to reallocate the percentage of
certain filing fees collected for the United States Trustee
Fund. Subsection 325(c) amends section 406(b) of the Judiciary
Appropriations Act of 1990 to reallocate the percentage of
certain filing fees collected under section 1930 of title 28 of
the United States Code to fund the operation and maintenance of
the Federal court system. Section 325(d) provides that the
amendments made by subsections (b) and (c) are effective for
the two-year period beginning on the Act's date of enactment.
Section 325(e)(1) mandates that the amount of fees collected
under 28 U.S.C. Sec. 1930(a)(1) (chapter 7 filing fees) and 28
U.S.C. Sec. 1930(a)(3) (chapter 11 filing fees) that is greater
than the amount that would have been collected if these
provisions were not amended by section 325 be allocated to the
extent necessary to pay for the salaries and benefits of judges
appointed pursuant to section 1223 of this Act. Section
325(e)(2) provides that any amount of fees in excess of that
used to pay the salaries and benefits of judges appointed
pursuant to section 1223 be deposited in the Treasury to the
extent necessary to offset the decrease in governmental
receipts resulting from the amendments made by section 325(b)
(United States Trustee Fund) and section 325(c) (federal court
system fund).
Sec. 326. Sharing of Compensation. Section 326 amends
Bankruptcy Code section 504 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 rules of
professional responsibility applicable to attorney acceptance
of referrals.
Sec. 327. Fair Valuation of Collateral. Section 327 of the Act
amends section 506(a) of the Bankruptcy Code 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 13 case is
determined based on the replacement value of such property as
of the filing date of the bankruptcy case without deduction for
selling or marketing costs. 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.
Sec. 328. Defaults Based on Nonmonetary Obligations. Subsection
(a)(1) of section 328 of the Act 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.\87\
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\87\ Pub. L. No. 102-365, 106 Stat. 972 (1992).
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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.
Sec. 329. Clarification of Postpetition Wages and Benefits.
Section 329 amends Bankruptcy Code section 503(b)(1)(A) to
accord administrative expense status to certain back pay
awards. This provision applies to a back pay award attributable
to any period of time occurring postpetition as a result of a
violation of Federal or state law by the debtor pursuant to an
action brought in a court or before the National Labor
Relations Board, providing the bankruptcy court determines that
the award will not substantially increase the probability of
layoff or termination of current employees or of nonpayment of
domestic support obligations.
Sec. 330. Delay of Discharge During Pendency of Certain
Proceedings. Section 330(a) of the Act amends section 727(a) of
the Bankruptcy Code to require the court to withhold the entry
of a debtor's discharge order if the court, after notice and a
hearing, finds that there is reasonable cause to believe that
there is a pending proceeding in which the debtor may be found
guilty of a felony of the kind described in Bankruptcy Code
section 522(q)(1) or liable for a debt of the kind described in
Bankruptcy Code section 522(q)(2). Subsections (b), (c), and
(d) make comparable revisions to the discharge provisions under
chapter 11, 12, and 13, respectively.
Sec. 331. Limitation on Retention Bonuses, Severance Pay, and
Certain Other Payments. Section 331 amends Bankruptcy Code
section 503 to prohibit the allowance or payment of certain
transfers or obligations, unless otherwise authorized by the
court. It applies to transfers made to or obligations incurred
for the benefit of an insider of the debtor for the purpose of
inducing such person to remain with the debtor's business,
unless the court makes certain specified findings. In addition,
it prohibits a severance payment to an insider of a debtor,
unless it satisfies certain criteria. Further, it prohibits the
payment of other transfers or obligations that are outside the
ordinary course of business and not justified by the facts and
circumstances of the case, including transfers made to, or
obligations incurred for the benefit of, officers, mangers, or
consultants hired after the date of the filing of the petition.
Sec. 332. Fraudulent Involuntary Bankruptcy. Bankruptcy Code
section 303 permits a creditor to force an individual or
business into bankruptcy by filing an involuntary bankruptcy
petition against such entity. Before an order for relief is
entered in the case, the court must make certain findings that
support granting such relief (e.g., the debtor is generally not
paying debts as they become due; or a custodian was appointed
within the 120-day period preceding the filing of the
petition). If such findings are not made, the court may dismiss
the case. As with most documents filed in connection with a
bankruptcy case, the filing of an involuntary bankruptcy
petition is a matter of public record and is open for
examination by any entity.\88\ In addition, the Fair Credit
Reporting Act \89\ permits credit reporting agencies to note
the involuntary bankruptcy filing on a person's credit report
for up to ten years.\90\ Although the Fair Credit Reporting Act
permits a consumer to have his or her credit report revised to
reflect the fact, for instance, that the involuntary bankruptcy
case was dismissed prior to the entry of an order for relief,
the report may, nevertheless, still refer to the filing of the
case.\91\
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\88\ 11 U.S.C. Sec. 107(a).
\89\ 15 U.S.C. Sec. 1681.
\90\ 15 U.S.C. Sec. 1681c(a)(1).
\91\ See, e.g., 15 U.S.C. Sec. 1681i (2000); Letter from Ronald G.
Isaac, Attorney, Federal Trade Commission--Division of Financial
Practices/Bureau of Consumer Protection, to Anonymous (Nov. 5, 1999),
available at http://www.ftc.gov/os/statutes/frca/anon.htm.
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Unfortunately, tax protesters and other extremists, in
addition to other forms of obstreperous litigation (such as
filing false liens), are now resorting to filing fraudulent
involuntary bankruptcy petitions against public officials and
other innocent parties. In 2002, for example, one tax protester
filed fraudulent involuntary bankruptcy petitions against 36
local public officials in Wisconsin,\92\ some of whom did not
find out about the petitions until ``they attempted to use a
credit card or execute some other financial transaction.'' \93\
These fraudulent involuntary petition filings were subsequently
dismissed by the bankruptcy court, which found that they were
filed in bad faith without legal basis and were commenced ``for
the sole purpose of harassment of the named public officials.''
\94\ Nevertheless, ``[d]espite the fact that the [fraudulent
involuntary bankruptcy] petitions are often dismissed,'' as one
State assistant attorney general observed, ``the filings
continue to cause financial problems for the victims.'' \95\
The devastating effect of a fraudulent involuntary bankruptcy
filing on an innocent person's credit rating is illustrated by
what occurred in Wisconsin and its aftermath. Although the
bankruptcy court in dismissing these cases also directed all
credit reporting agencies to expunge any record of these
filings from the officials' credit reports,\96\ the bankruptcy
petition filings nevertheless ``caused some officials' credit
cards to be canceled, almost caused the sale of one
supervisor's house to be stopped, and caused continuing credit
problems for other officials.'' \97\
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\92\ See In re Kenealy, No. 02-26100-MDM (Bankr. E.D. Wis. May 21,
2002). Involuntary petitions ``were filed against all but one of the
County Board supervisors,'' the county corporation counsel, county
sheriff, clerk of courts, and county circuit judge. Jeff Cole,
Paperwork Used for Revenge; Protester's Bogus Bankruptcy Petitions
Temporarily Disrupt Officials' Credit, Milwaukee J. Sentinel, June 6,
2002, at 1B. The protester also filed numerous liens in the amount of
$15 million against these individuals as well. Jeff Cole, Man Charged
with Filing False Documents; Town of Fredonia Protester's Case is 5th
Brought by State, Milwaukee J. Sentinel, May 21, 2002, at 1B.
\93\ Jeff Cole, Paperwork Used for Revenge; Protester's Bogus
Bankruptcy Petitions Temporarily Disrupt Officials' Credit, Milwaukee
J. Sentinel, June 6, 2002, at 1B.
\94\ In re Kenealy, No. 02-26100-MDM (Bankr. E.D. Wis. May 21,
2002).
\95\ Roy Korte, Terrorism: A Law Enforcement Perspective, Anti-
Defamation League (2002), available at http://www.adl.org/learn/
columns/roy5%5korte.asp.
\96\ In re Kenealy, No. 02-26100-MDM (Bankr. E.D. Wis. May 21,
2002).
\97\ Jeff Cole, ``Paper Terrorist'' Gets Five Years in Prison,
Milwaukee J. Sentinel, Jan. 18, 2003, at 1B.
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Section 332 responds to these concerns by permitting the
court to seal and subsequently expunge all records pertaining
to a fraudulent involuntary petition. Section 332(a) sets forth
the short title of the section as the ``Involuntary Bankruptcy
Improvement Act of 2005.'' Section 332(b) amends Bankruptcy
Code section 303 to permit the court, upon motion of the
debtor, to seal all court records pertaining to an involuntary
bankruptcy petition if: (1) the petition is false or contains
any materially false, fictitious, or fraudulent statement; (2)
the debtor is an individual; and (3) the court dismisses the
petition. The provision further permits the court, if the
debtor is an individual, to prohibit any consumer reporting
agency from making any consumer report that contains any
information relating to such petition or to the case commenced
by the filing of such petition. It further provides that upon
the expiration of the statute of limitations described in 18
U.S.C. Sec. 3282 for a violation of 18 U.S.C. Sec. 152
(concerning crimes for concealment of assets, false oaths and
claims, and bribery) and 18 U.S.C. Sec. 157 (bankruptcy fraud),
the court may, upon motion of the debtor and for good cause,
expunge any records pertaining to such petition. Section 332(c)
amends section 157 of title 18 to make it a criminal offense to
file a fraudulent involuntary bankruptcy petition. Section 332
is similar to legislation considered by the House in the 108th
Congress.\98\
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\98\ H.R. 1529, 108th Cong. (2003). The bill was ordered favorably
reported without amendment by the House Judiciary Committee, H.R. Rep.
No. 108-110 (2003), and passed by voice vote by the House. 149 Cong.
Rec. H5104 (daily ed. June 10, 2003). The principal difference between
this legislation and section 332 of the Act is that the bill would have
permitted the court to expunge the case upon dismissal of the
fraudulent involuntary petition.
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TITLE IV. GENERAL AND SMALL BUSINESS BANKRUPTCY PROVISIONS
Subtitle A. General Business Bankruptcy Provisions
Sec. 401. Adequate Protection for Investors. Subsection (a) of
section 401 of the Act 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.
Sec. 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 not to convene a
meeting of creditors or equity security holders if a debtor has
filed a plan for which the debtor solicited acceptances prior
to the commencement of the case.
Sec. 403. Protection of Refinance of Security Interest. Section
403 amends section 547(e)(2) of the Bankruptcy Code to increase
the perfection period from ten to 30 days for the purpose of
determining whether a transfer is an avoidable preference.
Sec. 404. Executory Contracts and Unexpired Leases. Subsection
(a) of section 404 of the Act amends section 365(d)(4) of the
Bankruptcy Code to establish a firm, bright line deadline by
which an unexpired lease of nonresidential real property must
be assumed or rejected. If such lease is not assumed or
rejected by such deadline, then such lease shall be deemed
rejected, and the trustee shall immediately surrender such
property to the lessor. Section 404(a) permits a bankruptcy
trustee to assume or reject a lease on a date which is the
earlier of the date of confirmation of a plan or the date which
is 120 days after the date of the order for relief. An
extension of time may be granted, within the 120 day period,
for an additional 90 days, for cause, upon motion of the
trustee or lessor. Any subsequent extension can only be granted
by the judge upon the prior written consent of the lessor
either by the lessor's motion for an extension or on motion of
the trustee, provided that the trustee has the prior written
approval of the lessor. This provision is designed to remove
the bankruptcy judge's discretion to grant extensions of the
time for the retail debtor to decide whether to assume or
reject a lease after a maximum possible period of 210 days from
the time of entry of the order of relief. Beyond that maximum
period, the judge has no authority to grant further time unless
the lessor has agreed in writing to the extension.
Section 404(b) amends section 365(f)(1) to assure that
section 365(f) does not override any part of section 365(b).
Thus, section 404(b) makes a trustee's authority to assign an
executory contract or unexpired lease subject not only to
section 365(c), but also to section 365(b), which is given full
effect. Therefore, for example, assumption or assignment of a
lease of real property in a shopping center must be subject to
the provisions of the lease, such as use clauses.
Sec. 405. Creditors and Equity Security Holders Committees.
Subsection (a) of section 405 of the Act amends section
1102(a)(2) of the Bankruptcy Code to permit, after notice and a
hearing, a court, on request of a party in interest, to order a
change in a committee's membership if necessary to ensure
adequate representation of creditors or equity security holders
in a chapter 11 case. 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 give 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.
Sec. 406. Amendment to Section 546 of Title 11, United States
Code. Section 406 of the Act corrects an erroneous subsection
designation in section 546 of the Bankruptcy Code. It
redesignates the second subsection (g) as subsection (i). In
addition, section 406 amends section 546(i) (as redesignated)
to subject that provision to the prior rights of security
interest holders. Further, section 406 adds a new provision to
section 546 that prohibits a trustee from avoiding a warehouse
lien for storage, transportation, or other costs incidental to
the storage and handling of goods. 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.
Sec. 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.
Sec. 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.
Sec. 409. Preferences. Section 409 amends section 547(c)(2) of
the Bankruptcy Code to provide that a trustee may not avoid a
transfer to the extent such 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 made either: (1) in the ordinary course of the
debtor's and the transferee's business or financial affairs; 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 in which the debts
are not 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.
Sec. 410. Venue of Certain Proceedings. Section 1409(b) of
title 28 of the United States Code provides that a proceeding
to recover a money judgment of, or property worth less than,
certain specified amounts must be commenced in the district
where the defendant resides. Section 410 amends section 1409(b)
to provide that a proceeding to recover a debt (excluding a
consumer debt) against a noninsider of the debtor that is less
than $10,000 must be commenced in the district where the
defendant resides. In addition, section 410 increases the
$5,000 threshold for a consumer debt \99\ to $15,000.
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\99\ A consumer debt is defined as a ``debt incurred by an
individual primarily for a personal, family, or household purpose.'' 11
U.S.C. Sec. 101(8).
Sec. 411. Period for Filing Plan under Chapter 11. Section 411
amends section 1121(d) of the Bankruptcy Code to mandate that a
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
the chapter 11 case. In addition, it provides that the debtor's
exclusive period for obtaining acceptances of the plan may not
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be extended beyond 20 months after the order for relief.
Sec. 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, 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.
Sec. 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, notwithstanding any local
court rule, provision of a state constitution, or any otherwise
applicable nonbankruptcy law, or any other requirement that
such creditor must be represented by counsel, to appear at and
participate in a section 341 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.
Sec. 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.
Sec. 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 to a
professional person, whether such person is board certified or
otherwise has demonstrated skill and experience in the practice
of bankruptcy law.
Sec. 416. Appointment of Elected Trustee. Section 416 of the
Act amends section 1104(b) of the Bankruptcy Code to clarify
the procedure for the election of a trustee in a chapter 11
case. Section 1104(b) permits creditors to elect an eligible,
disinterested person to serve as the trustee in the case,
provided certain conditions are met. Section 416 amends this
provision to require 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.
Sec. 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 alter, refuse or
discontinue service if it does not receive adequate assurance
of payment that is satisfactory to the utility within 30 days
of the filing of the petition. 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, a court may not consider: (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.
Sec. 418. Bankruptcy Fees. Section 418 of the Act 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.
Sec. 419. More Complete Information Regarding Assets of the
Estate. Section 419 of the Act directs the Judicial Conference
of the United States, 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. Section 419 is intended to ensure that
the debtor's interest in any of these entities is used for the
payment of allowed claims against debtor.
Subtitle B. Small Business Bankruptcy Provisions
Sec. 431. Flexible Rules for Disclosure Statement and Plan.
Section 431 of the Act amends section 1125 of the Bankruptcy
Code 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 permit the court to dispense
with a disclosure statement if the plan itself supplies
adequate information. 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.
Sec. 432. Definitions. Section 432 of the Act 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. Section 432, in turn, defines a ``small business
debtor'' as a person engaged in commercial or business
activities (including an affiliate of such person that is also
a debtor, but excluding a person whose primary activity is the
business of owning or operating real property or activities
incidental thereto) having aggregate noncontingent, liquidated
secured and unsecured debts of not more than $2 million
(excluding debts owed to affiliates or insiders of the debtor)
as of the date of the petition or the order for relief. This
monetary 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 creditors' committee is
not sufficiently active and representative to provide effective
oversight of the debtor. It does not apply to any member of a
group of affiliated debtors that has aggregate noncontingent,
liquidated secured and unsecured debts in excess of $2 million
(excluding debts owed to one or more affiliates or insiders).
This provision also requires this monetary figure to be
periodically adjusted for inflation pursuant to section 104 of
the Bankruptcy Code.
Sec. 433. Standard Form Disclosure Statement and Plan. Section
433 of the Act directs the Judicial Conference of the United
States to propose for adoption standard form disclosure
statements and reorganization plans for small business debtors.
The provision requires the forms 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 debtor's need for economy and simplicity.
Sec. 434. Uniform National Reporting Requirements. Subsection
(a) of section 434 of the Act adds a provision to the
Bankruptcy Code mandating 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: (1) profitability; (2) reasonable approximations of
projected cash receipts and disbursements; (3) comparisons of
actual cash receipts and disbursements with projections in
prior reports; (4) whether the debtor is complying with
postpetition requirements pursuant to the Bankruptcy Code and
Federal Rules of Bankruptcy Procedure; (5) whether the debtor
is timely filing tax returns and other government filings; and
(6) whether the debtor is paying taxes and other administrative
expenses when due. 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 or other required governmental
filings, paying taxes and other administrative expenses when
due, the debtor must report: (1) what the failures are, (2) how
they will be cured; (3) the cost of their cure; and (4) 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.
Sec. 435. Uniform Reporting Rules and Forms for Small Business
Cases. Subsection (a) of section 435 of the Act directs the
Judicial Conference of the United States to 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 better understand its financial condition
and plan its future.
Sec. 436. Duties in Small Business Cases. Section 436 of the
Act is intended to implement greater administrative oversight
and controls over small business chapter 11. The provision
requires a chapter 11 trustee or debtor to:
1. file with a voluntary petition (or in an
involuntary case, within seven 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 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.
Sec. 437. Plan Filing and Confirmation Deadlines. Section 437
of the Act 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. This
provision 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 and the time fixed in section
1129(e) may be extended only if: (1) 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; (2) a new deadline is imposed at the time the
extension is granted; and (3) the order granting such extension
is signed before the expiration of the existing deadline.
Sec. 438. Plan Confirmation Deadline. Section 438 of the Act
amends Bankruptcy Code section 1129 to require the court to
confirm a plan not later than 45 days after it is filed if the
plan complies with the applicable provisions of the Bankruptcy
Code, unless this period is extended pursuant to section
1121(e)(3).
Sec. 439. Duties of the United States Trustee. Section 439
of the Act 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.
Sec. 440. Scheduling Conferences. Section 440 amends section
105(d) of the Bankruptcy Code to mandate that a bankruptcy
court hold status conferences as are necessary to further the
expeditious and economical resolution of a bankruptcy case.
Sec. 441. Serial Filer Provisions. Paragraph (1) of section 441
of the Act 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 amended) 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 subsequent case
is filed; (2) was a debtor in a small business case dismissed
for any reason pursuant to an order that became final in the
two-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 two-year period
ending on the date of the order for relief entered in the
pending case; or (4) is an entity that has acquired
substantially all of the assets or business of a small business
debtor described in the preceding paragraphs, unless such
entity establishes by a preponderance of the evidence that it
acquired the assets or business in good faith and not for the
purpose of evading this provision.
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: (1) 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 (2)
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.
Sec. 442. Expanded Grounds for Dismissal or Conversion and
Appointment of Trustee. Subsection (a) of section 442 of the
Act amends section 1112(b) of the Bankruptcy Code to mandate
that the court convert or dismiss a chapter 11 case, whichever
is in the best interests of creditors and the estate, if the
movant establishes cause, absent unusual circumstances. In this
regard, the court must specify the circumstances that support
the court's finding that conversion or dismissal is not in the
best interests of creditors and the estate.
In addition, the provision specifies an exception to the
provision's mandatory requirement applies if: (1) the debtor or
a party in interest objects and establishes that there is a
reasonable likelihood that a plan will be confirmed within the
time periods set forth in sections 1121(e) and 1129(e), or if
these provisions are inapplicable, within a reasonable period
of time; (2) the grounds for granting such relief include an
act or omission of the debtor for which there exists a
reasonable justification for such act or omission; and (3) such
act or omission 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. Section 442 provides that 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 and the absence of a reasonable likelihood
of rehabilitation;
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. unexcused 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, without good
cause shown by the debtor;
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 taxes owed after the order
for relief or to 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(b) creates an additional ground for the
appointment of a chapter 11 trustee or examiner 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 it is in the best interests of
creditors and the bankruptcy estate.
Section 442(b) is designed to benefit creditors when a
chapter 11 case would otherwise be dismissed or converted to a
chapter 7 case pursuant to section 1112 of the Bankruptcy Code.
Section 442(b) allows the court to appoint a chapter 11 trustee
or examiner, as an alternative to dismissing or converting the
case to chapter 7, if in the best interest of creditors and the
bankruptcy estate. Section 442(b) is not intended to ease the
standards for appointing chapter 11 trustees. Practice under
Chapter X of the Bankruptcy Act of 1898 demonstrated that
routine appointment of trustees deters the use of
reorganization statutes and increases the likelihood that by
the time a company resorts to bankruptcy relief, it must
liquidate. It is therefore important for section 442(b) to be
used only for cases that would otherwise be dismissed or
converted to chapter 7, and not as an alternative method for
attaining the appointment of a chapter 11 trustee.
Sec. 443. Study of Operation of Title 11, United States Code,
with Respect to Small Businesses. Section 443 of the Act
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.
Sec. 444. Payment of Interest. Paragraph (1) of section 444 of
the Act 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,
notwithstanding section 363(c)(2).
Sec. 445. Priority for Administrative Expenses. Section 445 of
the Act 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 two-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 are
treated as a claim under section 502(b)(6) of the Bankruptcy
Code.
Sec. 446. Duties with Respect to a Debtor Who Is a Plan
Administrator of an Employee Benefit Plan. Subsection (a) of
section 446 of the Act amends Bankruptcy Code section 521(a) to
require a debtor, unless a trustee is serving in the case, to
serve as the administrator (as defined in the Employee
Retirement Income Security Act of 1974) of an employee benefit
plan if the debtor served in such capacity at the time the case
was filed. Section 446(b) amends Bankruptcy Code section 704 to
require the chapter 7 trustee to perform the obligations of
such administrator in a case where the debtor or an entity
designated by the debtor was required to perform such
obligations. Section 446(c) amends Bankruptcy Code section
1106(a) to require a chapter 11 trustee to perform these
obligations.
Sec. 447. Appointment of Committee of Retired Employees. This
provision amends section 1114(d) of the Bankruptcy Code to
clarify that it is the responsibility of the United States
trustee to appoint members to a committee of retired employees.
TITLE V. MUNICIPAL BANKRUPTCY PROVISIONS
Sec. 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.
Sec. 502. Applicability of Other Sections to Chapter 9. Section
502 of the of the Act 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
Sec. 601. Improved Bankruptcy Statistics. This provision amends
chapter 6 of title 28 of the United States Code to require the
clerk for each district (or the bankruptcy court clerk if one
has been certified pursuant to section 156(b) of title 28 of
the United States Code) to collect certain statistics for
chapter 7, 11, and 13 cases in a standardized format prescribed
by the Director of the Administrative Office of the United
States Courts and to make this information available to the
public. Not later than July 1, 2008, the Director must submit a
report to Congress concerning the statistical information
collected and then must report annually thereafter. 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 of debtors
who are individuals with primarily consumer debts under
chapters 7, 11 and 13 by category;
2. such 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) final 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 six 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.
Sec. 602. Uniform Rules for the Collection of Bankruptcy Data.
Section 602 of the Act amends chapter 39 of title 28 of the
United States Code to require 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. This provision 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 bankruptcy system. In issuing rules, the
Attorney General must consider: (1) the reasonable needs of the
public for information about the Federal bankruptcy system; (2)
the economy, simplicity, and lack of undue burden on persons
obligated to file the reports; and (3) 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 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.
Sec. 603. Audit Procedures. Subsection (a)(1) of section 603 of
the Act 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 two 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 date of enactment.
Sec. 604. Sense of Congress Regarding Availability of
Bankruptcy Data. Section 604 expresses a sense of the 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
Sec. 701. Treatment of Certain Tax Liens. Subsection (a) of
section 701 of the Act makes several amendments to section 724
of the Bankruptcy Code to provide greater protection for
holders of tax liens on real or personal property of the
estate, particularly holders of ad valorem tax liens. 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.
Pursuant to section 701(a), subordination of ad valorem tax
liens is still possible under section 724(b), but limited to
the payment of: (1) claims for wages, salaries, and commissions
entitled to priority under section 507(a)(4); and (2) claims
for contributions to employee benefit plans entitled to
priority under section 507(a)(5). Section 701(a) will also
protect the holders of these tax liens as well as Federal tax
liens from erosion of their claims' status by expenses incurred
under chapter 11 of the Bankruptcy Code. 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.
Sec. 702. Treatment of Fuel Tax Claims. Section 702 of the Act
amends section 501 of the Bankruptcy Code to simplify the
process for filing of claims by states for certain fuel taxes.
Rather than requiring each state 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.
Sec. 703. Notice of Request for a Determination of Taxes. Under
current law, a trustee or debtor in possession may request a
governmental unit to 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 of the Act amends section 505(b) of the
Bankruptcy Code to require the clerk of each district to
maintain a list of addresses designated by governmental units
for service of section 505 requests. In addition, the list may
also include information concerning filing requirements
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 for the
filing of a tax return or protest of the appropriate taxing
authority of that governmental unit.
Sec. 704. Rate of Interest on Tax Claims. Under current law,
there is no uniform rate of interest applicable to tax claims.
As a result, varying standards have been used to determine the
applicable rate. Section 704 of the Act 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.
Sec. 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 three 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, the
Supreme Court in Young v. United States, 535 U.S. 93 (2002)
held that the three-year period is 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 three-year or 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.
Sec. 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.''
Sec. 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.
In a chapter 7 case, taxes that are not dischargeable include
taxes from a return due within three years of the petition
date, taxes assessed within 240 days, or taxes related to an
unfiled return or false return. Chapter 13, on the other hand,
allows these obligations to be discharged. Section 707 of the
Act amends Bankruptcy Code 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).
Sec. 708. No Discharge of Fraudulent Taxes in Chapter 11. Under
current law, the confirmation of a chapter 11 plan discharges a
corporate 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 specified in subsections
523(a)(2)(A) or (B) of the Bankruptcy Code owed to a domestic
governmental unit. In addition, it excepts from discharge a
debt owed to a person as the result of an action filed under
subchapter III of chapter 37 of title 31 of the United States
Code or any similar state statute. Section 708 excepts from
discharge a debt for 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.
Sec. 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 United States
Tax Court. This rule was arguably extended in Halpern v.
Commissioner,\100\ which held that the tax court did not have
jurisdiction to hear a case involving a postpetition year. To
address this issue, section 709 of the Act 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 provides that the stay applies to both prepetition and
postpetition tax liabilities of a corporation so long as it is
a liability that the bankruptcy court may determine.
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\100\ 96 T.C. 895 (1991).
Sec. 710. Periodic Payment of Taxes in Chapter 11 Cases.
Section 710 of the Act 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 five 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 claim provided for by the plan (other than cash
payments made to a class of creditors under section 1122(b)).
In addition, it requires the same payment treatment to be
accorded to a secured claim that would otherwise meet the
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description of an unsecured claim under section 507(a)(8).
Sec. 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 of the Act amends section 545(2)
of the Bankruptcy Code to prevent that provision's special
protections from being used 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.
Sec. 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) of the Act 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 claim may be deferred until final
distribution pursuant to section 726 if the tax was not
incurred by a chapter 7 trustee or if 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.
Sec. 713. Tardily Filed Priority Tax Claims. Section 713 of the
Act amends section 726(a)(1) of the Bankruptcy Code to require
a claim under section 507 that is not timely filed pursuant to
section 501 to be entitled to a distribution if such claim is
filed the earlier of the date that is ten days following the
mailing to creditors of the summary of the trustee's final
report or before the trustee commences final distribution.
Sec. 714. Income Tax Returns Prepared by Tax Authorities.
Section 714 of the Act amends section 523(a) of the Bankruptcy
Code to provide that a return prepared pursuant to section
6020(a) of the Internal Revenue Code, or similar State or local
law, constitutes filing a return (and the debt can be
discharged), but that a return filed on behalf of a taxpayer
pursuant to section 6020(b) of the Internal Revenue Code, or
similar State or local law, does not constitute filing a return
(and the debt cannot be discharged).
Sec. 715. Discharge of the Estate's Liability for Unpaid Taxes.
Under the Bankruptcy Code, a trustee or debtor in possession
may request a prompt audit to determine postpetition tax
liabilities incurred by the bankruptcy estate. If the
government does not make a determination or request an
extension of time to audit, then the trustee or debtor in
possession is discharged from any such tax liability. Several
court cases have held that while this protects the debtor and
the trustee, it does not necessarily protect the estate.
Section 715 of the Act amends section 505(b) of the Bankruptcy
Code to clarify that the estate is also protected if the
government does not make a determination or request an
extension of time to audit the debtor's tax returns. Therefore,
if the government does not make a determination of postpetition
tax liabilities or request extension of time to audit, then the
estate's liability for unpaid taxes is discharged.
Sec. 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.
Section 716 of the Act responds to this problem. Subsection (a)
amends section 1325(a) of the Bankruptcy Code to require a
chapter 13 debtor to file all applicable Federal, state, and
local tax returns as a condition of confirmation as required by
section 1308 (as added by section 716(b)). Section 716(b) adds
section 1308 to chapter 13 to require a chapter 13 debtor to be
current on the filing of tax returns for the four-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 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 to section 1308.
Sec. 717. Standards for Tax Disclosure. Before creditors and
stockholders may be solicited to vote on a chapter 11 plan, 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, any successor to the debtor, and to a hypothetical
investor that is representative of the claimants and interest
holders in the case.
Sec. 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 of the Act 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.
Sec. 719. Special Provisions Related to the Treatment of State
and Local Taxes. Section 719 of the Act 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.
Sec. 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 of the Act 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 the Act adds a new chapter to the Bankruptcy
Code for transnational bankruptcy cases. It 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.
Sec. 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.\101\ 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.\102\ 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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\101\ 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.
\102\ See section 1529 and commentary.
Sec. 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)).\103\ It largely tracks
the language of the Model Law 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
such exclusion would be necessary in countries like the United
States where there are special provisions for consumer debtors
in the insolvency laws.\104\
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\103\ Guide at 16-19.
\104\ 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.\105\ 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.
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\105\ Id. at 17.
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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.
Sec. 1502. Definitions. ``Debtor'' is given a special
definition for this chapter. This 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.\106\
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\106\ See section 1505.
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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.\107\ 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.\108\ In order to be recognized as a foreign non-main
proceeding, the debtor must at least have an establishment in
that foreign country.\109\
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\107\ Guide at 19-21, para.para.67-68.
\108\ 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).
\109\ See id. at 21, para.75.
Sec. 1503. International obligations of the United States. This
section is taken exactly from the Model Law with only minor
adaptations of terminology.\110\ 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.
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\110\ See id. at 22, Art. 3.
Sec. 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.\111\ 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 if referred 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.\112\
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\111\ See id. at 23, Art. 4.
\112\ New section 1410 of title 28 provides as follows:
A case under chapter 15 of title 11 may be commenced in the district
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court for the district----
(1) Gin which the debtor has its principal place of business or
principal assets in the United States;
(2) Gif 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) Gin 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 the title of 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.
Sec. 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.\113\
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\113\ See Guide at 24.
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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.\114\ 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.
---------------------------------------------------------------------------
\114\ See id. at 24, Art. 5.
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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.\115\
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\115\ See id. at 23-24, para.82.
Sec. 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.\116\
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\116\ See id. at 25.
Sec. 1507. Additional assistance. Subsection (1) follows the
language of Model Law article 7.\117\ 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.\118\
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\117\ Id. at 26.
\118\ Id.
Sec. 1508. Interpretation. This provision follows conceptually
Model Law article 8 and is a standard one in recent UNCITRAL
treaties and model laws. Changes to the language were made to
express the concepts more clearly in United States
vernacular.\119\ 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 advance 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.
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\119\ Id. at 26, para.91.
Sec. 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 shall 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.\120\
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\120\ 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 proceeding 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.\121\
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\121\ 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.\122\ 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.
---------------------------------------------------------------------------
\122\ Id. at 27, para.93.
Sec. 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.
Sec. 1511. Commencement of Case Under Section 301 or 303. This
section reflects 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.\123\ Article 11 does
not distinguish between voluntary and involuntary proceedings,
but seems to have implicitly assumed an involuntary
proceeding.\124\ 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.
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\123\ See id. at 28, Art. 11.
\124\ Id. at 38, para.para.97-99.
Sec. 1512. Participation of a foreign representative in a case
under this title. This section tracks article 12 of the Model
Law with a slight alteration to tie into United States
procedural terminology.\125\ 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.\126\ 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.
---------------------------------------------------------------------------
\125\ Id. at 29, Art. 12.
\126\ Id. at 29, para.para.10-102.
Sec. 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.\127\ 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.\128\ The Model Law allows
for an exception to the policy of nondiscrimination as to
foreign revenue and other public law claims.\129\ Such claims
(such as tax and Social Security claims) have been
traditionally denied enforcement in the United States, 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 this question 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.
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\127\ Id. at 30, para.103.
\128\ See id. at 30, para.104.
\129\ See id. at 31, para.105.
Sec. 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.\130\ As
``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 additional time for such creditors to file proofs
of claim where appropriate and require 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.\131\ 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).\132\ 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.
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\130\ See Model Law, Art. 14; Guide at 31-32, para.para.106-109.
\131\ Guide at 33, para.111.
\132\ Id. at 31, Art. 14(3)(a).
Sec. 1515. Application for recognition of a foreign proceeding.
This section follows article 15 of the Model Law with minor
changes.\133\ 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.\134\
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\133\ Id. at 33.
\134\ See id. at 36, para.121.
Sec. 1516. Presumptions concerning recognition. This section
follows article 16 of the Model Law with minor changes.\135\
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.\136\ ``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.\137\ 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.
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\135\ Id. at 36
\136\ Id. at 36, Art. 16(3).
\137\ Id.
Sec. 1517. Order granting recognition. This section closely
tracks article 17 of the Model Law, with a few exceptions.\138\
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.\139\ In this regard,
the Model Law conforms to section 304, which has no such
requirement.
---------------------------------------------------------------------------
\138\ Id. at 37.
\139\ Report of the Working Group on Insolvency Law on the Work of
Its Twentieth Session (Vienna, 7-18 Oct. 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). A petition under section
1515 must show that proceeding is a main or a qualifying non-
main proceeding in order to obtain 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.\140\ 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.\141\
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\140\ Guide at 37, Art. 17(1)(d).
\141\ Id.
Sec. 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.\142\ 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.
---------------------------------------------------------------------------
\142\ Id. at 39-40, para.para.133, 134.
Sec. 1519. Relief may be granted upon petition for recognition
of a foreign proceeding. This section generally follows article
19 of the Model Law.\143\ 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 for 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.
---------------------------------------------------------------------------
\143\ Id. at 40.
Sec. 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 has 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 as well as additional restrictions.\144\
---------------------------------------------------------------------------
\144\ 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.\145\ 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.
---------------------------------------------------------------------------
\145\ 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.\146\ 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 a result, the court has the power to terminate the stay
pursuant to section 362(d), for cause, including a failure of
adequate protection.\147\
---------------------------------------------------------------------------
\146\ Id. at 42, Art. 20(2); 44, para.para. 148, 150.
\147\ 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 for claims that
might be extinguished under United States law.\148\
---------------------------------------------------------------------------
\148\ Id.
Sec. 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 conform to United States
law.\149\ 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.'' \150\ 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.\151\ 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.
---------------------------------------------------------------------------
\149\ Id. at 45-46, Art. 21.
\150\ Id. at 46, Art. 21(2); 47, Art. 22(1).
\151\ See id. at 46-47, para.para. 158, 160.
Sec. 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.\152\ It gives the bankruptcy court
broad latitude to mold relief to meet specific circumstances,
including appropriate responses if it is shown that the foreign
proceeding is seriously and unjustifiably injuring United
States creditors. For a 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 Bankruptcy Code section 1104(d) shall apply to
the appointment of an examiner appointed in a case under
chapter 15 and such examiner shall be subject to certain duties
and bonding requirements based on those imposed on trustees and
examiners under other chapters of this title.
---------------------------------------------------------------------------
\152\ Id. at 47.
Sec. 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.\153\ 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.\154\ The courts will determine the nature and
extent of any such action and what national law may be
applicable to such action.
---------------------------------------------------------------------------
\153\ Id. at 48-49.
\154\ See id. at 49, para.166.
Sec. 1524. Intervention by a foreign representative. The
wording is the same as the Model Law, except for a few
clarifying words.\155\ 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.
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\155\ Id. at 49.
Sec. 1525. Cooperation and direct communication between the
court and foreign courts or foreign representatives. The
wording of this provision is nearly identical to that of the
Model Law.\156\ 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.
---------------------------------------------------------------------------
\156\ Id. at 50.
Sec. 1526 Cooperation and direct communication between the
trustee and foreign courts or foreign representatives. This
section closely tracks the Model Law.\157\ The language in
Model Law article 26 concerning the trustee's function was
eliminated as unnecessary because it is always implied under
United States law. The section authorizes the trustee,
including a debtor in possession, to cooperate with other
proceedings.
---------------------------------------------------------------------------
\157\ Id. at 51.
Sec. 1527. Forms of cooperation. This section is identical to
the Model Law.\158\ United States bankruptcy courts already
engage in most of the forms of cooperation described here, but
they now have explicit statutory authorization for acts like
the approval of protocols of the sort used in cases.\159\
---------------------------------------------------------------------------
\158\ Guide at 51, 53.
\159\ See e.g., In re Maxwell Communication Corp., 93 F.2d 1036 (2d
Cir. 1996).
Sec. 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 of the section 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.\160\ 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.
---------------------------------------------------------------------------
\160\ Guide at 54-55.
---------------------------------------------------------------------------
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.
Sec. 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.\161\ This provision is consistent with United
States policy to act ancillary to a foreign main proceeding
whenever possible.
---------------------------------------------------------------------------
\161\ Id. at 55-56.
Sec. 1530. Coordination of more than one foreign proceeding.
This section follows article 30 of the Model Law exactly.\162\
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.
---------------------------------------------------------------------------
\162\ Id. at 57.
Sec. 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.\163\ 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'' in this provision here means
``presumption.'' The presumption does not arise for any purpose
outside this section.
---------------------------------------------------------------------------
\163\ Id. at 58.
Sec. 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).\164\
---------------------------------------------------------------------------
\164\ Id. at 59.
Sec. 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).\165\
---------------------------------------------------------------------------
\165\ Id. at 51-52, 71.
---------------------------------------------------------------------------
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. 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
specified in 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
Sec. 901. Treatment of Certain Agreements by Conservators of
Receivers of Insured Depository Institutions. Subsections (a)
through (f) of section 901 of the Act amend the definitions of
``qualified financial contract,'' ``securities contract,''
``commodity contract,'' ``forward contract,'' ``repurchase
agreement'' and ``swap agreement'' contained in the Federal
Deposit Insurance Act (FDIA) and the Federal Credit Union Act
(FCUA) to make them consistent with the definitions in the
Bankruptcy Code and to reflect the enactment of the Commodity
Futures Modernization Act of 2000 (CFMA). It is intended that
the legislative history and case law surrounding those terms,
to the date of this amendment, be incorporated into the
legislative history of the FDIA and the FCUA.
Subsection (b) amends the definition of ``securities
contract'' expressly to encompass margin loans, to clarify the
coverage of securities options and to clarify the coverage of
repurchase and reverse repurchase transactions. The inclusion
of ``margin loans'' in the definition is intended to encompass
only those loans commonly known in the securities industry as
``margin loans,'' such as credit permitted in a margin account
under the Federal Reserve Board's Regulation T (whether or not
effected in that account) or arrangements where a financial
intermediary--a stockbroker, financial institution, financial
participant, or securities agency--extends credit in connection
with the purchase, sale, carrying, or trading of securities.
``Margin loans'' do not include, however, other loans that
happen to be secured by securities collateral. The reference in
subsection (b) to a ``guarantee by or to any securities
clearing agency'' is intended to cover other arrangements, such
as novation, that have an effect similar to a guarantee. The
reference to a ``loan'' of a security in the definition is
intended to apply to loans of securities, whether or not for a
``permitted purpose'' under margin regulations. The reference
to ``repurchase and reverse repurchase transactions'' is
intended to eliminate any inquiry under the qualified financial
contract provisions of the FDIA or FCUA as to whether a
repurchase or reverse repurchase transaction is a purchase and
sale transaction or a secured financing. Repurchase and reverse
repurchase transactions meeting certain criteria are already
covered under the definition of ``repurchase agreement'' in the
FDIA (and a regulation of the Federal Deposit Insurance
Corporation (FDIC)). Repurchase and reverse repurchase
transactions on all securities (including, for example, equity
securities, asset-backed securities, corporate bonds and
commercial paper) are included under the definition of
``securities contract.'' 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, sale or
repurchase of 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.''
A number of terms used in the qualified financial contract
provisions, but not defined therein, are intended to have the
meanings set forth in the analogous provisions of the
Bankruptcy Code or Federal Deposit Insurance Corporation
Improvement Act (``FDICIA''), such as, for example,
``securities clearing agency.'' The term ``person,'' however,
is not intended to be so interpreted. Instead, ``person'' is
intended to have the meaning set forth in section 1 of title 1
of the United States Code.
Section 901(c) amends with respect the definition of
``commodity contract'' in section 11(e)(8)(D)(iii) of the FDIA
and in section 207(c)(8)(D)(iii) of the FCUA. Section 901(d)
amends section 11(e)(8)(D)(iv) of the FDIA and section
207(c)(8)(D)(iv) of the FCUA with respect to the definition of
a ``forward contract.''
Subsection (e) amends the definition of ``repurchase
agreement'' in the FDIA and the FCUA to codify the substance of
the FDIC's 1995 regulation defining repurchase agreement to
include those on qualified foreign government securities.\166\
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),
as determined by rule, of the appropriate Federal banking
agency. Subsection (e) reflects developments in the repurchase
agreement markets, which increasingly use foreign government
securities as the underlying asset. The securities are limited
to those issued by or guaranteed by full members of the OECD,
as well as countries that have concluded special lending
arrangements with the International Monetary Fund associated
with the Fund's General Arrangements to Borrow.
---------------------------------------------------------------------------
\166\ See 12 C.F.R. Sec. 360.5.
---------------------------------------------------------------------------
Subsection (e) also amends the definition of ``repurchase
agreement'' to include those on mortgage-related securities,
mortgage loans and interests therein, and expressly to include
principal and interest-only U.S. government and agency
securities as securities that can be the subject of a
``repurchase agreement.'' The reference in the definition to
United States government- and agency-issued or fully guaranteed
securities is intended to include obligations issued or
guaranteed by Fannie Mae and the Federal Home Loan Mortgage
Corporation (Freddie Mac) as well as all obligations eligible
for purchase by Federal Reserve banks under the similar
language of section 14(b) of the Federal Reserve Act. This
amendment is not intended to affect the status of repos
involving securities or commodities as securities contracts,
commodity contracts, or forward contracts, and their consequent
eligibility for similar treatment under the qualified financial
contract provisions. In particular, an agreement for the sale
and repurchase of a security would continue to be a securities
contract as defined in the FDIA or FCUA, even if not a
``repurchase agreement'' as defined in the FDIA or FCUA.
Similarly, an agreement for the sale and repurchase of a
commodity, even though not a ``repurchase agreement'' as
defined in the FDIA or FCUA, would continue to be a forward
contract for purposes of the FDIA or FCUA.
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.'' 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 one year or less after such
transfer, however, would constitute a ``repurchase agreement''
as well as a ``securities contract.''
Section 901(f) of the Act 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,
future, or forward agreement; a debt index or debt swap,
option, future, or forward agreement; a total return, 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.'' As amended, the definition of ``swap agreement'' will
update the statutory definition and achieve contractual netting
across economically similar transactions that are the subject
of recurring dealings in the swap agreements.
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. To that end, the phrase ``or any other
similar agreement'' was included in the definition. (The phrase
``or any similar agreement'' has been added to the definitions
of ``forward contract,'' ``commodity contract,'' ``repurchase
agreement'' and ``securities contract'' for the same reason.)
To clarify this, subsection (f) expands the definition of
``swap agreement'' to include ``any agreement or transaction
that is similar to any other agreement or transaction referred
to in [section 11(e)(8)(D)(vi) of the FDIA] and is of a type
that has been, is presently, or in the future becomes, the
subject of recurrent dealings in the swap markets . . . 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,
quantitative measures associated with an occurrence, extent of
an occurrence, or contingency associated with a financial,
commercial, or economic consequence, or economic or financial
indices or measures of economic or financial risk or value.''
The definition of ``swap agreement,'' however, should not
be interpreted to permit parties to document non-swaps as swap
transactions. Traditional commercial arrangements, such as
supply agreements, or other non-financial market transactions,
such as commercial, residential or consumer loans, cannot be
treated as ``swaps'' under the FDIA, the FCUA, or the
Bankruptcy Code simply because the parties purport to document
or label the transactions as ``swap agreements.'' In addition,
these definitions apply only for purposes of the FDIA, the
FCUA, and the Bankruptcy Code. These definitions, and the
characterization of a certain transaction as a ``swap
agreement,'' are not intended to affect 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).
Similarly, Section 17 and a new paragraph of Section 11(e) of
the FDIA provide that the definitions of ``securities
contract,'' ``repurchase agreement,'' ``forward contract,'' and
``commodity contract,'' and the characterization of certain
transactions as such a contract or agreement, are not intended
to affect 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).
The definition also includes any security agreement or
arrangement, or other credit enhancement, related to a swap
agreement, including any guarantee or reimbursement obligation
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 FDIA, FCUA, and the Bankruptcy Code.
Similar changes are made in the definitions of ``forward
contract,'' ``commodity contract,'' ``repurchase agreement''
and ``securities contract.''
The use of the term ``forward'' in the definition of ``swap
agreement'' is not intended to refer only to transactions that
fall within the definition of ``forward contract.'' Instead, a
``forward'' transaction could be a ``swap agreement'' even if
not a ``forward contract.''
Section 901(g) amends the definition of ``transfer'' in the
FDIA and FCUA, which is a key term used in both, to ensure that
it is broadly construed to encompass dispositions of property
or interests in property. The definition tracks the Bankruptcy
Code's definition of this term in Bankruptcy Code section 101.
Section 901(h) makes clarifying technical changes to
conform the receivership and conservatorship provisions of the
FDIA and the FCUA. It also clarifies that the FDIA and the FCUA
expressly protect rights under security agreements,
arrangements or other credit enhancements related to one or
more qualified financial contracts (QFCs). An example of a
security arrangement is a right of setoff, and examples of
other credit enhancements are letters of credit, guarantees,
reimbursement obligations and other similar agreements.
Section 901(i) of the Act 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.
Sec. 902. Authority of the FDIC and NCUAB with Respect to
Failed and Failing Institutions. Section 902 of the Act
provides that no provision of law, including FDICIA, shall be
construed to limit the power of the FDIC or the NCUAB to
transfer or to repudiate any QFC in accordance with its powers
under the FDIA or FCUA, respectively. As discussed below, there
has been some uncertainty regarding whether or not FDICIA
limits the authority of the FDIC or the NCUAB 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 or the
NCUAB with respect to QFCs. 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.
Sec. 903. Amendments Relating to Transfers of Qualified
Financial Contracts. Section 903 of the Act amends the FDIA and
the FCUA to expand the transfer authority of the FDIC and the
NCUAB, respectively to permit transfers of QFCs to ``financial
institutions'' as defined in FDICIA or in regulations. This
provision will allow the FDIC and NCUAB to transfer QFCs to a
non-depository financial institution, provided the institution
is not subject to bankruptcy or insolvency proceedings.
The new FDIA and FCUA provisions specify that when the FDIC
and NCUAB transfer QFCs that are cleared on or 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
and NCUAB flexibility in resolving QFCs cleared on or subject
to the rules of a clearing organization, while preserving the
ability of such organizations to enforce appropriate risk
reducing membership requirements. The amendment does not
require the clearing organization to accept for clearing any
QFCs from the transferee, except on the terms and conditions
applicable to other parties permitted to clear through that
clearing organization. ``Clearing organization'' is defined to
mean a ``clearing organization'' within the meaning of FDICIA
(as amended both by the CFMA and by Section 906 of the Act).
The new FDIA and FCUA provisions also permit transfers to
an eligible financial institution that is a non-U.S. person, or
the branch or agency of a non-U.S. person or a U.S. financial
institution that is not an FDIC-insured institution if,
following the transfer, the contractual rights of the parties
would be enforceable substantially to the same extent as under
the FDIA and the FCUA. It is expected that neither the FDIC nor
the NCUAB would transfer QFCs to such a financial institution
if there were an impending change of law that would impair the
enforceability of the parties' contractual rights.
Section 903 amends the notification requirements following
a transfer of the QFCs of a failed depository institution to
require the FDIC and NCUAB 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 or NCUAB acting as a conservator. This amendment is
consistent with the policy statement on QFCs issued by the FDIC
on December 12, 1989.
Section 903 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. Section 903
makes a similar change to the FCUA.
Section 903 also prohibits the enforcement of rights of
termination or liquidation that arise solely because of the
insolvency of the institution or are based 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 rendered ineffective 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 or
NCUAB 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, or from
taking actions based upon a receivership or other financial
condition-triggered default in the absence of a transfer (as
contemplated in Section 11(e)(10) of the FDIA). The amendment
allows the FDIC or NCUAB 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 or NCUAB to
transfer QFCs of a failed depository institution to a bridge
bank or a depository institution organized by the FDIC or NCUAB
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 or
NCUAB 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.
Sec. 904. Amendments Relating to Disaffirmance or Repudiation
of Qualified Financial Contracts. Section 904 of the Act limits
the disaffirmance and repudiation authority of the FDIC and
NCUAB with respect to QFCs so that such authority is consistent
with their transfer authority under FDIA section 11(e)(9) or
FCUA section 207(c). This ensures that no disaffirmance,
repudiation or transfer authority of the FDIC or NCUAB 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.
Sec. 905. Clarifying Amendment Relating to Master Agreements.
Section 905 of the Act specifies 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 or the FCUA (but only
with respect to the underlying agreements are themselves QFCs).
This provision ensures that cross-product netting pursuant to a
master agreement, or pursuant to an umbrella agreement for
separate master agreements between the same parties, each of
which is used to document one or more qualified financial
contracts, will be enforceable under the FDIA and the FCUA.
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.
Sec. 906. Federal Deposit Insurance Corporation Improvement Act
of 1991. Subsection (a)(1) of section 906 of the Act amends the
definition of ``clearing organization'' in section 402 of the
FDICIA to include clearinghouses that are subject to exemptions
pursuant to orders of the Securities and Exchange Commission or
the Commodity Futures Trading Commission and to include
multilateral clearing organizations (the definition of which
was added to FDICIA by the CFMA).
FDICIA provides that a netting arrangement will be enforced
pursuant to its terms, notwithstanding the failure of a party
to the agreement. The current netting provisions of FDICIA,
however, limit this protection to ``financial institutions,''
which include depository institutions. Section 906(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 latter change will 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. It is intended that a non-defaulting
foreign bank and its branches and agencies be considered to be
a single financial institution for purposes of the bilateral
netting provisions of FDICIA (except to the extent that the
non-defaulting foreign bank and its branches and agencies on
the one hand, and the defaulting financial institution, on the
other, have entered into agreements that clearly evidence an
intention that the non-defaulting foreign bank and its branches
and agencies be treated as separate financial institutions for
purposes of the bilateral netting provisions of FDICIA).
Subsection (a)(3) amends the 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.
Section 906(a)(4) of the Act 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. Many of
these agreements, however, 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 not be invalid
under, or precluded by, Federal law.
Section 906(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 FCUA, or (ii) the appointment of
a receiver or liquidating agent for such institution under the
FDIA or FCUA, if such receiver or liquidating agent transfers
or repudiates QFCs in accordance with the FDIA or FCUA and
gives notice of a transfer by 5:00 p.m. on the business day
following such appointment. This change is made to confirm the
FDIC's and FCUA's flexibility to transfer or repudiate the QFCs
of an insolvent depository institution in accordance with the
terms of the FDIA or FCUA. This modification also provides
important legal certainty regarding the treatment of QFCs under
the FDIA and FCUA, because the current relationship between
these statutes and FDICIA is unclear.
The second exception provides that FDICIA does not override
a stay order under SIPA with respect to foreclosure on
securities (but not cash) collateral of a debtor (section 911
of the Act makes a conforming change to SIPA). There is also an
exception relating to insolvent commodity brokers. 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.
Section 906(d) of the Act adds a new section 407 to FDICIA.
This new section provides that, notwithstanding any other law,
QFCs with uninsured national banks, uninsured Federal branches
or agencies, or Edge Act corporations, or uninsured State
member banks that operate, or operate as, a multilateral
clearing organization and 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 these
institutions 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 such an
institution to those contained in 12 U.S.C.
Sec. Sec. 1821(e)(8), (9), (10), and (11), which address QFCs.
While the amendment would apply the same rules 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.
Sec. 907. Bankruptcy Law Amendments. Section 907 of the Act
makes a series of amendments to the Bankruptcy Code. Subsection
(a)(1) amends the Bankruptcy Code definitions of ``repurchase
agreement'' and ``swap agreement'' to conform with the
amendments to the FDIA contained in sections 901(e) and (f) of
the Act.
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. The securities
are limited to those issued by or guaranteed by full members of
the OECD, as well as countries that have concluded special
lending arrangements with the International Monetary Fund
associated with the Fund's General Arrangements to Borrow.
Subsection (a)(1) also amends the definition of
``repurchase agreement'' to include those on mortgage-related
securities, mortgage loans and interests therein, and to
include principal and interest-only U.S. government and agency
securities as securities that can be the subject of a
``repurchase agreement.'' The reference in the definition to
United States government- and agency-issued or fully guaranteed
securities is intended to include obligations issued or
guaranteed by Fannie Mae and the Federal Home Loan Mortgage
Corporation (Freddie Mac) as well as all obligations eligible
for purchase by Federal Reserve banks under the similar
language of section 14(b) of the Federal Reserve Act.
This amendment is not intended to affect the status of
repos involving securities or commodities as securities
contracts, commodity contracts, or forward contracts, and their
consequent eligibility for similar treatment under other
provisions of the Bankruptcy Code. In particular, an agreement
for the sale and repurchase of a security would continue to be
a securities contract as defined in the Bankruptcy Code and
thus also would be subject to the Bankruptcy Code provisions
pertaining to securities contracts, even if not a ``repurchase
agreement'' as defined in the Bankruptcy Code. Similarly, an
agreement for the sale and repurchase of a commodity, even
though not a ``repurchase agreement'' as defined in the
Bankruptcy Code, would continue to be a forward contract for
purposes of the Bankruptcy Code and would be subject to the
Bankruptcy Code provisions pertaining to forward contracts.
Subsection (a)(1) specifies that repurchase obligations
under a participation in a commercial mortgage loan do not make
the participation agreement a ``repurchase agreement.'' These
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 one year or less
after such transfer would constitute a ``repurchase agreement''
(as well as a ``securities contract'').
The definition of ``swap agreement'' is amended 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, future, or
forward agreement; a debt index or debt swap, option, future,
or forward agreement; a total return, 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.'' As
amended, the definition of ``swap agreement'' will update the
statutory definition and achieve contractual netting across
economically similar transactions.
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. To that end, the phrase ``or any other
similar agreement'' was included in the definition. (The phrase
``or any similar agreement'' has been added to the definitions
of ``forward contract,'' ``commodity contract,'' ``repurchase
agreement,'' and ``securities contract'' for the same reason.)
To clarify this, subsection (a)(1) expands the definition of
``swap agreement'' to include ``any agreement or transaction
that is similar to any other agreement or transaction referred
to in [Section 101(53B) of the Bankruptcy Code] and that is of
a type that has been, is presently, or in the future becomes,
the subject of recurrent dealings in the swap markets'' 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,
quantitative measures associated with an occurrence, extent of
an occurrence, or contingency associated with a financial,
commercial, or economic consequence, or economic or financial
indices or measures of economic or financial risk or value.''
The definition of ``swap agreement'' in this subsection
should not be interpreted to permit parties to document non-
swaps as swap transactions. Traditional commercial
arrangements, such as supply agreements, or other non-financial
market transactions, such as commercial, residential or
consumer loans, cannot be treated as ``swaps'' under the FDIA,
the FCUA, or the Bankruptcy Code because the parties purport to
document or label the transactions as ``swap agreements.''
These definitions, and the characterization of a certain
transaction as a ``swap agreement,'' are not intended to affect
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 (a)(1)(C). Similarly, the
definitions of ``securities contract,'' ``repurchase
agreement,'' and ``commodity contract'' and the
characterization of certain transactions as such a contract or
agreement, are not intended to affect the characterization,
definition, or treatment of any instrument under any other
statute, regulation, or rule including, but not limited to, the
statutes, regulations or rules enumerated in subsection (f).
The definition also includes any security agreement or
arrangement, or other credit enhancement, related to a swap
agreement, including any guarantee or reimbursement obligation
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, the FDIA and the FCUA.
Similar changes are made in the definitions of ``forward
contract,'' ``commodity contract,'' ``repurchase agreement,''
and ``securities contract.'' An example of a security
arrangement is a right of setoff; examples of other credit
enhancements are letters of credit and other similar
agreements. A security agreement or arrangement or guarantee or
reimbursement obligation related to a ``swap agreement,''
``forward contract,'' ``commodity contract,'' ``repurchase
agreement'' or ``securities contract'' will be such an
agreement or contract only to the extent of the damages in
connection with such agreement measured in accordance with
Section 562 of the Bankruptcy Code (added by the Act). This
limitation does not affect, however, the other provisions of
the Bankruptcy Code (including Section 362(b)) relating to
security arrangements in connection with agreements or
contracts that otherwise qualify as ``swap agreements,''
``forward contracts,'' ``commodity contracts,'' ``repurchase
agreements'' or ``securities contracts.''
The use of the term ``forward'' in the definition of ``swap
agreement'' is not intended to refer only to transactions that
fall within the definition of ``forward contract.'' Instead, a
``forward'' transaction could be a ``swap agreement'' even if
not a ``forward contract.''
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.
Subsection (a)(2), like the amendments to the FDIA and the
FCUA, amends the definition of ``securities contract''
expressly to encompass margin loans, to clarify the coverage of
securities options and to clarify the coverage of repurchase
and reverse repurchase transactions. The inclusion of ``margin
loans'' in the definition is intended to encompass only those
loans commonly known in the securities industry as ``margin
loans,'' such as credit permitted in a margin account under the
Federal Reserve Board's Regulation T (whether or not effected
in that account) or arrangements where a financial
intermediary--a stockbroker, financial institution, financial
participant, or securities clearing agency--extends credit in
connection with the purchase, sale, carrying, or trading of
securities. ``Margin loans'' do not include, however, other
loans that happen to be secured by securities collateral. The
reference in subsection (b) to a ``guarantee'' by or to a
``securities clearing agency'' is intended to cover other
arrangements, such as novation, that have an effect similar to
a guarantee. The reference to a ``loan'' of a security in the
definition is intended to apply to loans of securities, whether
or not for a ``permitted purpose'' under margin regulations.
The reference to ``repurchase and reverse repurchase
transactions'' is intended to eliminate any inquiry under
section 555 and related provisions as to whether a repurchase
or reverse repurchase transaction is a purchase and sale
transaction or a secured financing. Repurchase and reverse
repurchase transactions meeting certain criteria are already
covered under the definition of ``repurchase agreement'' in the
Bankruptcy Code. Repurchase and reverse repurchase transactions
on all securities (including, for example, equity securities,
asset-backed securities, corporate bonds and commercial paper)
are included under the definition of ``securities contract.'' A
repurchase or reverse repurchase transaction which is a
``securities contract'' but not a ``repurchase agreement''
would thus be subject to the ``counterparty limitations''
contained in section 555 of the Bankruptcy Code (i.e., only
stockbrokers, financial institutions, securities clearing
agencies and financial participants can avail themselves of
section 555 and related provisions).
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, sale or repurchase of 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.'' Section 907(a) clarifies the reference
to guarantee or reimbursement obligation.
Section 907(b) amends the Bankruptcy Code definitions of
``financial institution'' and ``forward contract merchant.''
The definition for ``financial institution'' includes Federal
Reserve Banks and the receivers or conservators of insolvent
depository institutions. With respect to securities contracts,
the definition of ``financial institution'' expressly includes
investment companies registered under the Investment Company
Act of 1940.
Subsection (b) also adds a new definition of ``financial
participant'' to limit the potential impact of insolvencies
upon other major market participants. This definition will
allow such market participants to close-out and net agreements
with insolvent entities under sections 362(b)(6), 555, and 556
even if the creditor could not qualify as, for example, a
commodity broker. Sections 362(b)(6), 555 and 556 preserve the
limitations of the right to close-out and net such contracts,
in most cases, to entities who qualify under the Bankruptcy
Code's counterparty limitations. However, where the
counterparty has transactions with a total gross dollar value
of at least $1 billion in notional or actual 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 counterparties) in one or more agreements or
transactions on any day during the previous 15-month period,
sections 362(b)(6), 555 and 556 and corresponding amendments
would permit it to exercise netting and related rights
irrespective of its inability otherwise to satisfy those
counterparty limitations. This change will help prevent
systemic impact upon the markets from a single failure, and is
derived from threshold tests contained in Regulation EE
promulgated by the Federal Reserve Board in implementing the
netting provisions of the Federal Deposit Insurance Corporation
Improvement Act. It is intended that the 15-month period be
measured with reference to the 15 months preceding the filing
of a petition by or against the debtor.
``Financial participant'' is also defined to include
``clearing organizations'' within the meaning of FDICIA (as
amended by the CFMA and Section 906 of the Act). This
amendment, together with the inclusion of ``financial
participants'' as eligible counterparties in connection with
``commodity contracts,'' ``forward contracts'' and ``securities
contracts'' and the amendments made in other Sections of the
Act to include ``financial participants'' as counterparties
eligible for the protections in respect of ``swap agreements''
and ``repurchase agreements,'' take into account the CFMA and
will allow clearing organizations to benefit from the
protections of all of the provisions of the Bankruptcy Code
relating to these contracts and agreements. This will further
the goal of promoting the clearing of derivatives and other
transactions as a way to reduce systemic risk. The definition
of ``financial participant'' (as with the other provisions of
the Bankruptcy Code relating to ``securities contracts,''
``forward contracts,'' ``commodity contracts,'' ``repurchase
agreements'' and ``swap agreements'') is not mutually
exclusive, i.e., an entity that qualifies as a ``financial
participant'' could also be a ``swap participant,'' ``repo
participant,'' ``forward contract merchant,'' ``commodity
broker,'' ``stockbroker,'' ``securities clearing agency'' and/
or ``financial institution.''
Section 907(c) of the Act 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 references to ``setoff'' in these
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 agreements,
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 free from the automatic
stay 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 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 and
securities re-sold pursuant to repurchase agreements.
Subsections (e) and (f) of section 907 of the Act amend
sections 546 and 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
and not taken in good faith. This amendment provides the same
protections for a transfer made under, or in connection with, a
master netting agreement as currently is provided for margin
payments, settlement payments and other transfers received by
commodity brokers, forward contract merchants, stockbrokers,
financial institutions, securities clearing agencies, repo
participants, and swap participants under sections 546 and
548(d), except to the extent the trustee could otherwise avoid
such a transfer made under an individual contract covered by
such master netting agreement.
Subsections (g), (h), (i), and (j) of section 907 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.
Section 907(k) of the Act 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. These rights include rights
arising: (i) from the rules of a derivatives clearing
organization, multilateral clearing organization, securities
clearing agency, securities exchange, securities association,
contract market, derivatives transaction execution facility or
board of trade; (ii) under common law, law merchant; or (iii)
by reason of normal business practice. This reflects the
enactment of the CFMA and the current treatment of rights under
swap agreements under section 560 of the Bankruptcy Code.
Similar changes to reflect the enactment of the CFMA have been
made to the definition of ``contractual right'' for purposes of
Sections 555, 556, 559, and 560 of the Bankruptcy Code.
Subsections (b)(2)(A) and (b)(2)(B) of new Section 561
limit the exercise of contractual rights to net or to offset
obligations where the debtor is a commodity broker and one leg
of the obligations sought to be netted relates to commodity
contracts traded on or subject to the rules of a contract
market designated under the Commodity Exchange Act or a
derivatives transaction execution facility registered under the
Commodity Exchange Act. Under subsection (b)(2)(A) netting or
offsetting is not permitted in these circumstances if the party
seeking to net or to offset has no positive net equity in the
commodity accounts at the debtor. Subsection (b)(2)(B) applies
only if the debtor is a commodity broker, acting on behalf of
its own customer, and is in turn a customer of another
commodity broker. In that case, the latter commodity broker may
not net or offset obligations under such commodity contracts
with other claims against its customer, the debtor. Subsections
(b)(2)(A) and (b)(2)(B) limit the depletion of assets available
for distribution to customers of commodity brokers. Subsection
(b)(2)(C) provides an exception to subsections (b)(2)(A) and
(b)(2)(B) for cross-margining and other similar arrangements
approved by, or submitted to and not rendered ineffective by,
the Commodity Futures Trading Commission, as well as certain
other netting arrangements.
For the purposes of Bankruptcy Code sections 555, 556, 559,
560, and 561, 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 sections 362(b)(6), (b)(7), (b)(17),
and (b)(28) of the Bankruptcy Code.
Under the Act, 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 SEC. 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 counterparty of netting or set off rights
in connection with QFCs would be enforceable under the FDIA.
New section 561 of the Bankruptcy Code 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 proceeding ancillary to a foreign insolvency proceeding
under new section 304 of the Bankruptcy Code.
Subsections (l) and (m) of section 907 of the Act clarify
that the exercise of termination and netting rights will not
otherwise affect the priority of the creditor's claim after the
exercise of netting, foreclosure and related rights.
Subsection (n) 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 setoff excepted from section
553(b).
Section 907(o), as well as other subsections of the Act,
adds references to ``financial participant'' in all the
provisions of the Bankruptcy Code relating to securities,
forward and commodity contracts and repurchase and swap
agreements.
Sec. 908. Recordkeeping Requirements. Section 908 of the Act
amends section 11(e)(8) of the Federal Deposit Insurance Act to
explicitly authorize the FDIC, in consultation with appropriate
Federal banking agencies, to prescribe regulations on
recordkeeping by any insured depository institution with
respect to QFCs only if the insured financial institution is in
a troubled condition (as such term is defined in the FDIA).
Sec. 909. Exemptions from Contemporaneous Execution
Requirement. Section 909 of the Act amends FDIA section
13(e)(2) 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 ``D'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.
Sec. 910. Damage Measure. Section 910 of the Act 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 will be calculated as of the earlier of: (i) the date
of rejection of such agreement by a trustee, or (ii) the date
or dates of liquidation, termination or acceleration of such
contract or agreement.
Section 562 provides an exception to the rules in (i) and
(ii) if there are no commercially reasonable determinants of
value as of such date or dates, in which case damages are to be
measured as of the earliest subsequent date or dates on which
there are commercially reasonable determinants of value.
Although it is expected that in most circumstances damages
would be measured as of the date or dates of either rejection
or liquidation, termination or acceleration, in certain unusual
circumstances, such as dysfunctional markets or liquidation of
very large portfolios, there may be no commercially reasonable
determinants of value for liquidating any such agreements or
contracts or for liquidating all such agreements and contracts
in a large portfolio on a single day. It is expected that
measuring damages as of a date or dates before the date of
liquidation, termination, or acceleration will occur only in
very unusual circumstances.
The party determining damages is given limited discretion
to determine the dates as of which damages are to be measured.
Its actions are circumscribed unless there are no
``commercially reasonable'' determinants of value for it to
measure damages on the date or dates of either rejection or
liquidation, termination or acceleration. The references to
``commercially reasonable'' are intended to reflect existing
state law standards relating to a creditor's actions in
determining damages. New section 562 provides that if damages
are not measured as of either the date of rejection or the date
or dates of liquidation, termination or acceleration and the
trustee challenges the timing of the measurement of damages by
the non-defaulting party determining the damages, then the non-
defaulting party, rather than the trustee, has the burden of
proving the absence of any commercially reasonable determinants
of value.
New section 562 is not intended to have any impact on the
determination under the Bankruptcy Code of the timing of
damages for contracts and agreements other than those specified
in section 562. Also, section 562 does not apply to proceedings
under the FDIA, and it is not intended that Section 562 have
any impact on the interpretation of the provisions of the FDIA
relating to timing of damages in respect of QFCs or other
contracts.
Sec. 911. SIPC Stay. Section 911 of the Act 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 or dispose of securities
(but not cash) collateral pledged by the debtor or sold by the
debtor under a repurchase agreement or lent by the debtor under
a securities lending agreement. A corresponding amendment to
FDICIA is made by section 906. A creditor that was stayed in
exercising rights against such securities would be entitled to
post-insolvency interest to the extent of the value of such
securities.
TITLE X. PROTECTION OF FAMILY FARMERS AND FAMILY FISHERMEN
Sec. 1001. Permanent Reenactment of Chapter 12. Chapter 12 is a
specialized form of bankruptcy relief available only to a
``family farmer with regular annual income,'' \167\ a defined
term.\168\ This form of bankruptcy relief permits eligible
family farmers, under the supervision of a bankruptcy
trustee,\169\ to reorganize their debts pursuant to a repayment
plan.\170\ The special attributes of chapter 12 make it better
suited to meet the particularized needs of family farmers in
financial distress than other forms of bankruptcy relief, such
as chapter 11 \171\ and chapter 13.\172\
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\167\ 11 U.S.C. Sec. 109(f).
\168\ 11 U.S.C. Sec. 101(19).
\169\ 11 U.S.C. Sec. 1202.
\170\ 11 U.S.C. Sec. 1222.
\171\ For example, chapter 12 is typically less complex and
expensive than chapter 11, a form of bankruptcy relief generally
utilized to effectuate large corporate reorganizations.
\172\ Chapter 13, a form of bankruptcy relief for individuals
seeking to reorganize their debts, limits its eligibility to debtors
with debts in lower amounts than permitted for eligibility purposes
under chapter 12. Cf. 11 U.S.C. Sec. Sec. 109(e), 101(18).
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Chapter 12 was enacted on a temporary 7-year basis as part
of the Bankruptcy Judges, United States Trustees, and Family
Farmer Bankruptcy Act of 1986 \173\ in response to the farm
financial crisis of the early- to mid-1980's.\174\ It was
subsequently reenacted and extended on several occasions. The
most recent extension, authorized as part of the Farm Security
and Rural Investment Act of 2002, provides that chapter remains
in effect until December 31, 2002.\175\
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\173\ Pub. L. No. 99-554, Sec. 255, 100 Stat. 3088, 3105 (1986).
\174\ See U.S. Dept. of Agriculture, Info. Bull. No. 724-09, Issues
in Agricultural and Rural Finance: Do Farmers Need a Separate Chapter
in the Bankruptcy Code? (Oct. 1997).
As one of the principal proponents of this legislation explained:
I doubt there will be anything that we do that will have such an
immediate impact in the grassroots of our country with respect to the
situation that exists in most of the heartland, and that is in the
agricultural sector. . . .
You know, William Jennings Bryan in his famous speech, the Cross of
Gold, almost 60 years ago [sic], stated these words: ``Destroy our
cities and they will spring up again as if by magic; but destroy our
farms, and the grass will grow in every city in our country.''
This legislation will hopefully stem the tide that we have seen so
recently in the massive bankruptcies in the family farm area.
132 Cong. Rec. 28,147 (1986) (statement of Rep. Mike Synar (D-Okla.)).
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\175\ Pub. L. No. 107-171, Sec. 10814 (2002).
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Section 1001(a) of the Act reenacts chapter 12 of the
Bankruptcy Code and provides that such reenactment takes effect
as of July 1, 2005. Section 1001(b) makes a conforming
amendment to section 302 of the Bankruptcy Judges, United
States Trustees, and Family Farmer Bankruptcy Act of 1986. As a
result of this provision, chapter 12 becomes a permanent form
of relief under the Bankruptcy Code.
Sec. 1002. Debt Limit Increase. Section 1002 of the Act amends
section 104(b) of the Bankruptcy Code to provide for periodic
adjustments for inflation of the debt eligibility limit for
family farmers.
Sec. 1003. Certain Claims Owed to Governmental Units.
Subsection (a) of section 1003 of the Act amends section
1222(a) of the Bankruptcy Code to add an exception with respect
to payments to a governmental unit for a debt entitled to
priority under section 507 if such debt arises from the sale,
transfer, exchange, or other disposition of an asset used in
the debtor's farming operation, but only if the debtor receives
a discharge. Section 1003(b) amends section 1231(b) of the
Bankruptcy Code to have it apply to any governmental unit.
Subsection (c) provides that section 1003 becomes effective on
the date of enactment of this Act and applies to cases
commenced after such effective date.
Sec. 1004. Definition of Family Farmer. Section 1004 of the Act
amends the definition of ``family farmer'' in section 101(18)
of the Bankruptcy Code to increase the debt eligibility limit
from $1,500,000 to $3,237,000. It also reduces the percentage
of the farmer's liabilities that must arise out of the debtor's
farming operation for eligibility purposes from 80 percent to
50 percent.
Sec. 1005. Elimination of Requirement that Family Farmer and
Spouse Receive over 50 Percent of Income from Farming Operation
in Year Prior to Bankruptcy. Section 1005 of the Act amends the
Bankruptcy Code's definition of ``family farmer'' with respect
to the determination of the farmer's income. Current law
provides that a debtor, in order to be eligible to be a family
farmer, must derive a specified percentage of his or her income
from farming activities for the taxable year preceding the
commencement of the bankruptcy case. Section 1005 adjusts the
threshold percentage to be met during either: (1) the taxable
year preceding the filing of the bankruptcy case; or (2) the
taxable year in the second and third taxable years preceding
the filing of the bankruptcy case.
Sec. 1006. Prohibition of Retroactive Assessment of Disposable
Income. Section 1006 of the Act amends the Bankruptcy Code in
two respects concerning chapter 12 plans. Section 1006(a)
amends Bankruptcy Code section 1225(b) to permit the court to
confirm a plan even if the distribution proposed under the plan
equal or exceed the debtor's projected disposable income for
that period, providing the plan otherwise satisfies the
requirements for confirmation. Section 1006(b) amends
Bankruptcy Code section 1229 to restrict the bases for
modifying a confirmed chapter 12 plan. Specifically, Section
1006(b) to provide that a confirmed chapter 12 plan may not be
modified to increase the amount of payments due prior to the
date of the order modifying the confirmation of the plan. Where
the modification is based on an increase in the debtor's
disposable income, the plan may not be modified to require
payments to unsecured creditors in any particular month in an
amount greater than the debtor's disposable income for that
month, unless the debtor proposes such a modification. Section
1006(b) further provides that a modification of a plan shall
not require payments that would leave the debtor with
insufficient funds to carry on the farming operation after the
plan is completed, unless the debtor proposes such a
modification.
Sec. 1007. Family Fishermen. Subsection (a) of section 1007 of
the Act amends Bankruptcy Code section 101 to add definitions
of ``commercial fishing operation,'' ``commercial fishing
vessel,'' ``family fisherman'' and ``family fisherman with
regular annual income.'' The definition of ``commercial fishing
operation'' includes the catching or harvesting of fish,
shrimp, lobsters, urchins, seaweed, shellfish, or other aquatic
species or products. The term ``commercial fishing vessel'' is
defined as a vessel used by a fisher to ``carry out a
commercial fishing operation.'' The term ``family fisherman''
is defined as an individual engaged in a commercial fishing
operation, with an aggregate debt limit of $1.5 million. The
definition specifies that at least 80 percent of those debts
must be derived from a commercial fishing operation. The
percentage of income that must be derived from such operation
is specified to be more than 50 percent of the individual's
gross income for the taxable year preceding the taxable year in
which the case was filed. Similar provisions are included for
corporations and partnerships. The term ``family fisherman with
regular annual income'' is defined as a family fisherman whose
annual income is sufficiently stable and regular to enable such
person to make payments under a chapter 12 plan. Section
1007(b) amends Bankruptcy Code section 109 to provide that a
family fisherman is eligible to be a debtor under chapter 12.
Section 1007(c) amends the heading of chapter 12 to include a
reference to family fisherman and makes conforming revisions to
Sections 1203 and 1206.
TITLE XI. HEALTH CARE AND EMPLOYEE BENEFITS
Sec. 1101. Definitions. Subsection (a) of section 1101 of the
Act amends section 101 of the Bankruptcy Code to add a
definition of ``health care business.'' The definition includes
any public or private entity (without regard to whether that
entity is for or not for profit) that is primarily engaged in
offering to the general public facilities and services for the
diagnosis or treatment of injury, deformity or disease; and
surgical, drug treatment, psychiatric or obstetric care. It
also includes the following entities: (1) a general or
specialized hospital; (2) an ancillary ambulatory, emergency,
or surgical treatment facility; (3) a hospice; (d) a home
health agency; (e) other health care institution that is
similar to an entity referred to in (a) through (d); and other
long-term care facility. These include a skilled nursing
facility, intermediate care facility, assisted living facility,
home for the aged, domiciliary care facility, or health care
institution that is related to an aforementioned facility.
Section 1101(b) amends Bankruptcy Code section 101 to add a
definition of ``patient.'' The term means an individual who
obtains or receives services from a health care business.
Section 1101(c) amends section 101 of the Bankruptcy Code to
add a definition of ``patient records.'' The term means any
written document relating to a patient or record recorded in a
magnetic, optical, or other form of electronic medium. Section
1101(d) specifies that the amendments effectuated by new
section 101(27A) do not affect the interpretation of section
109(b).
Sec. 1102. Disposal of Patient Records. Section 1102 of the Act
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. The
requirements chiefly consist of providing notice to the
affected patients and specifying the method of disposal for
unclaimed records. They 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. The
provision specifies the following requirements:
1. The trustee shall: (a) publish notice in one or
more appropriate newspapers stating that if the records
are not claimed by the patient or an insurance provider
(if permitted under applicable law) within 365 days of
the date of such notice, then the trustee will destroy
such records; and (b) during the first 180 days of such
365-day period, attempt to directly notify by mail each
patient and appropriate insurance carrier of the
claiming or disposing of such records.
2. If after providing such notice patient records are
not claimed within the specified period, the trustee
shall, upon the expiration of such period, send a
request by certified mail to each appropriate Federal
agency to request permission from such agency to
deposit the records with the agency.
3. If after providing the notice as set forth above,
patient records are not claimed, the trustee shall
destroy such records as follows: (a) by shredding or
burning, if the records are written; or (b) by
destroying the records so that their information cannot
be retrieved, if the records are magnetic, optical or
electronic.
It is anticipated that if the estate of the debtor lacks
the funds to pay for the costs and expenses related to the
above, the trustee may recover such costs and expenses under
section 506(c) of the Bankruptcy Code.
Sec. 1103. Administrative Expense Claim for Costs of Closing a
Health Care Business and Other Administrative Expenses. Section
1103 of the Act 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.
Sec. 1104. Appointment of Ombudsman to Act as Patient Advocate.
Section 1104 of the Act adds a provision to the Bankruptcy Code
requiring the court to order the appointment of an ombudsman to
monitor the quality of patient care within 30 days after
commencement of a chapter 7, 9, or 11 health care business
bankruptcy case, unless the court finds that such appointment
is not necessary for the protection of patients under the
specific facts of the case. The ombudsman must be a
disinterested person. If the health care business is a long-
term care facility, a person who is serving as a State Long-
Term Care Ombudsman of the Older Americans Act of 1965 may be
appointed as the ombudsman in such case. The ombudsman must:
(1) monitor the quality of patient care to the extent necessary
under the circumstances, including interviewing patients and
physicians; (2) report to the court, not less than 60 days from
the date of appointment and then every 60 days thereafter, at a
hearing or in writing regarding the quality of patient care at
the health care business involved; and (3) notify the court by
motion or written report (with notice to appropriate parties in
interest) if the ombudsman determines that the quality of
patient care is declining significantly or is otherwise being
materially compromised. The provision requires the ombudsman to
maintain any information obtained that relates to patients
(including patient records) as confidential. Section 1104(b)
amends section 330(a)(1) of the Bankruptcy Code to authorize
the payment of reasonable compensation to an ombudsman.
Sec. 1105. Debtor in Possession; Duty of Trustee to Transfer
Patients. Section 1105 of the Act amends section 704(a) of the
Bankruptcy Code to require a trustee or debtor in possession to
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. 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.
Sec. 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
Sec. 1201. Definitions. Section 1201 of the Act 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 single asset real estate debtors. 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. 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.
Paragraph (6) of section 1201, together with section 1214,
respond to a 1997 Ninth Circuit case, 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.\176\ 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,\177\ that is, a transfer
includes the creation of a lien.
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\176\ Thompson v. Margen (In re McConville), 110 F.3d 47 (9th
Cir.), cert. denied, 522 U.S. 966 (1997).
\177\ Pub. L. No. 95-598, 92 Stat. 2549 (1978).
Sec. 1202. Adjustment of Dollar Amounts. Bankruptcy Code
section 104 provides for the periodic automatic adjustment of
certain dollar amounts specified in the Code to reflect the
change in the Consumer Price Index. Section 1202 amends
Bankruptcy Code section 104(b) to add a reference to certain
other monetary amounts specified in the Bankruptcy Code
section. These include: (1) section 522(f)(3) (pertaining to
the avoidance of certain liens on implements and other personal
property valued at less than $5,000); (2) section 101(19A)
(definition of family fisherman); (3) section 522(f)(4)
(definition of household goods); (4) section 541(b) (property
items, such as certain educational individual retirement
accounts and tuition credit or certificate programs, that do
not constitute property of the bankruptcy estate); (5) section
547(c)(9) (limits the avoidance of a preferential transfer,
under certain circumstances); (6) section 1322(d) (concerning
the applicability of the needs-based test to chapter 13 debtors
with above median incomes); (7) section 1325(b) (determination
of disposable income for chapter 13 debtors with above median
incomes); and (8) section 1326(b)(3) (payments to a chapter 7
trustee in a chapter 13 case). In addition, the provision adds
a reference to section 1409(b) of title 28 of the United States
Code, which pertains to the venue of proceedings to recover a
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money judgment or property.
Sec. 1203. Extension of Time. Section 1203 of the Act 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.
Sec. 1204. Technical Amendments. Section 1204 of the Act makes
technical amendments to Bankruptcy Code 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'').
Sec. 1205. Penalty for Persons Who Negligently or Fraudulently
Prepare Bankruptcy Petitions. Section 1205 of the Act amends
section 110(j)(4) of the Bankruptcy Code to change the
reference to attorneys from the singular possessive to the
plural possessive.
Sec. 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 of the Act amends section 328(a) to
include compensation ``on a fixed or percentage fee basis'' in
addition to the other specified forms of reimbursement.
Sec. 1207. Effect of Conversion. Section 1207 of the Act 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.
Sec. 1208. Allowance of Administrative Expenses. Section 1208
of the Act 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.
Sec. 1209. Exceptions to Discharge. Section 1209 of the Act
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. Section 1209 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 corrects a grammatical error
in section 523(e).
Sec. 1210. Effect of Discharge. Section 1210 of the Act 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.\178\
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\178\ For a description of these errors, see the appropriate
footnote and amendment notes in the United States Code.
Sec. 1211. Protection Against Discriminatory Treatment. Section
1211 of the Act 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
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denied under section 525(c) because of a prior bankruptcy.
Sec. 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 of the Act 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.
Sec. 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. To address the concern
that a corporate insider (such as an officer or director 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 one year before filing. Several
recent cases, including DePrizio,\179\ allowed the trustee to
``reach-back'' and avoid a transfer to a noninsider creditor
made within the 90-day to one-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 one-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 one
year before bankruptcy, if the transfer benefitted an insider
guarantor of the debtor's debt. Accordingly, section 1213 of
the Act 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 one 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 one year pre-filing period. This provision is
intended to apply to any case, including any adversary
proceeding, that is pending or commenced on or after the date
of enactment of this Act.
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\179\ Levit v. Ingersoll Rand Fin. Corp., 874 F.2d 1186 (7th Cir.
1989); see also 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).
Sec. 1214. Postpetition Transactions. Section 1214 of the Act
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.\180\
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\180\ See supra notes 86 and 176 and accompanying text.
Sec. 1215. Disposition of Property of the Estate. Section 1215
of the Act amends section 726(b) of the Bankruptcy Code to
strike an erroneous reference.\181\
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\181\ For a description of the error, see the appropriate footnote
and amendment notes in the United States Code.
Sec. 1216. General Provisions. Section 1216 of the Act 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
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11 of the United States Code.
Sec. 1217. Abandonment of Railroad Line. Section 1217 of the
Act 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.
Sec. 1218. Contents of Plan. Section 1218 of the Act 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.
Sec. 1219. Bankruptcy Cases and Proceedings. Section 1219 of
the Act amends section 1334(d) of title 28 of the United States
Code to make clarifying references.\182\
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\182\ For a description of the errors, see the appropriate footnote
and amendment notes in the United States Code.
Sec. 1220. Knowing Disregard of Bankruptcy Law or Rule. Section
1220 of the Act amends section 156(a) of title 18 of the United
States Code to make stylistic changes and correct a reference
---------------------------------------------------------------------------
to the Bankruptcy Code.
Sec. 1221. Transfers Made by Nonprofit Charitable Corporations.
Section 1221 of the Act 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 of such property 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 1221
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
such 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 1221
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.
Sec. 1222. Protection of Valid Purchase Money Security
Interests. Section 1222 of the Act 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.
Sec. 1223. 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
1223 extends four existing temporary judgeships and authorizes
28 additional bankruptcy judgeships. In determining the
official duty stations of bankruptcy judges and places of
holding court pursuant to section 152(b)(1) of title 28 of the
United States Code regarding the additional judgeships
authorized in this section, the Judicial Conference should
consider the convenience of the parties, the district's
geography, and factors that would facilitate better
administration of cases, such as may be presented in the
Eastern District of California with respect to Bakersfield, for
example.
Sec. 1224. Compensating Trustees. Section 1224 of the Act
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 exceed
the greater of $25 or the amount payable to unsecured
nonpriority creditors as provided by the plan, multiplied by
five percent and the result divided by the number of months of
the plan.
Sec. 1225. Amendment to Section 362 of Titile11, United
States Code. Section 1225 of the Act 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.
Sec. 1226. Judicial Education. Section 1226 of the Act 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.
Sec. 1227. Reclamation. Section 1227 of the Act amends section
546(c) of the Bankruptcy Code to provide that the rights of a
trustee under sections 544(a), 545, 547, and 549 are subject to
the rights of a seller of goods to reclaim goods sold in the
ordinary course of business to the debtor if: (1) the debtor,
while insolvent, received these goods not later than 45 days
prior to the commencement of the case, and (2) written demand
for reclamation of the goods is made not later than 45 days
after receipt of such goods by the debtor or not later than 20
days after the commencement of the case, if the 45-day period
expires after the commencement of the case. If the seller fails
to provide notice in the manner provided in this provision, the
seller may still assert the rights set forth in section
503(b)(7) of the Bankruptcy Code. Section 1227(b) amends
Bankruptcy Code section 503(b) to provide that the value of any
goods received by a debtor not later than within 20 days prior
to 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.
Sec. 1228. Providing Requested Tax Documents to the Court.
Subsection (a) of section 1228 of the Act 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 1228(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
1228(c) directs the court to destroy documents submitted in
support of a bankruptcy claim not sooner than three 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.
Sec. 1229. Encouraging Creditworthiness. Subsection (a) of
section 1229 of the Act expresses the sense of the Congress
that certain lenders may sometimes offer credit to consumers
indiscriminately and that resulting consumer debt may be a
major contributing factor leading to consumer insolvency.
Section 1229(b) directs the Board of Governors of the Federal
Reserve 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
1229(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.
Sec. 1230. Property No Longer Subject to Redemption. Section
1230 of the Act 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: (1) the property is in the possession of the pledgee or
transferee; (2) the debtor has no obligation to repay the
money, redeem the collateral, or buy back the property at a
stipulated price; and (3) 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.
Sec. 1231. Trustees. Section 1231 of the Act 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 1231(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 to have 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. The
provision 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 1231(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.
Sec. 1232. Bankruptcy Forms. Section 1232 of the Act amends
section 2075 of title 28 of the United States Code to a form to
be prescribed for the statement specified under section
707(b)(2)(C) of the Bankruptcy Code and to promulgate general
rules on the content of such statement.
Sec. 1233. Direct Appeals of Bankruptcy Matters to Courts of
Appeals. Under current law, 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 well as a bankruptcy appellate
panel are generally not binding and lack stare decisis value.
To address these problems, section 1233 of the Act amends
section 158(d) of title 28 to establish a procedure to
facilitate appeals of certain decisions, judgments, orders and
decrees of the bankruptcy courts to the circuit courts of
appeals by means of a two-step certification process. The first
step is a certification by the bankruptcy court, district
court, or bankruptcy appellate panel (acting on its own motion
or on the request of a party, or the appellants and appellees
acting jointly). Such certification must be issued by the lower
court if: (1) the bankruptcy court, district court, or
bankruptcy appellate panel determines that one or more of
certain specified standards are met; or (2) a majority in
number of the appellants and a majority in number of the
appellees request certification and represent that one or more
of the standards are met. The second step is authorization by
the circuit court of appeals. Jurisdiction for the direct
appeal would exist in the circuit court of appeals only if the
court of appeals authorizes the direct appeal.
This procedure is intended to be used to settle unresolved
questions of law where there is a need to establish clear
binding precedent at the court of appeals level, where the
matter is one of public importance, where there is a need to
resolve conflicting decisions on a question of law, or where an
immediate appeal may materially advance the progress of the
case or proceeding. The courts of appeals are encouraged to
authorize direct appeals in these circumstances. While fact-
intensive issues may occasionally offer grounds for
certification even when binding precedent already exists on the
general legal issue in question, it is anticipated that this
procedure will rarely be used in that circumstance or in an
attempt to bring to the circuit courts of appeals matters that
can appropriately be resolved initially by district court
judges or bankruptcy appellate panels.
Sec. 1234. Involuntary Cases. Section 1234 of the Act amends
the Bankruptcy Code's criteria for commencing an involuntary
bankruptcy case. Current law renders a creditor ineligible if
its claim is contingent as to liability or the subject of a
bona fide dispute. This provision amends section 303(b)(1) to
specify that a creditor would be ineligible to file an
involuntary petition if the creditor's claim was the subject of
a bona fide dispute as to liability or amount. It further
provides that the claims needed to meet the monetary threshold
must be undisputed. The provision makes a conforming revision
to section 303(h)(1). Section 1234 becomes effective on the
date of enactment of this Act and applies to cases commenced
before, on, and after such date.
Sec. 1235. Federal Election Law Fines and Penalties as
Nondischargeable Debt. Section 1235 of the Act amends section
523(a) of the Bankruptcy Code to make debts incurred to pay
fines or penalties imposed under Federal election law
nondischargeable.
TITLE XIII. CONSUMER CREDIT DISCLOSURE
Sec. 1301. Enhanced Disclosures under an Open End Credit Plan.
Section 1301 of the Act 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 1301(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 1301(a). With respect to the toll-free telephone
number, section 1301(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 six 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 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 1301(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 Federal Reserve Board to
promulgate regulations implementing section 1301(a)'s
amendments to section 127. 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 Federal Reserve 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 study's findings must be submitted to Congress
and include recommendations for legislative initiatives, based
on the Board's findings.
Sec. 1302. Enhanced Disclosure for Credit Extensions Secured by
a Dwelling. Subsection (a)(1) of section 1302 of the Act 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. 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 Federal Reserve Board to
promulgate regulations implementing the amendments effectuated
by this provision. Section 1302(c)(2) provides that 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.
Sec. 1303. Disclosures Related to ``Introductory Rates.''
Subsection (a) of section 1303 of the Act amends section 127(c)
of the Truth in Lending Act by adding a provision to specify
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. 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 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) of the Truth in Lending Act, 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 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) of the Truth in Lending Act 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 publication of such final regulations.
Sec. 1304. Internet-Based Credit Card Solicitations. Subsection
(a) of section 1304 of the Act 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 Federal Reserve Board to
promulgate regulations implementing this provision. It also
provides that the amendments effectuated by section 1304 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.
Sec. 1305. Disclosures Related to Late Payment Deadlines and
Penalties. Subsection (a) of section 1305 of the Act 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 Federal Reserve 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.
Sec. 1306. Prohibition on Certain Actions for Failure to Incur
Finance Charges. Subsection (a) of section 1306 of the Act
amends section 127 of the Truth in Lending Act 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 Federal Reserve 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.
Sec. 1307. Dual Use Debit Card. Subsection (a) of section 1307
of the act provides that the Federal Reserve 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 Federal Reserve 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.
Sec. 1308. Study of Bankruptcy Impact of Credit Extended to
Dependent Students. Section 1308 of the Act 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 one year from
the Act's enactment date.
Sec. 1309. Clarification of Clear and Conspicuous. Subsection
(a) of section 1309 of the Act 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 six 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 purpose of disclosures required under
the Truth in Lending Act provisions set forth therein.
Section 1309(c) requires the Federal Reserve 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.
TITLE XIV. PREVENTING CORPORATE BANKRUPTCY ABUSE
Sec. 1401. Employee Wage and Benefit Priorities. Section 1401
of the Act amends Bankruptcy Code section 507(a) to provide
heightened protections for employees by increasing the monetary
cap on wage and employee benefit claims entitled to priority
under the Bankruptcy Code from $4,650 to $10,000 and lengthens
the reachback period for wage claims from 90 days to 180 days.
As few employees will continue working without pay for an
extended period, the principal effect of extending the time
period to 180 days is that a greater portion of unpaid
vacation, severance, and sick leave pay will be entitled to
priority payment.
Sec. 1402. Fraudulent Transfers and Obligations. Section 1402
of the Act amends section 548 of the Bankruptcy Code to enhance
the recovery of avoidable transfers and excessive prepetition
compensation, such as bonuses, paid to insiders of a debtor. It
effectuates two changes to current law that would make it
easier for a trustee to avoid pre-petition transfers. First,
section 1402(1) extends the one-year reachback period for
fraudulent transfers to two years. Second, section 1402(2)
amends Bankruptcy Code section 548(a) to clarify that it
permits the recovery of any transfer to or an obligation
incurred for the benefit of an insider under an employment
contract, under certain conditions. In addition, section 1402
adds a new provision to section 548 authorizing a bankruptcy
trustee to avoid any transfer of an interest of the debtor in
property that was made on or within the ten-year period
preceding the filing of the debtor's bankruptcy case if: (a)
the transfer was made to a self-settled trust or similar
device; (b) the transfer was made by the debtor; (c) the debtor
is a beneficiary of such trust or similar device; and (d) the
debtor made such transfer with actual intent to hinder, delay,
or defraud any entity to which the debtor was or became, on or
after the date of such transfer, indebted. For purposes of this
provision, a transfer includes a transfer made in anticipation
of any money judgment, criminal fine, or similar obligation or
which the debtor believed would be incurred as a result of: (1)
a violation of Federal or state securities laws, regulations,
or orders; or (2) fraud, deceit, or manipulation in fiduciary
capacity or in connection with the purchase or sale of a
security under specified provisions of the Federal securities
laws.
Sec. 1403. Payment of Insurance Benefits to Retired Employees.
Current bankruptcy law prevents a chapter 11 debtor from
unilaterally modifying certain retiree benefits, such as health
insurance, during the pendency of the bankruptcy case unless an
authorized retiree representative is appointed and agrees to
the modification, or the court authorizes the modification.
Section 1403 amends Bankruptcy Code section 1114 to prevent
debtors from evading these requirements by terminating retiree
benefit plans on the eve of bankruptcy. The amendment would
require retroactive reinstatement of retiree benefits that were
modified within 180 days before the debtor filed for bankruptcy
protection, unless the court finds that the balance of the
equities clearly favors the modification.
Sec. 1404. Debts Nondischargeable If Incurred in Violation of
Securities Fraud Laws. Bankruptcy Code section 523(a)(19) makes
certain debts nondischargeable that result from the violation
of Federal securities law, state securities law, or any
regulation or order issued under such Federal or state
securities law nondischargeable. Section 1404 amends Bankruptcy
Code section 523(a)(19)(B) to provide that it applies to such
debts that result before, on, or after the date on which the
petition was filed from any judgment, order, consent order,
decree, settlement agreement, or from any court or
administrative order for damages or for other specified
payments owed by the debtor. Section 1404 is effective as of
July 30, 2002.
Sec. 1405. Appointment of Trustee in Cases of Suspected Fraud.
Section 1405 amends Bankruptcy Code section 1104 to require the
United States trustee to move for the appointment of a trustee
if there are reasonable grounds to suspect that current members
of a chapter 11 debtor's governing body, chief executive
officer, chief financial officer, or members of the debtor's
governing body who selected the debtor's chief executive
officer or chief financial officer participated in actual
fraud, dishonesty, or criminal conduct in the management of the
debtor or the debtor's public financial reporting.
Sec. 1406. Effective Date; Application of Amendments. Section
1406 provides that title XIV, with the exception of one
provision, takes effect on the date of enactment of this Act
and the amendments apply only to cases commenced after such
date. The exception applies to section 1402(1) of the Act,
which applies only to cases commenced under the Bankruptcy Code
more than one year after the date of enactment of this Act.
TITLE XV. GENERAL EFFECTIVE DATE; APPLICATION OF AMENDMENTS
Sec. 1501. Effective Date; Application of Amendments.
Subsection (a) of section 1501 of the Act provides that the Act
shall take effect 180 days after the date of enactment, unless
otherwise specified in this Act. Section 1501(b) provides that
the amendments made by this Act shall not apply to cases
commenced under the Bankruptcy Code before the Act's effective
date, unless otherwise specified in this Act. The provision
specifies that the amendments made by sections 308, 322 and 330
shall apply to cases commenced on or after the date of
enactment of this Act.
Sec. 1502. Technical Corrections. In light of the renumbering
of a paragraph in Bankruptcy Code section 507 as effectuated by
section 212 of this Act, section 1502 corrects various cross-
references in the Bankruptcy Code to reflect such renumbering.
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 italics, existing law in which no change
is proposed is shown in roman):
TITLE 11, UNITED STATES CODE
Chap. Sec.
General Provisions.............................................101
* * * * * * *
Adjustment of Debts of Family Farmers with Regular Annual Inc1201]
Adjustments of Debts of a Family Farmer or Family Fisherman with .
Regular Annual Income.......................................1201
* * * * * * *
Ancillary and Other Cross-Border Cases........................1501
CHAPTER 1--GENERAL PROVISIONS
Sec.
101. Definitions.
* * * * * * *
111. Nonprofit budget and credit counseling agencies; financial
management instructional courses.
112. Prohibition on disclosure of name of minor children.
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 the
value of whose nonexempt property is 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 case or 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[;].
(7A) The term ``commercial fishing operation''
means--
(A) the catching or harvesting of fish,
shrimp, lobsters, urchins, seaweed, shellfish,
or other aquatic species or products of such
species; or
(B) for purposes of section 109 and chapter
12, aquaculture activities consisting of
raising for market any species or product
described in subparagraph (A).
(7B) The term ``commercial fishing vessel'' means a
vessel used by a family fisherman to carry out a
commercial fishing operation.
(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 that the debtor receives (or in a
joint case the debtor and the debtor's spouse
receive) without regard to whether such income
is taxable income, derived during the 6-month
period ending on--
(i) the last day of the calendar
month immediately preceding the date of
the commencement of the case if the
debtor files the schedule of current
income required by section
521(a)(1)(B)(ii); or
(ii) the date on which current
income is determined by the court for
purposes of this title if the debtor
does not file the schedule of current
income required by section
521(a)(1)(B)(ii); 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 for 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, payments to
victims of war crimes or crimes against
humanity on account of their status as victims
of such crimes, and payments to victims of
international terrorism (as defined in section
2331 of title 18) or domestic terrorism (as
defined in section 2331 of title 18) on account
of their status as victims of such terrorism.
(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 who is an officer, director,
employee, or agent of a person who provides
such assistance or of the bankruptcy petition
preparer;
(B) a nonprofit organization that is exempt
from taxation under section 501(c)(3) of the
Internal Revenue Code of 1986;
(C) a creditor of such assisted person, to
the extent that the creditor is assisting such
assisted person to restructure any debt owed by
such assisted 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 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, on, or after the date
of the order for relief in a case 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, on, or after the date of the order for
relief in a case 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
of the debtor, or such child's parent, legal
guardian, or responsible relative 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) individual or individual and spouse
engaged in a farming operation whose aggregate
debts do not exceed [$1,500,000] $3,237,000 and
not less than [80] 50 percent of whose
aggregate noncontingent, liquidated debts
(excluding a debt for the principal residence
of such individual or such individual and
spouse unless such debt arises out of a farming
operation), on the date the case is filed,
arise out of a farming operation owned or
operated by such individual or such individual
and spouse, and such individual or such
individual and spouse receive from such farming
operation more than 50 percent of such
individual's or such individual and spouse's
gross income [for the taxable year preceding
the taxable year] for--
(i) the taxable year preceding; or
(ii) each of the 2d and 3d taxable
years preceding;
the taxable year in which the case concerning
such individual or such individual and spouse
was filed; or
(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) * * *
(ii) its aggregate debts do not
exceed [$1,500,000] $3,237,000 and not
less than [80] 50 percent of its
aggregate noncontingent, liquidated
debts (excluding a debt for one
dwelling which is owned by such
corporation or partnership and which a
shareholder or partner maintains as a
principal residence, unless such debt
arises out of a farming operation), on
the date the case is filed, arise out
of the farming operation owned or
operated by such corporation or such
partnership; and
(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[;].
(19A) The term ``family fisherman'' means--
(A) an individual or individual and spouse
engaged in a commercial fishing operation--
(i) whose aggregate debts do not
exceed $1,500,000 and not less than 80
percent of whose aggregate
noncontingent, liquidated debts
(excluding a debt for the principal
residence of such individual or such
individual and spouse, unless such debt
arises out of a commercial fishing
operation), on the date the case is
filed, arise out of a commercial
fishing operation owned or operated by
such individual or such individual and
spouse; and
(ii) who receive from such
commercial fishing operation more than
50 percent of such individual's or such
individual's and spouse's gross income
for the taxable year preceding the
taxable year in which the case
concerning such individual or such
individual and spouse was filed; or
(B) a corporation or partnership--
(i) in which more than 50 percent
of the outstanding stock or equity is
held by--
(I) 1 family that conducts
the commercial fishing
operation; or
(II) 1 family and the
relatives of the members of
such family, and such family or
such relatives conduct the
commercial fishing operation;
and
(ii)(I) more than 80 percent of the
value of its assets consists of assets
related to the commercial fishing
operation;
(II) its aggregate debts do not
exceed $1,500,000 and not less than 80
percent of its aggregate noncontingent,
liquidated debts (excluding a debt for
1 dwelling which is owned by such
corporation or partnership and which a
shareholder or partner maintains as a
principal residence, unless such debt
arises out of a commercial fishing
operation), on the date the case is
filed, arise out of a commercial
fishing operation owned or operated by
such corporation or such partnership;
and
(III) if such corporation issues
stock, such stock is not publicly
traded.
(19B) The term ``family fisherman with regular
annual income'' means a family fisherman whose annual
income is sufficiently stable and regular to enable
such family fisherman 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 ``financial institution''--
[(A) means--
[(i) a Federal reserve bank or an
entity (domestic or foreign) that is a
commercial or savings bank, industrial
savings bank, savings and loan
association, trust company, or receiver
or conservator for such entity and,
when any such Federal reserve bank,
receiver, conservator, or entity is
acting as agent or custodian for a
customer in connection with a
securities contract, as defined in
section 741 of this title, the
customer; or
[(ii) in connection with a
securities contract, as defined in
section 741 of this title, an
investment company registered under the
Investment Company Act of 1940; and
[(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;
[(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;]
(22) The term ``financial institution'' means--
(A) a Federal reserve bank, or an entity
(domestic or foreign) that is a commercial or
savings bank, industrial savings bank, savings
and loan association, trust company, federally-
insured credit union, or receiver, liquidating
agent, or conservator for such entity and, when
any such Federal reserve bank, receiver,
liquidating agent, conservator or entity is
acting as agent or custodian for a customer in
connection with a securities contract (as
defined in section 741) such customer; or
(B) in connection with a securities
contract (as defined in section 741) an
investment company registered under the
Investment Company Act of 1940.
(22A) The term ``financial participant'' means--
(A) an entity that, at the time it enters
into a securities contract, commodity contract,
swap agreement, repurchase agreement, or
forward contract, or at the time of the date 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; or
(B) a clearing organization (as defined in
section 402 of the Federal Deposit Insurance
Corporation Improvement Act of 1991).
(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 such 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), including
any guarantee or reimbursement obligation by or
to a forward contract merchant or financial
participant in connection with any agreement or
transaction referred to in any such
subparagraph, but not to exceed the damages in
connection with any such agreement or
transaction, measured in accordance with
section 562.
[(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 in a commodity
(as defined 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
property 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) * * *
(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) * * *
(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) * * *
* * * * * * *
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 close out, 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, including any guarantee or
reimbursement obligation related to 1 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 date of 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.
(39A) The term ``median family income'' means for
any year--
(A) the median family income both
calculated and reported by the Bureau of the
Census in the then most recent year; and
(B) if not so calculated and reported in
the then current year, adjusted annually after
such most recent year until the next year in
which median family income is both calculated
and reported by the Bureau of the Census, to
reflect the percentage change in the Consumer
Price Index for All Urban Consumers during the
period of years occurring after such most
recent year and before such current year.
(40) The term ``municipality'' means political
subdivision or public agency or instrumentality of a
State[;].
(40A) The term ``patient'' means any individual 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) * * *
* * * * * * *
shall be considered, for purposes of section 1102 of
this title, to be a person with respect to such asset
or such benefit[;].
(41A) The term ``personally identifiable
information'' means--
(A) if provided by an individual to the
debtor in connection with obtaining a product
or a service from the debtor primarily for
personal, family, or household purposes--
(i) the first name (or initial) and
last name of such individual, whether
given at birth or time of adoption, or
resulting from a lawful change of name;
(ii) the geographical address of a
physical place of residence of such
individual;
(iii) an electronic address
(including an e-mail address) of such
individual;
(iv) a telephone number dedicated
to contacting such individual at such
physical place of residence;
(v) a social security account
number issued to such individual; or
(vi) the account number of a credit
card issued to such individual; or
(B) if identified in connection with 1 or
more of the items of information specified in
subparagraph (A)--
(i) a birth date, the number of a
certificate of birth or adoption, or a
place of birth; or
(ii) any other information
concerning an identified individual
that, if disclosed, will result in
contacting or identifying such
individual physically or
electronically.
(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) * * *
(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, mortgage loans, or
interests, with a simultaneous
agreement by such transferee to
transfer to the transferor thereof
certificates of deposit, eligible
bankers' acceptance, securities,
mortgage 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), including any guarantee or
reimbursement obligation by or to a
repo participant or financial
participant in connection with any
agreement or transaction referred to in
any such clause, but not to exceed the
damages in connection with any such
agreement or transaction, measured in
accordance with section 562 of this
title; 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 or a national securities exchange registered with
the Securities and Exchange Commission under section 6
of the Securities Exchange Act of 1934.
(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 date of the order for relief in
an amount not more than $2,000,000 (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 $2,000,000
(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--
(I) an interest rate swap,
option, future, or forward
agreement, including 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
equity swap, option, future, or
forward agreement;
(V) a debt index or debt
swap, option, future, or
forward agreement;
(VI) a total return, credit
spread or 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
that is similar to any other agreement
or transaction referred to in this
paragraph and that--
(I) is of a type that has
been, is presently, or in the
future becomes, the subject of
recurrent dealings in the swap
markets (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, quantitative
measures associated with an
occurrence, extent of an
occurrence, or contingency
associated with a financial,
commercial, or economic
consequence, or economic or
financial indices or measures
of economic or financial 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), including any guarantee or
reimbursement obligation by or to a
swap participant or financial
participant in connection with any
agreement or transaction referred to in
any such clause, but not to exceed the
damages in connection with any such
agreement or transaction, measured in
accordance with section 562; 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, the Gramm-Leach-Bliley Act, and the Legal
Certainty for Bank Products Act of 2000.
(53C) The term ``swap participant'' means an entity
that, at any time before the filing of the petition,
has an outstanding swap agreement 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(n), 555 through 557, and 559 through 562
apply in a case under chapter 15.
* * * * * * *
(k) 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), 101(18), 101(19A), 101(51D), 109(e), 303(b),
507(a), 522(d), [and 523(a)(2)(C)] 522(f)(3) and 522(f)(4),
522(n), 522(p), 522(q), 522(f)(3) and 522(f)(4), 523(a)(2)(C),
541(b), 547(c)(9), 707(b), 1322(d), 1325(b), and 1326(b)(3) of
this title and section 1409(b) of title 28 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 101(3), 101(18), 101(19A), 101(51D), 109(e), 303(b),
507(a), 522(d), [and 523(a)(2)(C) of this title] 522(f)(3) and
522(f)(4), 522(n), 522(p), 522(q), 522(f)(3) and 522(f)(4),
523(a)(2)(C), 541(b), 547(c)(9), 707(b), 1322(d), 1325(b), and
1326(b)(3) of this title and section 1409(b) of title 28.
* * * * * * *
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. 107. Public access to papers
(a) Except as provided in subsection (b) of this section
and subject to section 112, a paper filed in a case under this
title and the dockets of a bankruptcy court are public records
and open to examination by an entity at reasonable times
without charge.
* * * * * * *
(c)(1) The bankruptcy court, for cause, may protect an
individual, with respect to the following types of information
to the extent the court finds that disclosure of such
information would create undue risk of identity theft or other
unlawful injury to the individual or the individual's property:
(A) Any means of identification (as defined in
section 1028(d) of title 18) contained in a paper
filed, or to be filed, in a case under this title.
(B) Other information contained in a paper
described in subparagraph (A).
(2) Upon ex parte application demonstrating cause, the
court shall provide access to information protected pursuant to
paragraph (1) to an entity acting pursuant to the police or
regulatory power of a domestic governmental unit.
(3) The United States trustee, bankruptcy administrator,
trustee, and any auditor serving under section 586(f) of title
28--
(A) shall have full access to all information
contained in any paper filed or submitted in a case
under this title; and
(B) shall not disclose information specifically
protected by the court under this title.
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, 1201,
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) a railroad;
(2) a domestic insurance company, bank, savings
bank, cooperative bank, savings and loan association,
building and loan association, homestead association, a
New Markets Venture Capital company as defined in
section 351 of the Small Business Investment Act of
1958, 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,
except that an uninsured State member bank, or a
corporation organized under section 25A of the Federal
Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to section
409 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 may be a debtor if a petition
is filed at the direction of the Board of Governors of
the Federal Reserve System; 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 in the United States.
* * * * * * *
(f) Only a family farmer or family fisherman with regular
annual income may be a debtor under chapter 12 of this title.
* * * * * * *
(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 such
individual has, during the 180-day period preceding the date of
filing of the petition by such 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 such 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 the bankruptcy administrator, if any) determines
that the approved nonprofit budget and credit counseling
agencies for such district are not reasonably able to provide
adequate services to the additional individuals who would
otherwise seek credit counseling from such agencies by reason
of the requirements of paragraph (1).
(B) The United States trustee (or the bankruptcy
administrator, if any) who makes a determination described in
subparagraph (A) shall review such determination not later than
1 year after the date of such determination, and not less
frequently than annually thereafter. Notwithstanding the
preceding sentence, a nonprofit budget and credit counseling
agency may be disapproved by the United States trustee (or the
bankruptcy administrator, if any) 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.
(4) The requirements of paragraph (1) shall not apply with
respect to a debtor whom the court determines, after notice and
hearing, is unable to complete those requirements because of
incapacity, disability, or active military duty in a military
combat zone. For the purposes of this paragraph, incapacity
means that the debtor is impaired by reason of mental illness
or mental deficiency so that he is incapable of realizing and
making rational decisions with respect to his financial
responsibilities; and ``disability'' means that the debtor is
so physically impaired as to be unable, after reasonable
effort, to participate in an in person, telephone, or Internet
briefing required under paragraph (1).
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] 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 bankruptcy
petition 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 which
shall be on an official form prescribed by the Judicial
Conference of the United States in accordance with rule 9009 of
the Federal Rules of Bankruptcy Procedure.
(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 the debtor and, under
penalty of perjury, by the bankruptcy petition
preparer; 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 bankruptcy
petition 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) * * *
[(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 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) Within 10 days after the date of the filing of a
petition, a bankruptcy petition preparer shall file a] (2) 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 bankruptcy petition preparer
during the 12-month period immediately preceding the
date of the 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 (or the
bankruptcy administrator, if any) 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 the motion of the debtor,
trustee, United States trustee (or the bankruptcy
administrator, if any), and after notice and a hearing, 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] 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 on the motion of the court, the
trustee, or the United States trustee (or the bankruptcy
administrator, if any).
[(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 bankruptcy
petition preparer.
(3) A debtor, trustee, creditor, or United States trustee
(or the bankruptcy administrator, if any) may file a motion for
an order imposing a fine on the bankruptcy petition preparer
for any 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. Nonprofit budget and credit counseling agencies; financial
management instructional courses
(a) The clerk shall maintain a publicly available list of--
(1) nonprofit budget and credit counseling agencies
that provide 1 or more services described in section
109(h) currently approved by the United States trustee
(or the bankruptcy administrator, if any); and
(2) instructional courses concerning personal
financial management currently approved by the United
States trustee (or the bankruptcy administrator, if
any), as applicable.
(b) The United States trustee (or bankruptcy administrator,
if any) shall only approve a nonprofit budget and credit
counseling agency or an instructional course concerning
personal financial management as follows:
(1) The United States trustee (or bankruptcy
administrator, if any) shall have thoroughly reviewed
the qualifications of the nonprofit budget and credit
counseling agency or of the provider of the
instructional course under the standards set forth in
this section, and the services or instructional courses
that will be offered by such agency or such provider,
and may require such agency or such provider that has
sought approval to provide information with respect to
such review.
(2) The United States trustee (or bankruptcy
administrator, if any) shall have determined that such
agency or such instructional course fully satisfies the
applicable standards set forth in this section.
(3) If a nonprofit budget and credit counseling
agency or instructional course did not appear on the
approved list for the district under subsection (a)
immediately before approval under this section,
approval under this subsection of such agency or such
instructional course shall be for a probationary period
not to exceed 6 months.
(4) At the conclusion of the applicable
probationary period under paragraph (3), the United
States trustee (or bankruptcy administrator, if any)
may only approve for an additional 1-year period, and
for successive 1-year periods thereafter, an agency or
instructional course that has demonstrated during the
probationary or applicable subsequent period of
approval that such agency or instructional course--
(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), an interested person may seek
judicial review of such decision in the appropriate
district court of the United States.
(c)(1) The United States trustee (or the bankruptcy
administrator, if any) shall only approve a nonprofit budget
and 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 relating to the
quality, effectiveness, and financial security of the services
it provides.
(2) To be approved by the United States trustee (or the
bankruptcy administrator, if any), a nonprofit budget and
credit counseling agency shall, at a minimum--
(A) have a board of directors the majority of
which--
(i) are not employed by such agency; and
(ii) will not directly or indirectly
benefit financially from the outcome of the
counseling services provided by such agency;
(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 a client, including
funding sources, counselor qualifications, possible
impact on credit reports, and any costs of such program
that will be paid by such client and how such costs
will be paid;
(E) provide adequate counseling with respect to a
client's credit problems that includes an analysis of
such client's current financial condition, factors that
caused such financial condition, and how such client
can develop a plan to respond to the problems without
incurring negative amortization of debt;
(F) provide trained counselors who receive no
commissions or bonuses based on the outcome of the
counseling services provided by such agency, 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 the bankruptcy
administrator, if any) 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
instructional course;
(C) adequate facilities situated in
reasonably convenient locations at which such
instructional course is offered, except that
such facilities may include the provision of
such instructional course by telephone or
through the Internet, if such instructional
course is effective;
(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
instructional course, including any evaluation
of satisfaction of instructional course
requirements for each debtor attending such
instructional course, which shall be available
for inspection and evaluation by the Executive
Office for United States Trustees, the United
States trustee (or the bankruptcy
administrator, if any), or the chief bankruptcy
judge for the district in which such
instructional course is offered; and
(E) if a fee is charged for the instructional
course, charge a reasonable fee, and provide services
without regard to ability to pay the fee.
(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 the debtor's understanding of
personal financial management.
(e) The district court may, at any time, investigate the
qualifications of a nonprofit budget and credit counseling
agency referred to in subsection (a), and request production of
documents to ensure the integrity and effectiveness of such
agency. The district court may, at any time, remove from the
approved list under subsection (a) a nonprofit budget and
credit counseling agency upon finding such agency does not meet
the qualifications of subsection (b).
(f) The United States trustee (or the bankruptcy
administrator, if any) shall notify the clerk that a nonprofit
budget and 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 nonprofit budget and credit counseling agency may
provide to a credit reporting agency information concerning
whether a debtor has received or sought instruction concerning
personal financial management from such agency.
(2) A nonprofit budget and credit counseling agency 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.
Sec. 112. Prohibition on disclosure of name of minor children
The debtor may be required to provide information regarding
a minor child involved in matters under this title but may not
be required to disclose in the public records in the case the
name of such minor child. The debtor may be required to
disclose the name of such minor child in a nonpublic record
that is maintained by the court and made available by the court
for examination by the United States trustee, the trustee, and
the auditor (if any) serving under section 586(f) of title 28,
in the case. The court, the United States trustee, the trustee,
and such auditor shall not disclose the name of such minor
child maintained in such nonpublic record.
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. Consumer privacy ombudsman.
333 Appointment of ombudsman.
SUBCHAPTER III--ADMINISTRATION
341. Meetings of creditors and equity security holders.
* * * * * * *
[346. Special tax provisions.]
346. Special provisions related to the treatment of State and local
taxes.
* * * * * * *
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) * * *
(b) An involuntary case against a person is commenced by
the filing with the bankruptcy court of a petition under
chapter 7 or 11 of this title--
(1) by three or more entities, each of which is
either a holder of a claim against such person that is
not contingent as to liability or the subject of a bona
fide dispute as to liability or amount, or an indenture
trustee representing such a holder, [if such claims] if
such noncontingent, undisputed claims aggregate at
least $10,000 more than the value of any lien on
property of the debtor securing such claims held by the
holders of such claims;
* * * * * * *
(h) If the petition is not timely controverted, the court
shall order relief against the debtor in an involuntary case
under the chapter under which the petition was filed.
Otherwise, after trial, the court shall order relief against
the debtor in an involuntary case under the chapter under which
the petition was filed, only if--
(1) the debtor is generally not paying such
debtor's debts as such debts become due unless such
debts are the subject of a bona fide dispute as to
liability or amount; or
* * * * * * *
[(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.]
(l)(1) If--
(A) the petition under this section is false or
contains any materially false, fictitious, or
fraudulent statement;
(B) the debtor is an individual; and
(C) the court dismisses such petition,
the court, upon the motion of the debtor, shall seal all the
records of the court relating to such petition, and all
references to such petition.
(2) If the debtor is an individual and the court dismisses
a petition under this section, the court may enter an order
prohibiting all consumer reporting agencies (as defined in
section 603(f) of the Fair Credit Reporting Act (15 U.S.C.
1681a(f))) from making any consumer report (as defined in
section 603(d) of that Act) that contains any information
relating to such petition or to the case commenced by the
filing of such petition.
(3) Upon the expiration of the statute of limitations
described in section 3282 of title 18, for a violation of
section 152 or 157 of such title, the court, upon the motion of
the debtor and for good cause, may expunge any records relating
to a petition filed under this section.
[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--
(1) * * *
[(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 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.
* * * * * * *
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 expenses 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, a consumer
privacy ombudsman appointed under section 332, an examiner, an
ombudsman appointed under section 333, 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
(B) reimbursement for actual, necessary expenses.
(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.
* * * * * * *
Sec. 332. Consumer privacy ombudsman
(a) If a hearing is required under section 363(b)(1)(B),
the court shall order the United States trustee to appoint, not
later than 5 days before the commencement of the hearing, 1
disinterested person (other than the United States trustee) to
serve as the consumer privacy ombudsman in the case and shall
require that notice of such hearing be timely given to such
ombudsman.
(b) The consumer privacy ombudsman may appear and be heard
at such hearing and shall provide to the court information to
assist the court in its consideration of the facts,
circumstances, and conditions of the proposed sale or lease of
personally identifiable information under section 363(b)(1)(B).
Such information may include presentation of--
(1) the debtor's privacy policy;
(2) the potential losses or gains of privacy to
consumers if such sale or such lease is approved by the
court;
(3) the potential costs or benefits to consumers if
such sale or such lease is approved by the court; and
(4) the potential alternatives that would mitigate
potential privacy losses or potential costs to
consumers.
(c) A consumer privacy ombudsman shall not disclose any
personally identifiable information obtained by the ombudsman
under this title.
Sec. 333. Appointment of patient care ombudsman
(a)(1) If the debtor in a case under chapter 7, 9, or 11 is
a health care business, the court shall order, not later than
30 days after the commencement of the case, the appointment of
an ombudsman to monitor the quality of patient care and to
represent the interests of the patients of the health care
business unless the court finds that the appointment of such
ombudsman is not necessary for the protection of patients under
the specific facts of the case.
(2)(A) If the court orders the appointment of an ombudsman
under paragraph (1), the United States trustee shall appoint 1
disinterested person (other than the United States trustee) to
serve as such ombudsman.
(B) If the debtor is a health care business that provides
long-term care, then the United States trustee may appoint the
State Long-Term Care Ombudsman appointed under the Older
Americans Act of 1965 for the State in which the case is
pending to serve as the ombudsman required by paragraph (1).
(C) If the United States trustee does not appoint a State
Long-Term Care Ombudsman under subparagraph (B), the court
shall notify the State Long-Term Care Ombudsman appointed under
the Older Americans Act of 1965 for the State in which the case
is pending, of the name and address of the person who is
appointed under subparagraph (A).
(b) An ombudsman appointed under subsection (a) shall--
(1) monitor the quality of patient care provided to
patients of the debtor, 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 at 60-day
intervals thereafter, report to the court after notice
to the parties in interest, at a hearing or in writing,
regarding the quality of patient care provided to
patients of the debtor; and
(3) if such ombudsman determines that the quality
of patient care provided to patients of the debtor is
declining significantly or is otherwise being
materially compromised, file with the court a motion or
a written report, with notice to the parties in
interest immediately upon making such determination.
(c)(1) An ombudsman appointed under subsection (a) shall
maintain any information obtained by such ombudsman under this
section that relates to patients (including information
relating to patient records) as confidential information. Such
ombudsman may not review confidential patient records unless
the court approves such review in advance and imposes
restrictions on such ombudsman to protect the confidentiality
of such records.
(2) An ombudsman appointed under subsection (a)(2)(B) shall
have access to patient records consistent with authority of
such ombudsman under the Older Americans Act of 1965 and under
non-Federal laws governing the State Long-Term Care Ombudsman
program.
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 otherwise applicable nonbankruptcy law,
or any 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 case under this title shall
be subject to fine, imprisonment, or both; and
(B) all information supplied by a debtor in
connection with a case under this title 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 last 4 digits of the 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]. If the notice concerns an amendment that adds
a creditor to the schedules of assets and liabilities, the
debtor shall include the full taxpayer identification number in
the notice sent to that creditor, but the debtor shall include
only the last 4 digits of the taxpayer identification number in
the copy of the notice filed with the court.
(2)(A) If, within the 90 days before the commencement of a
voluntary case, a creditor supplies the debtor in at least 2
communications sent to the debtor with the current account
number of the debtor and the address at which such creditor
requests to receive correspondence, then any notice required by
this title to be sent by the debtor to such creditor shall be
sent to such address and shall include such account number.
(B) If a creditor would be in violation of applicable
nonbankruptcy law by sending any such communication within such
90-day period and if such creditor supplies the debtor in the
last 2 communications with the current account number of the
debtor and the address at which such creditor requests to
receive correspondence, then any notice required by this title
to be sent by the debtor to such creditor shall be sent to such
address and shall include such account number.
(d) In a case under chapter 7 of this title in which the
debtor is an individual and in which the presumption of abuse
arises 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
arisen.
(e)(1) In a case under chapter 7 or 13 of this title of a
debtor who is an individual, a creditor at any time may both
file with the court and serve on the debtor a notice of address
to be used to provide notice in such case to such creditor.
(2) Any notice in such case required to be provided to such
creditor by the debtor or the court later than 5 days after the
court and the debtor receive such creditor's notice of address,
shall be provided to such address.
(f)(1) An entity may file with any bankruptcy court a
notice of address to be used by all the bankruptcy courts or by
particular bankruptcy courts, as so specified by such entity at
the time such notice is filed, to provide notice to such entity
in all cases under chapters 7 and 13 pending in the courts with
respect to which such notice is filed, in which such entity is
a creditor.
(2) In any case filed under chapter 7 or 13, any notice
required to be provided by a court with respect to which a
notice is filed under paragraph (1), to such entity later than
30 days after the filing of such notice under paragraph (1)
shall be provided to such address unless with respect to a
particular case a different address is specified in a notice
filed and served in accordance with subsection (e).
(3) A notice filed under paragraph (1) may be withdrawn by
such entity.
(g)(1) Notice provided to a creditor by the debtor or the
court other than in accordance with this section (excluding
this subsection) shall not be effective notice until such
notice is brought to the attention of such creditor. If such
creditor designates a person or an organizational subdivision
of such creditor to be responsible for receiving notices under
this title and establishes reasonable procedures so that such
notices receivable by such creditor are to be delivered to such
person or such subdivision, then a notice provided to such
creditor other than in accordance with this section (excluding
this subsection) shall not be considered to have been brought
to the attention of such creditor until such notice is received
by such person or such subdivision.
(2) A monetary penalty may not be imposed on a creditor for
a violation of a stay in effect under section 362(a) (including
a monetary penalty imposed under section 362(k)) or for failure
to comply with section 542 or 543 unless the conduct that is
the basis of such violation or of such failure occurs after
such creditor receives notice effective under this section of
the order for relief.
* * * * * * *
[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 such 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 date of
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 case under chapter 13;
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 most recent 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 the tax liability of a debtor
who is an individual for a taxable period ending before
the date of 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) of 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 or a statute;
(D) of the withholding, suspension, or
restriction of a driver's license, a
professional or occupational license, or a
recreational license, under State law, as
specified in section 466(a)(16) of the Social
Security Act;
(E) of 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;
(F) of the interception of a tax refund, as
specified in sections 464 and 466(a)(3) of the
Social Security Act or under an analogous State
law; or
(G) of the enforcement of a medical
obligation, as specified under title IV of the
Social Security Act;
* * * * * * *
(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,
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 or financial 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, under the control of, or due from such repo
participant or financial 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 or financial 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 or financial
participant under or in connection with any swap
agreement or against cash, securities, or other
property held by, pledged to, under the control of, or
due from such swap participant or financial 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 date of 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(c) 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 under 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) a loan from a thrift savings plan
permitted under subchapter III of chapter 84 of
title 5, that satisfies the requirements of
section 8433(g) of such title;
but nothing in this paragraph 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;
(20) under subsection (a), of any act to enforce
any lien against or security interest in real property
following entry of the order under subsection (d)(4) as
to such real property in any prior case under this
title, for a period of 2 years after the date of the
entry of such an order, except that the debtor, in a
subsequent case under this title, may move 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 case under
this title; or
(B) if the case under this title was filed
in violation of a bankruptcy court order in a
prior case under this title prohibiting the
debtor from being a debtor in another case
under this title;
(22) subject to subsection (l), under subsection
(a)(3), of the continuation of any eviction, unlawful
detainer action, or similar proceeding by a lessor
against a debtor involving residential property in
which the debtor resides as a tenant under a lease or
rental agreement and with respect to which the lessor
has obtained before the date of the filing of the
bankruptcy petition, a judgment for possession of such
property against the debtor;
(23) subject to subsection (m), under subsection
(a)(3), of an eviction action that seeks possession of
the residential property in which the debtor resides as
a tenant under a lease or rental agreement based on
endangerment of such property or the illegal use of
controlled substances on such property, but only if the
lessor files with the court, and serves upon the
debtor, a certification under penalty of perjury that
such an eviction action has been filed, or that the
debtor, during the 30-day period preceding the date of
the filing of the certification, has endangered
property or illegally used or allowed to be used a
controlled substance on the property;
(24) under subsection (a), of any transfer that is
not avoidable under section 544 and that is not
avoidable under section 549;
(25) 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 such securities self
regulatory organization to enforce such
organization's regulatory power; or
(C) any act taken by such securities self
regulatory organization to delist, delete, or
refuse to permit quotation of any stock that
does not meet applicable regulatory
requirements;
(26) 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 date of the order for
relief against an income tax liability for a taxable
period that also ended before the date of 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, on the
motion of the trustee and after notice and a hearing,
grants the taxing authority adequate protection (within
the meaning of section 361) for the secured claim of
such authority in the setoff under section 506(a);
(27) 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, 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; and
(28) 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 pursuant to title
XI or XVIII of such Act).
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.
(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 debtor who is an individual in a case 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) on the motion of 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 chapters 7,
11, and 13 in which the
individual was a debtor was
pending within the preceding 1-
year period;
(II) a previous case under
any of chapters 7, 11, and 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
that 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 a debtor who is an individual 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
a 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 the entry of the order
allowing the stay to go into effect; and
(D) 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) 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 provide
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 such 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) * * *
(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) * * *
[(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, on, or after
the date of 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 property,
if the court finds that the filing of the 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, such real property
without the consent of the secured creditor or
court approval; or
(B) multiple bankruptcy filings affecting
such real property.
If recorded in compliance with applicable State laws governing
notices of interests or liens in real property, an order
entered under paragraph (4) shall be binding in any other case
under this title purporting to affect such real property filed
not later than 2 years after the date of the entry of such
order by the court, except that a debtor in a subsequent case
under this title 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 a case under chapter
7, 11, or 13 in which the debtor is an individual, 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) such 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 a case in which the debtor is an individual, 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)--
(A) to file timely any statement of intention
required under section 521(a)(2) with respect to such
personal property or to indicate in such statement that
the debtor will either surrender such personal property
or retain it and, if retaining such personal property,
either redeem such personal property pursuant to
section 722, enter into an agreement of the kind
specified in section 524(c) applicable to the debt
secured by such personal property, or assume such
unexpired lease pursuant to section 365(p) if the
trustee does not do so, as applicable; and
(B) to take timely the action specified in such
statement, as it may be amended before expiration of
the period for taking action, unless such statement
specifies the debtor's intention to reaffirm such debt
on the original contract terms and the creditor refuses
to agree to the reaffirmation on such 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 personal 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
hearing 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 otherwise provided in this subsection,
subsection (b)(22) shall apply on the date that is 30 days
after the date on which the bankruptcy petition is filed, if
the debtor files with the petition and serves upon the lessor a
certification under penalty of perjury that--
(A) under nonbankruptcy law applicable in the
jurisdiction, there are circumstances under which the
debtor would be permitted to cure the entire monetary
default that gave rise to the judgment for possession,
after that judgment for possession was entered; and
(B) the debtor (or an adult dependent of the
debtor) has deposited with the clerk of the court, any
rent that would become due during the 30-day period
after the filing of the bankruptcy petition.
(2) If, within the 30-day period after the filing of the
bankruptcy petition, the debtor (or an adult dependent of the
debtor) complies with paragraph (1) and files with the court
and serves upon the lessor a further certification under
penalty of perjury that the debtor (or an adult dependent of
the debtor) has cured, under nonbankrupcty law applicable in
the jurisdiction, the entire monetary default that gave rise to
the judgment under which possession is sought by the lessor,
subsection (b)(22) shall not apply, unless ordered to apply by
the court under paragraph (3).
(3)(A) If the lessor files an objection to any
certification filed by the debtor under paragraph (1) or (2),
and serves such objection upon the debtor, the court shall hold
a hearing within 10 days after the filing and service of such
objection to determine if the certification filed by the debtor
under paragraph (1) or (2) is true.
(B) If the court upholds the objection of the lessor filed
under subparagraph (A)--
(i) subsection (b)(22) shall apply immediately and
relief from the stay provided under subsection (a)(3)
shall not be required to enable the lessor to complete
the process to recover full possession of the property;
and
(ii) the clerk of the court shall immediately serve
upon the lessor and the debtor a certified copy of the
court's order upholding the lessor's objection.
(4) If a debtor, in accordance with paragraph (5),
indicates on the petition that there was a judgment for
possession of the residential rental property in which the
debtor resides and does not file a certification under
paragraph (1) or (2)--
(A) subsection (b)(22) shall apply immediately upon
failure to file such certification, and relief from the
stay provided under subsection (a)(3) shall not be
required to enable the lessor to complete the process
to recover full possession of the property; and
(B) the clerk of the court shall immediately serve
upon the lessor and the debtor a certified copy of the
docket indicating the absence of a filed certification
and the applicability of the exception to the stay
under subsection (b)(22).
(5)(A) Where a judgment for possession of residential
property in which the debtor resides as a tenant under a lease
or rental agreement has been obtained by the lessor, the debtor
shall so indicate on the bankruptcy petition and shall provide
the name and address of the lessor that obtained that pre-
petition judgment on the petition and on any certification
filed under this subsection.
(B) The form of certification filed with the petition, as
specified in this subsection, shall provide for the debtor to
certify, and the debtor shall certify--
(i) whether a judgment for possession of
residential rental housing in which the debtor resides
has been obtained against the debtor before the date of
the filing of the petition; and
(ii) whether the debtor is claiming under paragraph
(1) that under nonbankruptcy law applicable in the
jurisdiction, there are circumstances under which the
debtor would be permitted to cure the entire monetary
default that gave rise to the judgment for possession,
after that judgment of possession was entered, and has
made the appropriate deposit with the court.
(C) The standard forms (electronic and otherwise) used in a
bankruptcy proceeding shall be amended to reflect the
requirements of this subsection.
(D) The clerk of the court shall arrange for the prompt
transmittal of the rent deposited in accordance with paragraph
(1)(B) to the lessor.
(m)(1) Except as otherwise provided in this subsection,
subsection (b)(23) shall apply on the date that is 15 days
after the date on which the lessor files and serves a
certification described in subsection (b)(23).
(2)(A) If the debtor files with the court an objection to
the truth or legal sufficiency of the certification described
in subsection (b)(23) and serves such objection upon the
lessor, subsection (b)(23) shall not apply, unless ordered to
apply by the court under this subsection.
(B) If the debtor files and serves the objection under
subparagraph (A), the court shall hold a hearing within 10 days
after the filing and service of such objection to determine if
the situation giving rise to the lessor's certification under
paragraph (1) existed or has been remedied.
(C) If the debtor can demonstrate to the satisfaction of
the court that the situation giving rise to the lessor's
certification under paragraph (1) did not exist or has been
remedied, the stay provided under subsection (a)(3) shall
remain in effect until the termination of the stay under this
section.
(D) If the debtor cannot demonstrate to the satisfaction of
the court that the situation giving rise to the lessor's
certification under paragraph (1) did not exist or has been
remedied--
(i) relief from the stay provided under subsection
(a)(3) shall not be required to enable the lessor to
proceed with the eviction; and
(ii) the clerk of the court shall immediately serve
upon the lessor and the debtor a certified copy of the
court's order upholding the lessor's certification.
(3) If the debtor fails to file, within 15 days, an
objection under paragraph (2)(A)--
(A) subsection (b)(23) shall apply immediately upon
such failure and relief from the stay provided under
subsection (a)(3) shall not be required to enable the
lessor to complete the process to recover full
possession of the property; and
(B) the clerk of the court shall immediately serve
upon the lessor and the debtor a certified copy of the
docket indicating such failure.
(n)(1) Except as provided in paragraph (2), subsection (a)
does 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 acquired substantially
all of the assets or business of a small business
debtor described in subparagraph (A), (B), or (C),
unless such entity establishes by a preponderance of
the evidence that such entity acquired substantially
all of the assets or business of such small business
debtor in good faith and not for the purpose of evading
this paragraph.
(2) Paragraph (1) 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 the 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.
(o) The exercise of rights not subject to the stay arising
under subsection (a) pursuant to paragraph (6), (7), (17), or
(27) 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) * * *
(b)(1) The trustee, after notice and a hearing, may use,
sell, or lease, other than in the ordinary course of business,
property of the estate[.], except that if the debtor in
connection with offering a product or a service discloses to an
individual a policy prohibiting the transfer of personally
identifiable information about individuals to persons that are
not affiliated with the debtor and if such policy is in effect
on the date of the commencement of the case, then the trustee
may not sell or lease personally identifiable information to
any person unless--
(A) such sale or such lease is consistent with such
policy; or
(B) after appointment of a consumer privacy
ombudsman in accordance with section 332, and after
notice and a hearing, the court approves such sale or
such lease--
(i) giving due consideration to the facts,
circumstances, and conditions of such sale or
such lease; and
(ii) finding that no showing was made that
such sale or such lease would violate
applicable nonbankruptcy law.
* * * * * * *
(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.
* * * * * * *
(o) Notwithstanding subsection (f), if a person purchases
any interest in a consumer credit transaction that is subject
to the Truth in Lending Act or any interest in a consumer
credit contract (as defined in section 433.1 of title 16 of the
Code of Federal Regulations (January 1, 2004), as amended from
time to time), and if such interest is purchased through a sale
under this section, then such person shall remain subject to
all claims and defenses that are related to such consumer
credit transaction or such consumer credit contract, to the
same extent as such person would be subject to such claims and
defenses of the consumer had such interest been purchased at a
sale not under this section.
[(o)] (p) In any hearing under this section--
(1) * * *
* * * * * * *
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 this paragraph;
* * * * * * *
(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
provision] 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.
[(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.]
(4)(A) Subject to subparagraph (B), 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 on the 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.
[(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) If the debtor in a case under chapter 7 is an
individual, 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) and (4), 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
the 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 the
filing of the petition;
(ii) the payment by the debtor of charges for
utility service in a timely manner before the date of
the 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 the 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. Restrictions on debt relief agencies.
527. Disclosures.
528. Requirements for debt relief agencies.
* * * * * * *
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;
proceedings under chapter 15.
562. Timing of 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 (as
defined in section 31701 of title 49) 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 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 an unsecured consumer debt 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 on behalf of
the debtor by an approved nonprofit budget and credit
counseling agency described in section 111;
(B) the offer of the debtor under subparagraph
(A)--
(i) was made at least 60 days before the
date of 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) the actual, necessary costs and expenses of
preserving the estate, including wages, salaries, or
commissions for services rendered after the
commencement of the case;] (A) the actual, necessary
costs and expenses of preserving the estate including--
(i) wages, salaries, and commissions for
services rendered after the commencement of the
case; and
(ii) wages and benefits awarded pursuant to
a judicial proceeding or a proceeding of the
National Labor Relations Board as back pay
attributable to any period of time occurring
after commencement of the case under this
title, as a result of a violation of Federal or
State law by the debtor, without regard to the
time of the occurrence of unlawful conduct on
which such award is based or to whether any
services were rendered, if the court determines
that payment of wages and benefits by reason of
the operation of this clause will not
substantially increase the probability of
layoff or termination of current employees, or
of nonpayment of domestic support obligations,
during the case under this title;
(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 a penalty
provision, 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 an entity other than
the debtor, 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 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; and
(9) the value of any goods received by the debtor
within 20 days before 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.
(c) Notwithstanding subsection (b), there shall neither be
allowed, nor paid--
(1) a transfer made to, or an obligation incurred
for the benefit of, an insider of the debtor for the
purpose of inducing such person to remain with the
debtor's business, absent a finding by the court based
on evidence in the record that--
(A) the transfer or obligation is essential
to retention of the person because the
individual has a bona fide job offer from
another business at the same or greater rate of
compensation;
(B) the services provided by the person are
essential to the survival of the business; and
(C) either--
(i) the amount of the transfer made
to, or obligation incurred for the
benefit of, the person is not greater
than an amount equal to 10 times the
amount of the mean transfer or
obligation of a similar kind given to
nonmanagement employees for any purpose
during the calendar year in which the
transfer is made or the obligation is
incurred; or
(ii) if no such similar transfers
were made to, or obligations were
incurred for the benefit of, such
nonmanagement employees during such
calendar year, the amount of the
transfer or obligation is not greater
than an amount equal to 25 percent of
the amount of any similar transfer or
obligation made to or incurred for the
benefit of such insider for any purpose
during the calendar year before the
year in which such transfer is made or
obligation is incurred;
(2) a severance payment to an insider of the
debtor, unless--
(A) the payment is part of a program that
is generally applicable to all full-time
employees; and
(B) the amount of the payment is not
greater than 10 times the amount of the mean
severance pay given to nonmanagement employees
during the calendar year in which the payment
is made; or
(3) other transfers or obligations that are outside
the ordinary course of business and not justified by
the facts and circumstances of the case, including
transfers made to, or obligations incurred for the
benefit of, officers, managers, or consultants hired
after the date of the filing of the petition.
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) * * *
(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 shall maintain a list 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 such governmental unit does not designate an address
and provide such address to the clerk under subparagraph (A),
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 such 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) If the debtor is an individual in a case under chapter
7 or 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 the filing of the
petition without deduction for costs of sale or marketing. With
respect to property acquired for personal, family, or household
purposes, 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 in a case under this
title, are owed to or recoverable by a spouse,
former spouse, or child of the debtor, or such
child's parent, legal guardian, or responsible
relative, without regard to whether the claim
is filed by such person or is filed by a
governmental unit on behalf of such person, on
the condition that funds received under this
paragraph by a governmental unit under this
title after the date of the 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 of the
filing of the petition, 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
governmental 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 the
filing of the petition be applied and
distributed in accordance with applicable
nonbankruptcy law.
(C) If a trustee is appointed or elected
under section 701, 702, 703, 1104, 1202, or
1302, the administrative expenses of the
trustee allowed under paragraphs (1)(A), (2),
and (6) of section 503(b) shall be paid before
payment of claims under subparagraphs (A) and
(B), to the extent that the trustee administers
assets that are otherwise available for the
payment of such claims.
[(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] $10,000 for each
individual or corporation, as the case may be, earned
within [90] 180 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) * * *
(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) * * *
(B) for each such plan, to the extent of--
(i) the number of employees covered
by each such plan multiplied by
[$4,000] $10,000; less
(ii) the aggregate amount paid to
such employees under paragraph [(3)]
(4) of this subsection, plus the
aggregate amount paid by the estate on
behalf of such employees to any other
employee benefit plan.
[(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 the filing of the petition--
(i) [for a taxable year ending on
or before the date of the filing of the
petition] for which a return, if
required, is last due, including
extensions, after three years before
the date of the filing of the petition;
[(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;
* * * * * * *
(D) an employment tax on a wage, salary, or
commission of a kind specified in paragraph
[(3)] (4) of this subsection earned from the
debtor before the date of the filing of the
petition, whether or not actually paid before
such date, for which a return is last due,
under applicable law or under any extension,
after three years before the date of the filing
of the petition;
* * * * * * *
An otherwise applicable time period specified in this
paragraph shall be suspended for 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 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
injury 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.
(b) If the trustee, under section 362, 363, or 364 of this
title, provides adequate protection of the interest of a holder
of a claim secured by a lien on property of the debtor and if,
notwithstanding such protection, such creditor has a claim
allowable under subsection [(a)(1)] (a)(2) of this section
arising from the stay of action against such property under
section 362 of this title, from the use, sale, or lease of such
property under section 363 of this title, or from the granting
of a lien under section 364(d) of this title, then such
creditor's claim under such subsection shall have priority over
every other claim allowable under such subsection.
* * * * * * *
(d) An entity that is subrogated to the rights of a holder
of a claim of a kind specified in subsection [(a)(3)] (a)(1),
(a)(4), (a)(5), (a)(6), (a)(7), (a)(8), or (a)(9) of this
section is not subrogated to the right of the holder of such
claim to priority under such subsection.
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 section
342(b) applies, a certificate--
(I) of an attorney whose
name is indicated on the
petition as the attorney for
the debtor, or a bankruptcy
petition preparer signing the
petition under section
110(b)(1), indicating that such
attorney or the bankruptcy
petition preparer delivered to
the debtor the notice required
by section 342(b); or
(II) if no attorney is so
indicated, and no bankruptcy
petition preparer signed the
petition, of the debtor that
such notice was received and
read by the debtor;
(iv) copies of all payment advices
or other evidence of payment received
within 60 days before the date of the
filing of the petition, by the debtor
from any employer of the debtor;
(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 the
filing of the petition;
(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),
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);
(3) if a trustee is serving in the case or an
auditor serving 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 serving 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[.];
(6) in a case under chapter 7 of this title in
which the debtor is an individual, 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 such personal
property unless 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) with
respect to the claim secured by such property;
or
(B) redeems such property from the security
interest pursuant to section 722.
(7) unless a trustee is serving in the case,
continue to perform the obligations required of the
administrator (as defined in section 3 of the Employee
Retirement Income Security Act of 1974) of an employee
benefit plan if at the time of the commencement of the
case the debtor (or any entity designated by the
debtor) served as such administrator.
If the debtor fails to so act within the 45-day period referred
to in paragraph (6), the stay under section 362(a) 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 filed 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), a
debtor who is an individual 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), 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, nothing in this title shall prevent or limit the operation
of a provision in the underlying lease or agreement that 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) If the debtor in a case under chapter 7 or 13 is an
individual and if a creditor files with the court at any time a
request to receive a copy of the petition, schedules, and
statement of financial affairs filed by the debtor, then the
court shall make such petition, such schedules, and such
statement available to such creditor.
(2)(A) The debtor shall provide--
(i) not later than 7 days before the date first set
for the first meeting of creditors, to the trustee a
copy of the Federal income tax return required under
applicable law (or at the election of the debtor, a
transcript of such return) for the most recent tax year
ending immediately before the commencement of the case
and for which a Federal income tax return was filed;
and
(ii) at the same time the debtor complies with
clause (i), a copy of such return (or if elected under
clause (i), such transcript) to any creditor that
timely requests such copy.
(B) If the debtor fails to comply with clause (i) or (ii)
of subparagraph (A), the court shall dismiss the case unless
the debtor demonstrates that the failure to so comply is due to
circumstances beyond the control of the debtor.
(C) If a creditor requests a copy of such tax return or
such transcript and if the debtor fails to provide a copy of
such tax return or such transcript to such creditor at the time
the debtor provides such tax return or such transcript to the
trustee, then the court shall dismiss the case unless the
debtor demonstrates that the failure to provide a copy of such
tax return or such transcript is due to circumstances beyond
the control of the debtor.
(3) If a creditor in a case under chapter 13 files with the
court at any time a request to receive a copy of the plan filed
by the debtor, then the court shall make available to such
creditor a copy of the plan--
(A) at a reasonable cost; and
(B) not later than 5 days after such request is
filed.
(f) At the request of the court, the United States trustee,
or any party in interest in a case under chapter 7, 11, or 13,
a debtor who is an individual shall file with the court--
(1) at the same time filed with the taxing
authority, a copy of each Federal income tax return
required under applicable law (or at the election of
the debtor, a transcript of such tax return) with
respect to each tax year of the debtor ending while the
case is pending under such chapter;
(2) at the same time filed with the taxing
authority, each Federal income tax return required
under applicable law (or at the election of the debtor,
a transcript of such tax return) that had not been
filed with such authority as of the date of the
commencement of the case and that was subsequently
filed for any tax year of the debtor ending in the 3-
year period ending on the date of the commencement of
the case;
(3) a copy of each amendment to any Federal income
tax return or transcript filed with the court under
paragraph (1) or (2); and
(4) in a case under chapter 13--
(A) on the date that is either 90 days
after the end of such tax year or 1 year after
the date of the commencement of the case,
whichever is later, if a plan is not confirmed
before such later date; and
(B) annually after the plan is confirmed
and until the case is closed, not later than
the date that is 45 days before the anniversary
of the confirmation of the plan;
a statement, under penalty of perjury, of the income
and expenditures of the debtor during the tax year of
the debtor most recently concluded before such
statement is filed under this paragraph, and of the
monthly income of the debtor, that shows how income,
expenditures, and monthly income are calculated.
(g)(1) A statement referred to in subsection (f)(4) shall
disclose--
(A) the amount and sources of the 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 subsections (e)(2)(A) and (f)
shall be available to the United States trustee (or the
bankruptcy administrator, if any), the trustee, and any party
in interest for inspection and copying, subject to the
requirements of section 315(c) of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005.
(h) If requested by the United States trustee or by the
trustee, 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; or
(2) such other personal identifying information
relating to the debtor that establishes the identity of
the debtor.
(i)(1) Subject to paragraphs (2) and (4) and
notwithstanding section 707(a), 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 date of the filing of the petition, the case shall be
automatically dismissed effective on the 46th day after the
date of the filing of the petition.
(2) Subject to paragraph (4) and 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) Subject to paragraph (4) and upon request of the debtor
made within 45 days after the date of the filing of the
petition 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.
(4) Notwithstanding any other provision of this subsection,
on the motion of the trustee filed before the expiration of the
applicable period of time specified in paragraph (1), (2), or
(3), and after notice and a hearing, the court may decline to
dismiss the case if the court finds that the debtor attempted
in good faith to file all the information required by
subsection (a)(1)(B)(iv) and that the best interests of
creditors would be served by administration of the case.
(j)(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) Notwithstanding] (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) any property]
(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 days] 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.
If the effect of the domiciliary requirement under subparagraph
(A) is to render the debtor ineligible for any exemption, the
debtor may elect to exempt property that is specified under
subsection (d).
(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
filing of the petition in a case under 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
such 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 such 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 such
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;
(xii) medical equipment and supplies;
(xiii) furniture exclusively for the use of minor
children, or elderly or disabled dependents of the
debtor;
(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;
and
(xv) 1 personal computer and related equipment.
(B) The term ``household goods'' does not include--
(i) works of art (unless by or of the debtor, or
any relative of the debtor);
(ii) electronic entertainment equipment with a fair
market value of more than $500 in the aggregate (except
1 television, 1 radio, and 1 VCR);
(iii) items acquired as antiques with a fair market
value of more than $500 in the aggregate;
(iv) jewelry with a fair market value of more than
$500 in the aggregate (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)] subsection (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 such Code or a simple retirement account under section
408(p) of such 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 in a case filed by a debtor who is an individual,
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;
(3) a burial plot for the debtor or a dependent of
the debtor; or
(4) real or personal property that the debtor or a
dependent of the debtor claims as a homestead;
shall be reduced to the extent that such value is attributable
to any portion of any property that the debtor disposed of in
the 10-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, 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 1215-day period preceding
the date of the filing of the petition that exceeds in the
aggregate $125,000 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;
(C) a burial plot for the debtor or a dependent of
the debtor; or
(D) real or personal property that the debtor or
dependent of the debtor claims as a homestead.
(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 such 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 such 1215-day period) into the debtor's
current principal residence, if the debtor's previous and
current residences are located in the same State.
(q)(1) 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 an interest in property described in
subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which
exceeds in the aggregate $125,000 if--
(A) the court determines, after notice and a
hearing, that the debtor has been convicted of a felony
(as defined in section 3156 of title 18), which under
the circumstances, demonstrates that the filing of the
case was an abuse of the provisions of this title; or
(B) the debtor owes a debt arising from--
(i) any violation of the Federal securities
laws (as defined in section 3(a)(47) of the
Securities Exchange Act of 1934), any State
securities laws, or any regulation or order
issued under Federal securities laws or State
securities laws;
(ii) fraud, deceit, or manipulation in a
fiduciary capacity or in connection with the
purchase or sale of any security registered
under section 12 or 15(d) of the Securities
Exchange Act of 1934 or under section 6 of the
Securities Act of 1933;
(iii) any civil remedy under section 1964
of title 18; or
(iv) any criminal act, intentional tort, or
willful or reckless misconduct that caused
serious physical injury or death to another
individual in the preceding 5 years.
(2) Paragraph (1) shall not apply to the extent the amount
of an interest in property described in subparagraphs (A), (B),
(C), and (D) of subsection (p)(1) is reasonably necessary for
the support of the debtor and any dependent of the debtor.
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) of the kind and for the periods
specified in section [507(a)(2)] 507(a)(3) or
507(a)(8) of this title, whether or not a claim
for such tax was filed or allowed;
(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 $500
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 terms ``consumer'',
``credit'', and ``open end credit
plan'' have the same meanings as in
section 103 of the Truth in Lending
Act; and
(II) 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 defined in section
221(d)(1) of the Internal Revenue Code of 1986,
incurred by a debtor who is an individual;
(9) for death or personal injury caused by the
debtor's operation of a [motor vehicle] 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);
(14B) incurred to pay fines or penalties imposed
under Federal election law;
(15) to a spouse, former spouse, or child of the
debtor and 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, or 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], 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);
[(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.); or]
(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 a thrift savings plan
permitted under subchapter III of chapter 84 of
title 5, that satisfies the requirements of
section 8433(g) of such title;
but nothing in this paragraph 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; or
(19) that--
(A) * * *
(B) results, before, on, or after the date
on which the petition was filed, from--
(i) * * *
* * * * * * *
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 insured] 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).
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, unless the
order confirming the plan is revoked, the plan is 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 specified in subsection (c),
statement, declaration, motion and order described,
respectively, in paragraphs (4) through (8), and shall be the
only disclosures required in connection with entering into such
agreement.
(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 of debt that the
debtor agrees to reaffirm by entering into an
agreement of the kind specified in subsection
(c), and
(ii) the total of any fees and costs
accrued as of the date of the disclosure
statement, related to such total amount.
(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 an extension of credit under an
open end credit plan, as the terms ``credit''
and ``open end credit plan'' are defined in
section 103 of the Truth in Lending Act, then--
(I) the annual percentage rate
determined under paragraphs (5) and (6)
of section 127(b) of the Truth in
Lending Act, as applicable, as
disclosed to the debtor in the most
recent periodic statement prior to
entering into an agreement of the kind
specified in subsection (c) or, if no
such periodic statement has been given
to 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
to 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); or
(ii) if, at the time the petition is filed,
the debt is an extension of credit other than
under an open end credit plan, as the terms
``credit'' and ``open end credit plan'' are
defined in section 103 of the Truth in Lending
Act, then--
(I) the annual percentage rate
under section 128(a)(4) of the Truth in
Lending Act, as disclosed to the debtor
in the most recent disclosure statement
given to the debtor prior to the
entering into an agreement of the kind
specified in subsection (c) with
respect to the debt, or, if no such
disclosure statement was given to the
debtor, the annual percentage rate as
it would have been so disclosed at the
time the disclosure statement is given
to 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 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,
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 debts the debtor is
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 agreement 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 debts 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 reaffirming a
debt or what the law requires, consult with the
attorney who helped you negotiate this agreement
reaffirming a debt. If you don't have an attorney
helping you, the judge will explain the effect of your
reaffirming a debt when the hearing on the
reaffirmation agreement 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 your 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 your 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 your 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 your 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
reaffirmation agreement. The bankruptcy court must
approve your reaffirmation agreement as consistent with
your best interests, except that no court approval is
required if your reaffirmation 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 (cancel) your reaffirmation
agreement. You may rescind (cancel) your reaffirmation
agreement at any time before the bankruptcy court enters a
discharge order, or before the expiration of the 60-day period
that begins on the date your reaffirmation agreement is filed
with the court, whichever occurs later. To rescind (cancel)
your reaffirmation agreement, you must notify the creditor that
your reaffirmation agreement is rescinded (or 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 case. That means that if you
default on your reaffirmed debt after your bankruptcy case 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 that
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 your reaffirmation agreement, your
reaffirmation agreement becomes effective upon filing
with the court.''.
(4) The form of such agreement required under this
paragraph shall consist of the following:
``Part B: Reaffirmation Agreement. I (we) agree to reaffirm
the debts 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 these debts:
``Accepted by creditor:
``Date of creditor acceptance:''.
(5) The declaration shall consist of the following:
(A) The following certification:
``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; (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) If a presumption of undue hardship has been
established with respect to such agreement, such
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 such 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 reaffirmation 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 an attorney and is
reaffirming a debt owed to a creditor defined in section
19(b)(1)(A)(iv) of the Federal Reserve Act, 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 reaffirmation 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 that may be used if approval of such
agreement by the court is required in order for it to be
effective, shall be signed and dated by the movant and shall
consist of the following:
``Part E: Motion for Court Approval (To be completed only
if the debtor is not represented by an attorney.). I (we), the
debtor(s), affirm the following to be true and correct:
``I am not represented by an attorney in connection with
this reaffirmation agreement.
``I believe this reaffirmation agreement is in my best
interest based on the income and expenses I have disclosed in
my Statement in Support of this reaffirmation agreement, 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 such
agreement, shall consist of the following:
``Court Order: The court grants the debtor's motion and
approves the reaffirmation agreement described above.''.
(l) Notwithstanding any other provision of this title the
following shall apply:
(1) A creditor may accept payments from a debtor
before and after the filing of an agreement of the kind
specified in subsection (c) with the court.
(2) A creditor may accept payments from a debtor
under such agreement that 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 an agreement of the kind
specified in subsection (c) is filed with the court (or such
additional period as the court, after notice and a hearing and
for cause, orders before the expiration of such period), it
shall be presumed that such 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 such 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 that identifies
additional sources of funds to make the payments as agreed upon
under the terms of such agreement. If the presumption is not
rebutted to the satisfaction of the court, the court may
disapprove such agreement. No agreement shall be disapproved
without notice and a 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.
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--
(A) the services that such agency will
provide to such person; or
(B) 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 a 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 attorneys' fees as determined
by the court.
(4) The district courts of the United States for districts
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 the 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); 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 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 of this title, 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 case under this title or other
sanction, including a criminal sanction.
(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) 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 available under 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. 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 should 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.
(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 on which 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 use the following
statement in such advertisement: ``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) * * *
(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 the filing of the petition in a
case under this title, but--
(A) only if the designated beneficiary of
such account was a child, stepchild,
grandchild, or stepgrandchild 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 the filing of the
petition in a case under this title, but--
(A) only if the designated beneficiary of
the amounts paid or contributed to such tuition
program was a child, stepchild, grandchild, or
stepgrandchild 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 in a case under this title 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--
(i) to--
(I) an employee benefit
plan that is subject to title I
of the Employee Retirement
Income Security Act of 1974 or
under an employee benefit plan
which is a governmental plan
under section 414(d) of the
Internal Revenue Code of 1986;
(II) a deferred
compensation plan under section
457 of the Internal Revenue
Code of 1986; or
(III) a tax-deferred
annuity under section 403(b) of
the Internal Revenue Code of
1986;
except that such amount under this
subparagraph shall not constitute
disposable income as defined in section
1325(b)(2); or
(ii) to a health insurance plan
regulated by State law whether or not
subject to such title; or
(B) received by an employer from employees
for payment as contributions--
(i) to--
(I) an employee benefit
plan that is subject to title I
of the Employee Retirement
Income Security Act of 1974 or
under an employee benefit plan
which is a governmental plan
under section 414(d) of the
Internal Revenue Code of 1986;
(II) a deferred
compensation plan under section
457 of the Internal Revenue
Code of 1986; or
(III) a tax-deferred
annuity under section 403(b) of
the Internal Revenue Code of
1986;
except that such amount under this
subparagraph shall not constitute
disposable income, as defined in
section 1325(b)(2); or
(ii) to a health insurance plan
regulated by State law whether or not
subject to such title;
(8) 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);
or
[(5)] (9) 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) 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 in section 507(c), and subject to the prior rights of a
holder of a security interest 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, within 45 days
before 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)(9).
* * * * * * *
(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.
(f) 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 741 or 761 of
this title, or settlement payment, as defined in section 741 of
this title, made by or to a repo participant or financial
participant, in connection with a repurchase agreement and 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 or
financial 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)] (h) 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 and subject to the prior rights of
holders of security interests in such goods or the proceeds of
such goods, 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.
(i)(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 State statute applicable to such
lien 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 2005, or any
successor to such section 7-209.
(j) 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 schedule between
the debtor and any creditor of the debtor created by an
approved nonprofit budget and 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)(1) The trustee may avoid any transfer (including any
transfer to or for the benefit of an insider under an
employment contract) of an interest of the debtor in property,
or any obligation (including any obligation to or for the
benefit of an insider under an employment contract) incurred by
the debtor, that was made or incurred on or within [one year] 2
years before the date of the filing of the petition, if the
debtor voluntarily or involuntarily--
(A) * * *
* * * * * * *
(B)(i) * * *
(ii)(I) * * *
(II) was engaged in business or a transaction, or
was about to engage in business or a transaction, for
which any property remaining with the debtor was an
unreasonably small capital; [or]
(III) intended to incur, or believed that the
debtor would incur, debts that would be beyond the
debtor's ability to pay as such debts matured[.]; or
(IV) made such transfer to or for the benefit of an
insider, or incurred such obligation to or for the
benefit of an insider, under an employment contract and
not in the ordinary course of business.
* * * * * * *
(b) The trustee of a partnership debtor may avoid any
transfer of an interest of the debtor in property, or any
obligation incurred by the debtor, that was made or incurred on
or within [one year] 2 years before the date of the filing of
the petition, to a general partner in the debtor, if the debtor
was insolvent on the date such transfer was made or such
obligation was incurred, or became insolvent as a result of
such transfer or obligation.
* * * * * * *
(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 or financial 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 or financial 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.
* * * * * * *
(e)(1) In addition to any transfer that the trustee may
otherwise avoid, the trustee may avoid any transfer of an
interest of the debtor in property that was made on or within
10 years before the date of the filing of the petition, if--
(A) such transfer was made to a self-settled trust
or similar device;
(B) such transfer was by the debtor;
(C) the debtor is a beneficiary of such trust or
similar device; and
(D) the debtor made such transfer with actual
intent to hinder, delay, or defraud any entity to which
the debtor was or became, on or after the date that
such transfer was made, indebted.
(2) For the purposes of this subsection, a transfer
includes a transfer made in anticipation of any money judgment,
settlement, civil penalty, equitable order, or criminal fine
incurred by, or which the debtor believed would be incurred
by--
(A) any violation of the securities laws (as
defined in section 3(a)(47) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(47))), any State
securities laws, or any regulation or order issued
under Federal securities laws or State securities laws;
or
(B) fraud, deceit, or manipulation in a fiduciary
capacity or in connection with the purchase or sale of
any security registered under section 12 or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78l and
78o(d)) or under section 6 of the Securities Act of
1933 (15 U.S.C. 77f).
* * * * * * *
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 property] 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) * * *
(2) such claim was transferred, by an entity other
than the debtor, to such creditor--
(A) * * *
(B)(i) * * *
(ii) while the debtor was insolvent (except
for a setoff of a kind described in section
362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27),
555, 556, 559, 560, or 561); or
(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)(27), 555, 556,
559, 560, or 561).
(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)(27), 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] 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.] As used in this section, the term ``contractual
right'' includes a right set forth in a rule or bylaw of a
derivatives clearing organization (as defined in the Commodity
Exchange Act), a multilateral clearing organization (as defined
in the Federal Deposit Insurance Corporation Improvement Act of
1991), a national securities exchange, a national securities
association, a securities clearing agency, a contract market
designated under the Commodity Exchange Act, a derivatives
transaction execution facility registered under the Commodity
Exchange Act, or a board of trade (as defined in the Commodity
Exchange Act), 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] 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,] As used
in this section, the term ``contractual right'' includes a
right set forth in a rule or bylaw of a derivatives clearing
organization (as defined in the Commodity Exchange Act), a
multilateral clearing organization (as defined in the Federal
Deposit Insurance Corporation Improvement Act of 1991), a
national securities exchange, a national securities
association, a securities clearing agency, a contract market
designated under the Commodity Exchange Act, a derivatives
transaction execution facility registered under the Commodity
Exchange Act, or a board of trade (as defined in the Commodity
Exchange Act) 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
or financial participant to cause the [liquidation]
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 or financial 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,] As used in this section, the term
``contractual right'' includes a right set forth in a rule or
bylaw of a derivatives clearing organization (as defined in the
Commodity Exchange Act), a multilateral clearing organization
(as defined in the Federal Deposit Insurance Corporation
Improvement Act of 1991), a national securities exchange, a
national securities association, a securities clearing agency,
a contract market designated under the Commodity Exchange Act,
a derivatives transaction execution facility registered under
the Commodity Exchange Act, or a board of trade (as defined in
the Commodity Exchange Act) 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. 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 or financial 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,] As used in this section, the term
``contractual right'' includes a right set forth in a rule or
bylaw of a derivatives clearing organization (as defined in the
Commodity Exchange Act), a multilateral clearing organization
(as defined in the Federal Deposit Insurance Corporation
Improvement Act of 1991), a national securities exchange, a
national securities association, a securities clearing agency,
a contract market designated under the Commodity Exchange Act,
a derivatives transaction execution facility registered under
the Commodity Exchange Act, or a board of trade (as defined in
the Commodity Exchange Act) 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. 561. Contractual right to terminate, liquidate, accelerate, or
offset under a master netting agreement and across
contracts; proceedings under chapter 15
(a) 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)(1) 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) 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 traded on or subject to the rules of
a contract market designated under the Commodity
Exchange Act or a derivatives transaction execution
facility registered under the Commodity Exchange Act
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 such subchapter; 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 and traded
on or subject to the rules of a contract market
designated under the Commodity Exchange Act or a
derivatives transaction execution facility registered
under the Commodity Exchange Act against any claim
arising under, or in connection with, other
instruments, contracts, or agreements listed in
subsection (a).
(3) 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 or similar
arrangement that has been approved by the Commodity
Futures Trading Commission or submitted to the
Commodity Futures Trading Commission under paragraph
(1) or (2) of section 5c(c) of the Commodity Exchange
Act and has not been abrogated or rendered ineffective
by the Commodity Futures Trading Commission; 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) As used in this section, the term ``contractual right''
includes a right set forth in a rule or bylaw of a derivatives
clearing organization (as defined in the Commodity Exchange
Act), a multilateral clearing organization (as defined in the
Federal Deposit Insurance Corporation Improvement Act of 1991),
a national securities exchange, a national securities
association, a securities clearing agency, a contract market
designated under the Commodity Exchange Act, a derivatives
transaction execution facility registered under the Commodity
Exchange Act, or a board of trade (as defined in the Commodity
Exchange Act) 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) 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, 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. Timing of damage measurement in connection with swap
agreements, securities contracts, forward
contracts, commodity contracts, repurchase
agreements, and master netting agreements
(a) 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 or dates of such liquidation,
termination, or acceleration.
(b) If there are not any commercially reasonable
determinants of value as of any date referred to in paragraph
(1) or (2) of subsection (a), damages shall be measured as of
the earliest subsequent date or dates on which there are
commercially reasonable determinants of value.
(c) For the purposes of subsection (b), if damages are not
measured as of the date or dates of rejection, liquidation,
termination, or acceleration, and the forward contract
merchant, stockbroker, financial institution, securities
clearing agency, repo participant, financial participant,
master netting agreement participant, or swap participant or
the trustee objects to the timing of the measurement of
damages--
(1) the trustee, in the case of an objection by a
forward contract merchant, stockbroker, financial
institution, securities clearing agency, repo
participant, financial participant, master netting
agreement participant, or swap participant; or
(2) the forward contract merchant, stockbroker,
financial institution, securities clearing agency, repo
participant, financial participant, master netting
agreement participant, or swap participant, in the case
of an objection by the trustee,
has the burden of proving that there were no commercially
reasonable determinants of value as of such date or dates.
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 II--COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE
* * * * * * *
[728. Special tax provisions.]
SUBCHAPTER III--STOCKBROKER LIQUIDATION
* * * * * * *
753. Stockbroker liquidation and forward contract merchants, commodity
brokers, stockbrokers, financial institutions, financial
participants, securities clearing agencies, swap participants,
repo participants, and master netting agreement participants.
SUBCHAPTER IV--COMMODITY BROKER LIQUIDATION
* * * * * * *
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.
* * * * * * *
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 the debtor there is a claim
for a domestic support obligation, provide the
applicable notice specified in subsection (c);
(11) if, at the time of the commencement of the
case, the debtor (or any entity designated by the
debtor) served as the administrator (as defined in
section 3 of the Employee Retirement Income Security
Act of 1974) of an employee benefit plan, continue to
perform the obligations required of the administrator;
and
(12) 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 a debtor who is an individual in a
case under this chapter--
(A) the United States trustee (or the bankruptcy
administrator, if any) 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,
if any) 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 the
bankruptcy administrator, if any) does not consider such a
motion to be appropriate, if the United States trustee (or the
bankruptcy administrator, if any) 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; 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.
(c)(1) In a case described in subsection (a)(10) to which
subsection (a)(10) applies, the trustee shall--
(A)(i) provide written notice to the holder of the
claim described in subsection (a)(10) of such claim and
of the right of such holder to use the services of the
State child support enforcement agency established
under sections 464 and 466 of the Social Security Act
for the State in which such holder resides, for
assistance in collecting child support during and after
the case under this title;
(ii) include in the notice provided under clause
(i) the address and telephone number of such State
child support enforcement agency; and
(iii) include in the notice provided under clause
(i) an explanation of the rights of such holder to
payment of such claim under this chapter;
(B)(i) provide written notice to such State child
support enforcement agency of such claim; and
(ii) include in the notice provided under clause
(i) the name, address, and telephone number of such
holder; and
(C) at such time as the debtor is granted a
discharge under section 727, provide written notice to
such holder and to such State child support enforcement
agency 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) the name of each creditor that holds a
claim that--
(I) is not discharged under
paragraph (2), (4), or (14A) of section
523(a); or
(II) was reaffirmed by the debtor
under section 524(c).
(2)(A) The holder of a claim described in subsection
(a)(10) or the State child support enforcement agency of the
State in which such holder resides may request from a creditor
described in paragraph (1)(C)(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 by reason of making such 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 (or bankruptcy
administrator, if any), 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 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. Such expenses shall include reasonably
necessary health insurance, disability insurance, and health
savings account expenses for the debtor, the spouse of the
debtor, or the dependents of the debtor. 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, 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, siblings, children, and
grandchildren 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 less than 18 years
of age, not to exceed $1,500 per year per child, to attend a
private or public elementary or secondary school if the debtor
provides documentation of such expenses and a detailed
explanation of why such expenses are reasonable and necessary,
and why such expenses are not already accounted for in the
National Standards, Local Standards, or Other Necessary
Expenses referred to in subclause (I).
(V) In addition, the debtor's monthly expenses may include
an allowance for housing and utilities, in excess of the
allowance specified by the Local Standards for housing and
utilities issued by the Internal Revenue Service, based on the
actual expenses for home energy costs if the debtor provides
documentation of such actual expenses and demonstrates that
such actual expenses are reasonable and necessary.
(iii) The debtor's average monthly payments on account of
secured debts shall be calculated as the sum of--
(I) 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
(II) 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 60.
(iv) The debtor's expenses for payment of all priority
claims (including priority child support and alimony claims)
shall be calculated as the total amount of debts entitled to
priority, divided by 60.
(B)(i) In any proceeding brought under this subsection, the
presumption of abuse may only be rebutted by demonstrating
special circumstances, such as a serious medical condition or a
call or order to active duty in the Armed Forces, to the extent
such 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 itemize each additional expense or
adjustment of income and to provide--
(I) documentation for such expense or adjustment to
income; and
(II) 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 show how each such amount is
calculated.
(D) Subparagraphs (A) through (C) shall not apply, and the
court may not dismiss or convert a case based on any form of
means testing, if the debtor is a disabled veteran (as defined
in section 3741(1) of title 38), and the indebtedness occurred
primarily during a period during which he or she was--
(i) on active duty (as defined in section 101(d)(1)
of title 10); or
(ii) performing a homeland defense activity (as
defined in section 901(1) of title 32).
(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 arise or is 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, on its own initiative or on the motion of
a party in interest, in accordance with the procedures
described in rule 9011 of the Federal Rules of Bankruptcy
Procedure, may order the attorney for the debtor to reimburse
the trustee for all reasonable costs in prosecuting a motion
filed under section 707(b), including reasonable attorneys'
fees, if--
(i) a trustee files a motion for dismissal or
conversion under this subsection; and
(ii) the court--
(I) grants such motion; and
(II) finds that the action of the attorney
for the debtor in filing a case 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, the court, on its own initiative or on the motion of
a party in interest, in accordance with such procedures, may
order--
(i) the assessment of an appropriate civil penalty
against the attorney for the debtor; and
(ii) the payment of such civil penalty to the
trustee, the United States trustee (or the bankruptcy
administrator, if any).
(C) The signature of an attorney on a petition, pleading,
or written motion 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, on its own initiative or on the
motion of a party in interest, in accordance with the
procedures described in rule 9011 of the Federal Rules of
Bankruptcy Procedure, may award a debtor all reasonable costs
(including reasonable attorneys' fees) in contesting a motion
filed by a party in interest (other than a trustee or United
States trustee (or bankruptcy administrator, if any)) 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 filed
the motion violated rule 9011 of the Federal
Rules of Bankruptcy Procedure; or
(II) the attorney (if any) who filed the
motion did not comply with the requirements of
clauses (i) and (ii) of paragraph (4)(C), and
the motion was made 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 fewer than 25 full-time employees
as determined on the date on which 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 or United States trustee (or bankruptcy
administrator, if any) may file 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;
(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; 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, plus $525 per month for each
individual in excess of 4.
(7)(A) No judge, United States trustee (or bankruptcy
administrator, if any), trustee, or other party in interest may
file a motion under paragraph (2) if the current monthly income
of the debtor, including a veteran (as that term is defined in
section 101 of title 38), 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--
(i) in the case of a debtor in a household of 1
person, the median family income of the applicable
State for 1 earner;
(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; 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, plus $525 per month for each
individual in excess of 4.
(B) In a case that is not a joint case, current monthly
income of the debtor's spouse shall not be considered for
purposes of subparagraph (A) if--
(i)(I) the debtor and the debtor's spouse are
separated under applicable nonbankruptcy law; or
(II) the debtor and the debtor's spouse are living
separate and apart, other than for the purpose of
evading subparagraph (A); and
(ii) the debtor files a statement under penalty of
perjury--
(I) specifying that the debtor meets the
requirement of subclause (I) or (II) of clause
(i); and
(II) disclosing the aggregate, or best
estimate of the aggregate, amount of any cash
or money payments received from the debtor's
spouse attributed to the debtor's current
monthly income.
(c)(1) In this subsection--
(A) the term ``crime of violence'' has the meaning
given such term in section 16 of title 18; and
(B) the term ``drug trafficking crime'' has the
meaning given such 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 victim dismiss a voluntary case filed
under this chapter by a debtor who is an individual if such
individual was convicted of such 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) * * *
(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) * * *
(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 that arise after the date of the filing of
the 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 such 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) * * *
(B)(i) * * *
(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[.];
(11) after filing the petition, the debtor failed
to complete an instructional course concerning personal
financial management described in section 111, except
that this paragraph shall not apply with respect to a
debtor who is a person described in section 109(h)(4)
or who resides in a district for which the United
States trustee (or the bankruptcy administrator, if
any) determines that the approved instructional courses
are not adequate to service the additional individuals
who would otherwise be required to complete such
instructional courses under this section (The United
States trustee (or the bankruptcy administrator, if
any) who makes a determination described in this
paragraph shall review such determination not later
than 1 year after the date of such determination, and
not less frequently than annually thereafter.); or
(12) the court after notice and a hearing held not
more than 10 days before the date of the entry of the
order granting the discharge finds that there is
reasonable cause to believe that--
(A) section 522(q)(1) may be applicable to
the debtor; and
(B) there is pending any proceeding in
which the debtor may be found guilty of a
felony of the kind described in section
522(q)(1)(A) or liable for a debt of the kind
described in section 522(q)(1)(B).
* * * * * * *
(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, mortgage loan,
interest, group or index, or option,
and including any repurchase or reverse
repurchase transaction on any such
security, certificate of deposit,
mortgage 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, mortgage 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,
including any guarantee or
reimbursement obligation by or to a
stockbroker, securities clearing
agency, financial institution, or
financial participant in connection
with any agreement or transaction
referred to in this subparagraph, but
not to exceed the damages in connection
with any such agreement or transaction,
measured in accordance with section
562; and
(B) does not include any purchase, sale, or
repurchase obligation under a participation in
a commercial mortgage loan;
* * * * * * *
Sec. 752. Customer property
(a) The trustee shall distribute customer property ratably
to customers on the basis and to the extent of such customers'
allowed net equity claims and in priority to all other claims,
except claims of the kind specified in section [507(a)(1)]
507(a)(2) of this title that are attributable to the
administration of such customer property.
* * * * * * *
Sec. 753. Stockbroker 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.
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, including any guarantee or
reimbursement obligation by or to a commodity
broker or financial participant in connection
with any agreement or transaction referred to
in this paragraph, but not to exceed the
damages in connection with any such agreement
or transaction, measured in accordance with
section 562;
* * * * * * *
Sec. 766. Treatment of customer property
(a) * * *
* * * * * * *
(h) Except as provided in subsection (b) of this section,
the trustee shall distribute customer property ratably to
customers on the basis and to the extent of such customers'
allowed net equity claims, and in priority to all other claims,
except claims of a kind specified in section [507(a)(1)]
507(a)(2) of this title that are attributable to the
administration of customer property. Such distribution shall be
in the form of--
(1) * * *
* * * * * * *
(i) If the debtor is a clearing organization, the trustee
shall distribute--
(1) customer property, other than member property,
ratably to customers on the basis and to the extent of
such customers' allowed net equity claims based on such
customers' accounts other than proprietary accounts,
and in priority to all other claims, except claims of a
kind specified in section [507(a)(1)] 507(a)(2) of this
title that are attributable to the administration of
such customer property; and
(2) member property ratably to customers on the
basis and to the extent of such customers' allowed net
equity claims based on such customers' proprietary
accounts, and in priority to all other claims, except
claims of a kind specified in section [507(a)(1)]
507(a)(2) of this title that are attributable to the
administration of member property or customer property.
* * * * * * *
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)] 507(a)(2), 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).
* * * * * * *
SUBCHAPTER III--THE PLAN
* * * * * * *
Sec. 943. Confirmation
(a) * * *
(b) The court shall confirm the plan if--
(1) * * *
* * * * * * *
(5) except to the extent that the holder of a
particular claim has agreed to a different treatment of
such claim, the plan provides that on the effective
date of the plan each holder of a claim of a kind
specified in section [507(a)(1)] 507(a)(2) of this
title will receive on account of such claim cash equal
to the allowed amount of such claim;
* * * * * * *
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.
* * * * * * *
SUBCHAPTER I--OFFICERS AND ADMINISTRATION
* * * * * * *
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), 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) The court shall resolve any dispute arising out of an
election described in subparagraph (A).
* * * * * * *
(e) The United States trustee shall move for the
appointment of a trustee under subsection (a) if there are
reasonable grounds to suspect that current members of the
governing body of the debtor, the debtor's chief executive or
chief financial officer, or members of the governing body who
selected the debtor's chief executive or chief financial
officer, participated in actual fraud, dishonesty, or criminal
conduct in the management of the debtor or the debtor's public
financial reporting.
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) of
this title;]
(1) perform the duties of the trustee, as specified
in paragraphs (2), (5), (7), (8), (9), (10), (11), and
(12) of section 704;
* * * * * * *
(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 the debtor there is a claim
for a domestic support obligation, provide the
applicable notice specified in subsection (c).
* * * * * * *
(c)(1) In a case described in subsection (a)(8) to which
subsection (a)(8) applies, the trustee shall--
(A)(i) provide written notice to the holder of the
claim described in subsection (a)(8) of such claim and
of the right of such holder to use the services of the
State child support enforcement agency established
under sections 464 and 466 of the Social Security Act
for the State in which such holder resides, for
assistance in collecting child support during and after
the case under this title; and
(ii) include in the notice required by clause (i)
the address and telephone number of such State child
support enforcement agency;
(B)(i) provide written notice to such State child
support enforcement agency of such claim; and
(ii) include in the notice required by clause (i)
the name, address, and telephone number of such holder;
and
(C) at such time as the debtor is granted a
discharge under section 1141, provide written notice to
such holder and to such State child support enforcement
agency 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) the name of each creditor that holds a
claim that--
(I) is not discharged under
paragraph (2), (4), or (14A) of section
523(a); or
(II) was reaffirmed by the debtor
under section 524(c).
(2)(A) The holder of a claim described in subsection (a)(8)
or the State child enforcement support agency of the State in
which such holder resides may request from a creditor described
in paragraph (1)(C)(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 by reason of making such 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, absent unusual circumstances specifically
identified by the court that establish that the requested
conversion or dismissal is not in the best interests of
creditors and the estate, 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 interests of creditors
and the estate, if the movant establishes cause.
(2) The relief provided in paragraph (1) shall not be
granted absent unusual circumstances specifically identified by
the court that establish that such relief is not in the best
interests of creditors and the estate, if the debtor or another
party in interest objects and establishes that--
(A) there is a reasonable likelihood that a plan
will be confirmed within the timeframes established in
sections 1121(e) and 1129(e) of this title, or if such
sections do not apply, within a reasonable period of
time; and
(B) the grounds for granting such relief include an
act or omission of the debtor other than under
paragraph (4)(A)--
(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 a 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 such 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 and the absence of a reasonable
likelihood of rehabilitation;
(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
substantially harmful to 1 or more creditors;
(E) failure to comply with an order of the court;
(F) unexcused failure to satisfy timely 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 without good cause shown by the debtor;
(H) failure timely to provide information or attend
meetings reasonably requested by the United States
trustee (or the bankruptcy administrator, if any);
(I) failure timely to pay taxes owed after the date
of the order for relief or to file tax returns due
after the date of 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 of the filing of the petition.
* * * * * * *
Sec. 1114. Payment of insurance benefits to retired employees
(a) * * *
* * * * * * *
(d) The court, upon a motion by any party in interest, and
after notice and a hearing, shall [appoint] order the
appointment of a committee of retired employees if the debtor
seeks to modify or not pay the retiree benefits or if the court
otherwise determines that it is appropriate, to serve as the
authorized representative, under this section, of those persons
receiving any retiree benefits not covered by a collective
bargaining agreement. The United States trustee shall appoint
any such committee.
* * * * * * *
(l) If the debtor, during the 180-day period ending on the
date of the filing of the petition--
(1) modified retiree benefits; and
(2) was insolvent on the date such benefits were
modified;
the court, on motion of a party in interest, and after notice
and a hearing, shall issue an order reinstating as of the date
the modification was made, such benefits as in effect
immediately before such date unless the court finds that the
balance of the equities clearly favors such modification.
[(l)] (m) This section shall not apply to any retiree, or
the spouse or dependents of such retiree, if such retiree's
gross income for the twelve months preceding the filing of the
bankruptcy petition equals or exceeds $250,000, unless such
retiree can demonstrate to the satisfaction of the court that
he is unable to obtain health, medical, life, and disability
coverage for himself, his spouse, and his dependents who would
otherwise be covered by the employer's insurance plan,
comparable to the coverage provided by the employer on the day
before the filing of a petition under this title.
Sec. 1115. Property of the estate
(a) In a case in which the debtor is an individual,
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,
and 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,
after notice and a hearing, waives that requirement
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
taxes entitled to administrative expense priority
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 a hearing; or
(B) the court, for cause, orders otherwise;
(2) the plan and a disclosure statement (if any)
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) designate, subject to section 1122 of this
title, classes of claims, other than claims of a kind
specified in section [507(a)(1), 507(a)(2)] 507(a)(2),
507(a)(3), or 507(a)(8) of this title, and classes of
interests;
* * * * * * *
(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 in which the debtor is an individual,
provide for the payment to creditors under 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)
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 nonresidential 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 25 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) If the debtor is 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 and the requirements of
section 1129 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) with respect to a claim of a kind
specified in section [507(a)(1) or 507(a)(2)]
507(a)(2) or 507(a)(3) of this title, on the
effective date of the plan, the holder of such
claim will receive on account of such claim
cash equal to the allowed amount of such claim;
(B) with respect to a class of claims of a
kind specified in section [507(a)(3)]
507(a)(1), 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
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 by 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 by statute, to pay a domestic
support obligation, the debtor has paid all amounts
payable under such order or such statute for such
obligation that first become payable after the date of
the filing of the petition.
(15) In a case in which the debtor is an individual
and in which the holder of an allowed unsecured claim
objects to the confirmation of the plan--
(A) the value, as of the effective date of
the plan, 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 value of the property to be
distributed under the plan is not less than the
projected disposable income of the debtor (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 period for which the plan
provides payments, 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 in which the debtor is an
individual, the debtor may retain property
included in the estate under section 1115,
subject to the requirements of subsection
(a)(14) of this section.
* * * * * * *
(e) In a small business case, the court shall confirm a
plan that complies with the applicable provisions of this title
and that is filed in accordance with section 1121(e) not later
than 45 days after the plan is filed unless the time for
confirmation is extended in accordance with 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 who is an individual from any debt excepted
from discharge under section 523 of this title.
* * * * * * *
(5) In a case in which the debtor is an individual--
(A) unless after notice and a hearing the court
orders otherwise for cause, confirmation of the plan
does not discharge any debt provided for in the plan
until the court grants a discharge on completion of all
payments under the plan;
(B) at any time after the confirmation of the plan,
and after notice and a hearing, the court may grant a
discharge to the debtor who has not completed payments
under the plan if--
(i) the value, as of the effective date of
the plan, of property actually distributed
under the plan on account of each allowed
unsecured 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 on such date; and
(ii) modification of the plan under section
1127 is not practicable; and
(C) unless after notice and a hearing held not more
than 10 days before the date of the entry of the order
granting the discharge, the court finds that there is
no reasonable cause to believe that--
(i) section 522(q)(1) may be applicable to
the debtor; and
(ii) there is pending any proceeding in
which the debtor may be found guilty of a
felony of the kind described in section
522(q)(1)(A) or liable for a debt of the kind
described in section 522(q)(1)(B).
(6) Notwithstanding paragraph (1), the confirmation of a
plan does not discharge a debtor that is a corporation from any
debt--
(A) of a kind specified in paragraph (2)(A) or
(2)(B) of section 523(a) that is owed to a domestic
governmental unit, or owed to a person as the result of
an action filed under subchapter III of chapter 37 of
title 31 or any similar State statute; or
(B) for a tax or customs duty with respect to which
the debtor--
(i) made a fraudulent return; or
(ii) willfully attempted in any manner to
evade or to defeat such tax or such customs
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) * * *
* * * * * * *
SUBCHAPTER IV--RAILROAD REORGANIZATION
* * * * * * *
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] section 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] section 11326(a) of title 49.
* * * * * * *
CHAPTER 12--ADJUSTMENT OF DEBTS OF A FAMILY FARMER OR FISHERMAN 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 the debtor there is a claim
for a domestic support obligation, provide the
applicable notice specified in subsection (c).
(c)(1) In a case described in subsection (b)(6) to which
subsection (b)(6) applies, the trustee shall--
(A)(i) provide written notice to the holder of the
claim described in subsection (b)(6) of such claim and
of the right of such holder to use the services of the
State child support enforcement agency established
under sections 464 and 466 of the Social Security Act
for the State in which such holder resides, for
assistance in collecting child support during and after
the case under this title; and
(ii) include in the notice provided under clause
(i) the address and telephone number of such State
child support enforcement agency;
(B)(i) provide written notice to such State child
support enforcement agency of such claim; and
(ii) include in the notice provided under clause
(i) the name, address, and telephone number of such
holder; and
(C) at such time as the debtor is granted a
discharge under section 1228, provide written notice to
such holder and to such State child support enforcement
agency 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) the name of each creditor that holds a
claim that--
(I) is not discharged under
paragraph (2), (4), or (14A) of section
523(a); or
(II) was reaffirmed by the debtor
under section 524(c).
(2)(A) The holder of a claim described in subsection (b)(6)
or the State child support enforcement agency of the State in
which such holder resides may request from a creditor described
in paragraph (1)(C)(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 by reason of making that disclosure.
Sec. 1203. Rights and powers of debtor
Subject to such limitations as the court may prescribe, a
debtor in possession shall have all the rights, other than the
right to compensation under section 330, and powers, and shall
perform all the functions and duties, except the duties
specified in paragraphs (3) and (4) of section 1106(a), of a
trustee serving in a case under chapter 11, including operating
the debtor's farm or commercial fishing operation.
* * * * * * *
Sec. 1206. Sales free of interests
After notice and a hearing, in addition to the
authorization contained in section 363(f), the trustee in a
case under this chapter may sell property under section 363(b)
and (c) free and clear of any interest in such property of an
entity other than the estate [if the property is farmland or
farm equipment] if the property is farmland, farm equipment, or
property used to carry out a commercial fishing operation
(including a commercial fishing vessel), except that the
proceeds of such sale shall be subject to such interest.
* * * * * * *
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 of the filing of the petition.
* * * * * * *
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) * * *
* * * * * * *
(10) 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]
(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 1228(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
[(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) the debtor has paid all amounts that are
required to be paid under a domestic support obligation
and that first become payable after the date of the
filing of the petition if the debtor is required by a
judicial or administrative order, or by statute, to pay
such domestic support obligation.
(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, or such longer period as the court
may approve under section 1222(c), beginning on the
date that the first payment is due under the plan will
be applied to make payments under the plan[.]; or
(C) the value of the property to be distributed
under the plan in the 3-year period, or such longer
period as the court may approve under section 1222(c),
beginning on the date that the first distribution is
due under the plan is not less than the debtor's
projected disposable income for such period.
(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 of
the filing of the petition; or
* * * * * * *
Sec. 1226. Payments
(a) * * *
(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)] 507(a)(2) of this title; and
* * * * * * *
Sec. 1228. Discharge
(a) [As] Subject to subsection (d), 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, or by statute, to pay a domestic support
obligation, after such debtor certifies that all amounts
payable under such order or such 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 by the plan) have been paid, other than payments to holders
of allowed claims provided for under section 1222(b)(5) or
1222(b)(10) 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) * * *
* * * * * * *
(b) [At] Subject to subsection (d), 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--
(1) * * *
* * * * * * *
(f) The court may not grant a discharge under this chapter
unless the court after notice and a hearing held not more than
10 days before the date of the entry of the order granting the
discharge finds that there is no reasonable cause to believe
that--
(1) section 522(q)(1) may be applicable to the
debtor; and
(2) there is pending any proceeding in which the
debtor may be found guilty of a felony of the kind
described in section 522(q)(1)(A) or liable for a debt
of the kind described in section 522(q)(1)(B).
Sec. 1229. Modification of plan after confirmation
(a) * * *
* * * * * * *
(d) A plan may not be modified under this section--
(1) to increase the amount of any payment due
before the plan as modified becomes the plan;
(2) by anyone except the debtor, based on an
increase in the debtor's disposable income, to increase
the amount of payments to unsecured creditors required
for a particular month so that the aggregate of such
payments exceeds the debtor's disposable income for
such month; or
(3) in the last year of the plan by anyone except
the debtor, to require payments that would leave the
debtor with insufficient funds to carry on the farming
operation after the plan is completed.
* * * * * * *
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) * * *
* * * * * * *
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 the debtor there is a claim
for a domestic support obligation, provide the
applicable notice specified in subsection (d).
* * * * * * *
(d)(1) In a case described in subsection (b)(6) to which
subsection (b)(6) applies, the trustee shall--
(A)(i) provide written notice to the holder of the
claim described in subsection (b)(6) of such claim and
of the right of such holder to use the services of the
State child support enforcement agency established
under sections 464 and 466 of the Social Security Act
for the State in which such holder resides, for
assistance in collecting child support during and after
the case under this title; and
(ii) include in the notice provided under clause
(i) the address and telephone number of such State
child support enforcement agency;
(B)(i) provide written notice to such State child
support enforcement agency of such claim; and
(ii) include in the notice provided under clause
(i) the name, address, and telephone number of such
holder; and
(C) at such time as the debtor is granted a
discharge under section 1328, provide written notice to
such holder and to such State child support enforcement
agency 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) the name of each creditor that holds a
claim that--
(I) is not discharged under
paragraph (2) or (4) of section 523(a);
or
(II) was reaffirmed by the debtor
under section 524(c).
(2)(A) The holder of a claim described in subsection (b)(6)
or the State child support enforcement agency of the State in
which such holder resides may request from a creditor described
in paragraph (1)(C)(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 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 of the filing of the petition.
* * * * * * *
(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) After notice and a 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;
(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; 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, 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;
(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; 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, 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), unless the
court determines that it would be in the best interests of the
creditors and the estate to hold such hearing at an earlier
date and there is no objection to such earlier date.
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) * * *
(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 has paid all amounts that are
required to be paid under a domestic support obligation
and that first become payable after the date of the
filing of the petition if the debtor is required by a
judicial or administrative order, or by statute, to pay
such domestic support obligation; 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 910-day
preceding the date of 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)(i) 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 the petition is
filed; and
(ii) 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 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;
(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;
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, 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;
(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; 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, 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)] 507(a)(2) 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 case 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] Subject to subsection (d), 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, or by statute, to pay a domestic support
obligation, after such debtor certifies that all amounts
payable under such order or such 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 by 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.
(b) [At] Subject to subsection (d), 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--
(1) * * *
* * * * * * *
(f) Notwithstanding subsections (a) and (b), the court
shall not grant a discharge of all debts provided for in the
plan or disallowed under section 502, if the debtor has
received a discharge--
(1) in a case filed under chapter 7, 11, or 12 of
this title during the 4-year period preceding the date
of the order for relief under this chapter, or
(2) in a case filed under chapter 13 of this title
during the 2-year period preceding the date of such
order.
(g)(1) 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.
(2) Paragraph (1) shall not apply with respect to a debtor
who is a person described in section 109(h)(4) or who resides
in a district for which the United States trustee (or the
bankruptcy administrator, if any) determines that the approved
instructional courses are not adequate to service the
additional individuals who would otherwise be required to
complete such instructional course by reason of the
requirements of paragraph (1).
(3) The United States trustee (or the bankruptcy
administrator, if any) who makes a determination described in
paragraph (2) shall review such determination not later than 1
year after the date of such determination, and not less
frequently than annually thereafter.
(h) The court may not grant a discharge under this chapter
unless the court after notice and a hearing held not more than
10 days before the date of the entry of the order granting the
discharge finds that there is no reasonable cause to believe
that--
(1) section 522(q)(1) may be applicable to the
debtor; and
(2) there is pending any proceeding in which the
debtor may be found guilty of a felony of the kind
described in section 522(q)(1)(A) or liable for a debt
of the kind described in section 522(q)(1)(B).
Sec. 1329. Modification of plan after confirmation
(a) At any time after confirmation of the plan but before
the completion of payments under such plan, the plan may be
modified, upon request of the debtor, the 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 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 other than under the plan[.]; or
(4) reduce amounts to be paid under the plan by the
actual amount expended by the debtor to purchase health
insurance for the debtor (and for any dependent of the
debtor if such dependent does not otherwise have health
insurance coverage) if the debtor documents the cost of
such insurance and demonstrates that--
(A) such expenses are reasonable and
necessary;
(B)(i) if the debtor previously paid for
health insurance, the amount is not materially
larger than the cost the debtor previously paid
or the cost necessary to maintain the lapsed
policy; or
(ii) if the debtor did not have health
insurance, the amount is not materially larger
than the reasonable cost that would be incurred
by a debtor who purchases health insurance, who
has similar income, expenses, age, and health
status, and who lives in the same geographical
location with the same number of dependents who
do not otherwise have health insurance
coverage; and
(C) the amount is not otherwise allowed for
purposes of determining disposable income under
section 1325(b) of this title;
and upon request of any party in interest, files proof
that a health insurance policy was purchased.
* * * * * * *
(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) courts of the United States, 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 pending
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 pending 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,
pending 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 1517, 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, 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, such notification shall--
(1) indicate the time period for filing proofs of
claim and specify the place for filing such proofs of
claim;
(2) indicate whether secured creditors need to file
proofs of claim; and
(3) contain any other information required to be
included in such 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 proof of 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 a 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
such foreign proceeding and appointing the foreign
representative;
(2) a certificate from the foreign court affirming
the existence of such 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 such 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 and that the person or body is a foreign
representative, 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) such 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; and
(3) the petition meets the requirements of section
1515.
(b) Such foreign proceeding shall be recognized--
(1) as a foreign main proceeding if it is pending
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. A 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 a
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 such
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
(27) of section 362(b) or pursuant to section 362(n) 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 the property of the debtor that is within
the territorial jurisdiction of the United States;
(2) sections 363, 549, and 552 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 the debtor 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
(27) of section 362(b) or pursuant to section 362(n) 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), 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 a 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 a foreign court or a
foreign representative, either directly or through the trustee.
(b) The court is entitled to communicate directly with, or
to request information or assistance directly from, a foreign
court or a foreign representative, subject to the rights of a
party 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 a foreign court or a foreign
representative.
(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 a foreign court or a
foreign representative.
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 pending 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 pending at the
time the petition for recognition of such foreign
proceeding is filed--
(A) any relief granted under section 1519
or 1521 must be consistent with the relief
granted in the case in the United States; and
(B) section 1520 does not apply even if
such foreign proceeding is recognized as a
foreign main proceeding.
(2) If a case in the United States under this title
commences after recognition, or after the date of the
filing of the petition for recognition, of such foreign
proceeding--
(A) 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 case in the United States; and
(B) if such 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.
* * * * * * *
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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. 157. Bankruptcy fraud
A person who, having devised or intending to devise a
scheme or artifice to defraud and for the purpose of executing
or concealing such a scheme or artifice or attempting to do
so--
(1) files a petition under title 11, including a
fraudulent involuntary bankruptcy petition under
section 303 of such title;
(2) files a document in a proceeding under title
11, including a fraudulent involuntary bankruptcy
petition under section 303 of such title; or
(3) makes a false or fraudulent representation,
claim, or promise concerning or in relation to a
proceeding under title 11, including a fraudulent
involuntary bankruptcy petition under section 303 of
such title, at any time before or after the filing of
the petition, or in relation to a proceeding falsely
asserted to be pending under such title,
shall be fined under this title, imprisoned not more than 5
years, or both.
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 Attorneys and Agents of the Federal
Bureau of Investigation.--The individuals referred to in
subsection (a) are--
(1) the United States attorney for each judicial
district of the United States; and
(2) an agent of the Federal Bureau of Investigation
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 that 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. 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 court of appeals of the United States 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
* * * * * * *
Georgia:
Northern.................................................. 8
Middle.................................................... [2] 3
Southern.................................................. 2
[Middle and Southern...................................... 1]
* * * * * * *
CHAPTER 6--BANKRUPTCY JUDGES
Sec.
151. Designation of bankruptcy courts.
* * * * * * *
159. Bankruptcy statistics.
* * * * * * *
Sec. 157. Procedures
(a) * * *
(b)(1) * * *
(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) * * *
* * * * * * *
(c)(1) [Subject to subsection (b),] Subject to subsections
(b) and (d)(2), each appeal under subsection (a) shall be heard
by a 3-judge panel of the bankruptcy appellate panel service
established under subsection (b)(1) unless --
(A) * * *
* * * * * * *
(d)(1) 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.
(2)(A) The appropriate court of appeals shall have
jurisdiction of appeals described in the first sentence of
subsection (a) if the bankruptcy court, the district court, or
the bankruptcy appellate panel involved, acting on its own
motion or on the request of a party to the judgment, order, or
decree described in such first sentence, or all the appellants
and appellees (if any) acting jointly, certify that--
(i) the judgment, order, or decree involves a
question of law as to which there is no controlling
decision of the court of appeals for the circuit or of
the Supreme Court of the United States, or involves a
matter of public importance;
(ii) the judgment, order, or decree involves a
question of law requiring resolution of conflicting
decisions; or
(iii) an immediate appeal from the judgment, order,
or decree may materially advance the progress of the
case or proceeding in which the appeal is taken;
and if the court of appeals authorizes the direct appeal of the
judgment, order, or decree.
(B) If the bankruptcy court, the district court, or the
bankruptcy appellate panel--
(i) on its own motion or on the request of a party,
determines that a circumstance specified in clause (i),
(ii), or (iii) of subparagraph (A) exists; or
(ii) receives a request made by a majority of the
appellants and a majority of appellees (if any) to make
the certification described in subparagraph (A);
then the bankruptcy court, the district court, or the
bankruptcy appellate panel shall make the certification
described in subparagraph (A).
(C) The parties may supplement the certification with a
short statement of the basis for the certification.
(D) An appeal under this paragraph does not stay any
proceeding of the bankruptcy court, the district court, or the
bankruptcy appellate panel from which the appeal is taken,
unless the respective bankruptcy court, district court, or
bankruptcy appellate panel, or the court of appeals in which
the appeal in pending, issues a stay of such proceeding pending
the appeal.
(E) Any request under subparagraph (B) for certification
shall be made not later than 60 days after the entry of the
judgment, order, or decree.
Sec. 159. Bankruptcy statistics
(a) The clerk of the district court, or the clerk of the
bankruptcy court if one is certified pursuant to section 156(b)
of this title, shall collect statistics regarding debtors who
are individuals with primarily consumer debts seeking relief
under chapters 7, 11, and 13 of title 11. Those statistics
shall be in a standardized format 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 July 1, 2008, 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
debtors;
(B) the current monthly income, average
income, and average expenses of 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 cases filed during 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
date of the filing of the petition and the
closing of the case for cases closed during the
reporting period;
(E) for cases closed during the reporting
period--
(i) the number of cases in which a
reaffirmation agreement was filed; and
(ii)(I) the total number of
reaffirmation agreements filed;
(II) of those cases in which a
reaffirmation agreement 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 agreement was filed, the
number of cases in which the
reaffirmation agreement 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
entered determining the value of
property securing a claim;
(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 attorney 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 2005;
(7) in each of such small business cases--
(A) conduct an initial debtor interview as
soon as practicable after the date of the 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, 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 district court of the United States for the
district for which the panel to which the trustee is appointed
under subsection (a)(1), or in the district court of the United
States 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 district court of the United States
for 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 2005.
(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 district court
(or the clerk of the bankruptcy court if one is certified under
section 156(b) of this title) 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; and
(B) 70.00 percent of the fees collected under
section 1930(a)(1)(B);
(2) [one-half] 75 percent of the fees collected
under section 1930(a)(3) 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 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.--The uniform forms for final reports
required under subsection (a) for use 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.--The uniform forms for periodic
reports required under subsection (a) for use 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 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 under section 554 of
title 11, within a reasonable period of time after the
lien attaches, by the trustee in a case under 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 or elected 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), 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 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,] $15,000, or a debt (excluding a consumer
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 of the United States 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.
* * * * * * *
Part V--Procedure
* * * * * * *
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 under--
(A) chapter 7 of title 11, $200; and
(B) chapter 13 of title 11, $150.
* * * * * * *
(3) For a case commenced under chapter 11 of title
11 that doesnot concern a railroad, as defined in
section 101 of title 11, [$800] $1000.
* * * * * * *
(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 individual 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 fee
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.
* * * * * * *
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 percent of the
fees hereafter collected under 28 U.S.C. section 1930(a)(1) and
25 percent of the fees hererafter 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, 31.25 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
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--]
subsection, the following definitions shall
apply:
(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, mortgage loan,
interest, group or index, or
option, and including any
repurchase or reverse
repurchase transaction on any
such security, certificate of
deposit, mortgage 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, mortgage 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, including any guarantee
or reimbursement obligation in
connection with 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,
including any guarantee or
reimbursement obligation in
connection with 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), including
any guarantee or reimbursement
obligation in connection with
any agreement or transaction
referred to in any such
subclause.
(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,
mortgage loans, or interests
with a simultaneous agreement
by such transferee to transfer
to the transferor thereof
certificates of deposit,
eligible bankers' acceptances,
securities, mortgage 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), including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
any such subclause.
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 total
return, 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 that is similar to
any other agreement or
transaction referred to in this
clause and that is of a type
that has been, is presently, or
in the future becomes, the
subject of recurrent dealings
in the swap markets (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,
quantitative measures
associated with an occurrence,
extent of an occurrence, or
contingency associated with a
financial, commercial, or
economic consequence, or
economic or financial indices
or measures of economic or
financial 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 subclause (I),
(II), (III), (IV), or (V),
including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
any such subclause.
Such term is applicable for purposes of
this subsection 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, the
Gramm-Leach-Bliley Act, and the Legal
Certainty for Bank Products Act of
2000.
(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 institution'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 and the
National Credit Union Administration Board, may
prescribe regulations requiring more detailed
recordkeeping by any insured depository
institution with respect to qualified financial
contracts (including market valuations) only if
such insured depository institution is in a
troubled condition (as such term is defined by
the Corporation pursuant to section 32).
[(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 contracts
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 cleared by or 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) Definitions.--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, and the term ``clearing
organization'' has the same meaning as in
section 402 of the Federal Deposit Insurance
Corporation Improvement Act of 1991.
(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
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 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) * * *
* * * * * * *
(17) Savings clause.--The meanings of terms used in
this subsection are applicable for purposes of this
subsection only, and shall not be construed or applied
so as to challenge or affect the characterization,
definition, or treatment of any similar terms under any
other statute, regulation, or rule, including the
Gramm-Leach-Bliley Act, the Legal Certainty for Bank
Products Act of 2000, the securities laws (as that term
is defined in section 3(a)(47) of the Securities
Exchange Act of 1934), and the Commodity Exchange Act.
* * * * * * *
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 CREDIT UNION ACT
TITLE II--SHARE INSURANCE
* * * * * * *
payment of insurance
Sec. 207. (a) * * *
* * * * * * *
(c) Provisions Relating to Contracts Entered Into Before
Appointment of Conservator or Liquidating Agent.--
(1) * * *
* * * * * * *
(8) Certain qualified financial contracts.--
(A) Rights of parties to contracts.--
Subject to [paragraph (12)] paragraphs (9) and
(10) of this subsection and notwithstanding any
other provision of this Act (other than
subsection (b)(9) of this section and section
208(a)(3)), 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 credit union which arises upon
the appointment of the Board as
liquidating agent for such credit union
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 1 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
or any other Federal or State law
relating to the avoidance of
preferential or fraudulent transfers,
the Board, whether acting as such or as
conservator or liquidating agent of an
insured credit union, may not avoid any
transfer of money or other property in
connection with any qualified financial
contract with an insured credit union.
* * * * * * *
(D) Certain contracts and agreements
defined.--For purposes of this [subsection--]
subsection, the following definitions shall
apply:
(i) Qualified financial contract.--
The term ``qualified financial
contract'' means any securities
contract, forward contract, repurchase
agreement, and any similar agreement
that the Board 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 Board
determines by regulation,
resolution, or order to include
any such participation within
the meaning of such term.
[(iii) Forward contract.--The term
``forward contract'' has the meaning
given to such term in section 101 of
title 11, United States Code.
[(iv) 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 Board
determines by regulation,
resolution, or order to include
any such participation within
the meaning of such term.
[(v) 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, mortgage loan,
interest, group or index, or
option, and including any
repurchase or reverse
repurchase transaction on any
such security, certificate of
deposit, mortgage 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 Board
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, mortgage 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, including any guarantee
or reimbursement obligation in
connection with 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,
including any guarantee or
reimbursement obligation in
connection with 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), including
any guarantee or reimbursement
obligation in connection with
any agreement or transaction
referred to in any such
subclause.
(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,
mortgage loans, or interests
with a simultaneous agreement
by such transferee to transfer
to the transferor thereof
certificates of deposit,
eligible bankers' acceptances,
securities, mortgage 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 Board
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), including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
any such subclause.
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 total
return, 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 that is similar to
any other agreement or
transaction referred to in this
clause and that is of a type
that has been, is presently, or
in the future becomes, the
subject of recurrent dealings
in the swap markets (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,
quantitative measures
associated with an occurrence,
extent of an occurrence, or
contingency associated with a
financial, commercial, or
economic consequence, or
economic or financial indices
or measures of economic or
financial 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 subclause (I),
(II), (III), (IV), or (V),
including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
any such subclause.
Such term is applicable for purposes of
this subsection 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, the
Gramm-Leach-Bliley Act, and the Legal
Certainty for Bank Products Act of
2000.
(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 institution'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
(b)(9)] other than subsections (b)(9) and
(c)(10) of this section, and section 208(a)(3)
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 1 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 Board, or authorizing any court or
agency to limit or delay, in any manner, the
right or power of the Board 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 (c)(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 credit union 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 Board,
in consultation with the appropriate Federal
banking agencies, may prescribe regulations
requiring more detailed recordkeeping by any
insured credit union with respect to qualified
financial contracts (including market
valuations) only if such insured credit union
is in a troubled condition (as such term is
defined by the Board pursuant to section 212).
[(9) Transfer of qualified financial contracts.--In
making any transfer of assets or liabilities of a
credit union in default which includes any qualified
financial contract, the conservator or liquidating
agent for such credit union shall either--
[(A) transfer to 1 credit union (other than
a credit union in default)--
[(i) all qualified financial
contracts between--
[(I) any person or any
affiliate of such person; and
[(II) the credit union in
default;
[(ii) all claims of such person or
any affiliate of such person against
such credit union 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
credit union);
[(iii) all claims of such credit
union 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 credit union in
default which includes any qualified financial
contract, the conservator or liquidating agent
for such credit union shall either--
(i) transfer to 1 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 credit union in
default;
(II) all claims of such
person or any affiliate of such
person against such credit
union 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 credit
union);
(III) all claims of such
credit union 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 contracts
and related claims and property under
subparagraph (A)(i), the conservator or
liquidating agent for the credit union 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 1 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 liquidating agent
transfers any qualified financial contract and
related claims, property, and credit
enhancements pursuant to subparagraph (A)(i)
and such contract is cleared by or 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) Definitions.--For purposes of this
paragraph--
(i) the term ``financial
institution'' means a broker or dealer,
a depository institution, a futures
commission merchant, a credit union, or
any other institution, as determined by
the Board by regulation to be a
financial institution; and
(ii) the term ``clearing
organization'' has the same meaning as
in section 402 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991.
(10) Notification of transfer.--
(A) In general.--If--
(i) * * *
(ii) the transfer includes any
qualified financial contract,
[the conservator or liquidating agent shall use
such conservator's or liquidating agent'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
liquidating agent 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 liquidating agent in the
case of a liquidation, or the business day
following such transfer in the case of a
conservatorship.
(B) Certain rights not enforceable.--
(i) Liquidation.--A person who is a
party to a qualified financial contract
with an insured credit union 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 liquidating agent for
the credit union institution (or the
insolvency or financial condition of
the credit union for which the
liquidating agent has been appointed)--
(I) until 5:00 p.m.
(eastern time) on the business
day following the date of the
appointment of the liquidating
agent; 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 credit union
may not exercise any right that such
person has to terminate, liquidate, or
net such contract under paragraph
(8)(E) 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
conservator for the credit union or the
insolvency or financial condition of
the credit union for which the
conservator has been appointed).
(iii) Notice.--For purposes of this
paragraph, the Board as conservator or
liquidating agent of an insured credit
union shall be deemed to have notified
a person who is a party to a qualified
financial contract with such credit
union if the Board 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 credit union organized by
the Board, for which a conservator is
appointed either--
(I) immediately upon the
organization of the credit
union; or
(II) at the time of a
purchase and assumption
transaction between the credit
union and the Board as receiver
for a credit union 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
liquidating agent with respect to any qualified
financial contract to which an insured credit union is
a party, the conservator or liquidating agent for such
credit union shall either--
(A) disaffirm or repudiate all qualified
financial contracts between--
(i) any person or any affiliate of
such person; and
(ii) the credit union 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 credit union except where such an
interest is taken in contemplation of the credit
union's insolvency or with the intent to hinder, delay,
or defraud the credit union or the creditors of such
credit union.
[(12)] (13) Authority to enforce contracts.--
(A) In general.--The conservator or
liquidating agent may enforce any contract,
other than a director's or officer's liability
insurance contract or a credit union bond,
entered into by the credit union
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 liquidating agent.
* * * * * * *
[(13)] (14) Exception for federal reserve and
federal home loan banks.--No provision of this
subsection shall apply with respect to--
(A) * * *
* * * * * * *
(15) Savings clause.--The meanings of terms used in
this subsection are applicable for purposes of this
subsection only, and shall not be construed or applied
so as to challenge or affect the characterization,
definition, or treatment of any similar terms under any
other statute, regulation, or rule, including the
Gramm-Leach-Bliley Act, the Legal Certainty for Bank
Products Act of 2000, the securities laws (as that term
is defined in section (a)(47) of the Securities
Exchange Act of 1934), and the Commodity Exchange Act.
* * * * * * *
----------
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, that has been granted
an exemption under section 4(c)(1) of the
Commodity Exchange Act, or that is a
multilateral clearing organization (as defined
in section 408 of this 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) a branch or agency as defined in
section 1(b) of the International Banking Act
of 1978;]
(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;
(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 close out values
relating to such obligations or
entitlements) among the parties to the
agreement; and
* * * * * * *
(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,
paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the
Federal Credit Union 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, paragraphs (8)(E),
(8)(F), and (10)(B) of section 207(c) of the Federal Credit
Union 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,
paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the
Federal Credit Union 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, paragraphs
(8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal
Credit Union Act, and section 5(b)(2) of the Securities
Investor Protection Act of 1970).
* * * * * * *
SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL BANKS,
UNINSURED FEDERAL BRANCHES AND AGENCIES, CERTAIN
UNINSURED STATE MEMBER BANKS, AND EDGE ACT
CORPORATIONS.
(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, a
corporation chartered under section 25A of the Federal Reserve
Act, or an uninsured State member bank which operates, or
operates as, a multilateral clearing organization pursuant to
section 409 of this Act, except that for such purpose--
(1) any reference to the ``Corporation as
receiver'' or ``the receiver or the Corporation'' shall
refer to the receiver appointed by the Comptroller of
the Currency in the case of an uninsured national bank
or uninsured Federal branch or agency, or to the
receiver appointed by the Board of Governors of the
Federal Reserve System in the case of a corporation
chartered under section 25A of the Federal Reserve Act
or an uninsured State member bank;
(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 appointed by
the Comptroller of the Currency in the case of an
uninsured national bank or uninsured Federal branch or
agency, or to the receiver or conservator appointed by
the Board of Governors of the Federal Reserve System in
the case of a corporation chartered under section 25A
of the Federal Reserve Act or an uninsured State member
bank; and
(3) any reference to an ``insured depository
institution'' or ``depository institution'' shall refer
to an uninsured national bank, an uninsured Federal
branch or Federal agency, a corporation chartered under
section 25A of the Federal Reserve Act, or an uninsured
State member bank which operates, or operates as, a
multilateral clearing organization pursuant to section
409 of this Act.
(b) Liability.--The liability of a receiver or conservator
of an uninsured national bank, uninsured Federal branch or
agency, a corporation chartered under section 25A of the
Federal Reserve Act, or an uninsured State member bank which
operates, or operates as, a multilateral clearing organization
pursuant to section 409 of this Act, 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
the case of an uninsured national bank or uninsured
Federal branch or agency and the Board of Governors of
the Federal Reserve System in the case of a corporation
chartered under section 25A of the Federal Reserve Act,
or an uninsured State member bank that operates, or
operates as, a multilateral clearing organization
pursuant to section 409 of this Act, in consultation
with the Federal Deposit Insurance Corporation, may
each promulgate regulations solely to implement this
section.
(2) Specific requirement.--In promulgating
regulations, limited solely to implementing paragraphs
(8), (9), (10), and (11) of section 11(e) of the
Federal Deposit Insurance Act, the Comptroller of the
Currency and the Board of Governors of the Federal
Reserve System each 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.).
* * * * * * *
----------
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, 741, and 761
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.
* * * * * * *
SEC. 6. GENERAL PROVISIONS OF A LIQUIDATION PROCEEDING.
(a) * * *
* * * * * * *
(e) Costs and Expenses of Administration.--All costs and
expenses of administration of the estate of the debtor and of
the liquidation proceeding shall be borne by the general estate
of the debtor to the extent it is sufficient therefor, and the
priorities of distribution from the general estate shall be as
provided in section 726 of title 11 of the United States Code.
Costs and expenses of administration shall include payments
pursuant to section 8(e) and section 9(c)(1) (to the extent
such payments recovered securities which were apportioned to
the general estate pursuant to subsection (d)) and costs and
expenses of SIPC employees utilized by the trustee pursuant to
section 7(a)(2). All funds advanced by SIPC to a trustee for
such costs and expenses of administration shall be recouped
from the general estate under section [507(a)(1)] 507(a)(2) of
title 11 of the United States Code.
* * * * * * *
----------
SECTION 302 OF THE BANKRUPTCY JUDGES, UNITED STATES TRUSTEES, AND
FAMILY FARMER BANKRUPTCY ACT OF 1986
SEC. 302. EFFECTIVE DATES; APPLICATION OF AMENDMENTS.
(a) * * *
* * * * * * *
[(f) Repeal of Chapter 12 of Title 11.--Chapter 12 of title
11 of the United States Code is repealed on October 1, 1998.
All cases commenced or pending under chapter 12 of title 11,
United States Code, and all matters and proceedings in or
relating to such cases, shall be conducted and determined under
such chapter as if such chapter had not been repealed. The
substantive rights of parties in connection with such cases,
matters, and proceedings shall continue to be governed under
the laws applicable to such cases, matters, and proceedings as
if such chapter had not been repealed.]
----------
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 2005, 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), 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 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 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.--A statement that the] tax deductibility.--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.
* * * * * * *
Committee Jurisdiction Letters
Markup Transcript
BUSINESS MEETING
MARCH 16, 2005
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:07 a.m., in
Room 2141, Rayburn House Office Building, Hon. F. James
Sensenbrenner, Jr. [Chairman of the Committee] presiding.
Chairman Sensenbrenner. The Committee will be in order, and
a working quorum is present.
Pursuant to notice, I now call up the bill Senate 256, the
``Bankruptcy Abuse and Consumer Protection Act of 2005,'' 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.
[The bill, S. 256, the ``Bankruptcy Abuse and Consumer
Protection Act of 2005,'' is not reprinted here but can be
accessed at http://frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=109_cong_bills&docid=f:s256rfh.txt.pdf:]
Chairman Sensenbrenner. And the Chair recognizes himself
for 5 minutes to explain the bill.
Today we consider a bill with an extensive history before
this Committee and the Congress. S. 256, the ``Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005'' represents the
culmination of nearly 8 years of intense and detailed
consideration by this Committee. Over the course of the last
four Congresses, this legislation has benefitted immensely from
an exhaustive hearing and amendment process as well as
meaningful bipartisan and bicameral negotiations.
Last week, the Senate passed this legislation by a vote of
74 to 25, marking the fifth time that body has registered its
overwhelming support for bankruptcy reform legislation in the
last four Congresses. The House has also repeatedly expressed
its overwhelming support. To date, the House has passed
bankruptcy reform measures on eight occasions since the 105th
Congress. This legislation reflects the product of intensive
process before this Committee. Over the past four Congresses,
the Judiciary Committee and the Subcommittee on Commercial and
Administrative Law have held 18 hearings on the need for
bankruptcy reform, 11 of which were devoted specifically to
predecessors of S. 256. In addition, the Senate Judiciary
Committee has held 11 hearings on bankruptcy reform, including
a hearing held last month.
During the 106th Congress, this Committee entertained 59
amendments over the course of a 5-day markup on H.R. 833, which
included 29 recorded votes. Of these amendments, 27 were agreed
to. On the floor, 11 more amendments were considered. After
passage on the House floor during the 106th Congress, conferees
spent nearly 7 months engaged in an informal conference to
reconcile differences between the House- and Senate-passed
versions of bankruptcy reform legislation. During the 107th
Congress, this Committee considered an additional 18 amendments
during the course of its markup on S. 256 predecessor, and five
more amendments were considered on the House floor.
After House passage of bankruptcy reform legislation in the
107th Congress, conferees formally met on three occasions and
ultimately agreed, after an 11-month period of negotiation, to
a bipartisan conference report. Finally, during the last
Congress, the Judiciary Committee entertained nine amendments
to bankruptcy legislation, and the House considered five more.
It's no secret that I will strongly encourage Members of
this Committee to vigorously oppose all amendments to S. 256 as
passed by the Senate based on this extensive record. The
reasons are obvious. As the record makes clear, this
legislation is the product of exhaustive consideration by the
Congress. It is a well-crafted package of extensive bipartisan
and bicameral negotiation and compromise.
As introduced, the bill is substantively identical to
legislation that passed the House by an overwhelming vote
margin, not on one but on two occasions in the last Congress.
Although the Senate-passed bill we consider today includes a
series of amendments, they all received bipartisan support and
many were agreed to by unanimous consent.
Second, and perhaps most importantly, the need for
bankruptcy reform is long overdue and crucial to our Nation's
economy and the well-being of our citizens. Every day that goes
by without these reforms, more abuse and fraud goes undetected.
Every abusive bankruptcy filing adversely affects hard-working
Americans in the form of higher interest rates and increased
cost of goods and services. America's economy should not suffer
any longer from the billions of dollars of losses associated
with profligate and abusive bankruptcy filings. We need to
close the so-called mansion loophole now. We need to ensure
that deadbeat parents can no longer use bankruptcy to shed
their child and spousal support obligations. We need to make
Chapter 12, a specialized form of bankruptcy relief for family
farmers, a permanent component of the Bankruptcy Code and need
to extend that relief to family fishermen. And we need to enact
important administrative reforms by direct appeals, streamlined
reorganization procedures, and additional bankruptcy judges
that will reduce unnecessary burdens upon the current system by
those who must administer and use it.
In short, we need to restore a measure of personal
responsibility and accountability to the bankruptcy system, and
S. 256 advances this crucial goal. I will, accordingly, urge my
colleagues to report this bill without amendment.
I yield back the balance of my time and recognize the
gentleman from Michigan for 5 minutes.
Mr. Conyers. Thank you, Mr. Chairman and Members. This is
the first time I've heard us urge that amendments be rejected
before they've even been named, identified, or offered. So I
suppose this is a very serious effort as the majority continues
their assault on the American consumer. Last month, and
starting from this Committee, we passed into law special
interest class legislation--class action legislation which
slams the door on court statehouses for millions of individuals
harmed by fraud, deception, civil rights, and labor abuses.
Now, today we take up the bankruptcy bill which massively
tilts the playing field in favor of credit card companies and
against ordinary workers and families.
Last year, nearly 1.5 million ordinary working individuals
filed for bankruptcy. Their average income was less than
$25,000, and the principal causes for their filings were
layoffs and medical bills. In my judgment, it would be a grave
mistake to punish these individuals while rewarding credit card
companies and business lobbyists at a time when corporate greed
is being reported regularly and has already destroyed or harmed
the lives of millions of American workers.
To those who think the bill is a fair compromise that only
punishes wealthy debtors, then check on how this bill gives
creditors massive new rights to bring threatening motions
against low-income debtors, how the bill permits credit card
companies to reclaim common household goods, if anybody would
want them, of little value to anybody but themselves but very
important to the debtor's family.
Check in this legislation we are considering how it makes
next to impossible for people below the poverty line to keep
their house or their car in bankruptcy. For those who might
think that the bill protects alimony and child support problems
in families, look and see if they find where the bill, as I
have found, creates major new categories of non-dischargeable
debt that compete directly against the collection of child
support and alimony payments; whether they're--we're aware of
the fact the bill allows landlords to evict even battered women
without bankruptcy court approval, even if the eviction poses a
threat to the woman's physical well-being.
If you think the bill cracks down on creditor abuse, then
look again because the bill does absolutely nothing to
discourage abusive, underage lending, nothing to discourage
reckless lending to the developmentally disabled, nothing to
regulate the price of so-called sub-prime lending to persons
with no means or little ability to repay their debt, and
nothing to crack down on unscrupulous payday lenders that prey
on the members of our Armed Forces.
The bill--does the bill fix the problems of homestead
exemption abuse? Well, look again, because there we don't
repeal or even cap homestead--the homestead exemption. The bill
does nothing to prevent the very worst abuses of the Bankruptcy
Code, for example, avoiding claims for bilking seniors out of
billions of dollars of their life savings or denying workers
their hard-earned pension payments. It ignores in this
legislation, after all these years, the asset trust loophole
whereby high-income individuals stash away millions of dollars
in special trusts to avoid their debts in bankruptcy as we go
after ordinary workers who may have been forced into bankruptcy
by medical bills.
I urge every Member of this Committee to reconsider the
real-life consequences of what we're doing in one of the worst
consumer bills I have ever had the sorrow to have to speak
against in this Committee. This is a bad bill. The time has
come that we stop writing these bills for credit card companies
and that these businesses that use their political muscle must
be stopped. Here's a great place to do it today.
I thank the Chairman.
Chairman Sensenbrenner. The time of the gentleman has
expired. Without objection, all Members may insert opening
statements in the record at this point.
Are there amendments?
Mr. Watt. Mr. Chairman?
Mr. Cannon. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Utah.
Mr. Cannon. If I could enter into colloquy with the
Chairman, I am pleased that we are reporting this legislation
today, but I would note that the bankruptcy judgeship numbers
in the Senate bill are outdated and do not reflect the current
numbers submitted by the Judicial Conference this year.
Additional judgeships are sorely needed in a number of
districts across the country, including in my State of Utah. I
am wondering, Mr. Chairman, if we can deal with this issue in
some manner, either a technical bill or a free-standing bill,
and if the Chairman will commit to doing that in the near
future.
Chairman Sensenbrenner. Would the gentleman yield?
Mr. Cannon. Certainly.
Chairman Sensenbrenner. It is the hope of the Chairman that
additional judgeships and not just bankruptcy judges can be
dealt with later on this year in response to an updated
Judicial Conference recommendation where the judgeships are
needed, and this includes article III judges as well.
Mr. Cannon. Thank you, Mr. Chairman. I yield back.
Mr. Conyers. Mr. Chairman?
Chairman Sensenbrenner. Are there amendments?
Mr. Watt. Mr. Chairman?
Mr. Conyers. I have an amendment.
Chairman Sensenbrenner. The gentleman from Michigan. The
clerk will report the amendment.
The Clerk. Amendment to S. 256 offered by Mr. Conyers, page
687, after line 18, insert the following: ``(and make such
technical and conforming change as may be appropriate''----
Mr. Conyers. Mr. Chairman, I ask that the amendment be
considered as read.
Chairman Sensenbrenner. Without objection.
[The amendment follows:]
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Conyers. Thank you very much.
Ladies and gentlemen of the Committee, this is going to be
the amendment that just checks where we all are and what the
temperature is in the room. This is an amendment in support of
our military personnel to crack down on unscrupulous payday
lenders that circle our military bases, who target members of
our armed services with high interest rate loans. It would deny
these companies a claim in bankruptcy where they make a loan
secured by a military paycheck, pension, or disability payment
if the annual interest rate and fees exceed 36 percent a year,
a number that I don't think anybody in this room would even
think twice about signing up for.
This is happening to our military personnel as we meet
today. The military service constitutes a significant and real
hardship for soldiers and their families that are called into
action. We have had 16,000 active-duty members of the military
who've had to file for bankruptcy relief over a 12-month
period. The Pentagon found that 4 years ago nearly a third of
all military families reported a drop in income, obviously,
when a spouse was deployed. For members of the National Guard
and Reserve, the rate was even higher. More than 40 percent
reported lost income when a provider--a spouse provider was
deployed to active duty.
If you need another reason, it is this: The greedy payday
lenders are directly and aggressively targeting our Nation's
armed services. The National Consumer Law Center report found
that scores of consumer-abusing businesses directly target the
active-duty military men and women daily. These payday lenders
are the loan sharks of the 21st century that offer small,
short-term loans at interest rates that are incredible. They
use deceptive names, like ``Force One Lending,'' ``Armed Forces
Loans.'' They go after military members because they know they
have a steady source of income, small as it is, and many of
these military members are young, have family obligations, and
are often strapped for cash and are easy to find.
During a time of war, it's imperative that we go to the
extra mile to protect the men and women of our armed forces.
These individuals face not only the challenge of protecting our
country, but the difficulty of managing their finances when
they are called to service. When the Soldier and Sailors Relief
Act can be used to delay tax payments, suspend legal
proceedings, and reduce interest payments, none of the relief
is automatic. Moreover, these protections only apply if the
service member can establish that he or she has not been
materially affected, quote-unquote, by being called to duty and
ends as soon as the duty ends. Unlike the bankruptcy laws, the
Relief Act buys some time, but not forgiveness.
The last thing we should be doing is putting our military
personnel into this kind of loan shark debacle, and I am urging
the Members that if you want to disregard one of the Chairman's
requests that you vote down all amendments, that this be the
one amendment that you do support. And I return my time.
Ms. Waters. Mr. Chairman, on the amendment? Mr. Chairman?
Mr. Cannon. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Utah.
Mr. Cannon. Thank you, Mr. Chairman.
Let me first express----
Chairman Sensenbrenner. Recognized for 5 minutes.
Mr. Cannon. Thank you. Let me first of all express my
concern for the issue raised by the gentleman from Michigan,
which is a profoundly important issue. I've been surprised
around the country at the proliferation of these check-cashing,
lending institutions which I think are a terrible problem, and
I would hope that the gentleman would recognize that I and all
the Members of this full Committee recognize the problem that
our servicemen have. It is a difficult problem, a complex
problem. We deal with it here in Congress on many different
levels. For instance, we've dealt with the pay issue with
legislation here. In the past we have amended recently the
servicemen--Servicemembers Civil Relief Act, and that provides
for a cap on interest rates at 6 percent on debts incurred
prior to a person's active entry into military service and sets
forth procedures for requesting a reduction and clarifies how
that works.
So we as a Congress, as a body, I don't think there's any
question but that left and right, Republicans and Democrats,
are all concerned about military and the burdens that they have
as they serve our country. And so I want to first of all
express my agreement with Mr. Conyers and about his expression
of concern.
But this is a complex issue, and as we deal with
bankruptcy, I think we just need to be thoughtful and careful
about how we deal with it. This amendment was included in Mr.
Durbin's amendment in the Senate, and that was defeated 38 to
58, not because people have a problem with military, but
because of the complexity of the bill that we're dealing with
today. The Sessions amendment, which was submitted in lieu of
the Durbin amendment, passed by 63 to 32 on the other side. So
we have dealt with the issue, I think, to some degree. But in
this complex environment, I just think it's important that we
recognize that we need to get a bill passed today. And I
suspect in the end much of this debate is going to be--and Mr.
Conyers himself has pointed out that the issue here is, you
know, are we going to do something with this bill, and the
answer is America needs a bill, and we need a bill that we can
get signed by the President, which means I think there ought to
be a fairly high threshold before we make changes.
There are protections in the current bill. It has a needs-
based test which includes numerous safe harbors and exceptions
for special circumstances. As amended, the special
circumstances exception specifically mentions a debtor who is
subject to a call or order to active duty in the armed
services. As amended, the needs-based test has a special
exception just for debtors who are disabled veterans if the
indebtedness occurred primarily during a period when the debtor
was on active duty or performing a homeland defense activity.
As amended, the bill specifies that the absolute safe
harbor from all types of dismissal motions under section 707(b)
applies to a veteran, and, as amended, the bill excuses a
debtor if he or she is on active military duty in a military
combat zone from the mandatory credit counseling and financial
management training requirements.
I think we have done a number of things along this line. I
think the bill is good. We can't make--we can't legislate a
perfect bill that is going to deal with all the circumstances
of everybody in America.
Mr. Conyers. Would the gentleman, my friend, yield for a
moment?
Mr. Cannon. I would be pleased to yield to the gentleman.
Mr. Conyers. First of all, the Durbin bill--the Durbin
amendment had lots of other things surrounded with it. That's
why I took it out. I took out the military exemption.
Number two, tell me what it is you don't like about
exempting military people unequivocally, not playing around,
from bankruptcy from these loan sharks?
Mr. Cannon. Well, reclaiming my time, the gentleman has
expressed the issue with great clarity. I appreciate that. And
the answer is that all people who deal with debt have to have
some responsibility. And a blanket exemption for any group,
including a group as large as the military, I think is
problematic. So what we need to do is deal with the
possibilities for assisting and protecting them from extreme
activities, but not removing any kind of personal
responsibility from their lives which, as I understand your
amendment, it would do.
Ms. Waters. Mr. Chairman?
Mr. Cannon. Thank you, Mr. Chairman. I yield back.
Ms. Waters. On the amendment?
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Cannon. I yield back, Mr. Chairman.
Chairman Sensenbrenner. The gentlewoman from California.
Ms. Waters. Thank you very much, Mr. Chairman. I am so
pleased and so happy about John Conyers' amendment. This is a
subject that I've spent an awful lot of time on, and it's a
subject that needs to be addressed by the Congress of the
United States.
I am shocked that the gentleman from Utah could even come
up with any excuses about why we can't protect the military
from these scavengers who surround our military bases and who
place----
Mr. Cannon. Would the gentlelady yield?
Ms. Waters. No, I will not. Who place up neon signs about
easy money, green money, come and get it as fast as you can.
They have some of the most outrageous advertisements where they
solicit our military. They have set them up as sitting ducks
all over America at these military bases. They are paying
between 400 and 1,000 percent interest when you calculate it on
a yearly basis. For those people who wave the red, white, and
blue flag and talk about how much they love America, how much
they care about our military, how much they want to be of
assistance to our military families, and yet cannot take this
bill, this bankruptcy legislation, which is--actually should be
named the ``Credit Card Company Protection Act of 2005,'' and
do something for our military is just shameful. It is outright
shameful.
And I want every Member of this Committee and everybody
that is looking or listening to pay attention today to what is
going on. We have a very simple amendment by John Conyers that
would deal with the fact that military families are ladened
with debt from these scavengers, many of whom are supporters of
too many Members of Congress with their big military--with
their big contributions, and who seem to have some measure of
protection from the Members of Congress who won't go after
them. Whether it is this Committee or the Financial Services
Committee, for those people who will not stand up for our
military against these scavengers, it needs to be noted
everywhere, and the press needs to pay an awful lot of
attention to this, because this is a way by which we could give
them some kind of help. These are unsuspecting families.
Do you know that we are recruiting young people who are 19
and 20 and 21 years old who have never managed any money, who
have never had any debt, who have never had any credit? And the
first thing that happens to them, they go into the military,
some at 21 years old, with a wife and maybe two children, find
out that the military pay does not carry them to the end of the
month, and there the scavengers are waiting for them with bait.
And they lend them money, and they have to sign a personal
check. And if they don't come back within 2 weeks and pay that
$200 or $300, then they threaten them with the personal check
that they're going to put them in jail if they don't pay the
money.
And then they flip the loan if they can't pay it, and they
pile on more interest to it, and that's where you get this 400
to 1,000 percent interest that piles up for these military
people.
Unfortunately, my friend on the opposite side of the aisle
from Utah has no excuse, and that which he pointed to, to try
and make you believe that there is some protection for the
military is not protection. There's nothing in this bill,
unless we adopt John Conyers' amendment, that would protect
these poor military families from these scavengers and these
people who are gouging them for the meager pay that they get to
take care of their families. And to tell you the truth,
whenever someone who votes against this amendment stands up and
talks about how much they love the military, I'm going to call
them out on it, and I'm going to call them out on the fact that
they had an opportunity here today to do just a little
something for these military families.
These payday loan scavengers are the worst.
Mr. Cannon. Would the gentle----
Ms. Waters. No, I will not yield----
Mr. Conyers. Would the gentlelady yield?
Ms. Waters. No, I will not yield. I will yield to the
gentleman from Michigan.
Mr. Conyers. I just want to make it clear what you said
about what's in the bill helping military people get a break in
bankruptcy. It applies only to the disabled military, only, and
nobody else. So there is no protection in----
Ms. Waters. On my own time, yes, Mr. Leader, I know. That's
why I wanted to make it clear, because the gentleman from Utah
tried to confuse the public and make them think that somehow it
was already covered.
Now, anybody who says it's too complicated, the bill, to
cover them----
Chairman Sensenbrenner. The time of----
Ms. Waters.--does not make good sense.
Chairman Sensenbrenner.--the gentlewoman has expired.
Ms. Waters. And so I would ask everybody to please vote----
Chairman Sensenbrenner. Who seeks recognition?
Ms. Waters.--for this amendment?
Chairman Sensenbrenner. The gentleman from California, Mr.
Issa.
Mr. Issa. Thank you, Mr. Chairman.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Issa. And I do rise--I won't stand, but I do rise in
opposition to this amendment. And if the gentlelady will take
note, I am a veteran. My brother is a disabled veteran. And I
have 40,000 Marines, more than half of whom are serving in Iraq
right now. And looking at this piece--this amendment, I have
serious reservations on its merit. And I would like to speak to
that. This fairly narrow piece of legislation looks good until
you see that it is not talking about interest. It is talking
about interest and fees. With all due respect to the
gentlelady's example, if you were to borrow $200 for 2 weeks
and they were simply to charge you $2 as a fee as part of
writing up the paperwork, which is not an insignificant thing,
that's 26 percent all by itself.
The fact is that when you look at 36 percent--I have a
problem with usury-type interest, but when you write a piece of
legislation and you include fees on an extremely short-term
loan--because if this were a 1-week loan on $200, and they
said, well, you know, I'll give you $198 today for your $200
promissory note, well, that's 52 percent. And that's the
practical reality that on small loans for short periods of
time, a very small fee, a reasonable fee, particularly
considering the potential risk, can, in fact, end up being in
excess of what seems to be an extraordinarily high number.
I would love to deal with this piece of legislation--or
this amendment in another piece of legislation, and I'd love to
deal with it in a way in which it would clearly still allow the
small loans, if appropriate, to go to somebody without
including the fee language which makes it essentially----
Mr. Conyers. Would my friend----
Mr. Issa.--impossible to make small loans----
Mr. Conyers.--from California yield for one question.
Mr. Issa. I certainly would yield to----
Mr. Conyers. And I thank you. Now, look, let's be frank
here. Let's take the fee out of the amendment that I offered.
Would you support it then?
Mr. Issa. I look forward to----
Mr. Conyers. Would you support it then?
Mr. Issa. Reclaiming my time, I look forward to this type
of reform being something that we work on in a comprehensive
way. I would be more than happy to work with the gentleman to
author a separate piece of legislation--I suspect the Chairman
would help support it--that would look at these issues very
specifically, as I said, without the fee or with some sort of a
reasonable thing on the fee, and I think that would be
wonderful.
Mr. Cannon. Would the gentleman yield?
Mr. Issa. I would be glad to yield to the gentleman.
Mr. Cannon. Thank you. I suspect that the place to deal
with this would be the Servicemembers Civil Relief Act, and I
think it's highly appropriate to deal with it in that regard.
If I might take another moment of the gentleman's time?
Mr. Issa. Please.
Mr. Cannon. I appreciate the fact that Ms. Waters referred
to me as ``a friend'' because I think that she is. We've gained
a significant amount of respect for each other, and I
appreciate that. I think that the debate cast in harsh terms
like ``shame'' is unfortunate because this is not a matter of
shame. This is a matter of policy, and there may be a
difference of opinion about how policy affects the world. But I
think, Mr. Issa, what you're suggesting is that there needs to
be ways for people to get credit who need credit. And the last
thing we want to do on either side of the aisle is shove people
out of the market either because the costs are too high or
because the risks are so great that no one will take the cost.
And so it's, I believe, a much more complicated issue, as
you've able expressed, Mr. Issa, than it is portrayed to be at
this point.
Let me just point out that 19-year-olds who enter the
military, and older people, may be young, may be inexperienced,
but they're not dumb. And they have the ability to make
decisions. And if we try and insulate them from the effects of
the decisions, they will make bad decisions for their whole
lives. I've trained my kids in their credit card usage--very
painfully, I might point out, mostly for them. But if they
don't have some pain in their lives over these issues, they
don't learn.
And I have enormous respect for the military, enormous
respect for the young people who join the military. They come
from all kinds of backgrounds and from all kinds of decision
perspectives. And because of that, I think that we owe it to
them to not include this----
Ms. Jackson Lee. Mr. Chairman?
Mr. Cannon.--amendment. I would request that the Committee
vote against the amendment.
Chairman Sensenbrenner. The time belongs to the gentleman
from California.
Mr. Issa. Reclaiming my time, and in conclusion, Mr.
Chairman, I look forward to working with the gentleman from
Michigan on these types of issues in the days to come, and will
be voting against the amendment, urge my colleagues to vote
against the amendment because this is not the right place,
right time. But I would like us all to agree to work on this in
the future, and I yield back.
Chairman Sensenbrenner. The gentleman from New York, Mr.
Nadler.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Chairman, I very much urge support for the gentleman's
amendment. It illustrates just one of the imbalances in this
bill, which is simply a collection of 60 or 70 different ways
to stick one's hands into the pockets of low- and middle-income
people in a time of distress and take the money out and give it
to the big banks and credit card companies.
One of the things this bill does in many different ways it
to make a discharge in bankruptcy more elusive. Making
discharge in bankruptcy more elusive will make it harder for
consumers to get a fresh start and continue to make consumer
purchases, which is one of the mainsprings of our economy.
Household debt has reached record levels. With that come more
bankruptcies, but no serious economist would argue that a
precipitous drop in consumer spending would help our economy.
Bankruptcy is a tradeoff. The safety net encourages risk
taking in business, allows distressed families to remain in the
economy, and maintains demand for products businesses must sell
to survive. Bankruptcy doesn't cause default any more than a
hospital causes people to be sick.
We have been told as a justification for this bill that
bankruptcy is a free ride. The facts are the contrary. A debtor
in Chapter 7 must give up all non-exempt assets in order to
obtain a discharge. Secured debts must be paid, or the property
is subject to foreclosure. The bankruptcy remains on the
debtor's record for 10 years, and the debtor may not refile for
6 years. It is harder to get a job, an apartment, or a loan. As
a majority witness who had been a debtor told the Committee a
few years ago, had she known the consequences of filing, she
might not have done so.
No one believes that people should avoid paying their debts
if they can afford to do so. The question is, rather, does this
bill make sense? Members should ask themselves why the
overwhelming majority of bankruptcy professionals, scholars,
trustees, creditor lawyers, corporation lawyers, and judges are
appalled with this bill. There is a terrible disconnect between
Congress and the people who actually have to make the system
function. Regardless of their role or interest, they almost
universally oppose this bill. Yet here in Congress, the demands
of the special interests who have a stake in some provision in
this bill are generally viewed as a great idea that requires no
further consideration.
Over the years, we have heard from, among other people, Ken
Klee, one of the leading bankruptcy scholars and business
bankruptcy lawyers in the country, former Republican bankruptcy
counsel to this Committee. He has drafted Supreme Court briefs
signed by Members of this House, and he strongly opposed the
bill.
We have heard from consumer rights organizations, women's
groups, child advocacy groups, unions, civil rights groups, and
every national bankruptcy organization in the country that this
bill will hurt consumers, businesses, families, children,
employees, minorities, and the economy. It will raise costs to
the system and disrupt the efficient management of bankruptcy
proceedings. This bill would turn the Government into a debt
collector for private industry.
Let me remind you what George Wallace, a representative of
the Creditors Coalition, told this Committee a few years ago. I
asked him if he was familiar with the many ways under current
law that a creditor could pursue his rights in bankruptcy,
including obtaining documents, examining the debtor under oath,
and objecting to a discharge of debts. He said, and I quote,
``I have done these things, and they take a fair amount of
time, and I bill my clients for them. They're expensive.''
I asked him, ``Why should the Government spend money to do
the job that creditors should be doing?'' He responded,
``Because it is a Government program. It is not the job of the
creditor.''
That's what this bill is--a Government program for big
banks who don't want to spend their own money to collect their
own debts, the debts that they freely entered into. Talk about
welfare cheats.
Mr. Chairman, we know, unfortunately, this bill is going to
pass. It's going to pass with a good number of votes. Someone
asked me the other day why he should vote against this bill
despite the manifold demerits in the bill, when it was clear it
was going to pass anyway. And I think that the answer is that
when this bill really takes hold, 2, 3, 4 years down the road,
when middle-income people, low-income people, our constituents,
start finding out it's impossible to get a fresh start, they
cannot get out from under their credit card debts, they're
paying higher and higher interest rates, more and more money,
it costs more money to file, there are more and more coercive
instruments on the part of the creditor's lawyers to force
debtors to reaffirm debts and to surrender their rights, and
the bankruptcy system becomes less and less usable for people,
they're going to ask, ``Who the heck did this?'' And I hope
that Members of Congress--that too many Members of Congress
won't have to be ashamed in front of their constituents, as I
am sure they will.
So I urge adoption of this amendment and defeat of this
bill because this is a day of shame, and when we pass it on the
floor, it will be a day of worse shame that will probably go
down in history as one of the worst days in the history of the
Congress in this century.
Thank you, Mr. Chairman. I yield back.
Chairman Sensenbrenner. The question----
Ms. Jackson Lee. Mr. Chairman? Mr. Chairman?
Chairman Sensenbrenner. The gentlewoman from Texas, Ms.
Jackson Lee.
Ms. Jackson Lee. Thank you very much, Mr. Chairman, and
thank you for the opportunity to participate in the legislative
process. And I do not say this with reflection on the
responsibility that we have inasmuch as the Senate has moved
forward on this legislation. But I will say the speed at which
we're now addressing this particular legislation, the speed in
which it will find its way to the floor of the House, and the
sense that I am getting from my colleagues on the other side of
the aisle--and might I welcome two new Democrats who I see are
sitting on this side. It gives us a good number. Thank you. Mr.
Inglis, I am delighted, my Chairman. We welcome you and look
forward to you supporting our amendments. But it gives me great
hope and inspiration.
But as I look at the speed in which we move to the floor of
the House--I understand we might be on the floor as early as
the beginning of April--might I simply say that the fix is in,
that this is a prime example of class warfare, because this
bill is wrapped with special interests. It clearly does not
evidence thoughtfulness as it relates to the crux of the need
for helping Americans save and helping Americans understand
credit and balancing between Americans who consume credit and
those who market credit. I would use a lesser word, but I think
I'll keep it at a level of sophistication at this point.
I support the Conyers amendment, and I am so disappointed
and saddened, frankly, by my colleagues who I know have spent
time in Iraq and Afghanistan, and if they have spent time in
Iraq and Afghanistan, they have spoken not only to young
soldiers, but they've spoken to reservists, Mr. Chairman. If
you speak to reservists, you will know that they have been
taken out of their prime of their life or they have been called
into battle in the midst of their life where they have wives or
husbands or family responsibility. In taking them out of their
cycle of income, they have caused them to lose a major part of
the breadwinner's contribution to the family, jeopardized them
and put them in the line for bankruptcy.
Therefore, many of them have turned to the scavengers who
have accelerated the rates on payday loans. It is a conspicuous
and large problem. It saddens me to think that because it was
associated with Senator Durbin rather than an issue that might
have come to the attention of my colleagues on the other side
of the aisle, and now in the wisdom of our Ranking Member, Mr.
Conyers has put it forward as a single standing amendment, we
can't get the support.
Allow me to put into the record the words of David Broder
of The Washington Post. His headline says, ``A Bankrupt
`Reform,' ''--``reform'' in quotes. ``A Bankrupt `Reform.' ''
This reform, which parades as an effort to stop folks from
spending lavishly and then stiffing creditors by filing for
bankruptcy protection, is a perfect illustration of how the
political money system tilts the law against average Americans.
The simple fact that for 8 straight years it has gained a place
on a crowded congressional calendar is testimony to the impact
of the millions of dollars that banks and credit card companies
have spent on lobbyists and campaign contributions. Two terms
ago, it was $4 million that was utilized to lobby Members of
Congress to vote for this legislation. I would imagine it is
now double that amount.
We have a long list of individuals who oppose this
legislation, and the reason why it will pass with no amendments
is because, as I said, the fix is in. The American middle class
is the backbone of America, yet this bankrupt legislation is
going to exercise a means test to stand in the doorway of
disallowing individuals to come in and to file bankruptcy.
One of the bloggers said, if this doesn't teach Americans
not to have medical emergencies or get laid off, I don't know
what will. Come to my city in 2003 and 2002, and watch the
4,000 Enron employees that were laid off, losing most of their
livelihood, putting them in a dastardly downspin, causing them
to lose their homes, having college students to come out of
college, and simply driving them to the depths of depression.
How you can pass this legislation in the light of devastation
of our communities, middle class and others, is a tragedy. I
would only hope that this particular amendment would reach the
levels of common sense and have you think back on the soldiers
that are now on the front line without the resources to pay
their bills, taken advantage of by payday loans, and then being
denied--having these payday loan--loaners come after them in a
bankruptcy proceeding.
This is a common-sense amendment. This legislation will
listen to us today. It will almost sound like blah, blah, blah,
blah, blah, because, in fact, the legislation will pass out of
this Committee. Very few amendments will pass out of this
Committee. And the theme of class warfare will again be
victorious, as this makes its way to the floor of the House and
the people of America will suffer----
Chairman Sensenbrenner. The gentlewoman's time has expired.
Ms. Jackson Lee. I hope the amendment passes. I yield back.
Chairman Sensenbrenner. The question is on the Conyers
amendment. Those in favor will say aye? Opposed, no? In the----
Mr. Conyers. Mr. Chairman, may I demand a record vote?
Chairman Sensenbrenner. You may. The question is on
agreeing to the Conyers 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. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith of Texas. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
[No response.]
The Clerk. Mr. Inglis?
Mr. Inglis. No.
The Clerk. Mr. Inglis, no. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no. Mr. Pence?
Mr. Pence. No.
The Clerk. Mr. Pence, no. Mr. Forbes?
[No response.]
The Clerk. Mr. King?
[No response.]
The Clerk. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye. 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?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye. Mr. Wexler?
[No response.]
The Clerk. Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Smith?
Mr. Smith of Washington. Aye.
The Clerk. Mr. Smith, aye. Mr. Van Hollen?
Mr. Van Hollen. Aye.
The Clerk. Mr. Van Hollen, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? The gentleman from North Carolina, Mr.
Coble.
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Chairman Sensenbrenner. The gentleman from Alabama, Mr.
Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Chairman Sensenbrenner. The gentleman from Florida, Mr.
Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Chairman Sensenbrenner. The gentleman from Iowa, Mr. King.
Mr. King. No.
The Clerk. Mr. King, no.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their votes? If not, the clerk will report.
[Pause.].
Chairman Sensenbrenner. The gentleman from New York, Mr.
Weiner?
The Clerk. Mr. Chairman, Mr. Weiner is not recorded.
Mr. Weiner. I vote aye.
The Clerk. Mr. Weiner, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote?
[No response.]
Chairman Sensenbrenner. The clerk will try again to report.
The Clerk. Mr. Chairman, there are 15 ayes and 20 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt?
Mr. Watt. Mr. Chairman, I wonder if I might be recognized
to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. I have some amendments, but there are a couple of
things, points that I want to make that I really can't make in
the context of an amendment, and I don't want to violate the
rules.
As the Ranking Member of the Subcommittee that this bill
original--or some bankruptcy bill originally originated in,
this one didn't make it to our Subcommittee because of the
expedited consideration.
I just want to express generally the major concern that I
have with this legislation, and I can't do it in the context of
an amendment because it would go so basically to the structure
of the bill that it would just--basically dismantle the whole
bill.
The most troubling thing about this bill from my
perspective--and I've said it before, and I hope people are
listening to it--is that at the outset we acknowledge that
there were major abuses and problems in the bankruptcy system
and that those abuses needed to be addressed across the board.
Because the industry knew that it was going to be
impossible to get a bill passed without cutting a deal with the
consumer groups on behalf of the poorest people, basically what
happened was a deal was cut to encourage the consumer groups to
go away and be quiet, and that deal was that we would impose
something called a means test, which basically exempts people
below the means test from virtually every provision in this
bill.
The result of that is very troubling in this sense: First
of all, it goes absolutely contrary to everything I have heard
my Republican colleagues say they stand for related to
individual responsibility because basically what it says is if
you fall below the means test, you are going to be exempted
from worrying about the abuses that you engage in and so,
therefore, we're just going to look the other way. And so
abuses that are taking place in the system now for people who
fall below the means test can continue unabated.
At the same time, people above the means test get a bunch
of rules applied to them regardless of whether they are abusing
the bankruptcy system or not. So the whole purpose that we set
out to achieve to do bankruptcy reform was missed because of
this means test thing.
But a more troubling thing is a public policy concern that
I think is just--is devastating because the effect of this
means test is that you're going to end up with two bankruptcy
courts, in effect. You're going to end up with a pauper's
bankruptcy court and a higher-income bankruptcy court, and it's
going to give judges and courts the authority to treat people
so differently even though their problems in bankruptcy
theoretically should be viewed as the same.
It is so contrary to our whole system of principles that it
is just troubling as a matter of public policy.
Mr. Cannon. Would the gentleman yield?
Mr. Watt. No, let me just----
Mr. Cannon. Because I agree with you.
Mr. Watt. And I just--I couldn't----
Chairman Sensenbrenner. The time of the gentleman----
Mr. Watt. I ask unanimous consent for 30 seconds to take
back the time that----
Chairman Sensenbrenner. Without objection.
Mr. Watt. I couldn't--I couldn't structure an amendment to
deal with this, but I think the public needs to know how
terrible a public policy we are creating in this bill. It has
nothing to do with the content of the bill that you can amend
and correct. But the structure of this bill is so contrary to
everything that our legal system stands for and everything that
our bankruptcy system has historically stood for that it is
absolutely incredible.
Chairman Sensenbrenner. The time of----
Mr. Cannon. Mr. Chairman, I ask unanimous consent that the
gentleman be granted another 30 seconds.
Mr. Watt. And I'll yield it to my gentleman friend----
Chairman Sensenbrenner. Reluctantly, without objection.
Mr. Watt. I yield it to my----
Mr. Cannon. I appreciate the yielding and also the
Chairman's willingness to go on. Let me just say that what Mr.
Watt has said is profound, and it's true, and it's very
important. We disagree only on the point of creating two
courts. I think as a practical matter that may happen. I hope
that our bankruptcy judges are not--don't fall into that trap.
But the issue truly for me is twofold here: personal
responsibility--and a means test does exactly what Mr. Watt has
suggested, and I think that's a problem, but it's a problem we
have to deal with in a practical way.
And so in the first place, a means test--or the individual
responsibility is important. Secondly, availability of credit
is important. That's fundamentally important in this process--
--
Chairman Sensenbrenner. The time of the gentleman has once
again expired.
Mr. Watt. I ask unanimous consent for 30 additional seconds
and yield it to the gentleman from Utah.
Chairman Sensenbrenner. Without objection.
Mr. Cannon. And I will only finish by saying that the
availability of credit to all people--you know, people start
out poor in life. I started out very poor. Many people do. But
the availability of credit is a way for people to get out of
that trap, and in part, this bill is about reducing that cost.
Thank you, Mr. Chairman. Thank you, Mr. Watt.
Chairman Sensenbrenner. The time of all of the gentlemen
have really expired.
By my calculation, we have approximately an hour's worth of
votes and a debate on a motion to recommit on the supplemental
appropriation bill. And, thus, I think it is time to recess the
Committee until either 12:30 or 30 minutes after the end of the
last vote, whichever comes later.
The Committee stands recessed.
Mr. Watt. Did you say whichever comes later, Mr. Chairman?
Chairman Sensenbrenner. Yes, sir.
[Recess.]
AFTERNOON SESSION
[12:47 p.m.]
Chairman Sensenbrenner. The Committee will be in order. A
working quorum is present.
When the Committee recessed for the lunch hour and the
votes, pending was a motion to report the bill Senate 256
favorably to the House. Are there further amendments? The
gentleman from North Carolina.
Mr. Watt. Thank you, Mr. Chairman. I have an amendment at
the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Watt. Amendment 01a.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Watt. 01a.
Chairman Sensenbrenner. That's ``A'' as in apple?
Mr. Watt. Yes.
The Clerk. Amendment to S. 256, offered by Mr. Watt and Mr.
Delahunt----
Mr. Watt. Mr. Chairman, I ask unanimous consent----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. The gentleman from North Carolina
is recognized for 5 minutes.
Mr. Watt. Thank you, Mr. Chairman. And this actually
follows very closely on with the Conyers amendment that was
considered before we broke for the votes.
I have the honor of serving both on this Judiciary
Committee and on the Financial Services Committee, and
Representative Miller from North Carolina and myself, also from
North Carolina, have been trying to structure, in consultation
with Republicans and Democrats, a bipartisan predatory lending
bill in the Financial Services Committee so that we could
create a national predatory lending standard. Some States have
different standards, and we're trying to craft something that
will be either a national floor or a national standard.
Depending on who you talk to, there's some disagreement about
whether it ought to be preemptive or not.
But be that as it may, the gist of this amendment would be
to exempt the predatory loans that have interest rates in
excess of 50 percent. The gentleman from California had some
concerns about fees. This interest is solely about interest
rates. It doesn't involve fees.
It's surprising to know that there are extensions of credit
which are made where the interest rate is above 50 percent per
year. And this bill does nothing to address that, obviously. If
we had had hearings, we probably would have determined--gotten
into the record that during the 8 years since this legislation
was first introduced, the number of credit card solicitations
in this country has doubled to 5 billion a year. Between 1993
and 2000 consumers increased their credit from $77 billion to
$3 trillion. During that 8-year period bankruptcy petitions
increased by 17 percent. But credit card company profits
increased by 163 percent. And while I don't indict the entire
credit card industry, we can't ignore the evidence of
exorbitant interest rates imposed on modest extensions of
credit. Ordinary citizens desperate for help are being taken
advantage of by companies charging from 300 to over 1,000
percent interest on some loans.
And so I think this is a problem that needs to be
addressed, and we need to not make people have to pay or
acknowledge in bankruptcy these predatory loans that there is a
growing agreement within the industry and outside the industry
are just getting out of control and out of hand.
Now, I heard very clearly that the Chairman is not desirous
of having any amendments to this bill, so I am patently aware
that all of this is perhaps a charade. But if there's ever
anything we're going to do to the bill, I certainly hope that
we will send this message that interest rates of over 50
percent per year just are unacceptable, and I would ask your
support for this amendment in that regard.
I yield back the balance of my time.
Chairman Sensenbrenner. The gentleman from Utah.
Mr. Cannon. Thank you, Mr. Chairman.
Chairman Sensenbrenner. Recognized for 5 minutes.
Mr. Cannon. Thank you. May I just direct a question to the
Chair and the Ranking Member? In the prior amendment, I think
we heard virtually all of the general arguments. I understand
there are some technical arguments that may relate to some of
the future amendments. But we've heard most of the arguments
that were made last cycle.
Has the Chair and the Ranking Member, have you come to any
kind of a conclusion about how many amendments we might expect
today?
Chairman Sensenbrenner. Well, if the gentleman will yield,
from the Chair's standpoint I know of no amendments on the
Republican side of the aisle.
Mr. Cannon. We're amazed at the discipline that you have
created on this side. Do we have any----
Mr. Watt. If the gentleman would yield, I will tell him how
many I have.
Mr. Cannon. Please.
Mr. Watt. That's all I can speak for. I think I have six.
And actually, a lot of them relate to things that have occurred
in the interim since we started considering this bill 8 years
ago. I mean, you all's argument has been that there's no need
to make any--to have any hearings, but there are substantial
changed conditions that have taken place over the--over the
period of time that we've been debating this bill. And this
bill has been kind of marching in place, same construct, same
problems, same concerns, but times have changed. And some of
those times involve industry practices such as increased
predatory lending that hopefully all of us agree are just
unacceptable. And if we had gone to a hearing and a markup in
our Subcommittee, or--well, I understand you all started this
bill on the other side so that you wouldn't make any amendments
over here. But if somebody had had some hearings on it, maybe
some of these things could have been done.
Mr. Cannon. Well, reclaiming my time, if I might, Mr. Watt,
just ask a question. When you talk about preemption, that
refers to the--if there's a State interest limit law that is
higher than 50 percent, then you would preempt that with this
bill? I doubt that there are any State laws with a 50 percent
rate, but when you mention preemption, that is, preempting
State law, that is what you're referring to, I take it?
Mr. Watt. No, that's--I was actually giving you all
background about other things that are going on. This deals
with outstanding loans that have interest rates of 50 percent
or above.
Mr. Cannon. Okay.
Mr. Watt. It's not about preemption or non-preemption.
We're going to deal with that issue when we do the general
predatory lending bill in the Financial Services Committee.
This is about bankruptcy and----
Mr. Cannon. But it would----
Mr. Watt.--whether you discharge loans that have interest
rates above 50 percent or don't do that.
Mr. Cannon. Let me just urge my colleagues to vote against
the amendment. In the first place, on the Senate this was
debated and a similar amendment with a 30-percent usury cap was
voted down 24 to 74. I guess----
Mr. Watt. That's why we raised it.
Mr. Cannon. Pardon me. I guess part of the problem is what
Mr. Issa talked about earlier, which is how do you calculate
the interest rate when you've got costs involved and if you----
Mr. Watt. Would the gentleman yield?
Mr. Cannon. In just a moment. I think Mr. Issa pointed out
that if you take a $2 fee on a $200 loan for a week because
it's a paycheck loan, that is a 100%--or, no, it's a very high
interest rate. And so--it's 52. I've got to do the numbers
here. I'm not as quick as you, Darrell.
So I am concerned about that. I don't think the amendment
does what the gentleman would like it to do, which is, I think
we have a general agreement that personal responsibility is
significant, and people need to be responsible for what kind of
loans they are. In our market what we--what I'm trying to do
here is create a market for loans where people get much, much
lower-cost capital because they are responsible for themselves.
And I have a few seconds left. I'd be happy to yield.
Mr. Watt. I thank the gentleman for yielding. I would just
point out to him that this says nothing about fees. This is all
about interest rates. And if the credit card companies and the
lenders don't know how to calculate interest, we're in real,
real trouble. We know what interest is. And if the construct of
the bill really dealt with personal responsibility for
everybody, I mean, we had that discussion before we----
Mr. Cannon. Could I reclaim my time just briefly on this
point? Because what will happen then is that short-term lenders
will raise their costs, their fees, and so you'll have a lower
interest rate. I mean, how do we deal with that for the record
here today? Since what will happen is you'll get a higher fee--
--
Chairman Sensenbrenner. The gentleman----
Mr. Watt. Would the gentleman yield? I ask unanimous
consent for 30 additional seconds.
Chairman Sensenbrenner. Without objection.
Mr. Watt. So I can answer to the--answer the question that
was asked. Does the gentleman yield?
Mr. Cannon. Certainly.
Mr. Watt. I would just say to you that we are dealing with
an existing problem, not what happens in the future. These are
outstanding loans, not prospective loans, right?
Mr. Cannon. But people will make loans this week and next
week and the week after that, and as soon as we pass this law,
I think----
Mr. Watt. I mean, you----
Mr. Cannon. I would urge the Members of the Committee to
reject this amendment. Thank you. I yield back.
Chairman Sensenbrenner. The gentleman----
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman's time has expired.
The gentleman from Massachusetts, Mr. Delahunt.
Mr. Delahunt. I mean, as I sit here listening to the
debate, I think Mr. Watt has been very clear that this does not
involve fees. It doesn't involve penalties. It simply involves
interest. I mean, we're talking about 50 percent interest. And
we should remind ourselves that, you know, 3-month Treasury
bills are now about 2.75 percent, a 30-year mortgage is 5.6
percent. How can we really in good conscience reject this? I
mean, 50 percent interest, I mean, that's--that's Mafia
figures. I mean, this should be the--let's crack down on the
Mafia amendment offered by the gentleman from North Carolina. I
mean, this isn't interest. Maybe you're right. This isn't
interest. This is the vig.
Mr. Cannon. Would the gentleman yield just for a question?
Mr. Delahunt. Of course.
Mr. Cannon. I don't have to go cash my check--in fact, I
think ours is--mine is done electronically. But many, many
people in America are doing that. Are you familiar with that
system and what's going on there? I mean, I don't understand
how this quite general language helps poor people who are in a
State where they need to get a check cashed or have some other
very short-term, high-cost credit?
Mr. Delahunt. Reclaiming my time, because the gentleman has
been very clear, I think, in indicating that those costs, as
you just described them now, are not part of the calculation
that goes into interest. Now, we talked a lot about personal
responsibility, and I concur. But I think why we have a
division in terms of whether this bill is good sound policy is
that there has been no discussion about corporate
responsibility.
Mr. Watt. Would the gentleman yield for a second?
Mr. Delahunt. I yield.
Mr. Watt. I just want to make clear, you make it sound like
I'm trying to do something to help poor people. If somebody
poor is abusing the bankruptcy system--I made this point before
we left for lunch--I think that's a real problem with this
bill. There's really no way to deal with that because you've
exempted them under the means test.
This is about personal responsibility or corporate
responsibility of lenders that are charging 50 percent per
year, and so it's not about personal responsibility of
individuals. I don't think it is reasonable for lenders to be
charging 50 percent a year. And so to turn the question to one
as if it's about personal responsibility of individuals is to
just acknowledge that personal responsibility or corporate
responsibility of lenders is somehow sacrosanct and off limits;
whereas, personal responsibility of individuals is the highest
priority.
I just don't understand that. That doesn't fit in my value
system. Now, if it fits in yours, then I think you ought to
vote against this amendment.
Mr. Delahunt. Reclaiming my time, I think what we're saying
to those lenders that have no scruples, have no parameters,
just go to it, by rejecting this amendment. And again, we're
talking about 50-percent interest. We're saying the door is
open, do whatever you want. And it sends a message to the
American people that large credit companies do not have to be
concerned because Congress is with them and supports them, and
yet somebody who has an income of $25,000 a year and is trying
to pay off a credit card bill of $10,000, given the kind of
interest rates that we all know are assessed, as well as the
fees and the penalties, they can't do it.
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Delahunt. I yield back.
Ms. Jackson Lee. Mr. Chairman?
Chairman Sensenbrenner. The gentlewoman from Texas.
Ms. Jackson Lee. Mr. Chairman, let me rise to support the
gentleman from North Carolina's and Mr. Delahunt's amendment on
predatory lending and utilize the terminology that I used
earlier today, which is the unfortunateness of this legislation
being a poster child for class warfare.
The middle class happened to be known as the backbone of
America. These predatory lending incidences or opportunities
really do confront the working and middle class, particularly
in African American communities and other communities that
happen to be minority or urban-centered. And it would seem, if
this is going to be a bill that talks about responsibility,
that we should take responsibility for the abusive, usurious
rates that plague communities who are attempting to secure,
whether it be loans to pay off other bills or whether it be to
take advantage of a credit system that allows them to buy
furniture or to secure a property, we should be responsible for
allowing the recklessness of this system to burden individuals
who are simply trying to participate in the American dream. And
then they wind up waking up one morning with a family of four
or six or seven or eight, and the property that they bought or
the washing machine that they thought they would get, making
payments on a weekly basis or a monthly basis because of the
way they have to do it, maybe their income, maybe they are the
working poor, maybe they are lower middle class, and then to
come up against this usurious rate, some catastrophic incident
has occurred, a medical need, a divorce, and they wind up with
this debt. And the bulk of the debt is interest.
If we are trying to put forward legislation that is
thoughtful and really does answer the concerns of those who are
coming to the debtors court, if we want to take away all of the
jurisdiction of the judges which might look at this burdensome
process, then this is an appropriate amendment.
So I'd ask my colleagues in the course of their
deliberation--and, again, the fix is in, but we're going to
process ourselves through the process. I think the
gentlemen's--plural--Mr. Watt and Mr. Delahunt's amendment is
completely appropriate because it does provide some balance to
this legislation for those who would be severely burdened by
usurious rates not of their causing, because they attempted
simply to participate in this credit system and to pay off
debts by getting another loan or to buy furniture or to buy
property.
With that, I yield back my time.
Mr. Cannon. Would the gentlelady yield? Would the
gentlelady yield?
Ms. Jackson Lee. I'd be happy to yield for an inquiry.
Mr. Cannon. I'd actually just like to make a couple
comments. You have a little bit of time left, and that would
save an extra 5 minutes, I think, of time, if----
Ms. Jackson Lee. I'm yielding to the gentleman.
Mr. Cannon. Thank you. I appreciate that.
You know, we have a really interesting discussion here, and
I expressed my appreciation earlier for what Mr. Watt said,
which I thought was very, very thoughtful. To add to that,
people are poor for many reasons. The biggest reason for being
poor is because people are young, because they're getting their
education, they're getting started, they're maybe having a
family early. Many, many people started out life poor. There
are other reasons--people who have mental incapacity or who
have lack of education. A lot of things affect poverty.
In the environment of personal responsibility, what I want
to see and what I think this bill does to a very large degree
is create a market that is unfettered, and in that market
people have choices, and they have a choice to prepare
themselves for good credit and lower-cost credit over time. You
expect as a young person to pay more for your credit than you
do when you're older and you have more opportunities because
you've been careful with your credit.
It seems to me that that's the core of the kind of debate
that we ought to be dealing with here.
Ms. Jackson Lee. Would the gentleman--I'd like to reclaim
my time.
Mr. Cannon. Could I make just one other comment?
Ms. Jackson Lee. If you'd make it quickly. I want to
reclaim my time.
Mr. Cannon. You're almost out. Thank you. I----
Ms. Jackson Lee. I have to respond to the gentleman on that
point. I didn't not hear Mr. Watt's earlier point. But let me
just say this: Your focus on responsibility is somewhat
distorted. People are vulnerable in coming to the bankruptcy
courts because they've been taken advantage by the bombardment
of credit cards, with no criteria, usurious rates, and a system
of capitalism that encourages people to purchase. I don't know
how you can--I believe in personal responsibility as well. But
when you issue out credit cards like candy, when you don't
allow people to pay for a rent-a-car with cash, and every
system of government or every process of purchase people are
asking for a credit card, then you are building us on a house
of cards of credit. And, therefore, I think it is wrong to
suggest that people are irresponsible or should be responsible
when they are being victimized by this onslaught of credit card
poisoning.
And so I would simply say this bill is unbalanced, Mr.
Chairman, and it needs to be balanced toward those who are
victimized by those who use them as simply puppets to their
system.
Thank you for the credit cards that do good things, but let
them realize that this bill does not regulate them. It just
allows them to burden and to up the usurious rates and----
Chairman Sensenbrenner. The time of the gentlewoman has
expired.
Ms. Jackson Lee. I thank the Chairman for his indulgence. I
yield back.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from North Carolina, Mr. Watt. Those
in favor will say aye? Opposed, no? The noes appear to have it.
Mr. Watt. Mr. Chairman, I ask for a recorded vote.
Chairman Sensenbrenner. A recorded vote will be ordered.
Those in favor of the Watt amendment will, as your names are
called, answer aye, those opposed, no, and the clerk will call
the roll.
Mr. Watt. Mr. Chairman, do we have a quorum, a voting
quorum on an amendment?
Chairman Sensenbrenner. We have a working quorum, which is
14.
Mr. Watt. Is that enough to vote on an amendment? I don't
know. I'm not----
Chairman Sensenbrenner. Yes. A working quorum is necessary
to debate and vote on amendments. A reporting quorum, which is
21, is necessary to report the bill.
The clerk will call the roll. The question is on the Watt
amendment.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no. Mr. Smith?
Mr. Smith of Texas. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
[No response.]
The Clerk. Mr. Inglis?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
[No response.]
The Clerk. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. 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?
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. Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Smith?
[No response.]
The Clerk. Mr. Van Hollen?
[No response.]
The Clerk. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there Members who wish to cast
or change their vote? The gentleman from Wisconsin, Mr. Green.
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? If not, the clerk will report.
The Clerk. Mr. Chairman, there are 9 ayes and 15 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. Mr. Chairman, I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Watt. Watt 02.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to S. 256, offered by Mr. Watt----
Mr. Watt. I ask unanimous consent the amendment be
considered as read.
Chairman Sensenbrenner. The gentleman will hold off until
the amendment is at least distributed to some Members.
The Clerk. On page 10----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. And the gentleman is recognized for
5 minutes.
Mr. Watt. Thank you, Mr. Chairman. And my good friend from
Utah couldn't have provided a more appropriate segue into this
amendment than to remind us that most people are poor because
they are young and uneducated. And this amendment goes directly
to that point.
Under the current version of this bill, school expenses for
minor children up to $1,500 per child annually are allowable as
expenses under the means test. My amendment expands----
Chairman Sensenbrenner. The gentleman will suspend. We have
a problem with your microphone.
Mr. Watt. That is probably a blessing, considered a
blessing by most people.
Chairman Sensenbrenner. Well, we do have the court reporter
to record your comments for posterity.
[Pause.]
Mr. Watt. Are we okay? Testing. ``O, say can you see''----
[Laughter.]
Chairman Sensenbrenner. I think the gentleman from North
Carolina is auditioning for a free ticket to the Nationals to
sing the National Anthem there.
Mr. Watt. I was trying to see if you all would stand.
Chairman Sensenbrenner. The gentleman is recognized.
[Laughter.]
Mr. Watt. Trying to get people to stand, Mr. Chairman.
That's all.
I'm not sure where you all ceased to hear me, but I wanted
to thank my friend from Utah for setting the stage for this
amendment by reminding us that most people are poor because
they are young and uneducated. The current version of the bill
allows up to $1,500 per child for school expenses under the
means test. However, most college-age students remain dependent
on their parents and rely upon parental support to attend
college or other postsecondary institutions. A college degree
is a valuable investment? I think Mister--my good friend from
Utah would agree with that, and often is the key for lower-
income Americans to break the cycle of poverty.
Unfortunately, the average cost of a year's tuition, room
and board, and fees at a private college last year was $22,541.
The average cost of a year's tuition, room and board, and fees
at a public university last year was $8,470. That information,
by the way, comes from the College Board, not from me. I didn't
make it up. For 2004-2005 school year, tuition fees in 4-year
public universities soared at 11 percent, while at private
universities they rose 6 percent, according to the College
Board. And if I can just give you a personal experience, when
my kids went to college, the increase in their tuition from 1
year to the next was more than I paid per year to go to the
State university that I went to. So that gives you some
appreciation that I have some personal appreciation for this.
So all we're doing is trying to get you all to allow us to
help people break this cycle of poverty that my good friend
from Utah referred to that keeps so many people poor, and not
visit the sins of parents--if you think that incurring debt and
going into bankruptcy is a sin, don't visit the sins of the
parents on the children, because then you are punishing other
folks who--they didn't incur these debts.
So, please, consider this amendment and I ask for your
support and yield back. Sorry I serenaded you.
Chairman Sensenbrenner. The gentleman from Utah.
Mr. Cannon. Thank you. I enjoyed----
Chairman Sensenbrenner. He does not have to sing, by the
way.
Mr. Cannon. I enjoyed the music, but Mel does this a lot
better than I do so I'm not going to sing. Thank you.
I appreciate what the gentleman is saying. College costs
have gone up. Just two points.
One is that this eliminates any kind of cap--there's a
$1,500 cap in the current bill, and it's for essentially
adults. Now, I grant you that 18-year-olds are young people,
but, again, I hope that my children have a rough experience
with the world as they get to be 18 and beyond so that they
realize that there's nothing out there to protect them other
than their own wit and capabilities and that Government, I
think, is not a very good protector. And so I would urge people
to vote against this amendment. This is a finely crafted bill.
I think what we have in the bill is really a very appropriate
number, and while I'd like to be able to solve all the problems
of everyone in the world of getting access to education, we've
done much with Pell grants and with loans and other support,
and I think that the place to deal with that issue is not in
this bill but in other aspects of what we're doing here in
Congress generally.
So I would urge people to vote against this amendment and
yield back the balance of my time.
Chairman Sensenbrenner. The question is on the Watt
amendment. Those in favor will say aye? Opposed, no? The noes
appear to have it.
Mr. Watt. Mr. Chairman, I ask for a recorded vote.
Chairman Sensenbrenner. A recorded vote will be ordered.
Those in favor of the Watt 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. Coble?
[No response.]
The Clerk. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
[No response.]
The Clerk. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Inglis?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
[No response.]
The Clerk. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no. 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?
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. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Smith?
[No response.]
The Clerk. Mr. Van Hollen?
[No response.]
The Clerk. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Members who wish to cast or change
their votes? The gentleman from North Carolina, Mr. Coble.
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Chairman Sensenbrenner. The gentleman from Florida, Mr.
Keller.
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Chairman Sensenbrenner. The gentleman from Wisconsin, Mr.
Green.
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. The gentleman from California, Mr.
Lungren.
Mr. Lungren. No.
The Clerk. Mr. Lungren, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? If not, the clerk will report.
The Clerk. Mr. Chairman, there are 10 ayes and 17 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Watt. Mr. Chairman, may I be recognized for a unanimous
consent request?
Chairman Sensenbrenner. The gentleman from North Carolina,
for what purpose do you seek recognition?
Mr. Watt. To ask unanimous consent to insert in the record
at this point a copy of a report entitled ``Robbing Perkins to
Pay Pell: The Bush College Aid Proposal,'' and a letter from
Ranking Member Obey and Ranking Member George Miller talking
about the results of that report.
Chairman Sensenbrenner. Without objection, the material
referred to by the gentleman from North Carolina will be
included in the record.
[The material referred to follows:]
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. Are there further amendments? The
gentleman from New York, Mr. Nadler.
Mr. Nadler. Thank you, Mr. Chairman. I have an amendment at
the desk, Nadler number 1.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Nadler. Nadler number 1.
The Clerk. Amendment to S. 256 offered by Mr. Nadler. At an
appropriate place, insert the following (``and''----
Mr. Nadler. Mr. Chairman, move to dispense with the
reading.
Chairman Sensenbrenner. Let's look at it first.
Mr. Nadler. Okay.
The Clerk. ``(and make such technical and conforming
changes as may be appropriate): Section--Nondischargeability of
debts incurred through violations of civil rights laws. (a)
Debts incurred through violations of civil rights laws.--
Section 523(a) of title 11, United States Code, as amended by
section 224, is amended--(1) in paragraph (18) by strike `or'
at the end; (2) in paragraph (19) by striking the period at the
end and inserting''----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. The gentleman from Utah?
Mr. Nadler. Excuse me. Don't I have a chance to explain the
bill.
Chairman Sensenbrenner. The gentleman from Utah?
Mr. Cannon. Mr. Chairman, I would like to reserve a point
of order.
Chairman Sensenbrenner. The gentleman--a point of order is
reserved. The gentleman is recognized for 5 minutes.
Mr. Nadler. Thank you, Mr. Chairman.
This amendment would make debts arising from civil--from
judgments from civil rights violations nondischargeable. The
amendment includes every civil rights violation listed in the
Federal criminal code, any civil judgment arising under a civil
rights violation, including a section 1983 action, which is to
say a judgment against someone for violating someone's civil
rights under color of law, or an intentional violation of a
valid court order enforcing a civil rights law described in the
amendment. It also includes offenses under State law that
consist of conduct that would be a civil rights crime described
in the Federal criminal codes. Finally, it repairs an omission
in the current code that makes fines and restitution ordered
under the Federal criminal code nondischargeable, but does not
make fines and restitution ordered under State law
nondischargeable. My amendment would add the State law.
So if you violate the right to vote, the right to work, the
rights of a person wearing the uniform of the United States
military, the right to the free exercise of religion, the right
of freedom of access to clinic entrances, or any other
federally protected civil rights, you will not be able to abuse
the Bankruptcy Code either to escape your debts or to force
your victims to chase you across the country through bankruptcy
courts trying to collect lawful judgments.
We know that is a common strategy, and even where it fails,
the uncertainty in the law gives the tort feasors the
opportunity to inflict more damage and more expense on their
victims. This bill expands the types of nondischargeable debts.
It makes nondischargeable even small cash advances leading up
to the filing of a case. It's not enough money to keep your
kids in Huggies, Mr. Chairman, but we're protecting the
helpless credit card companies.
If you use--anyway, this is the wrong page. This amendment
simply makes all these different judgments arising from State
or Federal civil rights violations not dischargeable in
bankruptcy, including violations of 1983, which is a violation
of civil rights under color of law, and that's an abuse of the
code and we should not allow it, and I urge the amendment.
Chairman Sensenbrenner. Does the gentleman from Utah insist
upon his point of order?
Mr. Cannon. Thank you, Mr. Chairman. I'd make a point of
order that the amendment does not amend a specific section or
specific text.
Chairman Sensenbrenner. You wish to argue in favor of your
point of order?
Mr. Nadler. I don't understand the point of order. What do
you mean it doesn't amend a specific section?
Chairman Sensenbrenner. The gentleman from Utah has the
right to argue in favor of his point of order.
Mr. Nadler. I'm just asking a question.
Mr. Cannon. I think it's fairly obvious. The amendment on
its face says that ``at the appropriate place insert,'' and
makes--I believe that the rules of Committee----
Mr. Nadler. It doesn't say that.
Mr. Cannon. No, the amendment says ``at an appropriate
place insert the following (and make such technical and
conforming changes as may be appropriate.'' I believe the rules
of the Committee require that an amendment specifically amend a
section or particular language within a section.
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. Does the gentleman from New York
wish to be heard in opposition to the point of order?
Mr. Nadler. Yes. This----
Chairman Sensenbrenner. Or does he wish to concede the
point of order?
Mr. Nadler. No. I wish to contest the point of order. This
is a standard form of amendment. We do it all the time in this
Committee, and I'm not aware of the rule you're talking about.
And if there is such a rule, it's never enforced. This is a
standard form that is done every week in this Committee. If you
look at all the amendments we've done, probably half of them
are done in this form.
Chairman Sensenbrenner. Well, the Chair is prepared to
rule.
Mr. Watt. Mr. Chairman, may I be heard?
Chairman Sensenbrenner. The Chair is prepared to rule.
Chapter 27 of Deschler's Precedents, Section 1.2/8, says that
an amendment must contain instructions to the clerk as to the
portion of the text it seeks to amend. This amendment does not
do that, and the Chair is prepared to sustain the point of
order----
Mr. Nadler. Mr. Chairman, I'll withdraw the amendment.
It'll be resubmitted in a few minutes.
Chairman Sensenbrenner. Okay. The amendment----
Mr. Nadler. In proper form.
Chairman Sensenbrenner. The amendment is withdrawn.
Are there further amendments?
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from New York.
Mr. Nadler. I have an--now, let me make sure that this is
drafted in the same--not in the same way. No, it's okay.
I have an amendment at the desk, amendment number 2.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Nadler. Number 2.
Chairman Sensenbrenner. The clerk will report Nadler number
2.
The Clerk. Amendment to S. 256, offered by Mr. Nadler,
``Page 213, line 11, strike the close quotation marks and the
period at the end.''
``Page 213, after Line 11, inst the following (and make
such technical and conforming changes as may be appropriate):''
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. And the gentleman from New York is
recognized for 5 minutes.
Mr. Nadler. Thank you. Thank you, Mr. Chairman.
Mr. Chairman, the Judiciary Committee has received
testimony from many sources, most recently from the Commercial
Law League of America, the Nation's oldest creditors rights
organization, that the business provisions in this bill will
destroy businesses, especially small businesses. The
substitute--that is, this amendment--would correct this problem
by giving distressed companies the needed flexibility that will
enable many of them to reorganize successfully as opposed to
liquidate in a Chapter 11 proceeding.
Organized labor has also spoken out against the small
business provisions of this bill because they recognize that a
failed reorganization hits workers the hardest. They're the
ones who lose their jobs. They're the ones who lose their
benefits. They're the ones who see their pensions evaporate.
If you have had a large and small business bankruptcy in
your district, you know what happens when a company goes under.
Preserving value in a company through successful rehabilitation
where it is possible benefits everyone--the employees, the
creditors, the communities. This bill, however, has rigid and
inflexible deadlines that is not found in the current code,
especially those dealing with the time in which a company may
propose a plan of reorganization. It also places absolute
limits on the time in which a business must decide whether to
assume or reject a commercial lease, even if they are current
in their rent payments. That limit could prove disastrous in
cases involving businesses with hundreds of stores. Does anyone
know about the Kmart bankruptcy or the Cinema Multiplex
bankruptcies? How would arbitrary deadlines have affected those
cases?
Other arbitrary rules that would force the conversion of a
case to liquidation are dangerous to our economy and to
American business, especially small businesses. When this bill
first appeared in 1997, everyone was singing ``Happy days are
here again.'' There were few fears that massive bankruptcies in
our airline industry, the collapse of much of our tech
industry, the implosion of such market bellwethers as Enron and
WorldCom or the coal or steel industries were just over the
horizon.
It would be foolhardy for the Members of this Committee to
ignore what is going on in the real world just because we have
voted for this bill in the past. In the case of these business
provisions, they could mean the loss of thousands of jobs, the
unnecessary liquidation as opposed to reorganization of
valuable and still viable businesses, and the loss of business
and value for trade creditors and communities.
Let's take an example from the business pages--from the
financial pages. The last time we marked up this bill, I noted
that that morning's New York Times had reported that United
Airlines was seeking an extension on its April 8th deadline for
filing a plan of reorganization until October 6th. Why were
they seeking this extension? According to the report, the extra
time would give United the chance to gauge the consequences of
any war with Iraq on the airline industry, unquote.
Is there anyone here other than one of United's competitors
who does not think that that made sense at that time? Would we
have wanted to insist that United file a plan without getting a
handle on what is about to happen? Would the Members of the
Committee prefer to just liquidate the whole thing?
According to the Times, ``The Air Transport Association
said in a report yesterday that a long conflict could prompt
the industry to cut 70,000 more jobs on top of the 100,000 lost
since the September 11th attacks in 2001.'' It said, ``Several
carriers could be forced in bankruptcy along with United and US
Airways, which had filed for Chapter 11 protection last
summer.'' In fact, an ATA spokesman was quoted in the London
Financial Times as stating that the war could add another $4
billion to airline losses on top of the $5.7 billion forecast
and cut a further 2,200 daily flights.
In court papers, United requested the extension to avoid
premature formulation of a Chapter 11 plan and to ensure that
the formulated plan takes into account the interests of the
company, its employees, and its creditors. That was then.
Judge Weidoff is still keeping United in the air and people
are still working. Could you imagine what would have happened
if we had tied his hands the way this bill would? Is there any
doubt what would have happened to that case? United would have
been liquidated, the employees laid off, and the creditors not
gotten their debts repaid. Shouldn't the law allow courts to
review the facts and decide whether or not such flexibility as
in the Bankruptcy Code has long required in the best interest
of the creditors and the estate?
Mr. Chairman, our job is to make the system work better,
not to wreck it. Chapter 11 is a model that other countries are
trying to emulate. They look to our system of rehabilitating
going concerns values where possible as preferable to their
emphasis on liquidation. Just as the rest of the world is
realizing that our system encourages risk taking and promotes
the rehabilitation of distressed businesses, this bill--or this
provision would take our system back in the other direction.
Perhaps this Committee could listen to the sound of the market
forces before acting.
I urge the adoption of this amendment to allow the system
to remain somewhat flexible so that businesses can be saved
instead of liquidated. Thank you. I yield back.
Chairman Sensenbrenner. The gentleman from Utah.
Mr. Cannon. Thank you, Mr. Chairman.
Section 404 of the bill, under current law, Chapter--this
refers to section 404. Under current law, a Chapter 11 debtor
or lessee must assume or reject a nonresidential lease within
60 days. This 60-day period, however, can be and often is
routinely extended by the court. Section 404 of the current
bill fixes the deadline by which the debtor must assume or
reject a lease. It requires a nonresidential lessee to either
assume or reject within 120 days of the filing of bankruptcy or
by the date that the court confirms the plan of reorganization.
This period can be extended for an additional 90 days on the
motion of the lessee or the lessor. And then there are further
provisions for extension.
Let me just point out that section 404 is a result of
extensive negotiation over the preceding three Congresses. This
bill is not hostile to lessees. As a matter of fact one of the
principal groups of nonresidential lessees, the National Retail
Federation, is one of the bill's strongest supporters on this
particular point.
The provision gives landowners greater certainty in dealing
with bankrupt tenants because it sets a firm time frame by
which the debtor must decide whether to continue with a lease
of a shopping center and the ability it produces means
ultimately we get better rates more equitable rates, and
promotes competition among landlords. Bankruptcy Code section
502 limits the amount of damages that a landlord can claim as
an administrative expense, priority if a tenant assumes a
lease, and then rejects the lease at a later time. This
prevents landlords from getting a financial windfall at the
expense of unsecured creditors. It's a well-thought-out and
well-balanced part of the whole bill.
Now, many of these issues deal with small businesses, and
we have very, very wide-ranging groups supporting these small
business provisions, like the National Bankruptcy Review
Commission, Executive Office of the United States Trustees,
bankruptcy judges, the National Association of Credit
Management, and the American Bankruptcy Institute.
This section gives teeth to those charged with the
oversight of these cases, including the courts, the United
States trustees and parties in interest. It only requires small
business debtors to do what they should do and be doing while
they're in Chapter 11, that is, pay their post-petition
obligations as they become due and make progress toward
confirmation.
Deadlines in these provisions are not absolute. Most can be
extended upon a proper showing of cause. And this streamlines
the process by providing for flexible rules for disclosure
statements and plans.
Again, the bill can be criticized at various points and
narrow perspectives, but as a whole, and in particular with
this section, the section that's attempted to be amended here
by Mr. Nadler, the bill is well considered and well balanced,
and I would urge my colleagues to reject this amendment.
Thank you, Mr. Chairman. I yield back.
Mr. Berman. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from California, Mr.
Berman.
Mr. Berman. Thank you, Mr. Chairman. Move to strike the
last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Berman. I yield to the gentleman from New York.
Mr. Nadler. Thank you. Mr. Chairman, the provisions--what's
wrong with the provisions in the bill that this seeks to enact
is that they are rigid. One, first of all, most of what
Mister--the gentleman from Utah talked about was lessees.
Lessees and lessors are only one part of what we're talking
about here. And if you look at the amendment, it says
repeatedly the court may extend the time period specified in
this paragraph if the debtor established by clear and
convincing evidence that an extension is justified by
circumstances beyond the debtor's control that were not
foreseeable on the date for the order of relief.
Again, unless the debtor established by clear and
convincing evidence that there are circumstances beyond the
debtor's control that were not foreseeable on the date of the
order of relief. Unless the debtor established by clear and
convincing evidence that there are--et cetera.
The court may extend the time period specified in paragraph
2 if the debtor established by clear and convincing evidence
that an extension is justified by circumstances beyond the
debtor's control that were not foreseeable.
In other words, we're giving the judge in this amendment
the ability--in the interest of the creditors, in the interest
of the debtors, in the interest of the employees, in the
interest of everybody, the ability in case of unforeseeable
developments, the ability to extend otherwise rigid deadlines,
deadlines that in the abstract may make sense. Deadlines that
may say 90 days and then a one-time extension of another 60
days may sound reasonable but in a given case may not prove to
be reasonable.
The code has always given the judges some discretion, and
all this amendment says, the burden of proof is on the debtor.
The burden of proof for a debtor who wants an extension of time
is on the debtor to prove by clear and convincing evidence. The
second highest standard of evidence that he needs the extension
because of circumstances beyond his control that were not
foreseeable at the time of the order.
And if the judge believes that he has established that
beyond--by clear and convincing evidence, at that point why
shouldn't the judge have the ability to extend a deadline and
maybe save a company, save the jobs, save the community, get
the creditors the ability to have more of their debts repaid?
It doesn't make sense to be this rigid.
Now, judges are going to be reluctant to extend deadlines
repeatedly, especially when you put the burden of proof on the
debtor and say not only does it have to be clear and convincing
evidence, but it has to be circumstances that are beyond his
control and totally unforeseeable at the time the order was
given. I don't see what sense it makes to deny some flexibility
when you may save 20,000 jobs or a community or get--or for
that matter, that may redound to the benefit of the creditor,
too.
So why wouldn't we give this kind of flexibility--I
shouldn't say ``give''--keep this kind of flexibility in the
system?
I yield back to the gentleman. I thank him for yielding.
Chairman Sensenbrenner. Does the gentleman from California
yield back?
Mr. Berman. I do.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. I won't take 5 minutes. I just want to make the
point that this discussion has pointed up once again how we
miss opportunities to address problems by not having hearings
and going through regular order. I don't think either one of
these gentlemen is trying to do anything unreasonable, but we
are operating in a system here that you all have set that
basically is making a mockery of the legislative process. It's
clear that you're not going to allow one comma, one period, one
capital letter, anything to be done to this bill because you
don't want it to go to conference. I understand that. But it
makes this markup a charade. And it makes us look like we're
just--this is just an irrelevant process, that the Senate has
shaped this bill, and this bill is too important to the
American consumer, debtor, and creditor to have this happen to
it. And our institution is too important for us to make our
institution have this kind of impact.
So, I mean, I--if I sound a little frustrated, it's because
I am a little frustrated, because we're just playing games
here. And so I yield back.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from New York, Mr. Nadler. Those in
favor will say aye? Opposed, no? The noes appear to have it.
The noes--a rollcall will be ordered. Those in favor of the
Nadler 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. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no. Mr. Smith?
Mr. Smith of Texas. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
[No response.]
The Clerk. Mr. Inglis?
Mr. Inglis. No.
The Clerk. Mr. Inglis, no. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. 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. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
[No response.]
The Clerk. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
[No response.]
The Clerk. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye. 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?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. aye. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye. Mr. Meehan?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye. Mr. Wexler?
Mr. Wexler. Aye.
The Clerk. Mr. Wexler, aye. Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Smith?
Mr. Smith of Washington. Aye.
The Clerk. Mr. Smith, aye. Mr. Van Hollen?
[No response.]
The Clerk. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Members who wish to cast or change
their vote? The gentleman from Alabama, Mr. Bachus.
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Chairman Sensenbrenner. The gentleman from Wisconsin, Mr.
Green.
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. The gentleman from New York, Mr.
Weiner.
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Scott.
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Chairman Sensenbrenner. The gentleman from Michigan, Mr.
Conyers.
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? If not, the clerk will report.
The Clerk. Mr. Chairman, there are 13 ayes and 18 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Schiff. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from California, Mr.
Smith.
Mr. Schiff. Schiff.
Chairman Sensenbrenner. Schiff. I'm sorry.
Mr. Schiff. It is going to be very confusing on this
Committee now.
Mr. Chairman, I have an amendment at the desk numbered 006.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to S. 256 offered by Mr. Schiff. Page
19, after line 21, insert the following (and make such
technical and conforming changes as may be appropriate):
``(8)(A) No judge, United States trustee''----
Chairman Sensenbrenner. Without objection the amendment
will be considered as read and the gentleman from California is
recognized for 5 minutes.
[The amendment follows:]
Mr. Schiff. Mr. Chairman, I thank you. My amendment would
simply provide that if at least 51 percent of the creditor
claims against you in bankruptcy are the result of identity
theft, you should not be forced out of the protections of
Chapter 7. This is an amendment similar to that offered by
Senator Nelson of Florida, but is significantly narrower than
the amendment that was offered in the Senate.
A few years ago the manager of an identity theft program at
the FTC commented on how identity theft was becoming rampant in
the country. She commented that not only can identity theft
wreak havoc on the credit of a victim, but it can even force
them into bankruptcy. Since then the problem has grown at
epidemic rates. Identity theft has now topped the list of
consumer complaints filed with the FTC for the last 4 years in
a row. In September 2003 the FTC released a comprehensive
survey concluding that a staggering 27 million Americans have
been the victims of identity theft in at least the 5 years,
costing consumers and businesses an estimated $53 billion in
2002 alone.
In fact, the home States of several Members of this
Committee are at the top of the list of identity theft victims,
with Texas ranking No. 4, Florida ranking No. 5, and my own
home State of California ranking No. 3 in the number of victims
of identity theft per capita, with over 37,000 complaints
reported by consumers, costing over $40 million just last year.
We've also heard of the recent breaches of massive
databases holding personal information. Identity thieves posing
as legitimate customers gained access to ChoicePoint's database
of 19 billion public records. The company has acknowledged that
hackers had access to data on 145,000 people and that stolen
information has since been used in at least 750 identity theft
scams.
Just last week databases belonging to LexisNexis were also
compromised with hackers stealing information on at least
32,000 people. With these epidemic level increases comes the
likelihood that more innocent individuals will be forced to
file bankruptcy.
Just last month a man was sentenced in New York to 2 years
in prison for using a former girlfriend's identity to commit
fraud. The scheme lasted several months, during which the
perpetrator took out three personal loans from private loan
agencies in the victim's name, purchased an Audi and a Chevy
pickup truck. Ultimately the fraud resulted in the theft of
over 300,000, forcing the victim to declare bankruptcy.
There are a great many examples of this. November of last
year a women in Pennsylvania similarly victimized, similarly
forced to file bankruptcy right before Christmas.
We shouldn't turn our backs on these individuals. Last year
this Committee supported legislation Mr. Carter and I sponsored
to crack down on criminals who perpetrate identity theft. Now
this Committee has the opportunity to directly address the
plight of some of the victims of this crime forced into
bankruptcy. The amendment is simple and very narrowly drawn. It
merely says that if at least 51 percent, slightly more than
half of the claims against you in bankruptcy are the result of
bankruptcy--the result of identity theft, something you had no
control over, you should not be forced out of the protections
of Chapter 7.
I know that there has been a desire among the majority to
keep the bill in its pristine state, but this is a good
amendment. I think it's one that ought to enjoy bipartisan
support, as our identity theft did last year, and I would urge
you to accept it. This is more narrow than what was offered in
the Senate. It would specifically address the problem where the
major reason why you would be forced out of Chapter 7 is
because you are a victim of identity theft, and I urge my
colleagues to join support, and I reserve the balance of my
time.
Chairman Sensenbrenner. The gentleman will have to yield
back.
Mr. Schiff. I yield back, Mr. Chairman.
Chairman Sensenbrenner. The gentleman from Utah, Mr.
Cannon.
Mr. Cannon. Thank you, Mr. Chairman.
I'm just sort of working through this amendment now, and
it's obviously--it's obvious to me that it's an important idea
and maybe something that we'd want to consider in the context
of future changes, a technical blurb, something like that. For
the purposes of this bill, besides the fact that we want to do
a reasonable bill, and I think that this bill is available to
amend if we get new reasons. Thus far I don't think we've heard
many.
But this is a new issue, and I appreciate the fact that it
is more narrowly drafted than the Senate counterpart, but
there's some problems that I have in this bill, and I think
those are substantial, and that's why I think if we do anything
with this we'd have to do it--I would encourage the Members to
vote against it so we can deal with it at some future time.
In the first place we're fairly vague about the identity
theft and how it's established and what that means. In the
second place, what happens if a person has a significant amount
of identity theft--losses caused by identity theft and then
becomes wealthy and has the ability to otherwise deal with
these things? And so----
[Laughter.]
Mr. Schiff. Would the gentleman yield?
Mr. Cannon. Yes, in just a moment. Let me just say in
summary from my perspective, I don't, I don't have a handle on
how we deal with this, how it would fit in, and it would
clearly disrupt the whole process of moving forward a bill. So
I would encourage my colleagues to reject this amendment. And
who asked to----
Mr. Schiff. I asked the gentleman if he would yield.
Mr. Cannon. Oh, certainly, Mr. Schiff.
Mr. Schiff. This is a, you know, rough replay of a scenario
that took place in this Committee a couple years ago when I
offered and amendment to this bill, to just do a study of
whether those trying to get child support would be adversely
impacted by the bill. It just called for a GAO study of the
issue. The author of the bill at that time was Mr. Gekas. He
made comments very similar to yours, along the lines of this
may not be a bad idea, this may be a good idea, but we don't
want anything added to the bill.
Mr. Cannon. Reclaiming my time, I think the point between
the time that Mr. Gekas was here and now is there's been a lot
of time to develop that idea, and if somebody wanted to do it,
it could have been developed. I don't know that this issue has
come up in the hearings that we've had or in the negotiations
or discussions we've had anywhere. This has been an issue out
there, but that hasn't had an advocate in the context of this
bill.
Mr. Schiff. Will the gentleman yield again?
Mr. Cannon. Certainly.
Mr. Schiff. You know, I know the gentleman, with all due
respect, is really reaching for a rationale to vote down the
amendment, and, you know, I--Mr. Gekas, in the last scenario,
offered to take up my amendment in the manager's amendment. It
went up to the Rules Committee as part of this package. It came
down from the Rules Committee, having been deleted from the
package. And when I asked him why, he said, ``You know, I
thought I was the author of this bill, but it essentially is
being controlled by the interest behind the bill,'' and he
could not even succeed with an amendment he supported.
I hope we're not to that point. This is a very simple
amendment that says----
Mr. Cannon. Reclaiming my time, I just--Mr. Gekas is not
here to defend himself. That is an extraordinary statement. I
knew Mr. Gekas very well. I've taken over the Subcommittee that
he chaired earlier. I don't mean to challenge your credibility
on the issue, but beyond Mr. Gekas we need to have a process,
and we have not talked about this issue. I don't know if you've
talked with other people that are engaged in the bill, but the
issue has not, that is the issue of identity theft and how we
fit it in the bill, has not been raised in a context where we
could vet it and deal with it.
So part of the reason I'm stretching is because it's a new
issue, and I don't know how it fits into--and I grant that I'm
stretching. I don't know how it fits in. I don't know what it
does to the bill. If it's going to be dealt with, it needs to
be dealt with in the context to determine----
Mr. Schiff. Will the----
Mr. Cannon. Pardon me, just if I can finish. We need to
deal with it in a context where we can consider the
implications for the whole bill. And so I have a little bit of
time left.
Mr. Schiff. I appreciate the gentleman yielding, and I'm
not impugning at all Mr. Gekas' credibility, who fought for my
amendment, and I'm appreciative to him. But I do challenge the
process that's going on here where we have a markup. We spend
hours here. And if the majority has made the decision that we
will accept no amendments no matter how meritorious, then this
really is a futile exercise, and we are all too busy to engage
in a futile exercise.
Mr. Cannon. Reclaiming the last few moments that I have, it
is a futile exercise if there's nothing new or if we can't make
a clear and compelling case for something, which I don't think
you can do with an issue like this at this time with the
limited debate here. But we have a process.
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The question is on the----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. I move to strike the last word.
Senator Carper. The gentleman's recognized for 5 minutes.
Mr. Watt. And I really didn't intend to just get on this
and stay on it, but we're getting to the point of just being
ridiculous here, and you know, I think we all are beginning to
have our sensibilities insulted. And to be honest with you and
very blunt, the Republicans are beginning to do a disservice to
themselves by looking like robots, and that's unfortunate.
This bill and the substance of this bill is too important
to the American people to treat it like this, and I, I mean I
think there's more integrity just to say, ``Look, we're not
going to amend this bill, you know, call the previous
question,'' you know, which you all have done before. You try
to do it when you can blame it on us. We're trying to be
constructive here, offer really good amendments that a number
of people have said are really good amendments, and--but
there's no flexibility here, and I don't know what we are
doing. This is a charade.
And I'm embarrassed because this is out of--I mean
bankruptcy started out--I guess I'm taking the lead on this
because bankruptcy is the subject matter of Commercial and
Administrative Law, which I am the Ranking Member of, and I
don't want to see my Chair, Mr. Cannon, continue to embarrass
himself like this. There's no rational reason for what's
being----
Mr. Cannon. Would the gentleman yield?
Mr. Watt. I'm happy to yield to him if he can tell me he's
not embarrassing himself.
Mr. Cannon. You know, I actually find it embarrassing that
we make an issue out of, out of the failure of an amendment
that hasn't had any development. This is not a heavy-handed
process that has culminated over 7 years to where we are today.
Mr. Watt. Reclaiming my time.
Mr. Cannon. This is a 7-year process.
Mr. Watt. Reclaiming my time, I am making an issue of the
fact that you all are making a charade of the legislative
process on an important public policy such as bankruptcy. I'm
embarrassed by this, and I think you should be embarrassed by
it. So I, you know, I'm--this is not the first time I've said
this today. This is not about this particular amendment but the
cumulative effect of what you are doing is embarrassing to
yourself, and, you know, I'm going to keep offering these
amendments as long as you all sit here and embarrass yourself,
but at some point you're going to have to just say to the
American people, ``Regardless of how meritorious an amendment
is on this bill, we are not going to amend the bill because our
leadership has told us that. Mr. Delay or whoever is calling
the shots has told us we are not going to amend this bill.''
And I don't know why we fight for the jurisdiction of our
Committee if our Committee can't do anything with the
jurisdiction. What good is jurisdiction if you're not going to
do anything?
Mr. Bachus. Would the gentleman yield?
Mr. Watt. We are legislators.
Mr. Bachus. Would the gentleman yield?
Mr. Watt. I'm happy to yield to the gentleman.
Mr. Bachus. We've been amending this bill for 8 years, have
we not? I mean this bill, we amended this bill this year and
last year and the year before. So I mean it's not----
Mr. Watt. Keep embarrassing yourself.
Mr. Berman. Would the gentleman yield?
Mr. Watt. I'm happy to yield to the gentleman from
California.
Mr. Berman. Would the gentleman--if the gentleman from
North Carolina would yield to the gentleman from Alabama, could
he explain to me why an amendment that says if 51 percent of
your debts occurred because somebody stole your identity and
that the ripple implications of accepting that amendment will
so upset the delicate balance of this pristine bill that--in
ways that we can never know. Just give us a coherent reason why
an amendment as narrow and specific as this should be rejected
on its face? I can understand accepting it and fine tuning it.
I can understand--but you see the impression that we get over
here?
Mr. Bachus. I appreciate the gentleman----
Chairman Sensenbrenner. The time of the gentleman from
North Carolina has expired.
Mr. Berman. Mr. Chairman?
Chairman Sensenbrenner. The Chair moves to strike the last
word----
Mr. Berman. Mr. Chairman?
Chairman Sensenbrenner.--and recognizes himself.
First, there has been plenty of process on this bill over 8
years, and all of the paper that has been generated, hearings,
markups, Committee reports and debates on the floor are on the
clerk's desk. And if you're having trouble seeing the clerk
over the pile of papers, it shows that there has been plenty of
information that has been submitted.
Now, second, relative to the amendment that has been
offered by the gentleman from California, Mr. Schiff, a person
is not responsible for debts that he or she did not incur. So
if the debt was run up by somebody else as a result of identity
theft, the person in whose name the debt was run up is not
responsible for it. And if there is identity theft, that is a
factual issue that the bankruptcy judge can determine, and even
without this amendment, the bankruptcy judge can disallow the
claim that has been made against the bankrupt's estate. That is
simple law.
Now, everybody knows what the process is here. The people
who don't like this bill want to amend it to send it back to
the other body because they know the other body will have to
spend two more weeks jumping through the hoops to get a piece
of legislation passed.
This bill has been hanging around here for 8 years. It is a
bill that has gotten overwhelming support in both the Senate
and the House of Representatives. There has been rollcall after
rollcall, and I've added up the score in both the House and the
Senate. Since the 105th Congress the aggregate total of votes
on bankruptcy legislation has been 2,455 ayes to 871 nays.
We're getting close to the goal line on this. Most of these
arguments have been ventilated repeatedly in the past. I think
that this amendment is merely an attempt to try to kill the
bill because everybody knows that a debtor is not responsible
for the debts he didn't incur. The amendment should be voted
down.
Ms. Waters. Mr. Chairman?
Chairman Sensenbrenner. The gentlewoman from California,
Ms. Waters.
Ms. Waters. I move to strike the last word.
Chairman Sensenbrenner. And the gentlewoman is recognized
for 5 minutes.
Ms. Waters. Mr. Chairman, if in fact this amendment does no
harm, and if in fact it would be a restatement of existing law,
then I don't see why it could not be considered for adoption.
However, I think there are a few things that you, Mr.
Chairman, said that would help everyone here to understand that
you have no intentions of accepting any amendments on this bill
today. You talk about the number of votes that have been taken.
You talk about how high the paper is stacked before the clerk,
and you basically have said to us that we're here today
convened simply to vote this bill out, and that you will do
that because you have the numbers, you have the majority of
this Committee. You're not going to accept any amendments. And
why then are we going through allowing us to take our good time
to offer these amendments when you have decided the fate of our
amendments already?
I think it is worse than a charade, and I think it is, as
Mr. Watt has said, embarrassing to us all, and I feel a little
bit bad for the jockey of the bill over there from Idaho, who
cannot defend--from Iowa--who cannot--where's he from? I'm
sorry, Utah, somewhere out there. Who cannot defend his
objections to the--cannot defend his objections to the
amendment.
So, Mr. Chairman, is a motion in order to move that we
close down the Committee and we just vote the bill out?
Chairman Sensenbrenner. Does the gentlewoman move the
previous question on the bill and the amendments?
Mr. Delahunt. Would the gentlelady--Mr. Chairman?
Chairman Sensenbrenner. Does the gentlewoman make that
motion?
Mr. Delahunt. Mr. Chairman?
Ms. Waters. The gentlewoman is prepared to make the motion.
I hear some objections from my colleagues on this side of the
aisle.
Chairman Sensenbrenner. Well, then should we vote on it and
see what----
Ms. Waters. Well, let me just--let me, let me just get a
nod from--where's my leader on this? Where's Mr. Conyers? Is he
here?
Mr. Conyers. Yes, he is here.
Ms. Waters. Mr. Conyers, what would you have me do?
Mr. Conyers. Well, I'd ask you to yield to me first.
Ms. Waters. I will yield to you on this before I offer this
motion.
Mr. Conyers. I'd like to point out about this large number
of reports and other documents that have been put on the table,
the witness table, that I've counted 1, 2, 3, 4, 5, 6 new
Members on this Committee for the 109th session. I can't recall
how many are new Members from the 108th session. But for the
years that this bill has been going on, to now come up in the
first part of the 109th session and say we've been working on
this bill for 6 or 7 or 8 years, and so therefore, we've had
enough discussion, let's get this on with, is perhaps not the
best congressional or legislative procedure that we can engage
in.
Mr. Inglis. Would the gentleman yield?
Mr. Conyers. No. I know you're a, you're a new old Member,
and so we'll give you the credit you deserve.
But I think that that should be--I think that this should
be taken into consideration. The amendment I offered earlier
about veterans, I don't recall it being offered before. We
haven't had any hearings in this session.
Ms. Waters. Reclaiming my time. I think what I hear the
Ranking Member advising me is not to offer the motion, so, Mr.
Conyers, what I would like to do is make a suggestion to the
Members on our side of the aisle, and that is, take up all your
amendments, find some more, put your staffs to work so that
they can create some more, and let's just stay here for a
couple of days.
Chairman Sensenbrenner. Does the gentlewoman yield back the
balance of her time so that she can do that?
Ms. Waters. If the gentlewoman had intended to do that, she
would have let you know.
Chairman Sensenbrenner. The time of the gentleman has--
gentlewoman has expired. We're about 10 minutes away from four
votes on the floor.
Mr. Lungren. Mr. Chairman?
Chairman Sensenbrenner. Who seeks recognition? The
gentleman from California, Mr. Lungren.
Mr. Lungren. Mr. Chairman, I'm one of those old new or new
old Members that the Ranking Member referred to, and I consider
very importantly my obligation to act in the best interest of
my constituents and the people of this Nation. I must remark
that I'm surprised that the gentlelady from California is
yielding to the iron clad rule of a Ranking Member. I thought
we should independently make our decisions as to what is best.
But let me just say this. I have----
Ms. Waters. They dare not take independence when they are
doing what they are told.
Mr. Lungren. I understand, I understand. I might say that I
have been absent from this chamber for 16 years, although
interestingly enough, one of the elevator operators noted me on
the elevator the other day, and asked where I'd been because
she hadn't seen me around for a little while. So I told her it
had been 16 years.
And I understand the frustration of the minority because I
was there for 10 years, and I understand being on the losing
side of votes. But, you know, it's not a charade when the votes
are taken and you're on the losing side because there's more on
the other side than there are on your side. That's sort of the
result of what happened in November.
The frustration that you feel is probably a mirror image of
the frustration that those of us feel on this side who have
seen this work done on a major effort to reform a Bankruptcy
Code that drastically needs to be reformed. There's a consensus
in this country. And to see that happen year after year after
year and be tangled up in disputes, I mean, let's be real. The
reason we don't have a reform of the Bankruptcy Code over the
last number of years was because of actions taken by some in
the other body on the abortion issue, and there was an effort
to make sure that that social issue was driven and driven and
driven and driven and driven, despite all of the facts, despite
all of the necessity for us to do something with the Bankruptcy
Code.
And so that's why we're here now. We know that there's a
need to have a Bankruptcy Code reform. We know that the best
chance we have of doing that is to basically minimize any
differences between ourselves and the Senate, particularly on a
piece of work that has really the earmarks of Members of this
body, Members of this Committee over the last number of years.
As I understand it--and I stand to be corrected--this product
has a number of amendments brought by both the majority and the
minority over the last number of years that have been voted on
either by recorded vote or voice vote.
So that's what we're talking about, and I understand what
my friends on the other side are doing, trying to make sure
that we're put in a position of voting against the aged and the
poor and the young and kids and veterans and everybody else.
And we understand that's being done, and you have every right
to do it, and I wouldn't refer to it as a charade. But the fact
of the matter is we are either going to have a major reform of
the Bankruptcy Code or we are not, And if we repeat what's been
done in this Congress over the last five or six congresses, we
will not have it, and that ill serves the American people, it
ill serves the people I represent.
So, yes, I am exercising some discipline not to offer
amendments, and not to support certain amendments that I might
otherwise wish to because I do not want to see my pursuit of
the perfect ensure that we defeat the good. And we have made a
good job of defeating the good in this Congress in the last
number of years. And so I appreciate what my friends have said,
but, frankly, it's not a charade when one makes a judgment that
in order to actually have a bill on the President's desk that
does a lot of good, rather than no bill once again, that we
exercise discipline individually, and not support some things
that we may otherwise wish to support.
Mr. Conyers. Would my friend, Mr. Lungren yield?
Mr. Lungren. I would be happy.
Mr. Conyers. And I thank you.
Mr. Lungren. And I want to say one thing. In the time that
I was out of this chamber, whenever I visited, the Ranking
Member was probably the most gracious in recognizing me when I
was here, and I just wanted to say that for the record. I
appreciate that.
Mr. Conyers. I thank the gentleman. Would you review, at
your leisure, sir, the organizations that are supporting the
position that has been made clear by those of us on this side
of the Committee room and the names of the organizations,
lobbyists, banks and credit card organizations, commercial
organizations that represent what you asserted was a majority
of people. I think you'd find, my friend from California, that
when the National Bankruptcy Conference, the American
Bankruptcy Institute, the National Conference of Bankruptcy
Judges, the National Association of Chapter 13 Trustees, the
National Association of----
Mr. Lungren. Okay, reclaiming my time, I object to----
Chairman Sensenbrenner. The gentleman's time has expired.
The question is on the amendment offered by the gentleman--
--
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Massachusetts,
Mr. Delahunt.
Mr. Delahunt. Yes. I'm going to yield in just 30 seconds to
the gentleman from--Schiff, who's the author of this particular
amendment. But in response to what--the observations by Mr.
Lungren, I mean I would suggest that the amendments that have
been offered today deal with obvious issues and egregious
problems that I would concluded that if there was not the
exercise of discipline, there would be nearly unanimous
agreement in terms of the adoption of these particular
amendments.
You know, I'm listening to Mr. Cannon, whom I consider a
friend and one of the better Members of this Committee, you
know, speak about his children and the fact that Government is
not a good protector. And yet today we're here rejecting the
amendment put forth by Mr. Watt and myself relative to the
discharge, the dischargeability of debts implicating interest
over 50 percent. I mean we haven't protected the American
citizen today from the predatory lender. And to speak about the
marketplace in terms of the need for credit and suggesting that
putting some boundaries, in imposing some accountability in
terms of the lending community, I would suggest that's not
doing what we ought to be doing. That's not protecting the
people, all of the people of this country.
And that's not about the marketplace. As I said earlier,
that is right up there with, you know, what the mafia did, we
reject it. How--if we adopted that amendment, how could the
other body, other body not agree to that particular amendment?
And the reality is--and we have heard example after example
over the course of the last three or 4 months, that that in
fact is happening to people all over the country. With that,
I'll yield to the gentleman from California.
Mr. Schiff. I thank the gentleman for yielding, and somehow
my amendment seems to have provoked a disagreement between the
Chair of the Subcommittee and the Chair of the full Committee.
The Chair of the Subcommittee maintaining that my amendment,
the problem with my amendment is that it may somehow do harm,
the Chairman maintaining that the problem with my amendment is
that it does nothing at all, that is the existing law. The
Chairman of the Subcommittee maintaining that the problem is
that this issue has never been explored, the problem as
addressed by the Chairman is that this issue and every other
has already been explored. It can't be both.
And the charade that my colleagues from California refers
to--and charade is a stronger term than I would use--is not
that you win a vote or we lose a vote. The illusion is that
this is a markup, that this is a Committee that today is really
deliberating the amendments and making decisions. That's the
illusion. The reality is that the deal was made before we ever
came into the Committee room.
And the reason I brought up the history, at least my little
amendment some years ago in the 107th Congress, is that this
has been the history as long as I've been here, on this bill.
When I offered an amendment in the 107th Congress, two
congresses ago, I was given much the same response, which is
this issue has already been decided before the markup, so why
are you offering something in the markup, good idea, bad idea,
no idea at all? Where were you when we decided this in the back
room before we got into the Committee?
And you know, for most of us in the minority we're not part
of that discussion. The financial interests are part of the
discussion, the majority is part of the discussion, the
minority is not. My colleague from California referred to his
years in the minority, and I can only say, as we found in 1994,
majorities are fleeting. Ours was, yours may be as well, and it
would be worthwhile to consider what it's like to stand in your
colleague's shoes.
And I would only urge that if you feel the amendment has
weight, support it. If you feel the amendment is somehow
superfluous, vote against it, but let's have a real markup
where the Committee can do real work, where those of us who are
not invited to the back room can have input in the work product
that goes out of the Committee.
Mr. Chairman, I yield back.
Chairman Sensenbrenner. The time of the gentleman from
Massachusetts has expired.
The question is on the amendment offered by the gentleman
from California, Mr. Schiff. Those in favor will say aye.
Opposed, no.
The noes appear to have it.
Mr. Chairman, I request a recorded vote.
Chairman Sensenbrenner. A recorded vote will be ordered.
Those in favor of the Schiff 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. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
[No response.]
The Clerk. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Schiff. Mr. Lungren said no.
The Clerk. Oh, I'm sorry. Mr. Lungren, no. Mr. Jenkins, no.
Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Inglis?
Mr. Inglis. No.
The Clerk. Mr. Inglis, no. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no. Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
[No response.]
The Clerk. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
[No response.]
The Clerk. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye. 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?
[No response.]
The Clerk. Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. 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. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Smith?
Mr. Smith of Washington. Aye.
The Clerk. Mr. Smith, aye. Mr. Van Hollen?
Mr. Van Hollen. Aye.
The Clerk. Mr. Van Hollen, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their votes? The gentleman from Texas, Mr. Smith.
Mr. Smith of Texas. Mr. Chairman, I vote no.
The Clerk. Mr. Smith, no.
Chairman Sensenbrenner. Any further Members? Gentlewoman
from California, Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Chairman Sensenbrenner. The clerk will report. Oh, the
gentleman from Alabama, Mr. Bachus?
The Clerk. Mr. Chairman, Mr. Bachus is--Mr. Bachus votes
no, has voted no.
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt?
Mr. Watt. Aye. I wanted to be recorded. I wasn't recorded.
Is that all right?
Chairman Sensenbrenner. Of course.
Mr. Watt. Thank you.
The Clerk. Mr. Watt, aye.
Chairman Sensenbrenner. Anybody else who wishes to cast or
change their vote? Going once, going twice, and the clerk will
report.
The Clerk. Mr. Chairman, there are 13 ayes and 15 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
We have four votes on the floor. The Chair asks Members to
return promptly after the last vote so that we can get going.
There is a hearing that has been noticed for 2:00 p.m. in the
Subcommittee on the Constitution. That will be postponed until
after the markup is completed today, and the Committee stands
recessed.
[Recess.]
Chairman Sensenbrenner. The Committee will be in order. A
working quorum is present. Pending at the time of the recess
was a motion to report the bill, Senate 256 favorably. Are
there further amendments?
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Massachusetts.
Mr. Delahunt. Thank you, Mr. Chairman. I have an amendment
at the desk. It's numbered Delahunt 003.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to S. 256 offered by Mr. Delahunt.
Page 507, after line 6, 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 Massachusetts is
recognized for 5 minutes.
[The amendment follows:]
Mr. Delahunt. I thank the Chairman, and I think my final
comment prior to the vote was that we haven't protected
citizens today because we will be passing a bankruptcy bill
that while there is a focus on personal responsibility, there
is none on corporate responsibility. But I'm also concerned
that we're establishing, for lack or failure to address a
particularly egregious abuse that favors the affluent in this
country, for failure to do that we're creating two bankruptcy
systems, one for the more affluent and one for the rest of
America.
So I would hope that all of my colleagues would support me
in this change to eliminate what has been described
euphemistically as a millionaire's loophole by addressing the
issue of so-called asset protection trust. They are trusts that
a person creates to shield assets for his or her own benefit.
In other words, it's a financial planning to design for the
more well to do who are concerned about potential bankruptcy.
And currently there is no limit to the value of assets that can
be shielded from bankruptcy by this particular device. The
amendment is simple. It seeks to limit that value of assets up
to $125,000. Now, let me emphasize that this amendment does not
adversely affect retired Americans or take anything away from
their retirement secretary such as IRAs, et cetera.
It also protects charitable, educational and other trusts
set aside for legitimate purposes. As some experts have said,
asset protection is just another term for making one self
judgment proof. I would suggest that it is simply abuse of the
existing system, or better yet, it's nothing more than gaming
the current bankruptcy system.
This is a new development that has occurred in the last
several years. The loophole is the result of laws that were
adopted in five States exempting the so-called asset protection
trusts from the Federal Bankruptcy Code. So for those that are
interested, take note that in Alaska, Delaware, Nevada, Rhode
Island and Utah, all have laws protecting stashed assets, and
what's really amazing to me is you don't even have to live
there to take advantage of them. Now, that's a good deal if you
have a lot of money.
So if we're truly serious about abuse, bankruptcy law
should not allow individuals to decide how much they want to
keep away from creditors by setting up a self-created trust to
do exactly that. That is doing financial planning and taking
advantage of the current system to secure advantages.
This loophole is, in my judgment, evidence of how the
current system provides two bankruptcy laws, one for the well
connected and one for middle class families. Remember, more
than half of middle class Americans who declare bankruptcy do
so because of massive hospital bills or other catastrophic
health care costs that they didn't expect or could not
anticipate. Another third of all bankruptcies are the result of
job losses. Nonetheless, the bill before this Committee today
creates a special rule for millionaires. Whether the assets are
villas or yachts or sport cars, investments or just suitcases
full of cash, they're untouchable in the bankruptcy
reorganizations of the well to do, who utilize these asset
protection trusts, and neither creditors nor the courts can
reach them.
The right way to address this bill is to put forth--this
problem rather, is to put forward a bankruptcy protection bill
with one standard, one standard for everyone that treats all
Americans the same regardless of income and regardless of
circumstances. You know, what message does it send when
Congress submits middle class debtors to a means test
irrespective of State law, while permitting the wealthy to
continue to place huge sums out of reach of creditors. I don't
believe we want to do that. And we can address it here today.
And I would hope that my colleagues on the other side of
the aisle would listen, would reflect. I dare say if this
particular amendment was passed and it was returned to the
Senate, you would have your bill, and at the same time we would
eliminate this mechanism for abuse from the system as it now is
constituted and we could hold our heads high. I see my time has
expired.
Chairman Sensenbrenner. That it is.
The gentleman from Utah.
Mr. Cannon. Thank you, Mr. Chairman. In fact, I appreciate
your clarifying the State from which I come.
[Laughter.]
Mr. Cannon. This is an issue that has been debated in the
Senate and soundly defeated. And let me just talk a little bit
about background here. The Bankruptcy Code, section 541,
generally defines what assets constitute property of the
bankruptcy estate that can be made available to pay the claims
of creditors. It also specifies what assets do not constitute
property of the bankruptcy estate. For example, section
541(c)(2) provides that a trust is not property of the estate
if the debtor's access to the trust is restricted. Thus, for
example, a spendthrift trust, which is defined as a trust by
the terms of the trust or by statute, a valid restraint on the
voluntary and involuntary transfer of the interest that the
beneficiary's imposed--pardon me for all the ``legalese'' but
it gets to the point of where we're going I think--is
established by the debtor before filing for bankruptcy relief,
it would not constitute the property of the bankruptcy estate.
Under the Restatement of Trusts, a self-settled trust is a
trust created by a person for his or her own benefit with a
provision restraining the voluntary or involuntary transfer of
person's interest, so the Restatement provides that such trust
can be pierced by the person's creditors. Nevertheless, five
States, Alaska, Delaware, Nevada, Rhode Island and Utah, have
enacted laws that permit their citizens to establish self-
settled trusts where they can place their assets outside the
reach of their creditors including their homes as permitted
under Delaware law. The State laws provide that property placed
in such trust cannot be reached by creditors with exceptions
that vary by State. Some except child, spousal support
claimants and persons who suffered injury or death as a result
of the settler's actions, for example.
It also appears that fraudulent transfers made by the
settler to an asset protection trust may be avoided under
applicable State laws as well as pursuant to Bankruptcy Code
section 548. Alaska appears to allow such transfers to be set
aside upon the showing of actual fraud. Delaware, on the other
hand, appears to allow such transfers to be set aside based on
either actual or constructive fraud, including a transfer of
property for less than reasonably equivalent value which is
similar to Bankruptcy Code section 548.
The bill as amended closes the self-settled trust loophole.
An amendment by Senator Talent authorizing the bankruptcy
trustee to avoid any transfer of property by a debtor to a
self-settled trust made within 10 years preceding the filing--
which is the same period that the amendment suggests, by the
way--preceding the filing of the debtor's bankruptcy case if
the debtor is a beneficiary of such trust, and the debtor made
such transfer with actual intent to hinder, delay or defraud a
creditor.
So what is an asset protection trust or self-settled trust?
Neither the Internal Revenue Code nor the entire United States
Code contain any reference to either of these terms. This is a
matter of State law. To the extent that a--or an asset
protection trust is a creature of State law, then this issue
inherently involves States rights. The States should be able to
determine for themselves what property their citizens can
protect from the claims of creditors. This is not only implicit
in the homestead exemption, but with regard to the status of
all types of items of property including household goods and
furnishings, livestock, family Bibles and church pews is
determined under State law to be exempt property.
For example, according to CRS, Delaware only gives its
citizens $5,000 homestead exemption, while Utahans only have a
$10,000 homestead exemption. Why should these States be
allowed--why shouldn't these States be allowed to have their
citizens provide for their retirement nest egg by placing their
assets in a trust fund, when in other States like Texas you
have a huge homestead exemption?
States that have authorized asset protection trusts appear
to be extremely supportive of them. Alaska's legislature
announced that it had hoped to become the financial service
center for the world as s result of authorizing such trusts. So
why do we have such outrage? Senator Kennedy successfully had a
provision included in the pending bankruptcy legislation,
section 224, that protects up to $1 million in IRAs and other
similar pension plans. An asset protection trust may be the
only way for some individuals who live in a State with a
nominal homestead exemption and no IRA exemption to protect
assets from creditors. The issue should be studied and
determined. We need to work on this. The fact is if we're going
to move a bill out today, this is an issue that has been dealt
with, has been debated, has been argued. It's been considered.
The bill has been amended to include the basic provisions here,
and I urge my colleagues to vote no on the amendment.
Thank you, Mr. Chairman. I yield back.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina.
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman's recognized for 5
minutes.
Mr. Watt. Mr. Chairman and Members, all of what Mr. Cannon
said would probably be a lot more rational if the underlying
bill didn't set a national standard for homesteads too, and so
we set a national standard for homestead exemptions at
$125,000, yet what he's saying is that people ought to be able
to be allowed to pour all of their non-homestead assets into
these trusts and have them exempt because it's a matter of
State law.
That is just absolutely inconsistent. I mean if you're
going to have a national standard on homestead exemptions, it
seems to me rational that you would have a national standard on
non-homestead assets, and I think that's the only thing that
Mr. Delahunt's trying to get at here. It is interesting that
when some of us were trying to protect States' rights in many,
many, many other contexts, it didn't mean a hill of beans to
the people on this Committee. Yet when it's convenient to hide
behind States' rights, all of a sudden we're out here talking
about States' rights again, and you know, I thought we had this
debate on the homestead. We resolved this debate on the
homestead. So why would we have a different standard for non-
homestead assets than we have for homestead assets?
I for the life of me can't understand that. So I would just
encourage my colleagues to at least try to be consistent about
this stuff, and encourage them to support this amendment. And I
yield back.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from Massachusetts, Mr. Delahunt.
Those in favor will say aye.
Opposed, no.
The noes appear to have it. The noes have it. The
amendment's not agreed to.
Are there further amendments?
Ms. Jackson Lee. Mr. Chairman?
Chairman Sensenbrenner. A recorded vote is ordered. Those
in favor of the Delahunt amendment will, as your name are
called, answer aye. Those opposed, no, and the clerk will call
the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
[No response.]
The Clerk. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
[No response.]
The Clerk. Mr. Inglis?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
[No response.]
The Clerk. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
[No response.]
The Clerk. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
[No response.]
The Clerk. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye. Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no. Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye. 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?
[No response.]
The Clerk. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye. Mr. Wexler?
[No response.]
The Clerk. Mr. Weiner?
Mr. Weiner. Yes.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
[No response.]
The Clerk. Mr. Smith?
[No response.]
The Clerk. Mr. Van Hollen?
[No response.]
The Clerk. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Members in the chamber who wish to
cast or change their votes? Gentleman from Florida, Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Chairman Sensenbrenner. Gentleman from Tennessee, Mr.
Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no.
Chairman Sensenbrenner. Gentleman from Florida, Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no.
Chairman Sensenbrenner. Gentleman from North Carolina, Mr.
Watt?
Mr. Watt. I reported. I shouted out from the back and I
wasn't clear whether she got it.
The Clerk. Mr. Chairman, I did not have Mr. Watt.
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Chairman Sensenbrenner. Further Members in the chamber who
wish to cast or change their votes? If not, the clerk will
report.
The Clerk. Mr. Chairman, there are 10 ayes and 15 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Berman. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from California, Mr.
Berman.
Mr. Berman. Mr. Chairman, I have an amendment, Berman-
Meehan amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to S. 256 offered by Mr. Berman and
Mr. Meehan. Page 194, after line 2, insert the following (and
make such technical and conforming changes as may be
appropriate): section 322----
Mr. Berman. Mr. Chairman, I ask unanimous consent----
Chairman Sensenbrenner. The clerk will continue to read
until some of the Members get the amendment.
The Clerk. Exemption for medically distressed debtors.
Section 522 of title XI, United States Code as amended by
sections 224, 308 and 322, is amended by adding at the end the
following: R(1), for a debtor who is a medically distressed
debtor, if the debtor elects to exempt property----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read and the gentleman from California will be
recognized for 5 minutes.
[The amendment follows:]
Mr. Berman. Thank you, Mr. Chairman.
Basically this is about creating a uniform Federal floor
for homestead exemptions of $150,000 or less, $150,000
basically for medically distressed debtors. The statistics
clearly point out that there have been large increases in
medical debt and bankruptcy cases, caused by medical debts,
coupled with significant increases in real estate prices, and
that has led to a new and rapidly-growing problem ignored by
this bill.
This amendment would create a uniform Federal floor for
homestead exemptions of $150,000, applicable only to debtors
who have had very substantial medical debts or a very
substantial loss of income due to medical problems, losses of
over 50 percent of household income. This amendment would
simply permit those homeowners who have suffered serious
medical problems under the standards of this bill, with losses
again over 50 percent of household income to file for
bankruptcy without having to give us homes where they have
$150,000 or less of equity.
The notion of forcing people out of their homes after
illnesses or accidents is made more outrageous by the fact that
this bill does nothing to deal with the handful of States where
debtors of all kinds, famous sports figures, physicians who
drop their medical malpractice insurance, real estate tycoons,
can save millions of dollars in homestead. Americans,
particularly those who face serious medical problems, are
entitled to a more evenhanded justice. Families who face
insurmountable debt problems following serious medical problems
are confronted with the fact that they can obtain relief from
their debts and bankruptcy only if they give up their homes. In
nearly half of all States homestead exemptions are under
$25,000. There are no escapes for families with high debts and
home equity that exceeds that for instance very low homestead
exemption. In a Chapter 7 bankruptcy case a family with equity
greater than the State exemption limits, which in some States
are under $10,000, must give up its home. In Chapter 13 the
family must pay the creditors the amount equal to the greater
equity which it can usually not afford. A family should not
have to lose its home to obtain relief from debts caused by
serious medical problems.
The amount of equity a homeowner can protect in bankruptcy
has not kept up with the rise in home prices. While the value
of even modest homes climbs in some areas, the protection of
the law does not, leaving even people of modest means with a
choice between a home or discharging medical debts. This falls
particularly hard on elderly and disabled homeowners who often
live solely on Social Security benefits. With incomes of 800 or
$1,000 per month they could live in their current homes which
may be paid off or have low monthly costs, but if they are
forced out of these homes, they cannot afford to rent a decent
place to live, and in fact, these homeowners would have no
bankruptcy relief available to them.
The purpose of this amendment is to rectify it.
Mr. Conyers. Would the gentleman yield?
Mr. Berman. I'd be happy to yield.
Mr. Conyers. I want to commend the gentleman for this
amendment because it specifically covers the problem of people
with severe health care, and the recent study in bankruptcy
revealed that one half of the people forced into bankruptcy is
because of medical bills or immediate hospital costs, and I
wanted the gentleman to know that the gentlelady from
California, Zoe Lofgren, is entirely supportive of this
amendment and will submit her own statement in support of it.
She's unduly delayed and in----
Chairman Sensenbrenner. Without objection, the statement of
Ms. Lofgren will appear in the record at this time.
[The prepared statement of Ms. Lofgren follows:]
Prepared Statement of the Honorable Zoe Lofgren, a Representative in
Congress from the State of California
Many of us have loved ones who have battled a grave illness or
serious injury. If you've ever had the misfortune of being in that
situation, you know that it is an incredibly stressful experience, both
on the mind and the pocketbook. But incredibly, this bill chooses to
treat those families the same as spendthrifts.
A recent study conducted by professors at Harvard Medical and Law
Schools demonstrated that about half of all personal bankruptcies today
can be traced to severe medical illnesses or injuries. Among those,
average unreimbursed medical costs totaled nearly $12,000.
Nevertheless, the study found that these families did everything they
could to pay their medical bills and avoid bankruptcy. One in five
skipped meals. One-third had their electricity cut off. Almost half
lost their phone service.
Incredibly, these families also cut back on needed medications. In
fact, half went without needed prescriptions, and a full 60% went
without a needed doctor appointment.
I cannot understand why the proponents of this bill want to treat
these families the same as irresponsible spendthrifts. They are hard-
working, middle class Americans who have had the misfortune of facing
illness without adequate medical insurance. Yet this bill treats them
the same as those who went on a spending spree. I think we should
distinguish between a parent who has to pay for their child's cancer
treatments and a 22-year-old who bought too many plasma screen
televisions.
I had planned to offer an amendment today that would have exempted
from the harsh means test those families facing bankruptcy due to a
serious medical hardship. Unfortunately, I was not able to do so
because of a conflicting commitment. However, I have no doubt that the
Majority would have rejected that amendment just as they rejected Rep.
Berman and Rep. Meehan's medical homestead amendment and every other
reasonable amendment offered to this bill.
I am extremely disappointed that the Committee chose to abrogate
its responsibilities and ignore families struggling to make ends meet
in the face of a medical crisis. Unfortunately, once again, the power
and influence of large corporations took precedence over average
Americans in the Republican-controlled Congress.
Mr. Conyers. Thank you, Mr. Chairman.
Mr. Berman. Mr. Chairman, I yield back.
Chairman Sensenbrenner. Gentleman from Utah. Gentleman from
Utah.
Mr. Cannon. Thank you, Mr. Chairman.
Let me just begin by saying we are, everyone on this
Committee is extraordinarily aware of the particular burden
that medical problems cause and the resulting bankruptcies. But
if I could clarify a couple of things, Mr. Berman, by asking a
couple of questions.
As I read this, this overrides State law and creates a new
Federal exemption for people that have medical emergencies that
cause bankruptcy; is that right?
Mr. Berman. And I amends the Federal Bankruptcy Bill that
will become Federal bankruptcy law, to provide a $150,000
equity exemptions so that people--for those people who have
over 50 percent of their income lost because of medical bills
or because of an injury that costs----
Mr. Cannon. Right. But that would preempt State laws in
those cases that have a different homestead?
Mr. Berman. For purposes of bankruptcy, not for purposes of
other issues, just for purposes of bankruptcy, which is a
Federal issue.
Mr. Cannon. Certainly bankruptcy is, but bankruptcy has
always recognized homestead as a State issue, and the effect of
this, if I understand it--I'm just looking it over now--but the
effect would be that a couple filing jointly for bankruptcy
would have a $300,000 exemption as I read your language.
Mr. Berman. $150,000.
Mr. Cannon. But if you had a joint filing would that not
double to 300,000?
Mr. Berman. No, no.
Mr. Cannon. Can you help me with where the language is that
makes it the single, because you talk about the debtor's
aggregate interest.
Mr. Berman. You have to get back to the base bill. Why
don't we do it the other way around? Why don't you show me why
it would?
Mr. Cannon. Okay. We'll----
Mr. Berman. You got a base bill----
Mr. Cannon. I actually don't think I have the burden. It
seems to me--and I'll let just the Members of the Committee
make the judgment--that, as I read it very quickly here----
Mr. Berman. It deals with household and the home equity.
It's not, in other words it's about----
Mr. Cannon. Reclaiming my time, we disagree and we'll just
have to have people exercise their judgment on that.
It also--you know, people sometimes get ill and then get
healthy and they overcome their problems.
Mr. Berman. Yeah, that's a real problem.
Mr. Cannon. I don't see how we--well, it is a wonderful
thing that happens I guess occasionally and maybe even often.
We agree, I might say, that home prices have gone up, but the
States have the responsibility under the homestead relationship
with the Bankruptcy Act to deal with that.
And just I'd like to submit for the record, Mr. Chairman, a
letter to the Honorable Charles E. Grassley, from the U.S.
Department of Justice, signed by Mr. Will Moschella, that
relates to the study that Mr. Conyers referred to, and if I
could just read one paragraph of that----
Chairman Sensenbrenner. Without objection. The letter will
be included in the record.
[The material referred to follows:]
Mr. Cannon. ``In general, the data describing medical-
related expenses contained in official documents filed by
chapter 7 debtors reveal that slightly more than 5 percent of
their general unsecured debt is medical-related. The conclusion
that almost 50 percent of consumer bankruptcies are `medical
related' requires a broad definition and generally is not
substantiated by the official documents filed by debtors.''
So I----
Mr. Berman. Will the gentleman yield?
Mr. Cannon. Yes.
Mr. Berman. Two points. One, although the gentleman is
wrong on the larger issue, he, it turns out, is correct. If
they are filing jointly, then each gets the $150,000 exemption,
so I wanted to clarify that.
And who wrote that report? That's a very familiar name.
Mr. Cannon. Yes. I think everybody here would know Will
Moschella----
Mr. Berman. Used to work on the majority side, right?
Mr. Cannon. He certainly, because we have a Republican
President who has--who names people to political positions, but
I think everyone here would also recognize that Mr. Moschella
is a very thoughtful and reasonable person and he's gone down
on record, so if you disagree with the conclusion you might
want to check with him.
Mr. Smith, did you want----
Mr. Smith of Texas. If the gentleman will yield just for a
minute.
Mr. Chairman, I just wanted to add a couple of other
points. One is that this amendment was offered in the Senate
last week and was defeated on a bipartisan vote of 58-39, so
that's a good example of an amendment that received bipartisan
opposition. Second of all, it does override States' rights. And
third of all, as the Chairman has pointed out repeatedly today,
this fractures the very closely crafted compromise that existed
to try to get this bill through today.
Mr. Berman. Does the gentleman promise----
Mr. Smith of Texas. And for those reasons I'd oppose the
amendment as well.
Mr. Cannon. Reclaiming my time I urge my colleagues to vote
no on the----
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. The time of the gentleman has
expired. Gentleman from Massachusetts.
Mr. Delahunt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Delahunt. I just can't allow that comment about this
overrules States' rights. I think it was my friend from Texas
that made that comment, when over the course of the past
months, years, this Committee has preempted State law in terms
of torts, securities litigation, they want to do it in terms of
medical malpractice. They want to do it in terms of whatever--
class actions. I mean with all due respect to my friend from
Texas, give me a break. I mean that argument, that dog just
simply doesn't hunt, as the Chairman of the Crime Subcommittee
would understand.
Mr. Watt. Would the gentleman yield?
Mr. Delahunt. And I'll yield to my friend from North
Carolina.
Mr. Watt. Isn't it true that this bill already sets a
national standard for bankruptcy--for homesteads? It doesn't do
that?
Mr. Berman. No. It allows----
Mr. Watt. It caps it, doesn't it?
Mr. Berman. No, it allow--well, it does in certain
situations, but basically----
Mr. Watt. It caps it I mean.
Mr. Berman. In limited situations, but it allows States
with enormous homestead exemptions that allow wealthy people to
avoid paying off their debts and still keep huge mansions in
those States like I think Texas, to continue to do so.
It's just another one of the deficiencies in a bill which I
actually am happy is being pushed through in the fashion that
it is, because it--in a perverse way it reminds me of why I'm a
Democrat.
Mr. Delahunt. The time is still mine, and----
Ms. Jackson Lee. Mr. Delahunt?
Mr. Delahunt. I could always count on the gentlelady from
Texas, my friend, Sheila Jackson Lee. I yield to her what time
I have left.
Ms. Jackson Lee. You certainly can, Mr. Delahunt. Thank you
and you were amazed at the comment regarding States' rights.
I'm amazed at the comments that seem to suggest a particularly
orchestrated process that we can't do anything to improve the
legislation because there's some sort of external commitment to
riding the backs of the Senate. And I've always had the
understanding that these are two distinct bodies with two
distinct lines of reasoning. And if this is all that we're
doing in the Judiciary Committee, then shame on us again.
I think the gentleman's amendment is a very thoughtful
amendment, and the reason is it is well documented that the
middle class are most burdened in the instances of bankruptcies
by catastrophic illnesses. It is clear.
Now, we can either concede today and ignore this amendment,
and say that what we want to do is to put every family out in
the streets, and continue then the pathway of destruction, or
we can be reasoned and establish ourselves as an independent
thinking body and support Mr. Berman's amendment. I think Mr.
Meehan--I'm not sure--is that on that amendment.
Mr. Meehan. Yes.
Ms. Jackson Lee. And make a very good point about what this
bill should be standing for. It's helping people rebuild their
lives, not helping people destroy their lives.
With that, I yield to the distinguished gentleman his time
if he desires to have it. Mr. Delahunt, I yield back to you if
you desire to have it.
Chairman Sensenbrenner. The question is on the amendment.
Mr. Meehan. Mr. Chairman, I move to strike the last word.
Chairman Sensenbrenner. Who is moving?
Mr. Meehan. It's me.
Chairman Sensenbrenner. Oh, the other gentleman from
Massachusetts is recognized for 5 minutes.
Mr. Meehan. I am also a cosponsor of this amendment, and I
was out at another hearing when the amendment was brought up. I
want to correct something that Mr. Smith said, and this is not
the same amendment that was debated in the Senate. In the
Senate it was a quarter, the standard was a quarter of the
income on medical bills. This is one-half a person's income
towards medical bills.
We're saying that medical costs are not spending sprees,
not personal irresponsibility, but the single largest causes of
bankruptcy. About half of the filers cite medical costs as a
major factor of their bankruptcy. The average unreimbursed
medical costs were $12,000. 45 million people in America go
without health insurance every day. They are one accident or
one illness away from financial ruin. But as this study found
done by Harvard University, most people whose health care costs
drove them to bankruptcy were uninsured but still had thousands
of dollars in medical bills.
I believe that the Congress's failure to expand health care
coverage in America and bring down health care costs are one of
the reasons why medical bankruptcies have increased 2,200
percent since 1980. This amendment inserts a teeny bit of
compassion and common sense to this bill. For debtors who are
medically distressed, it provides a modest homestead exemption.
Under this bill wealthy people can move to States with
unlimited homestead exemptions, declare bankruptcy and shield
their assets, even if they have mansions. But a family who has
someone who falls ill can't afford the hospital bills, would
lose their modest home, and that's entirely unfair. This
amendment is narrowly tailored to apply only to--with majority
medical expense.
To be defined here as medically distressed, you either have
to be out of work for more than a month due to an illness in
your family, or have medical bills that are more than 50
percent of your household income, which is different than the
Senate bill. The amendment gives a reasonable household
exemption of $150,000 for medically distressed debtors.
Nearly half of all States, the homestead exemption is less
than 25,000, and several States don't have any homestead
exemption. So this bill sets the floor at 150,000 in home
equity, and despite what proponents of this bill would like to
suggest, most people who file for bankruptcy because of medical
expenses are not irresponsible. They're families who have had
complications with the birth of a child. They're working men
and women caring for a sick spouse or an elderly parent, or
they're seniors who are living on a fixed Social Security
check.
So I support this amendment, would urge my colleagues to
support the amendment. And I yield back the balance of my time,
Mr. Chairman.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from California, Mr. Berman. Those in
favor will say aye.
Opposed, no.
The noes appear to have it. rollcall is ordered. All those
in favor of the Berman 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. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
[No response.]
The Clerk. Mr. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Inglis?
Mr. Inglis. No.
The Clerk. Mr. Inglis, no. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. 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. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
[No response.]
The Clerk. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye.
[Pause.]
The Clerk. Oh. Mr. Boucher, no. 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?
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?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye. Mr. Wexler?
Mr. Wexler. Aye.
The Clerk. Mr. Wexler, aye. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
[No response.]
The Clerk. Mr. Smith?
[No response.]
The Clerk. Mr. Van Hollen?
Mr. Van Hollen. Aye.
The Clerk. Mr. Van Hollen, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Members in the chamber who wish to
cast or change their vote? Gentleman from Wisconsin, Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. Further Members in the chamber who
wish to cast or change their vote? If not, the clerk will
report.
The Clerk. Mr. Chairman, there are 13 ayes and 18 noes.
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.
We'll try again on the redrafted amendment No. 1 that hopefully
will satisfy Mr.----
Chairman Sensenbrenner. The clerk will report.
Mr. Nadler.--Cannon.
Chairman Sensenbrenner. Second attempt.
The Clerk. Amendment to S. 256 offered by Mr. Nadler. Page
210, after line 13, insert the following (and make such
technical and conforming----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read and the gentleman from New York will be
recognized for 5 minutes.
[The amendment follows:]
Mr. Nadler. Thank you. Mr. Chairman, I'll be brief. I
started describing this amendment earlier before the point of
order.
This amendment would make debts arising from civil rights
violations nondischargeable. It includes in the amendment the
civil rights violations listed in the Federal Criminal Code,
any civil judgment arising under civil rights violation
including a 1983 violation action that is an action for
violation of civil rights under color of law, or an intentional
violation of a valid court order enforcing civil rights law
described in the amendment.
It also includes offenses under State law that consists of
conduct that would be a civil rights crime described in the
Federal Criminal Code.
Finally, it repairs an omission in the current code that
makes fines and restitution ordered under the Federal Criminal
Code nondischargeable, but not under State law. My amendment
would clarify that that includes fines and restitution ordered
under State law.
So if you violate the right to vote, the right to work, the
rights of a person wearing the uniform of the United States
military, the right to the free exercise of religion, freedom
of--access to clinic entrances or any other federally protected
rights, you will not be able to abuse the Bankruptcy Code
either to escape your debts or to force your victims to chase
you across the country through bankruptcy courts trying to
collect lawful judgments.
We know that that is now a common strategy, and even where
it fails, the uncertainty in the law gives tort fees as the
opportunity to inflict more damage and more expense on the
victims through abuse of the Bankruptcy Code.
Mr. Chairman, this bill, the underlying bill greatly
expands the kinds of debts that are deemed nondischargeable. It
makes nondischargeable even small cash advances on credit cards
prior to the filing of a case. It may not be enough money to
keep your kids in Huggies, but it's enough to be
nondischargeable. We're protecting the helpless credit card
companies. If you use your credit card to pay your taxes
online, something the IRS has been urging us to do for years,
that would become a nondischargeable debt. We seem to have
found ways to make all sorts of debts nondischargeable in this
bill.
I would hope that with this amendment we could go on record
and make the law crystal clear that if all these other things
can become nondischargeable, then debts incurred as a result of
the deliberate violations of Federal or State law to violate
people's civil rights should also be nondischargeable so that
you cannot violate people's civil rights and use the bankruptcy
courts to evade your responsibilities under the law.
Thank you, Mr. Chairman.
Mr. Chabot. Mr. Chairman?
Chairman Sensenbrenner. Gentleman from Ohio, Mr. Chabot.
Mr. Chabot. I move to strike the last word.
Chairman Sensenbrenner. The gentleman's recognized for 5
minutes.
Mr. Chabot. Thank you, Mr. Chairman. I won't use the 5
minutes. My colleague indicated that he wouldn't be real
extensive in his arguments, so I won't be either. I'll keep
mine brief.
I would rise in opposition to this amendment. This really,
this amendment is just a revised version of the Schumer
amendment, which has been responsible for scuttling the
bankruptcy--passage of the entire bankruptcy bill for some time
now. And it was defeated, this amendment was defeated in the
Senate last week by a vote of 46 yeas and 53 noes.
The Bankruptcy Code already prevents the discharge of most
types of debts resulting from violent or destructive
activities. Current law already clearly applies to willful and
malicious acts of violence committed by, for example, pro-life
activists at an abortion clinic, that would result in injury
either to a person or to property. In fact, there is no
reported case specifying otherwise. CRS, for example, has
stated that the specific intent requirement necessary to
establish a violation of face would arise from behavior
comparable to an intentional tort, and thus would be
nondischargeable under 11 USC 532(a)(6). That provides that a
debt for willful and malicious injury by a debtor to another
entity or to the property of another entity is
nondischargeable.
So in other words, willful or wanton acts, malicious acts,
would already be nondischargeable under the Bankruptcy Code, so
this amendment is unnecessary and really adds nothing. And as I
indicated originally, this was the very amendment which
scuttled the passage of this very important legislation before,
so I would urge my colleagues to vote no.
Mr. Berman. Mr. Chairman?
Chairman Sensenbrenner. Gentleman yield back?
Mr. Berman. Mr. Chairman?
Chairman Sensenbrenner. Gentleman from Ohio yield back?
Gentleman from Ohio, do you yield back?
Mr. Chabot. I yield back, yes.
Mr. Berman. Mr. Chairman?
Chairman Sensenbrenner. Gentleman from California.
Mr. Berman. Move to strike the last word.
Chairman Sensenbrenner. The gentleman's recognized for 5
minutes.
Mr. Berman. Yield to the gentleman from New York.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Chairman, the remarks that we just heard from the
distinguished Chairman of the Constitution Subcommittee really
don't bear on this amendment. It is true the current code makes
nondischargeable malicious and violent torts, but we're not
talking necessarily about malicious and violent torts. We're
talking about deliberate violations of civil rights of all
kinds. And, yes, this would include within it some of what the
Schumer amendment in the Senate--which I would remind the
distinguished Chairman originated in this Committee a number of
years ago as the Nadler amendment before they took it up in the
Senate--would cover.
But this considerably broader and it is saying that if you
deliberately the civil rights of someone else and there is a--
and violates the law, the Federal or State law, and there's a
judgment against you, you cannot abuse the bankruptcy courts to
get rid of that judgment.
Now, the argument that this scuttles the bill, that's not
an argument to the policy. The bill ought to say if credit
cards debt incurred to pay your taxes on line is
nondischargeable, then certainly you shouldn't be able to get
rid of a court judgment against you for a deliberate offense
against someone else's civil rights by use of the Bankruptcy
Code.
The principle is sound, and we are to improve the bill,
which is a bad enough bill, but make it a little better, by
adopting this amendment.
I yield back. I thank the gentleman and I yield back to
him.
Chairman Sensenbrenner. The gentleman from California yield
back? The time belongs to the gentleman from California.
The question is on the Berman--excuse me--the Nadler
amendment. Now, this is the Nadler amendment, it's not the
Schumer amendment. Those in favor will say aye.
Opposed, no?
The noes appear to have it. The noes--okay, a rollcall will
be ordered. Those in favor of the Nadler 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. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no. Mr. Smith?
Mr. Smith of Texas. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Inglis?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
[No response.]
The Clerk. Mr. Issa?
[No response.]
The Clerk. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
[No response.]
The Clerk. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye. Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no. 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?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. 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?
Mr. Wexler. Aye.
The Clerk. Mr. Wexler, aye. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
[No response.]
The Clerk. Mr. Smith?
[No response.]
The Clerk. Mr. Van Hollen?
[No response.]
The Clerk. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Members who wish to cast or change
their vote? The gentleman from Wisconsin, Mr. Green.
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. Gentleman from Arizona, Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no.
Chairman Sensenbrenner. Gentlewoman from California, Ms.
Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their votes? If not, the clerk will report. Gentleman
from Virginia, Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? The clerk will try again to report.
The Clerk. Mr. Chairman, there are 11 ayes and 17 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Scott?
Mr. Scott. Thank you, Mr. Chairman. I have an amendment at
the desk, No. 004.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to S. 256 offered by Mr. Scott of
Virginia. Page 13, after line 23, insert the following (and
make such technical and conforming changes as may be
appropriate): E, subparagraphs (a) through (c) shall not
apply----
Chairman Sensenbrenner. Without objection the amendment is
considered as read, the gentleman from Virginia will be
recognized for 5 minutes.
[The amendment follows:]
Mr. Scott. Thank you, Mr. Chairman. Mr. Chairman, the rest
of the reading would have said that the court may not dismiss
or convert a case based on any form of means testing if the
substantial portion of the indebtedness was incurred as a
result of illness of the debtor, a dependent of the debtor or
the debtor's spouse if not the dependent of the debtor.
Mr. Chairman, we're talking about bankruptcy abuse.
Bankruptcy filings have increased lately in recent years, and
some of the people who file for bankruptcy haven't been
financially responsible, but the more likely explanation is
that the consumer bankruptcy results were something beyond
their control such as a divorce, major illness or job loss.
The truth is that many people are just one paycheck away or
a job loss away or an uncovered medical catastrophe away from
bankruptcy. We know at the present time there are about 1.5
million people who go into bankruptcy every year. Half of those
people who go into bankruptcy go into bankruptcy because of
medical bills. About three-fourths of those who go into
bankruptcy because of medical bills even have insurance. But
nonetheless the explosion of health care costs have added such
a burden to these families that they've ended up in bankruptcy.
Mr. Chairman, if the purpose of the legislation is to deal
with spendthrifts who are abusers of credit, we ought to
distinguish them from the hard working Americans, basically
middle class working families who have health insurance, or
those on the right of the margin who wish they had health
insurance, and those who are irresponsible in acquiring debt.
Mr. Chairman, if we don't adopt this amendment we'll be
sending the message that if you get sick, you're abusing the
system. Mr. Chairman, we need to make sure that individuals who
are afforded the protection of Chapter 7 bankruptcy, if a
substantial portion of their bills were incurred as a result of
illness, and I would hope we would adopt the amendment.
Chairman Sensenbrenner. Gentlemen from Utah.
Mr. Cannon. Thank you, Mr. Chairman. If I might ask, Mr.
Scott, on line 3 it says ``on any form of means testing if, the
a substantial portion,'' but I take it the comma and the
``the'' should be stricken? I don't know that it makes sense
otherwise.
Mr. Scott. Yes, Mr. Chairman. I think the after--``if'' the
comma should not be there.
Mr. Cannon. And the ``the'' should not be there either?
Mr. Scott. If the--right.
Mr. Cannon. So it means testing----
Chairman Sensenbrenner. Without objection the amendment is
modified.
Mr. Scott. To delete the comma and the ``the'' on line 3.
Chairman Sensenbrenner. Gentleman from Utah.
Mr. Cannon. Thank you, Mr. Chairman.
Again we're dealing with issues that are similar to what we
just dealt with prior to the last amendment, and I'm not going
to belabor it except to encourage my--Members of the Committee
to vote against this amendment. It prevents the--which prevents
the case filed by a debtor from being dismissed under the means
test. The special circumstances provision in section 102(a)
addresses the concerns that are raised by this amendment I
believe, and the amendment does not address circumstances where
the debtor is currently healthy, and what happens if the
debtor's a millionaire? That we're not dealing with--that's
been raised significantly here.
This is on page 12 of the bill. The paragraph beginning
with line 5 deals with those special medical--those
circumstances such as a serious medical condition which I think
deals with this issue appropriately.
Mr. Scott. Would the gentleman make that citation again,
please?
Mr. Cannon. Yeah. On page 12 of the printed bill, it's a--
line 5, capital B(i) or 1, and it's really line 7 that says
``such as a serious medical condition'' is one of those special
circumstances. So I think that we've actually dealt with this
issue in this bill. So I would encourage the Members of the
Committee to vote against this amendment, and yield back the
balance of my time.
Chairman Sensenbrenner. The question is on the adoption of
the amendment offered by the gentleman from Virginia, Mr.
Scott. 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. Are there further amendments?
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Scott.
Mr. Scott. I have an amendment at the desk, 003.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Scott. And, Mr. Chairman, under the--in light of the
actions of the majority I'd want to take up 005 at the same
time and take them en bloc.
Chairman Sensenbrenner. The clerk will report amendments
003 and 005, and while the clerk is doing that, the staff will
distribute both amendments. The clerk will read.
The Clerk. Amendment to S. 256 offered by Mr. Scott of
Virginia. Page 13, after line 23, insert the following (and
make such technical and conforming changes as may be
appropriate:) E, subparagraphs (a) through (c) shall not apply
and the court may not dismiss or----
Chairman Sensenbrenner. Without objection the amendments
will be considered en bloc and without objection the amendments
will be considered as read, and the gentleman from Virginia is
recognized for 5 minutes.
[The en bloc amendments follow:]
Mr. Scott. Thank you, Mr. Chairman. 003 allows a spouse to
file for bankruptcy if their--a person to file for bankruptcy
if their spouse--if a substantial of the bills are due to
business losses incurred by a spouse who has died or deserted.
For example, if a wife co-signs some business loans on behalf
of her husband, and the husband--the business fails because the
husband died or disappears and deserts the wife, the wife is
left holding the bag and bills she can never pay.
The bill would deny bankruptcy relief for the spouse if the
person is making more than the median amount, say, $50,000. If
they co-signed $500,000 worth of bills that spouse would be
left holding the bag and unable to declare bankruptcy. If they
can pay a couple hundred dollars a month, $10,000 over 5 years,
they would not be able to file bankruptcy. That essentially
means that everything over food and rent would be garnisheed
from the person because they had the bad judgment to co-sign
their spouse's business loans. It may be bad judgment but it's
certainly not abusive.
The other amendment, Mr. Chairman, is if your bills are
due, if you've gotten into financial difficulty because you
lost your job through no fault of your own, you shouldn't be
denied the opportunity to file for bankruptcy. After Enron and
WorldCom we found that a lot of people lose their jobs through
no fault of their own because their companies went bankrupt.
Traditionally in the midst of--or if it's a downward economy,
traditionally we deal with widespread job loss by protecting
the employees by doing such things as extending unemployment
benefits. Now we're punishing the employee by protecting the
creditors and bills they can't pay. American families would be
well served if Congress addressed the widespread economic
insecurity that households face rather than close this door to
an option of last resort.
Mr. Chairman, this job loss amendment would apply if the
indebtedness was a result of unforeseen loss of employment
through no fault of the debtor. So, Mr. Chairman, we should not
deny bankruptcy relief if you lose your job through no fault of
your own, or because you had the bad judgment to co-sign your
spouse's business loan and you got deserted, or the spouse died
and the business went under.
I would hope the we would adopt these two amendments.
Chairman Sensenbrenner. The gentleman yield back?
Mr. Scott. I yield back. Thank you.
Chairman Sensenbrenner. The gentleman from Utah, Mr.
Cannon.
Mr. Cannon. Thank you, Mr. Chairman. I'm working hard on
understanding this. As the other side knows, I'm a slow reader
and relatively dim-witted, and I'll acknowledge that but still
try and help get an understanding of where we're going and why
I don't think these amendments are necessary.
As I understand this, this would create an exemption to the
needs based test as a grounds for dismissal so people would not
be dismissed if this happened. I have a couple of problems with
them in particular. In first place they are vague, so that what
if the debtor is Mr. or Mrs. Trump or a widowed Mr. or Mrs.
Trump? Why are we dealing with business losses in the first----
Mr. Scott. Will the gentleman yield on that point, on that
point?
Mr. Cannon. Certainly.
Mr. Scott. If it's Mrs. Trump and she's co-signed the bills
and he deserts here and she's left with billions of dollars or
indebtedness, she would be unable to file for bankruptcy
because she can pay $2,000 a year for the next 5 years.
Mr. Cannon. I think this amendment, as I understand it, Mr.
Scott, is dealing with the same section and deals with a
similar situation as the last amendment, and I believe that
that would be taken care of by the special needs section that
we just quoted a few moments ago, so that we already have the
situation where the debtor can be discharged of the
indebtedness under these circumstances as I read them.
Mr. Scott. So a spouse deserting you as part of a special
circumstance is defined?
Mr. Cannon. If you're looking at that section B(i), and as
you go down to line 9, to the extent that such special
circumstances that justify additional expenses or adjustments
of current monthly income for which there is no reasonable
alternative. So if a spouse dies, if there's a huge business
debt, I believe that would be covered by the language that is
currently in the bill, and specifically the job loss. So you
have adjustments of current monthly income which is job loss,
as I read----
Mr. Scott. Would the gentleman yield?
Mr. Cannon. Certainly.
Mr. Scott. Is it your statement that the legislative intent
of the bill is to cover people in this--as a special
circumstance who lose their job through no fault of their own?
Mr. Cannon. Well, I think yes. I'm comfortable with that
given the language of the section on line 10 that justifies. So
you have to prove it, but I think that's a relatively
straightforward process and deals with the issues that you've--
that you're suggesting here, and so I would ask my colleagues
on the Committee to reject these amendments, and yield back the
balance of my time.
Chairman Sensenbrenner. The question is on the amendments
en bloc offered by the gentleman from Virginia, Mr. Scott.
Those in favor will say aye.
Opposed, no.
The noes appear to have it, the noes have it. The
amendment's not agreed to.
Are there further amendments?
Mr. Meehan. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Massachusetts,
Mr. Meehan.
Mr. Meehan. Mr. Chairman, I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Meehan. Designated 001, Conyers 001.
The Clerk. Amendment to S. 256 offered by Mr. Meehan. Page
13, strike lines 14 through 23, and insert the following (and
make such technical and conforming changes as may be
appropriate:) D, subparagraphs (a) through (c) shall not----
Chairman Sensenbrenner. Without objection the amendment
will be considered as read, and the gentleman from
Massachusetts is recognized for 5 minutes.
[The amendment follows:]
Mr. Meehan. Thank you, Mr. Chairman. This amendment is
intended to protect injured or disabled veterans from the harsh
and humiliating procedures established for debtors under the
newly established means test.
This bankruptcy bill is based on the presumption that
people who go into bankruptcy are just trying to abuse the
system, and that's why it sets up an artificial means test to
prevent people from trying to get a fresh start under Chapter
7. I believe that members of the military who swear to defend
this country and risk their lives overseas, the presumption
should be that they are responsible people. And so this
amendment aims to exempt, all veterans returning home disabled,
from the artificial means test.
According to the GAO in recent years about 16,000 active
duty service members have filed for bankruptcy annually. But
with our military extended from Iraq to Afghanistan and
reservists separated from their families and jobs for long
stretches of time, that number is sure to increase.
There were efforts in the Senate to protect all service
members from the means test and the abusive practices by
lenders, but many of them were turned back. Ultimately the
Senate agreed on a more narrowly tailored protection for only
disabled service members. The Senate amendment said that
disabled veterans filing for bankruptcy, whose indebtedness
occurred primarily while on active duty are exempt from means
test. But the Senate amendment fails to exempt disabled service
members who accumulated, amounted debt after their return home
but because of the injury or the disability sustained while on
active duty.
We all know that the members of the military who serve
oftentimes have injuries that are diagnosed when they get back
to the United States. There's been a lot of attention on PTSD,
post traumatic stress syndrome. This amendment builds on the
Senate compromise. It protects disabled veterans whose
indebtedness occurred while on active duty as well as those
whose indebtedness primarily as a result of their injuries or
disabilities. More than a million service members have served
in Iraq. More than 11,000 have been wounded. According to the
New England Journal of Medicine, 16 percent of Iraq combat
veterans are returning home with post traumatic stress disorder
or other psychological conditions.
Now, I've gone to Walter Reed Hospital and visited kids who
are missing arms and missing legs. They're struggling to
recover. They might be unable to work for months or years, and
they may have enormous personal costs associated with their
ongoing medical treatments. This means test in this bill
establish its completely arbitrary cost for expenses that have
nothing to do with the kinds of new expenses that disabled
service members might actually be facing. All this amendment
does is protect the rights that disabled service members have
when they file for bankruptcy. It gives judges the discretion
to determine whether they should be eligible for Chapter 11,
Chapter 7 or Chapter 13, and does not presume that they are
trying to game the system.
I urge my colleagues to adapt--to adopt this amendment, and
I urge them to look at the language that we're talking about,
the indebted--what the Senate language says is the indebtedness
occurred primarily during a period when he or she was in active
duty. This language simply says that the indebtedness occurred
primarily as a result of an injury or disability resulting from
active duty. Clearly, a minimum we ought to be able to do for a
man or a woman who's injured in Iraq, who comes home only to
find out they have injuries that they weren't aware of, that we
can excuse them from this means test, this arbitrary means test
set up in this bill.
Now, surely, even a rush to get this bill out no matter
what the amendments that are offered, surely we can consider
this amendment.
Mr. Conyers. Would the gentleman yield?
Mr. Meehan. I would yield to the ranking----
Mr. Conyers. I only want to underscore the importance of us
supporting those members of the armed services who are not just
protecting us but putting their lives at risk in an effort to
fight a very difficult kind of war, unlike any that we've been
forced to deal with before. And I concur completely in the
excellent way that he has put forward the logic in this
amendment.
Chairman Sensenbrenner. The time of the gentleman has
expired.
Mr. Meehan. And again, it's overwhelming evidence that----
Chairman Sensenbrenner. The gentleman from Utah, Mr.
Cannon.
Mr. Meehan.--these members get PTSD and everything else.
Chairman Sensenbrenner. The gentleman from Utah.
Mr. Cannon. Thank you, Mr. Chairman. I apologize just for a
moment here. We apparently got the wrong amendment initially
here, so I've just been looking this over. And if I might ask
Mr. Meehan just one question.
On line 12 of your amendment it says: result of an injury
or disability resulting from (1) active duty and then
performing homeland defense. Does ``resulting from'' mean that
it happened while on either active or performing, or----
Mr. Meehan. No. The question----
Mr. Cannon. Does it have to be something involved--that,
you know, if a guy is on active duty but he's out at a bar and
he gets in a fistfight and gets disabled, do you have--what do
you mean by that?
Mr. Meehan. No. The injury would be resulting from active
duty. In other words, if somebody, as we all know from veterans
coming back develop PTSD, and the question also is when the
indebtedness occurred. But, no, this is anyone whose injured
primarily as a result of, injury primarily the result of active
duty. And oftentimes when a service member comes home and it's
determined that they have PTSD, for example, then that is an
injury that occurred as a result of active duty. Yet, if the
indebtedness was not incurred while they were on active duty,
then they don't get any relief under this amendment. That's a
fundamental flaw in what the Senate adopted, and I think we
ought to correct it here.
Mr. Cannon. May I just ask, so if someone who is on active
duty is in a bar and gets in a fight, does that result from the
active duty since it's--you know, he's in the theater, but
it's, you know, a different circumstance than what we normally
think of as post--PTSD. I don't--I'm just trying to understand
where you're going with----
Mr. Meehan. Well, I can tell you that PTSD, the military
has changed their policy. We now require, when soldiers come
back, to have a full examination----
Mr. Cannon. Reclaiming my time, I'm not talking about PTSD
so much as trying to understand, do you intend to cover
everything that happens while a person is on active duty----
Mr. Meehan. Only if the injury is as a result of their
service on active duty. In other words----
Mr. Cannon. So the fight in a bar in Iraq is not going to
qualify--that is a fight with another American----
Mr. Meehan. Well, if it's in Iraq, it may well qualify, it
may well qualify. But here's--you're missing the point. What
this is about is when the indebtedness occurred, so even under
the Senate amendment if the indebtedness occurred while this
soldier was in Iraq, I believe he's covered by the Senate
language.
However, if a soldier comes back to the United States, it's
determined he has PTSD, and the indebtedness occurs after that
disability has been diagnosed, and the indebtedness starts to
build once a soldier comes back to the United States, they
wouldn't get relief under the Senate language.
Mr. Cannon. Reclaiming my time, I think I understand where
you're coming from on that. I'm unclear as to the scope, but
let me just point out that the bill already has very
substantial protections for the military in it. The bill's
needs-based test includes numerous safe harbors and exceptions
for special circumstances. As amended, the special
circumstances exception specifically mentions a debtor who is
subject to a call or order to active duty in the armed forces.
And, as amended, the needs-based test has a special exception
just for debtors who are disabled veterans if indebtedness
occurred primarily during a period when the debtor was on
active duty or performing a homeland defense activity.
As amended, the bill specifies that the absolute safe
harbor from all types of dismissal motions, under section
707(b), applies to a veteran. As amended, the bill excuses a
debtor if he or she is on active military duty in a military
combat zone from the mandatory credit counseling and financial
management training requirements.
I think we've done what we can do for our members of the
military, and so I would encourage the Members of the Committee
to vote no on this amendment.
Mr. Meehan. Would the gentleman yield?
Mr. Cannon. Certainly.
Mr. Meehan. But what I'm talking about here is people who
have been injured or have a disability as a result of service,
for example, in Iraq. If you want language, for example, to
exempt anyone who gets in a bar fight in Iraq, I would be glad
to do that, but what----
Mr. Cannon. No. I'm just trying to understand what you want
to do but----
Mr. Meehan. What I'm talking about is if a soldier who
serves in Iraq and comes home without a leg or another--without
an arm, as they have at Walter Reed Hospital, literally
thousands of them, and they have PTSD, as many of them do, and
their indebtedness starts to grow when they get back from
active duty, they ought to be covered by the same kind of
exemption here.
Mr. Cannon. Are you suggesting that--you've talked about
post traumatic stress syndrome----
Mr. Meehan. As one example.
Mr. Cannon. As an example, but is that because----
Chairman Sensenbrenner. Time of the gentleman has expired.
Mr. Cannon. Thank you, yield back.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from Massachusetts, Mr. Meehan. Those
in favor will say aye.
Opposed, no.
The noes appear to have it.
Mr. Meehan. rollcall, Mr. Chairman.
Chairman Sensenbrenner. rollcall will be ordered. The
question is on the Meehan 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. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Inglis?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. 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. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. 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?
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. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Smith?
[No response.]
The Clerk. Mr. Van Hollen?
Mr. Van Hollen. Aye.
The Clerk. Mr. Van Hollen, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Members in the chamber who wish to
cast or change their votes? Gentleman from Virginia, Mr.
Boucher?
Mr. Boucher. Votes no.
The Clerk. Mr. Boucher, no.
Chairman Sensenbrenner. Gentleman from California, Mr.
Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye.
Chairman Sensenbrenner. Gentlewoman from Texas, Ms. Jackson
Lee?
Ms. Jackson Lee. Am I recorded?
The Clerk. Mr. Chairman, Ms. Jackson Lee is not recorded.
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye.
Chairman Sensenbrenner. Further Members in the--gentleman
from Texas, Mr. Smith.
Mr. Smith of Texas. Mr. Chairman, I vote no.
The Clerk. Mr. Smith, no.
Chairman Sensenbrenner. Gentleman from South Carolina, Mr.
Inglis.
Mr. Inglis. No.
The Clerk. Mr. Inglis, no.
Chairman Sensenbrenner. Any other Members in the chamber
who wish to cast or change their votes? If not, the clerk will
report. The gentlewoman from California, Ms. Waters?
Ms. Waters. Aye.
Chairman Sensenbrenner. Is Ms. Waters recorded?
The Clerk. Mr. Chairman, Ms. Waters is recorded with aye.
Chairman Sensenbrenner. The clerk will report.
The Clerk. Mr. Chairman, there are 12 ayes and 19 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Schiff. Mr. Chairman, I have an amendment.
Chairman Sensenbrenner. The gentleman from California, Mr.
Schiff?
Mr. Schiff. Mr. Chairman, I have an amendment----
Ms. Jackson Lee. Can I have a parliamentary inquiry,
pleases? What is the order of selecting people to do
amendments?
Chairman Sensenbrenner. The order is at the discretion of
the Chair. The gentleman from California, Mr. Schiff.
Ms. Jackson Lee. That's what I notice, so let me say that I
reject the discretion of the Chair. I've had my hand up forever
and ever----
Chairman Sensenbrenner. The gentlewoman from Texas is out
of order.
Ms. Jackson Lee. You need to be fair.
Chairman Sensenbrenner. The gentleman from--the Chair has
always been fair and----
Ms. Jackson Lee. Not really.
Chairman Sensenbrenner. Well, the clerk will report the
amendment of the gentleman from California, Mr. Schiff.
Ms. Jackson Lee. I'm planning on staying here all evening
till you call on me.
Chairman Sensenbrenner. The gentlewoman from Texas will be
called on in due course. Which amendment does the----
Ms. Jackson Lee. Well, it will be 12 tonight and I'll be
right here waiting to be called on. You're rudely unfair.
Mr. Schiff. Mr. Chairman----
Ms. Jackson Lee. Had my hand up forever.
Mr. Schiff. The amendment is numbered 002.
Chairman Sensenbrenner. The clerk will report the amendment
of the gentleman from California.
Mr. Schiff. Amendment to S. 256 offered by Mr. Schiff. Page
92, after line 5, 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 California is
recognized for 5 minutes.
[The amendment follows:]
Mr. Schiff. Mr. Chairman, I will keep this very brief and
it won't consume 5 minutes.
This amendment would authorize a study by the GAO to
determine any effects the bill may have on the ability of a
parent to pay child support or the ability of a parent to
collect child support. Probably the most significant concern
about the bill for me is the collateral consequence of the
bill, where those trying to collect child support may be placed
in indirect or direct competition with credit card companies or
others who are in a much stronger position to collect on
outstanding debts than those who are entitled to child support.
This amendment is identical to the one I offered 4 years
ago that made it into the manager's amendment but was later
removed from the manager's amendment. It would merely require
that a study be conducted so that we can determine, after a
suitable period of time elapses, if there has been an adverse
impact in this area. Some have asserted that portions of the
bill will actually help those attempting to collect child
support, but I think it is still unclear what the impact will
be on those who are entitled to child support and maybe unable
to collect it. This amendment will provide for a good and
objective analysis to help us determine whether subsequent
legislation as a follow up would be prudent.
The bill only calls for a study. It does not impede the
date of enactment of the bill or implementation of the bill.
With that, Mr. Chairman, I will yield the balance of my
time.
Chairman Sensenbrenner. The gentleman from Utah, Mr.
Cannon.
Mr. Cannon. Thank you, Mr. Chairman.
Let me respond by just submitting for the record a National
Child Support Enforcement Association statement supporting the
bill. This is from, I think this is from 2002, but I think the
principles are the same.
Let me just point out that this study can be had just by a
request from Congress. We could even do a bipartisan request of
GAO, and I assure the gentleman from California that I would be
happy to sign that request with him if he'd like to do that.
We do not need to amend the study--or amend the bill to get
a study like this, and so I would encourage my colleagues to
vote against this amendment, and I yield back the balance of my
time.
[The material referred to follows:]
Mr. Conyers. Could the gentleman from Utah yield, please?
Mr. Cannon. Mr. Conyers, I'd be happy to yield to you in
just a moment, but may I suggest to the gentleman that he might
want to withdraw the amendment. And I'd be happy to sign a
letter asking for the study.
Mr. Schiff. If the gentleman will yield, I'd be happy to
yield to the--I was going to say I'm--unless my colleague
objects, I'd be happy to withdraw the amendment and join my
colleague in----
Chairman Sensenbrenner. Without objection, the amendment is
withdrawn.
Mr. Conyers. Thank you.
Chairman Sensenbrenner. Are there further amendments? The
gentleman from Michigan, Mr. Conyers.
Mr. Conyers. I wanted to just make--strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Conyers. After the distinguished gentlelady from Texas
is recognized, and after the Ranking Member of Commercial and
Administrative Law Subcommittee, Mr. Watt, makes an important
presentation on his amendment, it is my inclination to call for
the previous question. And I yield back my time.
Chairman Sensenbrenner. Does the gentleman from Michigan
yield back?
Mr. Conyers. Yes, sir. I do.
Chairman Sensenbrenner. For what purpose does the
gentlewoman from Texas seek recognition?
Ms. Jackson Lee. I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Ms. Jackson Lee. It is 001, and I have five amendments.
Chairman Sensenbrenner. Without objection, the amendments
are considered en bloc.
Ms. Jackson Lee. Mr. Chairman, I am not asking him for them
to be considered en bloc.
Chairman Sensenbrenner. The clerk will report the
amendment.
Ms. Jackson Lee. 001, please.
The Clerk. Amendment to S. 256 offer by Ms. Jackson Lee of
Texas. Page 10, line 22, strike ``$1,500'' and insert
``$3,000.''
Chairman Sensenbrenner. The gentlewoman is recognized for 5
minutes.
[The amendment follows:]
Ms. Jackson Lee. I thank the Chairman very much. I would
like to have recorded--well, let me just make a statement. I
was unavoidably detained for the Schiff amendment dealing with
identity theft. I'd like to be recorded as voting aye if I had
been present. And I was detained for the Nadler amendment. I'd
like to be recorded as having voted yes.
With that in mind, to my colleagues, I think that this
amendment is a very straightforward and simple amendment, and
would generate, I would hope, bipartisan support. My amendment
simply increases the amount of relief that is given to those
parents who have children in private and parochial schools,
raising the amount that is protected from $1,500 to $3,000.
Let me share with my colleagues what has been recently
noted as private school dollars. In looking at a list of
schools from Texas, you will find that most private schools,
that is, primary schools, are anywhere from $3,500 to $5,000.
The $1,500 would simply throw children out of school and
eliminate--or burden children who are not responsible for the
difficulties of their parents. The mean test mechanism, the
principal mechanism aimed at the bankruptcy filing rate is the
means test under section 11, which denies access to Chapter 7
bankruptcy to those debtors who are deemed able to repay their
debts. The test has been described by proponents as a flexible
test to assess an individual's ability to repay his debts and
as a remedy to irresponsible consumerism and lax bankruptcy
law.
The Jackson Lee amendment seeks to remove one aspect of its
inflexibility and outdatedness. The means test limits private
or parochial school tuition expenses up to $1,500 per year.
According to a study by the National Center for Educational
Statistics, even in 1993, $1,500 would not have covered the
average tuition for virtually any category of parochial
school--of any parochial school or private school. Today it
would not come close for any particular school. In order to
yield a few dollars for credit card issuers, this bill would
force many struggling families to take their children from
private or parochial school, often in violation of deeply held
religious beliefs, for 3 to 5 years in order to conform or
confirm a Chapter 13 plan.
My amendment, as I indicated, would simply increase this
tuition payment ceiling to $3,000 to account for inflation as
well as the current cost of parochial tuition. The average cost
to educate one elementary school student is $3,100, which is
double what it was 10 years ago.
As I look at the crisis of education in America, it would
certainly be shameful if we stood in this room to deny
individuals the opportunity to be educated.
Let me share as well some food for thought for my
colleagues in their understanding or in their deliberation on
the final resolution of this particular legislation. We realize
that if you are with a bad credit score and you do accept a
credit card, which they are given to anyone that literally
breathes in America, you are usually paying usurious rates, 29
percent, 24 percent. Those interest rates are in essence an
insurance against those who may get themselves into trouble.
That means this is the insurance that is given to the credit
card company when there are those who default. And what is
strange about this is that the credit card companies collect
this risk premium year in and year out, but when the risk
actually happens and the borrower cannot pay, the lenders want
the Federal Government to intervene to force the debtor to pay.
That is the ludicrous--the ridiculousness of this legislation.
Credit card companies go off scot free, and those who are
victimized have to pay.
I would like to--and that is by Elizabeth Warren, at least
the comment that I read. I don't want to put the other
comments--the comment that I read about the risk actually
happens is a notation by Elizabeth Warren.
I would like to put into the record what was written by
David Broder, and I'd ask unanimous consent to put his entire
article into the record.
Chairman Sensenbrenner. Without objection.
[The material referred to follows:]
Ms. Jackson Lee. One of the paragraphs reads, ``For 2 weeks
the Senate sponsors shot down virtually every attempt to
separate the sheep from the goats and carve out protections for
the average family trapped by circumstances. The dry language
of the Congressional Record recites a series of one-sided votes
rejecting amendments `to protect service members and veterans .
. . to exempt debtors whose financial problems were caused by
serious medical problems . . . to preserve existing bankruptcy
protections for individuals experiencing''----
Chairman Sensenbrenner. The gentlewoman's time has----
Ms. Jackson Lee. I don't want to follow the----
Chairman Sensenbrenner.--expired.
Ms. Jackson Lee.--Senate. I'd ask you to support my
amendment.
Chairman Sensenbrenner. The gentlewoman's time has expired.
The question is on the Jackson Lee amendment. Those in favor
will say aye?
Those opposed, no?
The noes appear to have it. The noes----
Ms. Jackson Lee. rollcall vote.
Chairman Sensenbrenner. Those in favor of the Jackson Lee
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. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no. Mr. Smith?
Mr. Smith of Texas. No.
The Clerk. Mr. Smith, no. Mr. Gallegly?
Mr. Gallegly. No.
The Clerk. Mr. Gallegly, no. Mr. Goodlatte?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Inglis?
Mr. Inglis. No.
The Clerk. Mr. Inglis, no. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no. Mr. Issa?
[No response.]
The Clerk. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
Mr. Pence. No.
The Clerk. Mr. Pence, no. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye. Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no. 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?
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. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Smith?
Mr. Smith. Aye.
The Clerk. Mr. Smith, aye. Mr. Van Hollen?
Mr. Van Hollen. Aye.
The Clerk. Mr. Van Hollen, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Members in the chamber who wish to
cast or change their vote? The gentleman from Wisconsin, Mr.
Green.
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Goodlatte.
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no.
Chairman Sensenbrenner. Further Members in the chamber who
wish to cast or change their vote? The gentleman from
California, Mr. Issa.
Mr. Issa. Aye.
The Clerk. Mr. Issa, aye.
Chairman Sensenbrenner. Further Members in the chamber who
wish to cast or change their vote? If not, the clerk will
report.
The Clerk. Mr. Chairman, there are 12 ayes and 21 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Ms. Jackson Lee. I have an amendment at the desk, Mr.
Chairman.
Chairman Sensenbrenner. The gentlewoman from Texas. The
clerk will report the amendment.
Ms. Jackson Lee. It is 003.
The Clerk. Amendment to S. 256, offered by Ms. Jackson Lee
of Texas. Page 20, line 24, insert ``assistance funds received
by the debtor as a victim of a natural disaster''----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. The gentlewoman is recognized for 5
minutes.
Ms. Jackson Lee. I thank the Chairman, and I thank the
Ranking Member.
Mr. Conyers. Would the gentlelady yield to the Ranking
Member momentarily?
Ms. Jackson Lee. I'd be happy to yield. I'd be happy to
yield to the gentleman.
Mr. Conyers. I'd ask all of my colleagues to either put all
of their amendments en bloc or strike the last word, put the
amendment and the argument in so that it will be there, because
we have two other very important pieces of legislation after we
finish this bill. If you could consider that, I'd be grateful.
Ms. Jackson Lee. Mr. Chairman, I'd be delighted, if I could
do this one, and I'll put the other en bloc and be finished.
Would that meet--how can I accommodate----
Mr. Conyers. That would delight me no end.
Ms. Jackson Lee. All right. I will do this very quickly,
and then I have three others and I will put them en bloc.
Mr. Conyers. Thank you.
Ms. Jackson Lee. I thank the gentleman very much for his
kindness.
Mr. Conyers. Thank you very much.
Ms. Jackson Lee. My friends, this is a circumstance that
will confront all of our States, whether it is a flood, a
hurricane, certainly any natural disaster that we can imagine
has confronted individual States. We know recently that--we
know recently that Florida suffered a historic three hurricanes
or more in 2004. Families that are affected by natural
disasters such as a hurricane in Florida or the mudslides in
California should not have to apply their scarce relief effort
monies to bankruptcy debt. The intent in providing Federal and
State monies to families who are victims of such natural
disasters is to relieve the burden that the disaster has
caused, not to increase their net worth.
Bankruptcy reform should address many specific issues, such
as the negligent mismanagement of money, but hurt those who are
already suffering from flooding or collapsed roof or house that
has gone out to sea is absolutely ridiculous.
I'd ask my colleagues to support this, which exempts the
benefits that you've received if you have suffered a natural
disaster. Again, I started out my concern about this
legislation in that it is class warfare. I simply ask my
colleagues to find some sense of balance to be able to balance
this legislation with those middle-class and working families
who are simply trying to make ends meet. We have already denied
veterans and those returning from Iraq. We've denied those with
catastrophic injuries. I can't imagine that there's not one of
us that has not been in a community that has suffered a natural
disaster.
I ask my colleagues to support this amendment.
Chairman Sensenbrenner. Does the gentlewoman yield back?
Ms. Jackson Lee. I yield back.
Chairman Sensenbrenner. The question is on the amendment.
Those in favor will say aye? Opposed, no? The noes appear to
have it. The noes have it. The amendment is not agreed to.
The gentlewoman from Texas.
Ms. Jackson Lee. I have three amendments at the desk, 002,
004, and 006.
Chairman Sensenbrenner. Without objection, the----
Ms. Jackson Lee. Excuse me----
Chairman Sensenbrenner.--amendments will be considered en
bloc. Hearing none, so ordered. The clerk will report the
amendments.
The Clerk. Amendments to S. 256 offered by Ms. Jackson Lee
of Texas. At an appropriate place, insert the following ``(and
make such technical and conforming changes as may be
appropriate):''
``Section. Debts incurred as a result of sex offenses
against minors.''
``Section 523(a) of title 11, United States Code, as
amended by section''----
Chairman Sensenbrenner. Without objection, the amendments
are considered as read en bloc.
[The en bloc amendments follow:]
Chairman Sensenbrenner. And the gentlewoman is recognized
for 5 minutes.
Ms. Jackson Lee. Although we may have an opportunity to
address this on the floor of the House, I think my amendments
are self-explanatory. Might I make note for the audience that I
have a great deal of respect for the Chairman of the
Subcommittee, but I think it is beneath the process of this
body when you offer an amendment and there is not even the
courtesy and the respect to have a response by the opposition.
But this is the low level of which we have reached in this
body, and I always believed that when you reach to go over the
edge, when you abuse your power, I can assure you that it's
going to come back to you. We're here debating the lives of
people, the lives of people who are simply going to be crushed
by this oppressive, destructive, and special interest
legislation. And if there are any credit card companies in the
audience, it's not personal. But for you to spend this amount
of money to generate this kind of ugly, one-sided legislative
initiative is an absolute disgrace.
Let me cite the testimony from Elizabeth Warren, who spoke
before the Committee on the Judiciary on February 10, 2005, an
outstanding scholar at Harvard University Law School: ``The
overreaching problem with this bill is that time and the
American economy has passed it by. We don't need this
legislation. It is a complete misnomer. It is nothing but a
payoff to credit card companies who have spent $4 million and
more for this legislation.''
In the 8 years since this bill was introduced, new cases
have burst on the scene. The names are burned into our
collective memories: Enron, WorldCom, Adelphia, United
Airlines, US Airways, TWA, LTV Steel, Kmart, Polaroid, Global
Crossing. While the number of consumer bankruptcy cases have
declined slightly in the past year, many of the largest
corporate bankruptcy cases in American history have occurred
since the Senate has last re-evaluated the bankruptcy laws, and
some of those cases are already legend for the corporate
scandals that accompany them.
My friends on the other side of the aisle, my amendments
are simple. Do not eliminate the debt of someone or allow
someone to stand behind bankruptcy when they have a liability
because of a sexual assault. Do not allow those who receive
dollars because they're injured in cases relating to tobacco to
have to use those dollars in getting rid of their credit debt
or their other debt. And if someone is impacted by--though we
wish they would not, by some nuclear accident, under the Price-
Anderson Act, the PAA, let us not have those dollars subjected
to the bankruptcy laws, meaning that they would have to utilize
them to pay off their debt.
In this instance, I would simply say that Elizabeth Warren
is right. She was right 8 years ago, and she is right now. We
have seen a decrease in consumer bankruptcies. We already have
an insurance plan as it relates to the credit card companies by
their charging of usurious rates. You get any credit card
invitation, and what you get in the mail is a complete, if you
will, scandalous request for you to join their family. It is in
blind need that you sign up for it, 30 percent, 29 percent.
And so we have this 512-page document that gives little
relief to anyone other than those who simply want to break the
backs of the middle class. Let me tell you, my friends, that
this company runs--excuse me, this country, this Nation runs on
the backs of the middle class. They are the working people.
They're the ones that generate the economy. And, yes, they are
the consumers. I already said that the credit card companies
create a house of cards. That's what they do. You can't buy or
sell without a credit card. This country is going to find
itself overridden by not debt but by the system that doesn't
allow you to use your simple dollars to buy and sell.
This bill makes it happen for sure, and all I would say is
that I'd ask for the thoughtfulness in this process. This is
not about whether the Chairman likes you or doesn't like you,
likes your philosophy or doesn't like your philosophy, likes
your style or doesn't like your style. This is the legislative
process, and I'm representing people who cannot speak for
themselves.
Mr. Conyers. Would the gentlelady----
Ms. Jackson Lee. And I will not be silenced on that basis.
I'd be happy to yield.
Mr. Conyers. I'd like to say that you've presented three
very important amendments that have not been considered in any
way, and I don't want anyone to confuse the fact that you have
introduced them en bloc with the fact that they are any less
important than any of the other amendments that you have put
forward today. And I thank the lady for cooperating with the
parliamentary process, and I support the amendments without
exception.
Ms. Jackson Lee. I thank you for your leadership. I ask my
colleagues to support the three amendments and speak on behalf
of the American people.
Chairman Sensenbrenner. The gentlewoman's time has expired.
The question is on agreeing to the Jackson Lee amendments en
bloc. Those in favor will say aye? Opposed, no? The noes----
Ms. Jackson Lee. rollcall.
Chairman Sensenbrenner.--appear to have it--rollcall will
be ordered. The question is on agreeing to the three Jackson
Lee amendments en bloc. 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. 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. Lungren?
Mr. Lungren. No.
The Clerk. Mr. Lungren, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Inglis?
Mr. Inglis. No.
The Clerk. Mr. Inglis, no. 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. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
Mr. Pence. No.
The Clerk. Mr. Pence, no. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mr. Franks?
Mr. Franks. No.
The Clerk. Mr. Franks, no. Mr. Gohmert?
Mr. Gohmert. No.
The Clerk. Mr. Gohmert, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye. Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no. 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?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
[No response.]
The Clerk. Ms. Sanchez?
[No response.]
The Clerk. Mr. Smith?
[No response.]
The Clerk. Mr. Van Hollen?
Mr. Van Hollen. Aye.
The Clerk. Mr. Van Hollen, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Further Members in the chamber who
wish to cast or change their vote? The gentleman from Ohio, Mr.
Chabot.
Mr. Chabot. No.
The Clerk. Mr. Chabot, no.
Chairman Sensenbrenner. The gentleman from California, Mr.
Issa.
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Chairman Sensenbrenner. Other Members in the chamber who
wish to cast or change their vote? If not, the clerk will
report.
The Clerk. Mr. Chairman, Ms. Jackson Lee--Mr. Chairman, Ms.
Jackson Lee is recorded as aye.
Chairman Sensenbrenner. The clerk will report.
The Clerk. Mr. Chairman, there are 9 ayes and 20 noes.
Chairman Sensenbrenner. And the amendments en bloc are not
agreed to.
For what purpose does the gentlewoman from California, Ms.
Waters, seek recognition?
Ms. Waters. Mr. Chairman, I have three amendments that I
will offer en bloc.
Chairman Sensenbrenner. The clerk----
Ms. Waters. They're at the desk, and if I may identify them
as stay of eviction for victims of domestic abuse, homestead
exemption for seniors, and under-age credit card amendment.
Chairman Sensenbrenner. Without objection, the----
Mr. Bachus. Mr. Chairman, as to the last amendment, I'd
like to reserve a point of order.
Chairman Sensenbrenner. A point of order is--well, without
objection, the first two amendments are considered en bloc, and
the clerk will report them.
The Clerk. Amendments to S. 256 offered by Ms. Waters. Page
159, line 13, insert the following before the semicolon:
``unless the debtor certifies under penalty of perjury that the
debtor is a victim of domestic violence and that the physical
well-being of the debtor or of a child of the debtor would be
threatened if''----
Chairman Sensenbrenner. Without objection, the two
amendments considered en bloc are considered as read. Without
objection, the third amendment will be considered en bloc, and
a point of order is reserved against the third amendment.
[The en bloc amendments follow:]
Chairman Sensenbrenner. And the gentlewoman from California
is recognized for 5 minutes.
Ms. Waters. Thank you very much. Mr. Chairman and Members,
the homestead exemption for seniors is pretty self-explanatory.
My amendment would set a mandatory $30,000 Federal minimum
homestead exemption for debtors who are 62 or older and would
allow such debtors in bankruptcy to protect some or all of the
value of their homes from credentials.
It seems to me that we're forever talking about protecting
seniors. If we cannot protect seniors and keep them in their
homes, then we have done nothing. So without going any further,
that's what that amendment is all about. I would ask for an aye
vote en bloc on that amendment also.
The second amendment is a stay of eviction for victims of
domestic abuse. My amendment would modify the Bankruptcy Code
to secure better protection for domestic abuse victims by
granting them relief from summary eviction from their housing.
This relief would only be available if a domestic violence
debtor certifies under penalty of perjury that the debtor is,
in fact, a victim of domestic abuse and that their physical
well-being or the physical well-being of the debtor's child
would be threatened if this debtor were evicted. This amendment
would provide a safe harbor for those victims who face the
threat of more violence and extreme danger if their homes were
taken.
I would ask for an aye vote for these two amendments en
bloc.
Mr. Conyers. Would the gentlelady yield to me?
Ms. Waters. Yes, I yield.
Mr. Conyers. I want to make a point here, that these three
amendments are original and are not duplicative of any of the
amendments that have occurred before: homestead exemption for
seniors, abuse, domestic violence, victims of abuse, which is a
large area, not understood by all, and that they are valid,
each of them in their own right, and I urge the careful
consideration of the Committee in support of these amendments.
And thank the gentlelady.
Chairman Sensenbrenner. Does the gentlelady yield back her
time?
Ms. Waters. The gentlelady yields back the time.
Chairman Sensenbrenner. Does the gentleman from Alabama
insist on his point of order against the third amendment being
considered en bloc?
Mr. Bachus. Yes, I do, Mr. Chairman.
Chairman Sensenbrenner. The gentleman will make his point
of order, quickly.
Mr. Bachus. Mr. Chairman, the amendment--the credit card
amendment violates house rule XVI(7) and is not germane. The
fundamental purpose of the amendment is not germane to the
fundamental purpose of the bill. The amendment, in fact, amends
the Truth in Lending statute, and jurisdiction for that statute
is outside the jurisdiction of this Committee. And as such, the
amendment is not germane.
Chairman Sensenbrenner. Does the gentlewoman from
California wish to speak on the point of order?
Ms. Waters. Well, Mr. Chairman, I do wish to speak on the
point of order, and I really don't know why I'm going through
this charade because it really doesn't make any difference.
We're not allowed any amendments here today anyway. They're
going to be voted down. So I guess it doesn't make any
difference whether it's done on a point of order or whether you
call the roll for the vote. But----
Chairman Sensenbrenner. Okay. The----
Ms. Waters. But I think--I have not finished, Mr. Chairman.
I think it is important to note that I think the gentleman from
Alabama is opposing it because he knows that when this
Committee hears about these under-age students who are being
solicited by these credit card companies, running up this debt,
and basically setting up all kind of obstacles to their being
able to be successful when they graduate from college, then he
knows he's embarrassed by that. So he may have a point of order
that you probably will rule in his favor. So be it. It doesn't
matter how it dies. It's going to die one way or the other.
Chairman Sensenbrenner. The Chair--the Chair is prepared to
rule. One of the tests of germaneness of an amendment is
whether the amendment, if introduced as free-standing
legislation, would be referred by the parliamentarians and the
Speaker to the Committee that is considering the bill for
amendment. The amendment--the third amendment that is proposed
by the gentlewoman from California, Ms. Waters, is an amendment
to the Fair Credit Reporting Act, I believe, which is not in
the jurisdiction of the Judiciary Committee, but is in the
jurisdiction of the Financial Services Committee. Therefore,
the amendment is not germane, and the Chair sustains the point
of order by the gentleman from Alabama relative to the third
amendment being considered en bloc. The question is on agreeing
to the other two amendments----
Mr. Bachus. Mr. Chairman, it's the Truth in Lending Act.
Chairman Sensenbrenner. The Chair stands corrected on that.
The question is on agreeing to the other two amendments offered
en bloc 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.
Are there further amendments? The gentleman from North
Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman. I call up amendments--
Watt amendments 04, 06, and 06 and request their consideration
en bloc.
Chairman Sensenbrenner. Without objection, the amendments
will be considered en bloc, and the clerk will report the
amendments.
The Clerk. Mr. Chairman, I have 03 and 04.
Chairman Sensenbrenner. The gentleman from North Carolina?
Mr. Watt. I'm looking at 04, 05, and 06.
Chairman Sensenbrenner. Would the gentleman from North
Carolina briefly describe the subject matter? That might help
the clerk.
Does the clerk have them now? No.
Mr. Watt. 04 is the one that says ``04'' in the corner. 05
is the one that says----
The Clerk. Mr. Chairman, I have 03, 04, and 06.
Mr. Watt.--``05'' in the corner. 06 is the one that says
``06'' in the corner.
Chairman Sensenbrenner. I believe the clerk's got what the
gentleman from North Carolina wishes to offer, and the clerk
will report the amendments considered en bloc.
The Clerk. Amendments to S. 256
Mr. Watt. I ask unanimous consent the amendments be
considered as read.
Chairman Sensenbrenner. Without objection.
[The en bloc amendments follow:]
Chairman Sensenbrenner. And the gentleman is recognized for
5 minutes.
Mr. Watt. Thank you, Mr. Chairman.
Amendment 04, which is supported by the American Bar
Association and a whole host of other people, accomplishes two
things. It eliminates provisions in the bill that would require
the debtor's attorney to certify the accuracy of the debtor's
schedules under penalty of harsh court sanctions, and it
modifies provisions that would require attorneys to certify a
debtor's ability to make future payments under a reaffirmation
agreement.
Section 102 unnecessarily imposes a harsher standard on
debtor attorneys to certify pleadings filed on behalf of the
debtor. No similar heightened standard is imposed on credential
attorneys, nor for attorneys outside the bankruptcy context. By
holding the debtor's attorney personally liable for the
accuracy of their clients' schedules, these provisions would
force the attorney to hire private investigators and appraisers
to verify information, adding thousands of dollars to the cost
of representing a debtor in bankruptcy. Without this amendment,
I believe that the bankruptcy representation--that bankruptcy
representation would become unaffordable for most debtors.
Also, the impact on the pro bono bar providing bankruptcy
services would dwindle with the likely result that thousands of
pro se debtors would clog up the court system or debtors will
not seek the relief they need at all.
Amendment 05 corrects the provisions that would require
bankruptcy attorneys to identify and advertise themselves as
debt relief agencies and comply with intrusive new regulations
that would interfere with the confidential attorney-client
relationship. Sections 227 and two twenty--through 229 of the
bill would seriously interfere with the attorney-client
relationship by prohibiting debtor's bankruptcy attorneys and
many non-bankruptcy attorneys from giving their clients certain
proper bankruptcy planning advice. These provisions would also
have a chilling effect on debtor's lawyers and their firms by
requiring all of their newsletters, seminars, advertising
materials to include awkward and misleading statements
identifying themselves as debt relief agencies.
Amendment 06 would make a--is a technical amendment that
seeks to close an unintended, I suppose, loophole in the
current bill that would allow sensitive personal consumer
information to be sold on the eve of a corporate bankruptcy.
The sale of consumer lists is not a new method to increase the
capital available to failing companies, and as we have seen
with the recent debacle with ChoicePoint, such lists are highly
sensitive and the distribution of personal information included
can be disastrous to consumers. Lists of consumer information
can be worth millions of dollars, a tempting asset to liquidate
when a company is on the way into bankruptcy.
It is for these reasons that the privacy policy enforcement
in the Bankruptcy Act of 2000 sought to exclude personally
identifiable information from the assets of the debtor----
Mr. Cannon. Would the gentleman yield----
Mr. Watt. The bill prohibited--let me just finish and I'll
be through, and then you'll have 5 minutes.
The bill prohibits the sale or disclosure--the amendment--
I'm sorry. The bill prohibited the sale or disclosure of
personally identifiable information if doing so violates a
privacy policy of the debtor in effect at the time at which
such information was collected. The Consumer Privacy Act also
protected consumer information in the same manner. However,
this bill doesn't do that, and I'm happy to yield to the
gentleman----
Mr. Cannon. Thank you. I might suggest, you know, I have
concerns about some of these issues. I don't want to see the
bill amended at this point in time. If the gentleman----
Mr. Watt. That is quite obvious at the end of the day.
Mr. Cannon. If the gentleman would consider withdrawing the
amendments, I can assure him that I'd be willing to work with
him in the Subcommittee without making any commitments for the
full Committee on the issue to take a look at some of these
things.
Mr. Watt. Well, I would hope that the gentleman will just
do as he has all throughout the day and just vote these things
down and still if it's a problem take them up in the
Subcommittee. I hope the gentleman is not saying he's going to
punish me for offering an amendment by not----
Mr. Cannon. Absolutely no.
Mr. Watt.--taking up something that he thinks is important.
Mr. Cannon. Let me just suggest these are--there are issues
here that we need to consider. We'll look at those in the
order----
Mr. Watt. Well, I'm not going to ask for a recorded vote.
You all are going to vote them down and--you know.
Chairman Sensenbrenner. The gentleman's time has expired.
The question is on the amendments en bloc offered by the
gentleman from North Carolina, Mr. Watt. Those in favor will
say aye? Opposed, no? The noes appear to have it. The----
Mr. Watt. See, I told you.
[Laughter.]
Chairman Sensenbrenner. The noes do have it, and the
amendments en bloc are not agreed to.
Are there further amendments? If there are no further
amendments, the question----
Ms. Jackson Lee. Mr. Chairman? I don't have an amendment.
I'd like to put something in the record. I ask to strike the
last word for submission----
Chairman Sensenbrenner. The gentlewoman is recognized for 5
minutes.
Ms. Jackson Lee. I wanted to add into the record, Mr.
Chairman, the complete testimony of Professor Elizabeth Warren,
Leo Gottlieb Professor of Law at Harvard Law School, February
10, 19--excuse me, February 10, 2005. And I wanted to----
Chairman Sensenbrenner. Where--well, if the gentlewoman
will yield, where was this testimony presented?
Ms. Jackson Lee. In the United States Senate.
Chairman Sensenbrenner. Because the rules prohibit us
including in the record proceedings in the other body, I would
ask the gentlewoman to withdraw her unanimous consent request.
The Senate has published that hearing, and it is a part of the
record of the Senate consideration of this legislation.
Ms. Jackson Lee. I will at this time withdraw that request,
Mr. Chairman, and I've made mention of it. I want to make sure
that I did have included, however, a bankrupt reform article. I
believe I did, but I want to double check, and that's by David
S. Broder, and that's Sunday, March 13, 2005.
Chairman Sensenbrenner. The gentlewoman has already asked
unanimous consent to include that in the record and has
received it from the Committee.
Ms. Jackson Lee. Thank you.
Chairman Sensenbrenner. Are there further----
Ms. Waters. Mr. Chairman?
Chairman Sensenbrenner. The gentlewoman from California,
Ms. Waters.
Ms. Waters. I, too, would seek unanimous consent to submit
for the record my statements on the bills that I introduced. I
did not give the complete statements in the interest of time,
and I----
Chairman Sensenbrenner. Without objection, the statements
of the gentlewoman from California will be included in the
record.
[The prepared statements of Ms. Waters follow:]
Prepared Statement of the Honorable Maxine Waters, a Representative in
Congress from the State of California
Mr. Chairman, I have an amendment at the desk.
Mr. Chairman, I ask unanimous consent that the reading be dispensed
with so that I may explain my amendment.
Mr. Chairman, the very modest amendment I am now offering will help
protect seniors who have to file for bankruptcy from losing their
homes. My amendment sets a mandatory $30,000 federal minimum
``homestead exemption'' for debtors who are 62 or older, and would
allow such debtors in bankruptcy to protect some or all of the value of
their homes from creditors. It also would substantially decrease the
likelihood that many of these seniors must sell their homes.
Mr. Chairman, many of our seniors have been driven into bankruptcy
because of huge medical expenses that they could not pay, job losses,
and other events beyond their control.
When these seniors face the misfortune of bankruptcy because of
medical expenses, they should not also have to lose virtually all of
the equity in their home, equity that many of them have saved and
struggled throughout their lifetime to build.
Nor should they be forced to sell their home if they file for a
bankruptcy, a result that frequently is the case in states with low
homestead exemptions. In many cases, a home may be an older person's
only significant asset, representing an entire life savings.
My amendment sets a $30,000 nationwide floor on the homestead
exemption for seniors, debtors who are 62 years old or older. States,
like California, that have a more generous homestead exemption would
not be affected by my amendment, but my amendment would protect more of
the equity of older debtors who live in states like Ohio, with low
homestead exemptions.
Mr. Chairman, some states have very low homestead exemptions. Ohio
has an exemption of $5,000, and North Carolina has an exemption of
$10,000. Currently, only two states have a higher exemption for the
elderly. California's regular exemption is $50,000, but it is $150,000
for seniors. Maine's exemption is $35,000, but $70,000 for the elderly.
Wisconsin's homestead exemption is $40,000 across the board. Florida
and Texas have an unlimited dollar value homestead exemption while many
states, like Ohio, have exemptions as low as $5,000.
Mr. Chairman, I believe that Federal law should provide additional
protection to seniors in states where the homestead exemption is very
low. A senior debtor should be entitled to a decent degree of basic
protection for his home equity, wherever that senior happens to live.
Many of our seniors have scrimped and saved for a lifetime to buy
their homes. We should do all that we can to help protect them from
having to sell their home because illness or job loss required them to
file for bankruptcy.
Mr. Chairman, the pain and burden for our seniors of dealing with
huge, unexpected medical expenses or job loss is enormous. Let's not
add insult to injury by making them suffer the loss of their homes as
well. Please join me in preserving the dignity of our seniors by
supporting my homestead exemption for seniors' amendment.
I yield back the balance of my time.
__________
Prepared Statement of the Honorable Maxine Waters, a Representative in
Congress from the State of California
Mr. Chairman, I have an amendment at the desk.
Mr. Chairman, I ask unanimous consent that the reading be dispensed
with so that I may explain my amendment.
Mr. Chairman, this is an unbalanced, unfair anti-consumer bill that
is tilted way too far in favor of the credit card companies. My
amendment makes a modest attempt at restoring some balance by holding
credit card companies responsible for their reckless extensions of
credit to young people without regard to their capacity to handle such
credit card debt.
My amendment would that an application for a credit card by someone
under 21 have the signature of the young person's parent or guardian,
that is, that there be a co-signer, or the submission of financial
information by the under 21 year old consumer that demonstrates that
this young applicant has the financial capacity to repay the credit
sought. Under my amendment, no credit card could be issued to anyone
under twenty one whose application did not meet this requirement.
Mr. Chairman, I am very concerned that because of the reckless
practices of the credit card companies, many young people with little
financial education or sophistication end up with huge debts that they
simply cannot handle. The credit card companies, with their relentless
marketing campaigns and endless television ads, seduce our young people
with promises of the good life, without taking any responsibility for
those who cannot responsibly handle the credit that they extend.
In recent years, there has been a huge effort by the credit card
companies to market their cards to college students, and many students
just starting out are being saddled with huge credit card debts that
they cannot repay, debts that drive some of them into bankruptcy.
All of us know about the t-shirt giveaways, the low ``teaser''
rates that are used to entice young people, and the large number of
marketing representatives who appear on college campuses at sporting
events and other venues to push credit cards.
Mr. Chairman, for all too many of our young people, these cards are
not so-called ``convenience'' cards that are paid in full every month.
They often result in the creation of long term debt that these students
lack the means to repay. My amendment would provide a means to
significantly decrease the chance that a young borrower would get into
financial trouble.
Let's do something meaningful to protect our young people from
being victimized by the credit card companies. I urge all of my
colleagues to support this common sense amendment.
I yield back the balance of my time.
__________
Prepared Statement of the Honorable Maxine Waters, a Representative in
Congress from the State of California
Mr. Chairman, I have an amendment at the desk.
Mr. Chairman, I ask unanimous consent that the reading be dispensed
with so that I may explain my amendment.
Mr. Chairman, my amendment would provide a safe harbor for the many
victims of domestic abuse whose physical well-being or their children's
well-being would be greatly threatened by summary eviction procedures
authorized under this bill.
Mr. Chairman, women and children who are victims of domestic
violence join the ranks of the homeless every day. For women are so
desperate to flee domestic abuse that they too often find themselves
without funds with which to support themselves and their children.
Victims often have a difficult time finding room at domestic violence
shelters. Furthermore, domestic violence victims have a difficult time
finding affordable long term housing because of the severe shortage of
long-term affordable housing.
Mr. Chairman, domestic violence victims also find it extremely
difficult to find and keep jobs. Their batterers often harass them at
their places of work, which frequently results in the loss of their
jobs. This directly affects their economic stability and often results
in the inability to pay for life's basic necessities--such as housing.
Mr. Chairman, my amendment would provide protection for the
overwhelming number of women and children who are trying to escape and
survive domestic abuse and would greatly aid in allowing these victims
to start a new life for themselves and their children. It would keep
more of them in a safe and secure home.
Mr. Chairman, my amendment would modify the bankruptcy code to
secure better protection for domestic abuse victims by granting them
relief from summary eviction from their housing. Please note, this
relief would only be available if a domestic violence debtor certifies,
under penalty of perjury, that the debtor is, in fact, a victim of
domestic abuse and that their physical well-being or the physical well-
being of the debtor's child would be threatened if this debtor were
evicted. This amendment would provide a safe harbor for those victims
who face the threat of more violence and extreme danger if their homes
were taken.
Mr. Chairman, we must recognize that these victims face the threat
of losing their lives due to abuse and violence. They should not be
forced from their homes dues to financial difficulties that are often
out of their hands. Domestic abuse victims need the chance to start a
new life free from violence, in a safe and secure home. Please support
my amendment to carve out an exemption for domestic violence victims
from summary eviction procedures authorized by this bill.
I yield back the balance of my time.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina.
Mr. Watt. I ask unanimous consent to submit for the record
a letter from the American Bar Association dated March 11,
2005, to Chairman Sensenbrenner and to John Conyers related to
one of the three amendments.
Chairman Sensenbrenner. Without objection, that letter will
be included in the record.
[The material referred to follows:]
Chairman Sensenbrenner. Are there further amendments? If
there are no further amendments, a reporting quorum is present.
The question is on reporting the bill Senate 256 favorably to
the full House. Those in favor will say aye? Opposed, no?
Mr. Conyers. Mr. Chairman, I ask for a recorded vote?
Chairman Sensenbrenner. The ayes appear to have it, and a
recorded vote will be ordered. Those in favor of reporting the
bill favorably to the full House 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. Coble?
Mr. Coble. Aye.
The Clerk. Mr. Coble, aye. Mr. Smith?
Mr. Smith of Texas. Aye.
The Clerk. Mr. Smith, aye. Mr. Gallegly?
Mr. Gallegly. Aye.
The Clerk. Mr. Gallegly, aye. Mr. Goodlatte?
Mr. Goodlatte. Aye.
The Clerk. Mr. Goodlatte, aye. Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye. Mr. Lungren?
Mr. Lungren. Aye.
The Clerk. Mr. Lungren, aye. Mr. Jenkins?
Mr. Jenkins. Aye.
The Clerk. Mr. Jenkins, aye. Mr. Cannon?
Mr. Cannon. Aye.
The Clerk. Mr. Cannon, aye. Mr. Bachus?
Mr. Bachus. Aye.
The Clerk. Mr. Bachus, aye. Mr. Inglis?
Mr. Inglis. Aye.
The Clerk. Mr. Inglis, aye. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
Mr. Green. Aye.
The Clerk. Mr. Green, aye. Mr. Keller?
Mr. Keller. Aye.
The Clerk. Mr. Keller, aye. Mr. Issa?
[No response.]
The Clerk. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
Mr. Pence. Aye.
The Clerk. Mr. Pence, aye. Mr. Forbes?
Mr. Forbes. Aye.
The Clerk. Mr. Forbes, aye. Mr. King?
Mr. King. Aye.
The Clerk. Mr. King, aye. Mr. Feeney?
Mr. Feeney. Aye.
The Clerk. Mr. Feeney, aye. Mr. Franks?
Mr. Franks. Aye.
The Clerk. Mr. Franks, aye. Mr. Gohmert?
Mr. Gohmert. Aye.
The Clerk. Mr. Gohmert, aye. Mr. Conyers?
Mr. Conyers. No.
The Clerk. Mr. Conyers, no. Mr. Berman?
Mr. Berman. No.
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. Watt, no. Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
Ms. Waters. No.
The Clerk. Ms. Waters, no. Mr. Meehan?
Mr. Meehan. No.
The Clerk. Mr. Meehan, no. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Mr. Weiner?
Mr. Weiner. No.
The Clerk. Mr. Weiner, no. Mr. Schiff?
Mr. Schiff. No.
The Clerk. Mr. Schiff, no. Ms. Sanchez?
Ms. Sanchez. No.
The Clerk. Ms. Sanchez, no. Mr. Smith?
[No response.]
The Clerk. Mr. Van Hollen?
Mr. Van Hollen. No.
The Clerk. Mr. Van Hollen, no. Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Are there Members who wish to cast
or change their vote? The gentleman from Arizona, Mr. Flake.
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye.
Chairman Sensenbrenner. Further Members who wish--the
gentlewoman from Texas, Ms. Jackson Lee.
Ms. Jackson Lee. No.
The Clerk. Ms. Jackson Lee, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their votes? If not, the clerk will report. And while
the clerk is adding up, I would remind the Members that we have
one more bill that needs to be considered that will go very
briefly. It's a resolution of--is the gentleman from
California, Mr. Issa, recorded?
Mr. Issa. On final passage?
Chairman Sensenbrenner. Yes.
Mr. Issa. Aye.
The Clerk. Mr. Issa, aye.
Chairman Sensenbrenner. Okay. The clerk will report--the
gentleman from Massachusetts, Mr. Delahunt.
Mr. Delahunt. No.
The Clerk. Mr. Delahunt, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote?
[No response.]
Chairman Sensenbrenner. The clerk will report.
The Clerk. Mr. Chairman, there are 22 ayes and 13 noes.
Chairman Sensenbrenner. And the motion to report favorably
is agreed to. Without objection, the staff is directed to make
any technical and conforming changes, and all Members will be
given 2 days, as provided by the House rules, in which to
submit additional dissenting, supplemental, or minority views.
[Intervening business.]
The business scheduled before the Committee having been
completed, the Committee stands adjourned.
[Whereupon, at 5:42 p.m., the Committee was adjourned.]
Dissenting Views
Additional Dissenting Views
In addition to the concerns raised in the general
dissenting views, we remain disappointed by the Committee's
consistent refusal to put an end to two of the most notorious
abuses of the bankruptcy system--the financial planning
strategy by which debtors are able to purchase expensive homes
in States which allow a debtor to exempt an interest in a
primary residence of a unlimited dollar value,\1\ and the
development of ``asset protection trusts,'' which would allow
individuals to set up a trust for which they are the sole
beneficiaries, and potentially place substantial assets outside
the estate, and beyond the reach of the creditors.
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\1\ The following are the States that have unlimited homestead
exemptions: Florida, Iowa, Kansas, South Dakota, Texas, and the
District of Colombia.
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I. THE UNLIMITED HOMESTEAD EXEMPTION.
The unlimited homestead exemption, known s the
``millionaires' loophole,'' has allowed the very wealthy to
shield from their creditors vast sums of money in palatial
homes. The current Code allows a debtor to claim a State's
exemptions.\2\ A State may ``opt out'' and bar a debtor from
using the federal exemptions in sec. 522(d), which are, in many
cases, lower than exemptions allowed under State law.\3\
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\2\ 11 U.S.C. 522(b)(2)(A).
\3\ 11 U.S.C. 522(b)(1).
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Over the years, many of us have offered amendments that
would have placed an overall limit on State homestead
exemptions, or repealed State opt-out so that debtors would be
able to avail themselves of the federal exemptions if they are
higher than applicable State law.\4\ In each case, these
proposals have been rejected. A proposal to place an absolute
cap on State homestead exemptions in the amount of $1 million
was even rejected by House conferees to H.R. 333 in the 107th
Congress. Apparently, the proponents of this legislation
believe that there is no amount too high for the wealthiest
debtors to shelter in their homesteads, and that the poorest
debtors are not entitled to even the modest floor provided by
federal law.\5\
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\4\ Rep. Waters offered an amendment setting a $30,000 Federal
minimum homestead exemption for debtors 62 and older to protect some or
all of the value of their homes from credentials in bankruptcy. The
amendment was rejected by voice vote. Rep. Berman and Rep. Meehan
offered an amendment to create a uniform Federal floor for homestead
exemptions of $150,000 for debtors with substantial medical debts or a
substantial loss in income, alimony, or child support due to medical
problems. The amendment was rejected with 13 ayes and 18 noes.
\5\ 11 U.S.C. 522(d)(1) allows a debtor to exempt up to $18,450 in
value in the debtor's residence.
---------------------------------------------------------------------------
These proposals would have, respectively, helped to
eliminate the biggest loophole in the Bankruptcy Code, and
eliminate a significant inequity for homeowners of the most
modest means. The proposals reflect the recommendations of the
National Bankruptcy Review Commission, that Congress provide a
meaningful cap on homestead exemptions as well as a federal
floor.\6\
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\6\ Bankruptcy: The Next Twenty Years, Final Report of the National
Bankruptcy Review Commission, Recommendation 1.2.2, at 125-133 (Oct.
20, 1997). The Commssion recommended a national cap of $100,000, and a
national floor of $20,000.
---------------------------------------------------------------------------
The rationale that has been given for the so-called
``needs-based'' reforms proposed in S. 256 is to eliminate
abuses of the bankruptcy laws-abuses which proponents of the
legislation have characterized as the use of the Bankruptcy
Code as a ``financial planning tool.''
Yet while the bill would presume that debtors of modest
means are abusing the system if they can pay general unsecured
creditors as little as $100 a month in chapter 13, it continues
to permit, indeed it endorses--the most notorious abuse of the
consumer bankruptcy system of all.
If the sponsors were truly serious about curtailing abuses
in bankruptcy, this is the place to start. Some of the more
notorious cases have included:
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.\7\
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\7\ Larry Rohter, ``Rich Debtors Finding Shelter Under a Populist
Florida Law,'' N.Y. Times A-1 (July 25, 1993).
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.\8\
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\8\ Id.
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.\9\
---------------------------------------------------------------------------
\9\ Id.
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.\10\
---------------------------------------------------------------------------
\10\ David J. Morrow, ``Key to a Cozier Bankruptcy: Location,
Location, Location,'' N.Y. Times, A-1 (Jan. 7, 1998).
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.\11\
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\11\ Id.
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.\12\
---------------------------------------------------------------------------
\12\ Eliot Kleinberg, ``Reynolds Gets Out from under Bankruptcy,''
The Palm Beach Post, (Oct. 8, 1998)
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.\13\
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\13\ Hearing Before the Senate Committee on the Judiciary on S.
220, (Written statement of Brady C. Williamson), at 6 (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.'' \14\
---------------------------------------------------------------------------
\14\ Judge A. Jay Cristol, quoted in Rohter, supra note 6.
---------------------------------------------------------------------------
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 difficult, but
that's symbolic. Few people anticipating bankruptcy have the
cash to pull off that maneuver. 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.'' \15\
---------------------------------------------------------------------------
\15\ Footnote 10: David Wessel, ``A Law's Muddled Course,'' The
Wall Street Journal, at 1 (Feb. 22, 2001).
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Indeed, the Florida Supreme Court has ruled that even
fraudulent transfers are protected by the unlimited homestead
exemption under that State's constitution.\16\
---------------------------------------------------------------------------
\16\ Havoco of America, Ltd. v. Hill, No. SC 99-98 (June 21, 2001).
---------------------------------------------------------------------------
The sponsors try to claim that they have closed the
loophole by placing certain restrictions on State homestead
exemptions. While true, these restrictions still leave the
unlimited homestead exemption largely intact for most wealthy
debtors. To the extent that the restrictions may prevent some
forms of abuse, they will also have unintended consequences
that might harm innocent debtors who inadvertently run afoul of
the complex new rules attached to exempt property.
The bill does not place an absolute national dollar cap on
homestead exemptions. People who, with the exceptions made in
the bill as described below, would otherwise be entitled to an
unlimited homestead exemption, would still be able to claim the
exemption.
The bill does not alter the opt out rule in the Bankruptcy
Code, so there is still no federal floor.
Domiciliary Requirement: The domiciliary requirement
determines which State's exemptions the debtor is allowed to
claim.
Sec. 307 of the bill requires a debtor to claim as a
domiciliary the place of residence for the greater part of the
730 days preceding the date of the filing of the petition. This
applies for claiming any property exemptions, not just the
homestead exemption. Current law is 180 days.
While it would make pre-bankruptcy planning more difficult
for a wealthy debtor seeking a jurisdiction with generous
property exemptions, it would also have a substantial impact on
a debtor who moves from a jurisdiction with a low exemption to
a jurisdiction with a high exemption.
For example, a debtor who lives in New York and retires to
Florida would get caught in this net. If the debtor sold her
home in New York, moved to Florida, and purchased a home in
Florida with the proceeds of the sale, became sick and had to
file for bankruptcy (which is a common occurrence) within the
730 period, she would not be able to use the Florida exemption
and keep the full value of her home. Instead, she would have to
use the New York exemption of $10,000. The rest would be
available to pay her creditors. If there is excess value (above
the equity and transaction costs) the trustee would have a duty
to sell the home to generate funds to pay creditors. The debtor
would get a check for $10,000, and lose her home. This would be
even less than the federal exemption of $18,450, so she would
be harmed even more by the failure of Congress to adopt a
federal floor.
Converting a non-exempt asset into an exempt homestead
asset: The bill provides, in sec. 308, that a debtor who
converted a non-exempt asset into an interest in an exempt
homestead within the ten year period ending on the date of the
filing of the petition, would have the allowed exemption
reduced by the amount of that additional interest. This
provision requires proof that the debtor did so with the intent
to hinder, delay or defraud a creditor. Because this is such a
high standard of proof, it is likely that this provision will
be rarely enforced.
Example: Debtor has $100,000 in a bank account. Debtor
closes the account and uses it to pay down a mortgage on her
residence. She now $150,000 in the home, all of which is
exempt. The debtor would get to claim the full amount as exempt
unless a creditor is able to prove that the debtor moved the
funds from the non-exempt asset (the bank account) to the
exempt asset (the homestead) with the intent to hinder delay
and defraud a creditor. If the creditor is able to meet that
burden of proof, the debtor may claim only the $50,000 interest
in the homestead as exempt.
Another domiciliary requirement and conversion of non-
exempt assets limitation: Sec. 322 limits a debtor to $125,000
in a homestead exemption for any interest in a homestead that
was acquired 1215 days before the date of the filing of the
petition that exceeds in the aggregate $125,000 in value. It
does not apply to a debtor who is a family farmer under ch. 12
of the Code, or a debtor who acquires the interest within the
same State. It only applies to a debtor who acquires the
interest in a homestead in a State other than the State in
which the debtor lived within the look-back period. Thus, if a
debtor who lived in Texas acquired an interest in a homestead
in Texas during the look-back period, the $125,000 cap would
not apply. It would, however, apply to a New York senior who
sold her home, moved to Florida, purchased a home in Florida
with the proceeds from the sale of the New York home, got sick
and had to file within the 1,215-day period. Because she would
have acquired an interest in the property in excess of
$125,000, she would be limited to $125,000. The rest of her
equity could be used to pay her creditors.
Cap on homestead exemption for certain types of wrongdoing:
Sec. 322 also caps a debtor's homestead exemption at $125,000,
if:
The court, after notice and a hearing,
determines that the debtor has been convicted of a
felony, as defined in 18 U.S.C. 3156, which, under the
circumstances, demonstrating that the filing of the
case was an abuse of the provisions of the Code;
The debtor owes a debt arising from a
violation of the Federal or State securities laws;
fraud, deceit or manipulation in a fiduciary capacity
or in connection with he purchase or sale fo any
security registered under section 12 or 15(d) of the
Securities Exchange Act of 1934, or section 6 of the
Securities Act of ``1933; any civil remedy under 18
U.S.C. 1964 [the RICO statute]; any criminal act,
intentional tort, or willful or reckless misconduct
that caused serious physical injury or death to another
individual in the preceding 5 years. The last clause
does not include simple negligence resulting in serious
physical injury or death. This reflects a concern among
some proponents of the bill that doctors whose
malpractice caused serious physical injury or death not
lose their unlimited homestead exemption. The
limitations due to securities violations and the RICO
judgments were added in response to concerns that
former Enron Chairman Kenneth Lay would be entitled to
an unlimited homestead exemption in his native Texas
should he file for bankruptcy. Mr. Lay has not,
however, filed for bankruptcy, and it is not yet clear
whether he will be found by a court to have run afoul
of any of the enumerated offenses.
There is also a savings clause that a debtor who owes a
debt of the kind described above would not lose her homestead
exemption over $125,000, to the extent that the equity is
reasonably necessary for the support of the debtor and any
dependent of the debtor. It is an outrage that the same
``reasonably necessary standard'' that would protect the
unlimited homestead exemption is the same one that the drafters
of the bill specifically chose to remove from the Code, in
favor the means test in sec. 102 of the bill, and the IRS
standards to determine a debtor's allowed expenses.
While these amendments may eliminate a few of the abuses,
they do not solve the problem. Wealthy debtors who are able to
afford skillful legal advice, and are sophisticated enough to
engage in complex pre-bankruptcy planning, will, in many cases,
will be able to evade the paltry restrictions in this bill.
Truly needy debtors, the kind whose life savings may be bound
up in their residence, and who can afford neither sophisticated
legal advice, or complex pre-bankruptcy planning, will get
caught in the many twists and turns that will now be added to
the Code. Far from eliminating the abuse of the unlimited
homestead exemption, this bill will have the perverse effect of
perpetuating it while creating new traps for the truly needy
unsophisticated debtor.
What message does it send when Congress subjects middle-
class debtors to a means test and other onerous changes to the
Code, while permitting the wealthy to continue to place their
millions out of reach of their creditors? A bill this rife with
favoritism toward wealthy debtors and against middle class
families is anything but a ``Bankruptcy Abuse Prevention and
Consumer Protection Act.''
If Congress is serious about curbing abuse, a national,
absolute dollar amount cap, without any loopholes, is the only
way to do it. The bill, as reported, fails this test and so
bears the burden of treating poor and middle class families
harshly while letting the wealthiest individuals, who are
clearly abusing the system and defrauding their creditors,
shelter millions of dollars.
II. THE BILL DOES NOT ADDRESS THE
ASSET PROTECTION TRUST LOOPHOLE.
Although this legislation is exceedingly draconian with
respect to low and middle income debtors, the sponsors have
consistently resisted amendments that would close loopholes for
the wealthiest debtors.
One such loophole is the so-called ``asset protection
trusts,'' which, under the law of five States, allows an
individual to set up a trust account for which the person
establishing the trust would also be the beneficiary.\17\
Trusts, established under non-bankruptcy law, are not treated a
property of the bankruptcy estate, and so are beyond the reach
of creditors.\18\ A debtor may, under the laws of these five
States, establish such a trust, solely for the benefit of the
debtor, and may be able to shield unlimited amounts of money
from creditors. So long as the funds were not placed in the
trust by means of a fraudulent transfer, the trustee might have
no power to recover them for the benefit of the creditors.
---------------------------------------------------------------------------
\17\ Gretchen Morgenson, Proposed Law on Bankruptcy Has Loophole,
N. Y. Times, Mar. 2, 2005, at C1.
\18\ 11 U.S.C. 541(c)(2) (2004).
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Senator Schumer offered an amendment that would have
limited the value of assets that could be shielded in these
trusts to $125,000, if transferred within the ten years
preceding the filing of the petition.\19\ Rep. Delahunt offered
a similar amendment during the Judiciary Committee's markup,
limiting such trusts up to $125,000, while protecting
conventional retirement funds currently exempt from federal
taxation, charitable trusts, and educational trusts. The
amendment was rejected with 10 ayes and 15 noes.
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\19\ 151 Cong. Rec. S1981 (daily ed. March 2, 2005) (statement of
Sen. Schumer). The amendment excludes from its coverage trusts not for
the benefit of the debtor that would otherwise be excluded from the
estate, and trusts established for retirement purposes under the new 11
U.S.C. 522(d)(12).
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The rejection of these reasonable amendments by the Senate
and by the House Judiciary Committee again demonstrate that,
despite its lofty title, the bill does not target bankruptcy
abuse by the wealthy and well connected.
Bankruptcy should provide a safety net for families truly
in need of relief. This legislation, which imposes stringent
new rules on financially distressed families, should not leave
the most notorious loopholes for the very wealthy.
John Conyers, Jr.
Jerrold Nadler.
Robert C. Scott.
Melvin L. Watt.
Martin T. Meehan.
Anthony D. Weiner.
Chris Van Hollen.
Additional Minority Views
While I agree with the Minority Views to S. 256, I want to
submit additional views to explain my dissent.
Once again we are attempting to push through the Bankruptcy
Abuse Prevention and Consumer Protection Act, which despite its
name provides little meaningful protection for consumers. We
all can agree that the system needs revision, but this
legislation is not the answer.
Bankruptcy filings have risen slightly in recent years and
while some who file for bankruptcy have not been financially
responsible, the overwhelming majority of people who file for
bankruptcy do so as the result of a divorce, major illness or
job loss. Many people are just one paycheck, job loss or
medical catastrophe away from bankruptcy. We know at the
present time there are 1.6 million people who go into
bankruptcy every year. Half of those people go into bankruptcy
because of medical bills. About three-quarters of those
individuals who go into bankruptcy because of medical bills
have health insurance, but nonetheless, the explosion of costs
in health care have added such a burden to these families that
they have had to go into bankruptcy.
If the purpose of this legislation is to try to deal with
spendthrifts and those who are abusers of credit, we ought to
be able to distinguish them from hard-working Americans who
unfortunately became ill, those who have had an unforeseen
change in their employment, and those whose spouses experienced
business failures. Unfortunately, this legislation does not
make those distinctions.
I believe that any meaningful bankruptcy reform ought to
ensure that individuals are afforded the protection of Chapter
7 bankruptcy and are exempt from dismissal or conversion if:
(1) a substantial portion of the indebtedness is due to
business losses incurred by a spouse who has died or deserted
the debtor; (2) a substantial portion of the indebtedness was
incurred as a result of illness of the debtor, a dependant of
the debtor, or the debtor's spouse if not a dependant of the
debtor; or (3) a substantial portion of the indebtedness was a
result of unforeseen loss of employment through no fault of the
debtor.
Another category of citizens who will be adversely impacted
by this legislation are small business entrepreneurs who go
into business considering a risk/benefit ratio that includes
the possibility of making a lot of money but also includes the
possibility of losing everything and ending up in bankruptcy.
With the passage of this legislation, those entrepreneurs and
their families risk not only losing everything, but also
remaining destitute.
Finally, we should consider the impact on society of
increasing the number of people who conclude that they have
nothing left to lose. It is ironic that the last time we
debated bankruptcy reform on the Floor of the House of
Representatives, a farmer had driven his tractor into a pond
near Washington's monuments, tying up traffic in D.C. for
several days. He was quoted as saying, ``I'm broke. I'm
busted.'' He was also quoted as saying, ``I've got the rest of
my life to stay right here. I'm not going anywhere.'' People
who feel they have nothing left to lose often lack any
incentive to be a productive member of society, and this can
also create a potential danger to society. Denying bankruptcy
protection to people who need a fresh start will only increase
this category of citizens. Instead we should be providing them
with the assistance they need to get back on their feet.
While the bankruptcy code clearly could benefit from reform
and modernization, this legislation does not differentiate
between those who abuse the system and those who truly need the
aid it provides.
Robert C. Scott.