[Congressional Record Volume 140, Number 142 (Tuesday, October 4, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: October 4, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
BANKRUPTCY REFORM ACT OF 1994
Mr. BROOKS. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 5116) to amend title II of the United States Code, as
amended.
The Clerk read as follows:
H.R. 5116
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) Short Title.--This Act may be cited as the ``Bankruptcy
Reform Act of 1994''.
(b) Table of Contents.--The table of contents is as
follows:
Sec. 1. Short title.
TITLE I--IMPROVED BANKRUPTCY ADMINISTRATION
Sec. 101. Expedited hearing on automatic stay.
Sec. 102. Jurisdiction to review interlocutory orders increasing or
reducing certain time periods for filing plan.
Sec. 103. Expedited procedure for reaffirmation of debts.
Sec. 104. Powers of bankruptcy courts.
Sec. 105. Participation by bankruptcy administrator at meetings of
creditors and equity security holders.
Sec. 106. Definition relating to eligibility to serve on chapter 11
committees.
Sec. 107. Increased incentive compensation for trustees.
Sec. 108. Dollar adjustments.
Sec. 109. Premerger notification.
Sec. 110. Allowance of creditor committee expenses.
Sec. 111. Supplemental injunctions.
Sec. 112. Authority of bankruptcy judges to conduct jury trials in
civil proceedings.
Sec. 113. Sovereign immunity.
Sec. 114. Service of process in bankruptcy proceedings on an insured
depository institution.
Sec. 115. Meetings of creditors and equity security holders.
Sec. 116. Tax assessment.
Sec. 117. Additional trustee compensation.
TITLE II--COMMERCIAL BANKRUPTCY ISSUES
Sec. 201. Aircraft equipment and vessels; rolling stock equipment.
Sec. 202. Limitation on liability of non-insider transferee for avoided
transfer.
Sec. 203. Perfection of purchase-money security interest.
Sec. 204. Continued perfection.
Sec. 205. Rejection of unexpired leases of real property or timeshare
interests.
Sec. 206. Contents of plan.
Sec. 207. Priority for independent sales representatives.
Sec. 208. Exclusion from the estate of interests in liquid and gaseous
hydrocarbons transferred by the debtor pursuant to
production payment agreements.
Sec. 209. Seller's right to reclaim goods.
Sec. 210. Investment of money of the estate.
Sec. 211. Election of trustee under chapter 11.
Sec. 212. Rights of partnership trustee against general partners.
Sec. 213. Impairment of claims and interests.
Sec. 214. Protection of security interest in post-petition rents and
lodging payments.
Sec. 215. Amendment to definition of swap agreement.
Sec. 216. Limitation on avoiding powers.
Sec. 217. Small businesses.
Sec. 218. Single asset real estate.
Sec. 219. Leases of personal property.
Sec. 220. Exemption for small business investment companies.
Sec. 221. Payment of taxes with borrowed funds.
Sec. 222. Return of goods.
Sec. 223. Proceeds of money order agreements.
Sec. 224. Trustee duties; professional fees.
Sec. 225. Notices to creditors.
TITLE III--CONSUMER BANKRUPTCY ISSUES
Sec. 301. Period for curing default relating to principal residence.
Sec. 302. Nondischargeability of fine under chapter 13.
Sec. 303. Impairment of exemptions.
Sec. 304. Protection of child support and alimony.
Sec. 305. Interest on interest.
Sec. 306. Exception to discharge.
Sec. 307. Payments under chapter 13.
Sec. 308. Bankruptcy petition preparers.
Sec. 309. Fairness to condominium and cooperative owners.
Sec. 310. Nonavoidability of fixing of lien on tools and implements of
trade, animals, and crops.
Sec. 311. Conversion of case under chapter 13.
Sec. 312. Bankruptcy fraud.
Sec. 313. Protection against discriminatory treatment of applications
for student loans.
TITLE IV--GOVERNMENTAL BANKRUPTCY ISSUES
Sec. 401. Exception from automatic stay for post-petition property
taxes.
Sec. 402. Municipal bankruptcy.
TITLE V--TECHNICAL CORRECTIONS
Sec. 501. Amendments to bankruptcy definitions, necessitated by
enactment of Public Law 101-647.
Sec. 502. Title 28 of the United States Code.
TITLE VI--BANKRUPTCY REVIEW COMMISSION
Sec. 601. Short title.
Sec. 602. Establishment.
Sec. 603. Duties of the commission.
Sec. 604. Membership.
Sec. 605. Compensation of the commission.
Sec. 606. Staff of commission; experts and consultants.
Sec. 607. Powers of the commission.
Sec. 608. Report.
Sec. 609. Termination.
Sec. 610. Authorization of appropriations.
TITLE VII--SEVERABILITY; EFFECTIVE DATE; APPLICATION OF AMENDMENTS.
Sec. 701. Severability.
Sec. 702. Effective date; application of amendments.
TITLE I--IMPROVED BANKRUPTCY ADMINISTRATION
SEC. 101. EXPEDITED HEARING ON AUTOMATIC STAY.
The last sentence of section 362(e) of title 11, United
States Code, is amended--
(1) by striking ``commenced'' and inserting ``concluded'',
and
(2) by inserting before the period at the end the
following:
``, 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''.
SEC. 102. JURISDICTION TO REVIEW INTERLOCUTORY ORDERS
INCREASING OR REDUCING CERTAIN TIME PERIODS FOR
FILING PLAN.
Section 158(a) of title 28, United States Code, is amended
by striking ``from'' the first place it appears and all that
follows through ``decrees,'', and inserting the following:
``(1) from final judgments, orders, and decrees;
``(2) from interlocutory orders and decrees issued under
section 1121(d) of title 11 increasing or reducing the time
periods referred to in section 1121 of such title; and
``(3) with leave of the court, from other interlocutory
orders and decrees;''.
SEC. 103. EXPEDITED PROCEDURE FOR REAFFIRMATION OF DEBTS.
(a) Reaffirmation.--Section 524(c) of title 11, United
States Code, is amended--
(1) in paragraph (2)--
(A) by inserting ``(A)'' after ``(2)'',
(B) by adding ``and'' at the end, and
(C) by inserting after subparagraph (A), as so designated,
the following:
``(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;'', and
(2) in paragraph (3)--
(A) in the matter preceding subparagraph (A) by striking
``such agreement'' the last place it appears,
(B) in subparagraph (A)--
(i) by inserting ``such agreement'' after ``(A)'', and
(ii) by striking ``and'' at the end,
(C) in subparagraph (B)--
(i) by inserting ``such agreement'' after ``(B)'', and
(ii) by adding ``and'' at the end, and
(3) by adding at the end the following:
``(C) the attorney fully advised the debtor of the legal
effect and consequences of--
``(i) an agreement of the kind specified in this
subsection; and
``(ii) any default under such an agreement;''.
(b) Effect of Discharge.--The third sentence of section
524(d) of title 11, United States Code, is amended in the
matter preceding paragraph (1) by inserting ``and was not
represented by an attorney during the course of negotiating
such agreement'' after ``this section''.
SEC. 104. POWERS OF BANKRUPTCY COURTS.
(a) Status Conferences.--Section 105 of title 11, United
States Code, is amended by adding at the end the following:
``(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
``(2) unless inconsistent with another provision of this
title or with applicable Federal Rules of Bankruptcy
Procedure, issue an order at any such conference prescribing
such limitations and conditions as the court deems
appropriate to ensure that the case is handled expeditiously
and economically, including an order that--
``(A) sets the date by which the trustee must assume or
reject an executory contract or unexpired lease; or
``(B) in a case under chapter 11 of this title--
``(i) sets a date by which the debtor, or trustee if one
has been appointed, shall file a disclosure statement and
plan;
``(ii) sets a date by which the debtor, or trustee if one
has been appointed, shall solicit acceptances of a plan;
``(iii) sets the date by which a party in interest other
than a debtor may file a plan;
``(iv) sets a date by which a proponent of a plan, other
than the debtor, shall solicit acceptances of such plan;
``(v) fixes the scope and format of the notice to be
provided regarding the hearing on approval of the disclosure
statement; or
``(vi) provides that the hearing on approval of the
disclosure statement may be combined with the hearing on
confirmation of the plan.''.
(b) Abstention.--Section 1334 of title 28, United States
Code, is amended--
(1) by redesignating subsection (d) as subsection (e), and
(2) in the second sentence of subsection (c)(2)--
(A) by inserting ``(other than a decision not to abstain in
a proceeding described in subsection (c)(2))'' after
``subsection'', and
(B) by striking ``Any'' and inserting the following:
``(d) Any''.
(c) Establishment, Operation, and Termination of Bankruptcy
Appellate Panel Service.--Section 158(b) of title 28, United
States Code, is amended--
(1) by striking paragraphs (3) and (4),
(2) by redesignating paragraph (2) as paragraph (4),
(3) by striking paragraph (1) and inserting the following:
``(1) The judicial council of a circuit shall establish a
bankruptcy appellate panel service composed of bankruptcy
judges of the districts in the circuit who are appointed by
the judicial council in accordance with paragraph (3), to
hear and determine, with the consent of all the parties,
appeals under subsection (a) unless the judicial council
finds that--
``(A) there are insufficient judicial resources available
in the circuit; or
``(B) establishment of such service would result in undue
delay or increased cost to parties in cases under title 11.
Not later than 90 days after making the finding, the judicial
council shall submit to the Judicial Conference of the United
States a report containing the factual basis of such finding.
``(2)(A) A judicial council may reconsider, at any time,
the finding described in paragraph (1).
``(B) On the request of a majority of the district judges
in a circuit for which a bankruptcy appellate panel service
is established under paragraph (1), made after the expiration
of the 1-year period beginning on the date such service is
established, the judicial council of the circuit shall
determine whether a circumstance specified in subparagraph
(A) or (B) of such paragraph exists.
``(C) On its own motion, after the expiration of the 3-year
period beginning on the date a bankruptcy appellate panel
service is established under paragraph (1), the judicial
council of the circuit may determine whether a circumstance
specified in subparagraph (A) or (B) of such paragraph
exists.
``(D) If the judicial council finds that either of such
circumstances exists, the judicial council may provide for
the completion of the appeals then pending before such
service and the orderly termination of such service.
``(3) Bankruptcy judges appointed under paragraph (1) shall
be appointed and may be reappointed under such paragraph.'',
and
(4) by inserting after paragraph (4), as so redesignated,
the following:
``(5) An appeal to be heard under this subsection shall be
heard by a panel of 3 members of the bankruptcy appellate
panel service, except that a member of such service may not
hear an appeal originating in the district for which such
member is appointed or designated under section 152 of this
title.
``(6) Appeals may not be heard under this subsection by a
panel of the bankruptcy appellate panel service unless the
district judges for the district in which the appeals occur,
by majority vote, have authorized such service to hear and
determine appeals originating in such district.''.
(d) Appeals To Be Heard by Bankruptcy Appellate Panel
Service.--Section 158 of title 28, United States Code, is
amended--
(1) in subsection (c) by striking ``(c)'' and inserting
``(2)'', and
(2) by inserting after subsection (b) the following:
``(c)(1) Subject to subsection (b), 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) the appellant elects at the time of filing the
appeal; or
``(B) any other party elects, not later than 30 days after
service of notice of the appeal;
to have such appeal heard by the district court.''.
(e) rules of procedure and evidence; method of
prescribing.--Section 2073 of title 28, United States Code,
is amended--
(1) in subsection (a)(2) by striking ``section 2072'' and
inserting ``sections 2072 and 2075'', and
(2) in subsections (d) and (e) by inserting ``or 2075''
after ``2072'' each place it appears.
(f) Effective Date of Bankruptcy Rules.--The third
undesignated paragraph of section 2075 of title 28, United
States Code, is amended to read as follows:
``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.''.
SEC. 105. PARTICIPATION BY BANKRUPTCY ADMINISTRATOR AT
MEETINGS OF CREDITORS AND EQUITY SECURITY
HOLDERS.
(a) Presiding Officer.--A bankruptcy administrator
appointed under section 302(d)(3)(I) of the Bankruptcy
Judges, United States Trustees, and Family Farmer Bankruptcy
Act of 1986 (28 U.S.C. 581 note; Public Law 99-554; 100 Stat.
3123), as amended by section 317(a) of the Federal Courts
Study Committee Implementation Act of 1990 (Public Law 101-
650; 104 Stat. 5115), or the bankruptcy administrator's
designee may preside at the meeting of creditors convened
under section 341(a) of title 11, United States Code. The
bankruptcy administrator or the bankruptcy administrator's
designee may preside at any meeting of equity security
holders convened under section 341(b) of title 11, United
States Code.
(b) Examination of the Debtor.--The bankruptcy
administrator or the bankruptcy administrator's designee may
examine the debtor at the meeting of creditors and may
administer the oath required under section 343 of title 11,
United States Code.
SEC. 106. DEFINITION RELATING TO ELIGIBILITY TO SERVE ON
CHAPTER 11 COMMITTEES.
Section 101(41) of title 11, United States Code, is amended
to read as follows:
``(41) `person' includes individual, partnership, and
corporation, but does not include governmental unit, except
that a governmental unit that--
``(A) acquires an asset from a person--
``(i) as a result of the operation of a loan guarantee
agreement; or
``(ii) as receiver or liquidating agent of a person;
``(B) is a guarantor of a pension benefit payable by or on
behalf of the debtor or an affiliate of the debtor; or
``(C) is the legal or beneficial owner of an asset of--
``(i) an employee pension benefit plan that is a
governmental plan, as defined in section 414(d) of the
Internal Revenue Code of 1986; or
``(ii) an eligible deferred compensation plan, as defined
in section 457(b) of the Internal Revenue Code of 1986;
shall be considered, for purposes of section 1102 of this
title, to be a person with respect to such asset or such
benefit;''.
SEC. 107. INCREASED INCENTIVE COMPENSATION FOR TRUSTEES.
Section 326(a) of title 11, United States Code, is amended
by striking ``fifteen'' and all that follows through
``$3,000'' the last place it appears, and inserting the
following:
``25 percent on the first $5,000 or less, 10 percent on any
amount in excess of $5,000 but not in excess of $50,000, 5
percent on any amount in excess of $50,000 but not in excess
of $1,000,000, and reasonable compensation not to exceed 3
percent of such moneys in excess of $1,000,000''.
SEC. 108. DOLLAR ADJUSTMENTS.
(a) Who May Be a Debtor Under Chapter 13.--Section 109(e)
of title 11, United States Code, is amended--
(1) by striking ``$100,000'' each place it appears and
inserting ``$250,000'', and
(2) by striking ``$350,000'' each place it appears and
inserting ``$750,000''.
(b) Involuntary Cases.--Section 303(b) of title 11, United
States Code, is amended--
(1) in paragraph (1) by striking ``$5,000'' and inserting
``$10,000'', and
(2) in paragraph (2) by striking ``$5,000'' and inserting
``$10,000''.
(c) Priorities.--Section 507(a) of title 11, United States
Code, is amended--
(1) in paragraph (4)(B)(i) by striking ``$2,000'' and
inserting ``$4,000'',
(2) in paragraph (5) by striking ``$2,000'' and inserting
``$4,000'', and
(3) in paragraph (6) by striking ``$900'' and inserting
``$1,800''.
(d) Exemptions.--Section 522(d) of title 11, United States
Code, is amended--
(1) in paragraph (1) by striking ``$7,500'' and inserting
``$15,000'',
(2) in paragraph (2) by striking ``$1,200'' and inserting
``$2,400'',
(3) in paragraph (3)--
(A) by striking ``$200'' and inserting ``$400'', and
(B) by striking ``$4,000'' and inserting ``$8,000'',
(4) in paragraph (4) by striking ``$500'' and inserting
``$1,000'',
(5) in paragraph (5)--
(A) by striking ``$400'' and inserting ``$800'', and
(B) by striking ``$3,750'' and inserting ``$7,500'',
(6) in paragraph (6) by striking ``$750'' and inserting
``$1,500'',
(7) in paragraph (8) by striking ``$4,000'' and inserting
``$8,000'', and
(8) in paragraph (11)(D) by striking ``$7,500'' and
inserting ``$15,000''.
(e) Future Adjustments.--Section 104 of title 11, United
States Code, is amended--
(1) by inserting ``(a)'' before ``The'', and
(2) by adding at the end the following:
``(b)(1) On April 1, 1998, and at each 3-year interval
ending on April 1 thereafter, each dollar amount in effect
under sections 109(e), 303(b), 507(a), 522(d), and
523(a)(2)(C) immediately before such April 1 shall be
adjusted--
``(A) to reflect the change in the Consumer Price Index for
All Urban Consumers, published by the Department of Labor,
for the most recent 3-year period ending immediately before
January 1 preceding such April 1, and
``(B) to round to the nearest $25 the dollar amount that
represents such change.
``(2) Not later than March 1, 1998, and at each 3-year
interval ending on March 1 thereafter, the Judicial
Conference of the United States shall publish in the Federal
Register the dollar amounts that will become effective on
such April 1 under sections 109(e), 303(b), 507(a), 522(d),
and 523(a)(2)(C) of this title.
``(3) Adjustments made in accordance with paragraph (1)
shall not apply with respect to cases commenced before the
date of such adjustments.''.
SEC. 109. PREMERGER NOTIFICATION.
Subparagraphs (A) and (B) of section 363(b)(2) of title 11,
United States Code, are amended to read as follows:
``(A) notwithstanding subsection (a) of such section, the
notification required by such subsection to be given by the
debtor shall be given by the trustee; and
``(B) notwithstanding subsection (b) of such section, the
required waiting period shall end on the 15th day after the
date of the receipt, by the Federal Trade Commission and the
Assistant Attorney General in charge of the Antitrust
Division of the Department of Justice, of the notification
required under such subsection (a), unless such waiting
period is extended--
``(i) pursuant to subsection (e)(2) of such section, in the
same manner as such subsection (e)(2) applies to a cash
tender offer;
``(ii) pursuant to subsection (g)(2) of such section; or
``(iii) by the court after notice and a hearing.''.
SEC. 110. ALLOWANCE OF CREDITOR COMMITTEE EXPENSES.
Section 503(b)(3) of title 11, United States Code, is
amended--
(1) in subparagraph (D) by striking ``or'' at the end,
(2) in subparagraph (E) by inserting ``or'' at the end, and
(3) by adding at the end the following:
``(F) a member of a committee appointed under section 1102
of this title, if such expenses are incurred in the
performance of the duties of such committee;''.
SEC. 111. SUPPLEMENTAL INJUNCTIONS.
(a) Supplemental Injunctions.--Section 524 of title 11,
United States Code, is amended by adding at the end the
following:
``(g)(1)(A) After notice and hearing, a court that enters
an order confirming a plan of reorganization under chapter 11
may issue, in connection with such order, an injunction in
accordance with this subsection to supplement the injunctive
effect of a discharge under this section.
``(B) An injunction may be issued under subparagraph (A) to
enjoin entities from taking legal action for the purpose of
directly or indirectly collecting, recovering, or receiving
payment or recovery with respect to any claim or demand that,
under a plan of reorganization, is to be paid in whole or in
part by a trust described in paragraph (2)(B)(i), except such
legal actions as are expressly allowed by the injunction, the
confirmation order, or the plan of reorganization.
``(2)(A) Subject to subsection (h), if the requirements of
subparagraph (B) are met at the time an injunction described
in paragraph (1) is entered, then after entry of such
injunction, any proceeding that involves the validity,
application, construction, or modification of such
injunction, or of this subsection with respect to such
injunction, may be commenced only in the district court in
which such injunction was entered, and such court shall have
exclusive jurisdiction over any such proceeding without
regard to the amount in controversy.
``(B) The requirements of this subparagraph are that--
``(i) the injunction is to be implemented in connection
with a trust that, pursuant to the plan of reorganization--
``(I) is to assume the liabilities of a debtor which at the
time of entry of the order for relief has been named as a
defendant in personal injury, wrongful death, or property-
damage actions seeking recovery for damages allegedly caused
by the presence of, or exposure to, asbestos or asbestos-
containing products;
``(II) is to be funded in whole or in part by the
securities of 1 or more debtors involved in such plan and by
the obligation of such debtor or debtors to make future
payments, including dividends;
``(III) is to own, or by the exercise of rights granted
under such plan would be entitled to own if specified
contingencies occur, a majority of the voting shares of--
``(aa) each such debtor;
``(bb) the parent corporation of each such debtor; or
``(cc) a subsidiary of each such debtor that is also a
debtor; and
``(IV) is to use its assets or income to pay claims and
demands; and
``(ii) subject to subsection (h), the court determines
that--
``(I) the debtor is likely to be subject to substantial
future demands for payment arising out of the same or similar
conduct or events that gave rise to the claims that are
addressed by the injunction;
``(II) the actual amounts, numbers, and timing of such
future demands cannot be determined;
``(III) pursuit of such demands outside the procedures
prescribed by such plan is likely to threaten the plan's
purpose to deal equitably with claims and future demands;
``(IV) as part of the process of seeking confirmation of
such plan--
``(aa) the terms of the injunction proposed to be issued
under paragraph (1)(A), including any provisions barring
actions against third parties pursuant to paragraph (4)(A),
are set out in such plan and in any disclosure statement
supporting the plan; and
``(bb) a separate class or classes of the claimants whose
claims are to be addressed by a trust described in clause (i)
is established and votes, by at least 75 percent of those
voting, in favor of the plan; and
``(V) subject to subsection (h), pursuant to court orders
or otherwise, the trust will operate through mechanisms such
as structured, periodic, or supplemental payments, pro rata
distributions, matrices, or periodic review of estimates of
the numbers and values of present claims and future demands,
or other comparable mechanisms, that provide reasonable
assurance that the trust will value, and be in a financial
position to pay, present claims and future demands that
involve similar claims in substantially the same manner.
``(3)(A) If the requirements of paragraph (2)(B) are met
and the order confirming the plan of reorganization was
issued or affirmed by the district court that has
jurisdiction over the reorganization case, then after the
time for appeal of the order that issues or affirms the
plan--
``(i) the injunction shall be valid and enforceable and may
not be revoked or modified by any court except through appeal
in accordance with paragraph (6);
``(ii) no entity that pursuant to such plan or thereafter
becomes a direct or indirect transferee of, or successor to
any assets of, a debtor or trust that is the subject of the
injunction shall be liable with respect to any claim or
demand made against such entity by reason of its becoming
such a transferee or successor; and
``(iii) no entity that pursuant to such plan or thereafter
makes a loan to such a debtor or trust or to such a successor
or transferee shall, by reason of making the loan, be liable
with respect to any claim or demand made against such entity,
nor shall any pledge of assets made in connection with such a
loan be upset or impaired for that reason;
``(B) Subparagraph (A) shall not be construed to--
``(i) imply that an entity described in subparagraph (A)
(ii) or (iii) would, if this paragraph were not applicable,
necessarily be liable to any entity by reason of any of the
acts described in subparagraph (A);
``(ii) relieve any such entity of the duty to comply with,
or of liability under, any Federal or State law regarding the
making of a fraudulent conveyance in a transaction described
in subparagraph (A) (ii) or (iii); or
``(iii) relieve a debtor of the debtor's obligation to
comply with the terms of the plan of reorganization, or
affect the power of the court to exercise its authority under
sections 1141 and 1142 to compel the debtor to do so.
``(4)(A)(i) Subject to subparagraph (B), an injunction
described in paragraph (1) shall be valid and enforceable
against all entities that it addresses.
``(ii) Notwithstanding the provisions of section 524(e),
such an injunction may bar any action directed against a
third party who is identifiable from the terms of such
injunction (by name or as part of an identifiable group) and
is alleged to be directly or indirectly liable for the
conduct of, claims against, or demands on the debtor to the
extent such alleged liability of such third party arises by
reason of--
``(I) the third party's ownership of a financial interest
in the debtor, a past or present affiliate of the debtor, or
a predecessor in interest of the debtor;
``(II) the third party's involvement in the management of
the debtor or a predecessor in interest of the debtor, or
service as an officer, director or employee of the debtor or
a related party;
``(III) the third party's provision of insurance to the
debtor or a related party; or
``(IV) the third party's involvement in a transaction
changing the corporate structure, or in a loan or other
financial transaction affecting the financial condition, of
the debtor or a related party, including but not limited to--
``(aa) involvement in providing financing (debt or equity),
or advice to an entity involved in such a transaction; or
``(bb) acquiring or selling a financial interest in an
entity as part of such a transaction.
``(iii) As used in this subparagraph, the term `related
party' means--
``(I) a past or present affiliate of the debtor;
``(II) a predecessor in interest of the debtor; or
``(III) any entity that owned a financial interest in--
``(aa) the debtor;
``(bb) a past or present affiliate of the debtor; or
``(cc) a predecessor in interest of the debtor.
``(B) Subject to subsection (h), if, under a plan of
reorganization, a kind of demand described in such plan is to
be paid in whole or in part by a trust described in paragraph
(2)(B)(i) in connection with which an injunction described in
paragraph (1) is to be implemented, then such injunction
shall be valid and enforceable with respect to a demand of
such kind made, after such plan is confirmed, against the
debtor or debtors involved, or against a third party
described in subparagraph (A)(ii), if--
``(i) as part of the proceedings leading to issuance of
such injunction, the court appoints a legal representative
for the purpose of protecting the rights of persons that
might subsequently assert demands of such kind, and
``(ii) the court determines, before entering the order
confirming such plan, that identifying such debtor or
debtors, or such third party (by name or as part of an
identifiable group), in such injunction with respect to such
demands for purposes of this subparagraph is fair and
equitable with respect to the persons that might subsequently
assert such demands, in light of the benefits provided, or to
be provided, to such trust on behalf of such debtor or
debtors or such third party.
``(5) In this subsection, the term `demand' means a demand
for payment, present or future, that--
``(A) was not a claim during the proceedings leading to the
confirmation of a plan of reorganization;
``(B) arises out of the same or similar conduct or events
that gave rise to the claims addressed by the injunction
issued under paragraph (1); and
``(C) pursuant to the plan, is to be paid by a trust
described in paragraph (2)(B)(i).
``(6) Paragraph (3)(A)(i) does not bar an action taken by
or at the direction of an appellate court on appeal of an
injunction issued under paragraph (1) or of the order of
confirmation that relates to the injunction.
``(7) This subsection does not affect the operation of
section 1144 or the power of the district court to refer a
proceeding under section 157 of title 28 or any reference of
a proceeding made prior to the date of the enactment of this
subsection.
``(h) Application to Existing Injunctions.--For purposes of
subsection (g)--
``(1) subject to paragraph (2), if an injunction of the
kind described in subsection (g)(1)(B) was issued before the
date of the enactment of this Act, as part of a plan of
reorganization confirmed by an order entered before such
date, then the injunction shall be considered to meet the
requirements of subsection (g)(2)(B) for purposes of
subsection (g)(2)(A), and to satisfy subsection
(g)(4)(A)(ii), if--
``(A) the court determined at the time the plan was
confirmed that the plan was fair and equitable in accordance
with the requirements of section 1129(b);
``(B) as part of the proceedings leading to issuance of
such injunction and confirmation of such plan, the court had
appointed a legal representative for the purpose of
protecting the rights of persons that might subsequently
assert demands described in subsection (g)(4)(B) with respect
to such plan; and
``(C) such legal representative did not object to
confirmation of such plan or issuance of such injunction; and
``(2) for purposes of paragraph (1), if a trust described
in subsection (g)(2)(B)(i) is subject to a court order on the
date of the enactment of this Act staying such trust from
settling or paying further claims--
``(A) the requirements of subsection (g)(2)(B)(ii)(V) shall
not apply with respect to such trust until such stay is
lifted or dissolved; and
``(B) if such trust meets such requirements on the date
such stay is lifted or dissolved, such trust shall be
considered to have met such requirements continuously from
the date of the enactment of this Act.''.
(b) Rule of Construction.--Nothing in subsection (a), or in
the amendments made by subsection (a), shall be construed to
modify, impair, or supersede any other authority the court
has to issue injunctions in connection with an order
confirming a plan of reorganization.
SEC. 112. AUTHORITY OF BANKRUPTCY JUDGES TO CONDUCT JURY
TRIALS IN CIVIL PROCEEDINGS.
Section 157 of title 28, United States Code, is amended by
adding at the end the following:
``(e) If the right to a jury trial applies in a proceeding
that may be heard under this section by a bankruptcy judge,
the bankruptcy judge may conduct the jury trial if specially
designated to exercise such jurisdiction by the district
court and with the express consent of all the parties.''.
SEC. 113. SOVEREIGN IMMUNITY.
Section 106 of title 11, United States Code, is amended to
read as follows:
``Sec. 106. Waiver of sovereign immunity
``(a) Notwithstanding an assertion of sovereign immunity,
sovereign immunity is abrogated as to a governmental unit to
the extent set forth in this section with respect to the
following:
``(1) Sections 105, 106, 107, 108, 303, 346, 362, 363, 364,
365, 366, 502, 503, 505, 506, 510, 522, 523, 524, 525, 542,
543, 544, 545, 546, 547, 548, 549, 550, 551, 552, 553, 722,
724, 726, 728, 744, 749, 764, 901, 922, 926, 928, 929, 944,
1107, 1141, 1142, 1143, 1146, 1201, 1203, 1205, 1206, 1227,
1231, 1301, 1303, 1305, and 1327 of this title.
``(2) The court may hear and determine any issue arising
with respect to the application of such sections to
governmental units.
``(3) The court may issue against a governmental unit an
order, process, or judgment under such sections or the
Federal Rules of Bankruptcy Procedure, including an order or
judgment awarding a money recovery, but not including an
award of punitive damages. Such order or judgment for costs
or fees under this title or the Federal Rules of Bankruptcy
Procedure against any governmental unit shall be consistent
with the provisions and limitations of section 2412(d)(2)(A)
of title 28.
``(4) The enforcement of any such order, process, or
judgment against any governmental unit shall be consistent
with appropriate nonbankruptcy law applicable to such
governmental unit and, in the case of a money judgment
against the United States, shall be paid as if it is a
judgment rendered by a district court of the United States.
``(5) Nothing in this section shall create any substantive
claim for relief or cause of action not otherwise existing
under this title, the Federal Rules of Bankruptcy Procedure,
or nonbankruptcy law.
``(b) A governmental unit that has filed a proof of claim
in the case is deemed to have waived sovereign immunity with
respect to a claim against such governmental unit that is
property of the estate and that arose out of the same
transaction or occurrence out of which the claim of such
governmental unit arose.
``(c) Notwithstanding any assertion of sovereign immunity
by a governmental unit, there shall be offset against a claim
or interest of a governmental unit any claim against such
governmental unit that is property of the estate.''.
SEC. 114. SERVICE OF PROCESS IN BANKRUPTCY PROCEEDINGS ON AN
INSURED DEPOSITORY INSTITUTION.
Rule 7004 of the Federal Rules of Bankruptcy Procedure is
amended--
(1) in subdivision (b) by striking ``In addition'' and
inserting ``Except as provided in subdivision (h), in
addition'', and
(2) by adding at the end the following:
``(h) Service of Process on an Insured Depository
Institution.--Service on an insured depository institution
(as defined in section 3 of the Federal Deposit Insurance
Act) in a contested matter or adversary proceeding shall be
made by certified mail addressed to an officer of the
institution unless--
``(1) the institution has appeared by its attorney, in
which case the attorney shall be served by first class mail;
``(2) the court orders otherwise after service upon the
institution by certified mail of notice of an application to
permit service on the institution by first class mail sent to
an officer of the institution designated by the institution;
or
``(3) the institution has waived in writing its entitlement
to service by certified mail by designating an officer to
receive service.''.
SEC. 115. MEETINGS OF CREDITORS AND EQUITY SECURITY HOLDERS.
Section 341 of title 11, United States Code, is amended by
adding at the end the following:
``(d) Prior to the conclusion of the meeting of creditors
or equity security holders, the trustee shall orally examine
the debtor to ensure that the debtor in a case under chapter
7 of this title is aware of--
``(1) the potential consequences of seeking a discharge in
bankruptcy, including the effects on credit history;
``(2) the debtor's ability to file a petition under a
different chapter of this title;
``(3) the effect of receiving a discharge of debts under
this title; and
``(4) the effect of reaffirming a debt, including the
debtor's knowledge of the provisions of section 524(d) of
this title.''.
SEC. 116. TAX ASSESSMENT.
Section 362(b)(9) of title 11, United States Code, is
amended to read as follows:
``(9) under subsection (a), of--
``(A) an audit by a governmental unit to determine tax
liability;
``(B) the issuance to the debtor by a governmental unit of
a notice of tax deficiency;
``(C) a demand for tax returns; or
``(D) the making of an assessment for any tax and issuance
of a notice and demand for payment of such an assessment (but
any tax lien that would otherwise attach to property of the
estate by reason of such an assessment shall not take effect
unless such tax is a debt of the debtor that will not be
discharged in the case and such property or its proceeds are
transferred out of the estate to, or otherwise revested in,
the debtor).''.
SEC. 117. ADDITIONAL TRUSTEE COMPENSATION.
Section 330(b) of title 11, United States Code, is
amended--
(1) by inserting ``(1)'' after ``(b)'', and
(2) by adding at the end thereof the following:
``(2) The Judicial Conference of the United States--
``(A) shall prescribe additional fees of the same kind as
prescribed under section 1914(b) of title 28; and
``(B) may prescribe notice of appearance fees and fees
charged against distributions in cases under this title;
to pay $15 to trustees serving in cases after such trustees'
services are rendered. Beginning 1 year after the date of the
enactment of the Bankruptcy Reform Act of 1994, such $15
shall be paid in addition to the amount paid under paragraph
(1).''.
TITLE II--COMMERCIAL BANKRUPTCY ISSUES
SEC. 201. AIRCRAFT EQUIPMENT AND VESSELS; ROLLING STOCK
EQUIPMENT.
(a) Amendment of Section 1110.--Section 1110 of title 11,
United States Code, is amended to read as follows:
``Sec. 1110. Aircraft equipment and vessels
``(a)(1) The right of a secured party with a security
interest in equipment described in paragraph (2) or of a
lessor or conditional vendor of such equipment to take
possession of such equipment in compliance with a security
agreement, lease, or conditional sale contract is not
affected by section 362, 363, or 1129 or by any power of the
court to enjoin the taking of possession unless--
``(A) before the date that is 60 days after the date of the
order for relief under this chapter, the trustee, subject to
the court's approval, agrees to perform all obligations of
the debtor that become due on or after the date of the order
under such security agreement, lease, or conditional sale
contract; and
``(B) any default, other than a default of a kind specified
in section 365(b)(2), under such security agreement, lease,
or conditional sale contract--
``(i) that occurs before the date of the order is cured
before the expiration of such 60-day period; and
``(ii) that occurs after the date of the order is cured
before the later of--
``(I) the date that is 30 days after the date of the
default; or
``(II) the expiration of such 60-day period.
``(2) Equipment is described in this paragraph if it is--
``(A) an aircraft, aircraft engine, propeller, appliance,
or spare part (as defined in section 40102 of title 49) that
is subject to a security interest granted by, leased to, or
conditionally sold to a debtor that is a citizen of the
United States (as defined in 40102 of title 49) holding an
air carrier operating certificate issued by the Secretary of
Transportation pursuant to chapter 447 of title 49 for
aircraft capable of carrying 10 or more individuals or 6,000
pounds or more of cargo; or
``(B) a documented vessel (as defined in section 30101(1)
of title 46) that is subject to a security interest granted
by, leased to, or conditionally sold to a debtor that is a
water carrier that holds a certificate of public convenience
and necessity or permit issued by the Interstate Commerce
Commission.
``(3) Paragraph (1) applies to a secured party, lessor, or
conditional vendor acting in its own behalf or acting as
trustee or otherwise in behalf of another party.
``(b) The trustee and the secured party, lessor, or
conditional vendor whose right to take possession is
protected under subsection (a) may agree, subject to the
court's approval, to extend the 60-day period specified in
subsection (a)(1).
``(c) With respect to equipment first placed in service on
or prior to the date of enactment of this subsection, for
purposes of this section--
``(1) the term `lease' includes any written agreement with
respect to which the lessor and the debtor, as lessee, have
expressed in the agreement or in a substantially
contemporaneous writing that the agreement is to be treated
as a lease for Federal income tax purposes; and
``(2) the term `security interest' means a purchase-money
equipment security interest.''.
(b) Amendment of Section 1168.--Section 1168 of title 11,
United States Code, is amended to read as follows:
``Sec. 1168. Rolling stock equipment
``(a)(1) The right of a secured party with a security
interest in or of a lessor or conditional vendor of equipment
described in paragraph (2) to take possession of such
equipment in compliance with an equipment security agreement,
lease, or conditional sale contract is not affected by
section 362, 363, or 1129 or by any power of the court to
enjoin the taking of possession, unless--
``(A) before the date that is 60 days after the date of
commencement of a case under this chapter, the trustee,
subject to the court's approval, agrees to perform all
obligations of the debtor that become due on or after the
date of commencement of the case under such security
agreement, lease, or conditional sale contract; and
``(B) any default, other than a default of a kind described
in section 365(b)(2), under such security agreement, lease,
or conditional sale contract--
``(i) that occurs before the date of commencement of the
case and is an event of default therewith is cured before the
expiration of such 60-day period; and
``(ii) that occurs or becomes an event of default after the
date of commencement of the case is cured before the later
of--
``(I) the date that is 30 days after the date of the
default or event of default; or
``(II) the expiration of such 60-day period.
``(2) Equipment is described in this paragraph if it is
rolling stock equipment or accessories used on such
equipment, including superstructures and racks, that is
subject to a security interest granted by, leased to, or
conditionally sold to the debtor.
``(3) Paragraph (1) applies to a secured party, lessor, or
conditional vendor acting in its own behalf or acting as
trustee or otherwise in behalf of another party.
``(b) The trustee and the secured party, lessor, or
conditional vendor whose right to take possession is
protected under subsection (a) may agree, subject to the
court's approval, to extend the 60-day period specified in
subsection (a)(1).
``(c) With respect to equipment first placed in service on
or prior to the date of enactment of this subsection, for
purposes of this section--
``(1) the term `lease' includes any written agreement with
respect to which the lessor and the debtor, as lessee, have
expressed in the agreement or in a substantially
contemporaneous writing that the agreement is to be treated
as a lease for Federal income tax purposes; and
``(2) the term `security interest' means a purchase-money
equipment security interest.
``(d) With respect to equipment first placed in service
after the date of enactment of this subsection, for purposes
of this section, the term `rolling stock equipment' includes
rolling stock equipment that is substantially rebuilt and
accessories used on such equipment.''.
SEC. 202. LIMITATION ON LIABILITY OF NON-INSIDER TRANSFEREE
FOR AVOIDED TRANSFER.
Section 550 of title 11, United States Code, is amended--
(1) by redesignating subsections (c), (d), and (e) as
subsections (d), (e), and (f), respectively, and
(2) by inserting after subsection (b) the following:
``(c) If a transfer made between 90 days and one year
before the filing of the petition--
``(1) is avoided under section 547(b) of this title; and
``(2) was made for the benefit of a creditor that at the
time of such transfer was an insider;
the trustee may not recover under subsection (a) from a
transferee that is not an insider.''.
SEC. 203. PERFECTION OF PURCHASE-MONEY SECURITY INTEREST.
Section 547 of title 11, United States Code, is amended--
(1) in subsection (c)(3)(B) by striking ``10'' and
inserting ``20'', and
(2) in subsection (e)(2)(A) by inserting ``, except as
provided in subsection (c)(3)(B)'' before the semicolon at
the end.
SEC. 204. CONTINUED PERFECTION.
(a) Automatic Stay.--Section 362(b)(3) of title 11, United
States Code, is amended by inserting ``, or to maintain or
continue the perfection of,'' after ``to perfect''.
(b) Limitations On Avoiding Powers.--Section 546(b) of
title 11, United States Code, is amended to read as follows:
``(b)(1) The rights and powers of a trustee under sections
544, 545, and 549 of this title are subject to any generally
applicable law that--
``(A) permits perfection of an interest in property to be
effective against an entity that acquires rights in such
property before the date of perfection; or
``(B) provides for the maintenance or continuation of
perfection of an interest in property to be effective against
an entity that acquires rights in such property before the
date on which action is taken to effect such maintenance or
continuation.
``(2) If--
``(A) a law described in paragraph (1) requires seizure of
such property or commencement of an action to accomplish such
perfection, or maintenance or continuation of perfection of
an interest in property; and
``(B) such property has not been seized or such an action
has not been commenced before the date of the filing of the
petition;
such interest in such property shall be perfected, or
perfection of such interest shall be maintained or continued,
by giving notice within the time fixed by such law for such
seizure or such commencement.''.
SEC. 205. REJECTION OF UNEXPIRED LEASES OF REAL PROPERTY OR
TIMESHARE INTERESTS.
(a) Amendment to Section 365.--Section 365(h) of title 11,
United States Code, is amended to read as follows:
``(h)(1)(A) If the trustee rejects an unexpired lease of
real property under which the debtor is the lessor and--
``(i) if the rejection by the trustee amounts to such a
breach as would entitle the lessee to treat such lease as
terminated by virtue of its terms, applicable nonbankruptcy
law, or any agreement made by the lessee, then the lessee
under such lease may treat such lease as terminated by the
rejection; or
``(ii) if the term of such lease has commenced, the lessee
may retain its rights under such lease (including rights such
as those relating to the amount and timing of payment of rent
and other amounts payable by the lessee and any right of use,
possession, quiet enjoyment, subletting, assignment, or
hypothecation) that are in or appurtenant to the real
property for the balance of the term of such lease and for
any renewal or extension of such rights to the extent that
such rights are enforceable under applicable nonbankruptcy
law.
``(B) If the lessee retains its rights under subparagraph
(A)(ii), the lessee may offset against the rent reserved
under such lease for the balance of the term after the date
of the rejection of such lease and for the term of any
renewal or extension of such lease, the value of any damage
caused by the nonperformance after the date of such
rejection, of any obligation of the debtor under such lease,
but the lessee shall not have any other right against the
estate or the debtor on account of any damage occurring after
such date caused by such nonperformance.
``(C) The rejection of a lease of real property in a
shopping center with respect to which the lessee elects to
retain its rights under subparagraph (A)(ii) does not affect
the enforceability under applicable nonbankruptcy law of any
provision in the lease pertaining to radius, location, use,
exclusivity, or tenant mix or balance.
``(D) In this paragraph, `lessee' includes any successor,
assign, or mortgagee permitted under the terms of such lease.
``(2)(A) If the trustee rejects a timeshare interest under
a timeshare plan under which the debtor is the timeshare
interest seller and--
``(i) if the rejection amounts to such a breach as would
entitle the timeshare interest purchaser to treat the
timeshare plan as terminated under its terms, applicable
nonbankruptcy law, or any agreement made by timeshare
interest purchaser, the timeshare interest purchaser under
the timeshare plan may treat the timeshare plan as terminated
by such rejection; or
``(ii) if the term of such timeshare interest has
commenced, then the timeshare interest purchaser may retain
its rights in such timeshare interest for the balance of such
term and for any term of renewal or extension of such
timeshare interest to the extent that such rights are
enforceable under applicable nonbankruptcy law.
``(B) If the timeshare interest purchaser retains its
rights under subparagraph (A), such timeshare interest
purchaser may offset against the moneys due for such
timeshare interest for the balance of the term after the date
of the rejection of such timeshare interest, and the term of
any renewal or extension of such timeshare interest, the
value of any damage caused by the nonperformance after the
date of such rejection, of any obligation of the debtor under
such timeshare plan, but the timeshare interest purchaser
shall not have any right against the estate or the debtor on
account of any damage occurring after such date caused by
such nonperformance.''.
(b) Technical Amendment.--Section 553(b)(1) of title 11,
United States Code, is amended by striking ``365(h)(2)'' and
inserting ``365(h)''.
SEC. 206. CONTENTS OF PLAN.
Section 1123(b) of title 11, United States Code, is
amended--
(1) in paragraph (4) by striking ``and'' at the end,
(2) by redesignating paragraph (5) as paragraph (6), and
(3) by inserting after paragraph (4) the following:
``(5) modify the rights of holders of secured claims, other
than a claim secured only by a security interest in real
property that is the debtor's principal residence, or of
holders of unsecured claims, or leave unaffected the rights
of holders of any class of claims; and''.
SEC. 207. PRIORITY FOR INDEPENDENT SALES REPRESENTATIVES.
Section 507(a)(3) of title 11, United States Code, is
amended to read as follows:
``(3) Third, allowed unsecured claims, but only to the
extent of $4,000 for each individual or corporation, as the
case may be, earned within 90 days before the date of the
filing of the petition or the date of the cessation of the
debtor's business, whichever occurs first, for--
``(A) wages, salaries, or commissions, including vacation,
severance, and sick leave pay earned by an individual; or
``(B) sales commissions earned by an individual or by a
corporation with only 1 employee, acting as an independent
contractor in the sale of goods or services for the debtor in
the ordinary course of the debtor's business if, and only if,
during the 12 months preceding that date, at least 75 percent
of the amount that the individual or corporation earned by
acting as an independent contractor in the sale of goods or
services was earned from the debtor;''.
SEC. 208. EXCLUSION FROM THE ESTATE OF INTERESTS IN LIQUID
AND GASEOUS HYDROCARBONS TRANSFERRED BY THE
DEBTOR PURSUANT TO PRODUCTION PAYMENT
AGREEMENTS.
(a) Definition.--Section 101 of title 11, United States
Code, is amended--
(1) by inserting after paragraph (42) the following:
``(42A) `production payment' means a term overriding
royalty satisfiable in cash or in kind--
``(A) contingent on the production of a liquid or gaseous
hydrocarbon from particular real property; and
``(B) from a specified volume, or a specified value, from
the liquid or gaseous hydrocarbon produced from such
property, and determined without regard to production
costs;'', and
(2) by inserting after the first paragraph (56) the
following:
``(56A) `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;''.
(b) Property of the Estate.--Section 541(b)(4) of title 11,
United States Code, is amended--
(1) in subparagraph (A) by striking ``(A)'' and inserting
``(A)(i)'',
(2) in subparagraph (B)--
(A) by striking ``(B)'' and inserting ``(ii),
(B) by striking ``such interest'' and inserting ``the
interest referred to in clause (i)'', and
(C) by striking the period at the end and inserting ``;
or'', and
(3) by adding at the end the following:
``(B)(i) the debtor has transferred such interest pursuant
to a written conveyance of a production payment to an entity
that does not participate in the operation of the property
from which such production payment is transferred; and
``(ii) but for the operation of this paragraph, the estate
could include the interest referred to in clause (i) only by
virtue of section 542 of this title;''.
SEC. 209. SELLER'S RIGHT TO RECLAIM GOODS.
Section 546(c)(1) of title 11, United States Code, is
amended to read as follows:
``(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''.
SEC. 210. INVESTMENT OF MONEY OF THE ESTATE.
Section 345(b) of title 11, United States Code, is
amended--
(1) in paragraph (2) by striking the period at the end and
inserting a semicolon, and
(2) by adding at the end the following:
``unless the court for cause orders otherwise.''.
SEC. 211. ELECTION OF TRUSTEE UNDER CHAPTER 11.
(a) Election Authorized.--Section 1104 of title 11 of the
United States Code is amended--
(1) by redesignating subsections (b) and (c) as subsections
(c) and (d), respectively, and
(2) by inserting after subsection (a) the following:
``(b) 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.''.
(b) Conforming Amendment.--Section 1106(b) of title 11,
United States Code, is amended by striking ``1104(c)'' and
inserting ``1104(d)''.
SEC. 212. RIGHTS OF PARTNERSHIP TRUSTEE AGAINST GENERAL
PARTNERS.
Section 723(a) of title 11, United States Code, is amended
by striking ``for the full amount of the deficiency'' and
inserting ``to the extent that under applicable nonbankruptcy
law such general partner is personally liable for such
deficiency''.
SEC. 213. IMPAIRMENT OF CLAIMS AND INTERESTS.
(a) Objection to Claims Filed Untimely.--Section 502(b) of
title 11, United States Code, is amended--
(1) in paragraph (7) by striking ``or'' at the end,
(2) in paragraph (8) by striking the period at the end and
inserting ``; or'', and
(3) by adding at the end the following:
``(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.''.
(b) Tardily Filed Priority Claims.--Section 726(a)(1) of
title 11, United States Code, is amended by adding before the
semicolon the following: ``, 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''.
(c) Filing of Request for Administrative Expenses.--Section
503(a) of title 11, United States Code, is amended--
(1) by inserting ``timely'' after ``may'', and
(2) by inserting ``, or may tardily file such request if
permitted by the court for cause'' before the period at the
end.
(d) Impairment of Claims or Interests.--Section 1124 of
title 11, United States Code, is amended--
(1) in paragraph (1) by inserting ``or'' at the end,
(2) in paragraph (2) by striking ``; or'' at the end and
inserting a period, and
(3) by striking paragraph (3).
SEC. 214. PROTECTION OF SECURITY INTEREST IN POST-PETITION
RENTS AND LODGING PAYMENTS.
(a) Postpetition Effect of Security Interest.--Section
552(b) of title 11, United States Code, is amended--
(1) by inserting ``(1)'' after ``(b)'',
(2) by striking ``rents,'' each place it appears, and
(3) by adding at the end the following:
``(2) Except as provided in sections 363, 506(c), 522, 544,
545, 547, and 548 of this title, and notwithstanding section
546(b) 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 amounts paid as rents of
such property or the fees, charges, accounts, or other
payments for the use or occupancy of rooms and other public
facilities in hotels, motels, or other lodging properties,
then such security interest extends to such rents and such
fees, charges, accounts, or other payments acquired by the
estate after the commencement of the case to the extent
provided in such security agreement, except to any extent
that the court, after notice and a hearing and based on the
equities of the case, orders otherwise.''.
(b) Use Sale, or Lease of Property.--Section 363(a) of
title 11, United States Code, is amended by inserting: ``and
the fees, charges, accounts or other payments for the use or
occupancy of rooms and other public facilities in hotels,
motels, or other lodging properties'' after ``property''.
SEC. 215. AMENDMENT TO DEFINITION OF SWAP AGREEMENT.
Subparagraph (A) of the first paragraph (55) of section 101
of title 11, United States Code, is amended by inserting
``spot foreign exchange agreement,'' after ``forward foreign
exchange agreement,''.
SEC. 216. LIMITATION ON AVOIDING POWERS.
Section 546(a)(1) of title 11, United States Code, is
amended to read as follows:
``(1) the later of--
``(A) 2 years after the entry of the order for relief; or
``(B) 1 year after the appointment or election of the first
trustee under section 702, 1104, 1163, 1202, or 1302 of this
title if such appointment or such election occurs before the
expiration of the period specified in subparagraph (A); or''.
SEC. 217. SMALL BUSINESSES.
(a) Definition.--Section 101 of title 11, United States
Code, is amended by inserting after paragraph (51) the
following:
``(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;''.
(b) Creditors' Committees.--Section 1102(a) of title 11,
United States Code, is amended--
(1) in paragraph (1) by striking ``As'' and inserting
``Except as provided in paragraph (3), as''; and
(2) by adding at the end the following:
``(3) On request of a party in interest in a case in which
the debtor is a small business and for cause, the court may
order that a committee of creditors not be appointed.''.
(c) Conversion or Dismissal.--Section 1112(b) of title 11,
United States Code, is amended by inserting ``or bankruptcy
administrator'' after ``United States trustee''.
(d) Who May File a Plan.--Section 1121 of title 11, United
States Code, is amended by adding at the end the following:
``(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) Postpetition Disclosure.--Section 1125 of title 11,
United States Code, is amended by adding at the end the
following:
``(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.''.
SEC. 218. SINGLE ASSET REAL ESTATE.
(a) Definition.--Section 101 of title 11, United States
Code, is amended by inserting after paragraph (51) the
following:
``(51B) `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 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;''.
(b) Automatic Stay.--Section 362(d) of title 11, United
States Code, is amended--
(1) in paragraph (1) by striking ``or'' at the end,
(2) in paragraph (2) by striking the period at the end and
inserting ``; or'', and
(3) by adding at the end the following:
``(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)--
``(A) the debtor has filed a plan of reorganization that
has a reasonable possibility of being confirmed within a
reasonable time; or
``(B) the debtor has commenced monthly payments to each
creditor whose claim is secured by such real estate (other
than a claim secured by a judgment lien or by an unmatured
statutory lien), which payments are in an amount equal to
interest at a current fair market rate on the value of the
creditor's interest in the real estate.''.
SEC. 219. LEASES OF PERSONAL PROPERTY.
(a) Assumption.--Section 365(b)(2) of title 11, United
States Code is amended--
(1) in subparagraph (B) by striking ``or'' at the end,
(2) in subparagraph (C) by striking the period and
inserting ``; or'',
(3) by adding at the end the following:
``(D) the satisfaction of any penalty rate or provision
relating to a default arising from any failure by the debtor
to perform nonmonetary obligations under the executory
contract or unexpired lease.''.
(b) Performance.--Section 365(d) of title 11, United States
Code is amended by adding at the end the following:
``(10) 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.''.
(c) Limitation.--Section 363(e) of title 11, United States
Code is amended by adding at the end the following:
``This subsection also applies to property that is subject to
any unexpired lease of personal property (to the exclusion of
such property being subject to an order to grant relief from
the stay under section 362).''.
SEC. 220. EXEMPTION FOR SMALL BUSINESS INVESTMENT COMPANIES.
Section 109(b)(2) of title 11, United States Code, is
amended by inserting after ``homestead association,'' the
following: ``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,''.
SEC. 221. PAYMENT OF TAXES WITH BORROWED FUNDS.
Section 523(a) of title 11, United States Code is amended--
(1) in paragraph (13) by striking the period at the end and
inserting a semicolon, and
(2) by adding at the end the following:
``(14) incurred to pay a tax to the United States that
would be nondischargeable pursuant to paragraph (1);''.
SEC. 222. RETURN OF GOODS.
(a) Limitation on Avoiding Powers.--Section 546 of title
11, United States Code, is amended by adding at the end the
following:
``(g) Notwithstanding the rights and powers of a trustee
under sections 544(a), 545, 547, 549, and 553, if the court
determines on a motion by the trustee made not later than 120
days after the date of the order for relief in a case under
chapter 11 of this title and after notice and a hearing, that
a return is in the best interests of the estate, the debtor,
with the consent of a creditor, may return goods shipped to
the debtor by the creditor before the commencement of the
case, and the creditor may offset the purchase price of such
goods against any claim of the creditor against the debtor
that arose before the commencement of the case.''.
(b) Setoff.--Section 553(b)(1) is amended by inserting
``546(h),'' after ``365(h),''.
SEC. 223. PROCEEDS OF MONEY ORDER AGREEMENTS.
Section 541(b) of title 11, United States Codeis amended--
(1) in paragraph (3) by striking ``or'' at the end and
inserting a semicolon,
(2) in paragraph (4) by striking the period at the end and
inserting ``; or'', and
(3) by inserting after paragraph (4) the following:
``(5) any interest in cash or cash equivalents that
constitute proceeds of a sale by the debtor of a money order
that is made--
``(A) on or after the date that is 14 days prior to the
date on which the petition is filed; and
``(B) under an agreement with a money order issuer that
prohibits the commingling of such proceeds with property of
the debtor (notwithstanding that, contrary to the agreement,
the proceeds may have been commingled with property of the
debtor),
unless the money order issuer had not taken action, prior to
the filing of the petition, to require compliance with the
prohibition.''.
SEC. 224. TRUSTEE DUTIES; PROFESSIONAL FEES.
(a) Trustee's Duties.--Section 586(a)(3)(A) of title 28,
United States Code, is amended to read as follows:
``(A)(i) reviewing, in accordance with procedural
guidelines adopted by the Executive Office of the United
States Trustee (which guidelines shall be applied uniformly
by the United States trustee except when circumstances
warrant different treatment), applications filed for
compensation and reimbursement under section 330 of title 11;
and
``(ii) filing with the court comments with respect to such
application and, if the United States Trustee considers it to
be appropriate, objections to such application.''.
(b) Professional Fees.--Section 330(a) of title 11, United
States Code, is amended to read as follows:
``(a)(1) After notice to the parties in interest and the
United States trustee and a hearing, and subject to sections
326, 328, and 329, the court may award to a trustee, an
examiner, a professional person employed under section 327 or
1103--
``(A) reasonable compensation for actual, necessary
services rendered by the trustee, examiner, professional
person, or attorney and by any paraprofessional person
employed by any such person; and
``(B) reimbursement for actual, necessary expenses.
``(2) The court may, on its own motion or on the motion of
the United States Trustee, the United States Trustee for the
District or Region, the trustee for the estate, or any other
party in interest, award compensation that is less than the
amount of compensation that is requested.
``(3)(A) In determining the amount of reasonable
compensation to be awarded, the court shall consider the
nature, the extent, and the value of such services, taking
into account all relevant factors, including--
``(A) the time spent on such services;
``(B) the rates charged for such services;
``(C) whether the services were necessary to the
administration of, or beneficial at the time at which the
service was rendered toward the completion of, a case under
this title;
``(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) whether the compensation is reasonable based on the
customary compensation charged by comparably skilled
practitioners in cases other than cases under this title.
``(4)(A) Except as provided in subparagraph (B), the court
shall not allow compensation for--
``(i) unnecessary duplication of services; or
``(ii) services that were not--
``(I) reasonably likely to benefit the debtor's estate; or
``(II) necessary to the administration of the case.
``(B) In a chapter 12 or chapter 13 case in which the
debtor is an individual, the court may allow reasonable
compensation to the debtor's attorney for representing the
interests of the debtor in connection with the bankruptcy
case based on a consideration of the benefit and necessity of
such services to the debtor and the other factors set forth
in this section.
``(5) The court shall reduce the amount of compensation
awarded under this section by the amount of any interim
compensation awarded under section 331, and, if the amount of
such interim compensation exceeds the amount of compensation
awarded under this section, may order the return of the
excess to the estate.
``(6) Any compensation awarded for the preparation of a fee
application shall be based on the level and skill reasonably
required to prepare the application.''.
SEC. 225. NOTICES TO CREDITORS.
Section 342 of title 11, United States Code, is amended by
adding at the end the following:
``(c) If notice is required to be given by the debtor to a
creditor under this title, any rule, any applicable law, or
any order of the court, such notice shall contain the name,
address, and taxpayer identification number of the debtor,
but the failure of such notice to contain such information
shall not invalidate the legal effect of such notice.''.
TITLE III--CONSUMER BANKRUPTCY ISSUES
SEC. 301. PERIOD FOR CURING DEFAULT RELATING TO PRINCIPAL
RESIDENCE.
Section 1322 of title 11, United States Code, is amended--
(1) by redesignating subsection (c) as subsection (d), and
(2) by inserting after subsection (b) the following:
``(c) Notwithstanding subsection (b)(2) and applicable
nonbankruptcy law--
``(1) a default with respect to, or that gave rise to, a
lien on the debtor's principal residence may be cured under
paragraph (3) or (5) of subsection (b) until such residence
is sold at a foreclosure sale that is conducted in accordance
with applicable nonbankruptcy law; and
``(2) in a case in which the last payment on the original
payment schedule for a claim secured only by a security
interest in real property that is the debtor's principal
residence is due before the date on which the final payment
under the plan is due, the plan may provide for the payment
of the claim as modified pursuant to section 1325(a)(5) of
this title.''.
SEC. 302. NONDISCHARGEABILITY OF FINE UNDER CHAPTER 13.
Section 1328(a)(3) of title 11, United States Code, is
amended by inserting ``, or a criminal fine,'' after
``restitution''.
SEC. 303. IMPAIRMENT OF EXEMPTIONS.
Section 522(f) of title 11, United States Code, is
amended--
(1) in paragraph (2)--
(A) by redesignating subparagraphs (A), (B), and (C) as
clauses (i), (ii), and (iii), respectively, and
(B) by striking ``(2)'' and inserting ``(B),
(2) by redesignating paragraph (1) as subparagraph (A),
(3) by inserting ``(1)'' before ``Notwithstanding'', and
(4) by adding at the end the following:
``(2)(A) For the purposes of this subsection, a lien shall
be considered to impair an exemption to the extent that the
sum of--
``(i) the lien,
``(ii) all other liens on the property; and
``(iii) the amount of the exemption that the debtor could
claim if there were no liens on the property;
exceeds the value that the debtor's interest in the property
would have in the absence of any liens.
``(B) In the case of a property subject to more than 1
lien, a lien that has been avoided shall not be considered in
making the calculation under subparagraph (A) with respect to
other liens.
``(C) This paragraph shall not apply with respect to a
judgment arising out of a mortgage foreclosure.''.
SEC. 304. PROTECTION OF CHILD SUPPORT AND ALIMONY.
(a) Definition.--Section 101 of title 11, United States
Code, is amended by inserting after paragraph (12) the
following:
``(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;''.
(b) Relief From Automatic Stay.--Section 362(b)(2) of title
11, United States Code, is amended to read as follows:
``(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;''.
(c) Priority of Claims.--Section 507(a) of title 11, United
States Code, is amended--
(1) in paragraph (8) by striking ``(8) Eighth'' and
inserting ``(9) Ninth'',
(2) in paragraph (7) by striking ``(7) Seventh'' and
inserting ``(8) Eighth'', and
(3) by inserting after paragraph (6) the following:
``(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.''.
(d) Protection of Liens.--Section 522(f)(1)(A) of title 11,
United States Code, as amended by section 303, is amended by
inserting after ``lien'' the following:
``, 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.''.
(e) Exception to Discharge.--Section 523 of title 11,
United States Code, as amended by section 221, is amended by
adding at the end the following:
``(15) not of the kind described in paragraph (5) that is
incurred by the debtor in the course of a divorce or
separation or in connection with a separation agreement,
divorce decree or other order of a court of record, a
determination made in accordance with State or territorial
law by a governmental unit unless--
``(A) the debtor does not have the ability to pay such debt
from income or property of the debtor not reasonably
necessary to be expended for the maintenance or support of
the debtor or a dependent of the debtor and, if the debtor is
engaged in a business, for the payment of expenditures
necessary for the continuation, preservation, and operation
of such business; or
``(B) discharging such debt would result in a benefit to
the debtor that outweighs the detrimental consequences to a
spouse, former spouse, or child of the debtor;'', and
(2) in subsection (c)(1) by striking ``or (6)'' each place
it appears and inserting ``(6), or (15)''.
(f) Protection Against Trustee Avoidance.--Section 547(c)
of title 11, United States Code, is amended--
(1) in paragraph (6) by striking ``or'' at the end,
(2) by redesignating paragraph (7) as paragraph (8), and
(3) by inserting after paragraph (6) the following:
``(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''.
(g) Appearance Before Court.--Child support creditors or
their representatives shall be permitted to appear and
intervene without charge, and without meeting any special
local court rule requirement for attorney appearances, in any
bankruptcy case or proceeding in any bankruptcy court or
district court of the United States if such creditors or
representatives file a form in such court that contains
information detailing the child support debt, its status, and
other characteristics.
(h) Conforming Amendments--Title 11 of the United States
Code is amended--
(1) in section 502(i) by striking ``507(a)(7)'' and
inserting ``507(a)(8)'',
(2) in section 503(b)(1)(B)(i) by striking ``507(a)(7)''
and inserting ``507(a)(8)'',
(3) in section 523(a)(1)(A) by striking ``507(a)(7)'' and
inserting ``507(a)(8)'',
(4) in section 724(b)(2) by striking ``or 507(a)(6)'' and
inserting ``507(a)(6), or 507(a)(7)'',
(5) in section 726(b) by striking ``or (7)'' and inserting
``, (7), or (8)'',
(6) in section 1123(a)(1) by striking ``507(a)(7)'' and
inserting ``507(a)(8)'',
(7) in section 1129(a)(9)--
(i) in subparagraph (B) by striking ``or 507(a)(6)'' and
inserting ``, 507(a)(6), or 507(a)(7)'', and
(ii) in subparagraph (C) by striking ``507(a)(7)'' and
inserting ``507(a)(8)''.
SEC. 305. INTEREST ON INTEREST.
(a) Chapter 11.--Section 1123 of title 11, United States
Code, is amended by adding at the end the following:
``(d) Notwithstanding subsection (a) of this section and
sections 506(b), 1129(a)(7), and 1129(b) of this title, if it
is proposed in a plan to cure a default the amount necessary
to cure the default shall be determined in accordance with
the underlying agreement and applicable nonbankruptcy law.''.
(b) Chapter 12.--Section 1222 of title 11, United States
Code, is amended by adding at the end the following:
``(d) Notwithstanding subsection (b)(2) of this section and
sections 506(b) and 1225(a)(5) of this title, if it is
proposed in a plan to cure a default, the amount necessary to
cure the default, shall be determined in accordance with the
underlying agreement and applicable nonbankruptcy law.''.
(c) Chapter 13.--Section 1322 of title 11, United States
Code, is amended by adding at the end the following:
``(e) Notwithstanding subsection (b)(2) of this section and
sections 506(b) and 1325(a)(5) of this title, if it is
proposed in a plan to cure a default, the amount necessary to
cure the default, shall be determined in accordance with the
underlying agreement and applicable nonbankruptcy law.''.
SEC. 306. EXCEPTION TO DISCHARGE.
Section 523(a)(2)(C) of title 11, United States Code, is
amended--
(1) by striking ``$500'' and inserting ``$1,000'',
(2) by striking ``forty'' and inserting ``60'', and
(3) by striking ``twenty'' and inserting ``60''.
SEC. 307. PAYMENTS UNDER CHAPTER 13.
Section 1326(a)(2) of title 11, United States Code, is
amended in the second sentence by striking the period and
inserting ``as soon as practicable.''.
SEC. 308. BANKRUPTCY PETITION PREPARERS.
(a) Amendment of Chapter 1.--Chapter 1 of title 11, United
States Code, is amended by adding at the end the following:
``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, who prepares
for compensation a document for filing; and
``(2) `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.
``(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.
``(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.
``(c)(1) A bankruptcy petition preparer who prepares a
document for filing shall place on the document, after the
preparer's signature, an identifying number that identifies
individuals who prepared the document.
``(2) 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.
``(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) A bankruptcy petition preparer shall, not later
than the time at which a document for filing is presented for
the debtor's signature, furnish to the debtor a copy of the
document.
``(2) A bankruptcy petition preparer who fails to comply
with paragraph (1) may be fined not more than $500 for each
such failure unless the failure is due to reasonable cause.
``(e)(1) A bankruptcy petition preparer shall not execute
any document on behalf of a debtor.
``(2) A bankruptcy petition preparer may be fined not more
than $500 for each document executed in violation of
paragraph (1).
``(f)(1) 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) 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) Within 10 days after the date of the filing of a
petition, a bankruptcy petition preparer shall file a
declaration under penalty of perjury 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.
``(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) The debtor, the trustee, a creditor, or the United
States trustee may file a motion for an order under paragraph
(2).
``(4) 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--
``(A) the debtor's actual damages;
``(B) the greater of--
``(i) $2,000; or
``(ii) twice the amount paid by the debtor to the
bankruptcy petition preparer for the preparer's services; and
``(C) reasonable attorneys' fees and costs in moving for
damages under this subsection.
``(2) If the trustee or creditor moves for damages on
behalf of the debtor under this subsection, the bankruptcy
petition preparer shall be ordered to pay the movant the
additional amount of $1,000 plus reasonable attorneys' fees
and costs incurred.
``(j)(1) A debtor for whom a bankruptcy petition preparer
has prepared a document for filing, the trustee, a creditor,
or the United States trustee in the district in which the
bankruptcy petition preparer resides, has conducted business,
or the United States trustee in any other district in which
the debtor resides may bring a civil action to enjoin a
bankruptcy petition preparer from engaging in any conduct in
violation of this section or from further acting as a
bankruptcy petition preparer.
``(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;
``(II) misrepresented the preparer's experience or
education as a bankruptcy petition preparer; or
``(III) engaged in any other fraudulent, unfair, or
deceptive conduct; and
``(ii) injunctive relief is appropriate to prevent the
recurrence of such conduct,
the court may enjoin the bankruptcy petition preparer from
engaging in such conduct.
``(B) If the court finds that a bankruptcy petition
preparer has continually engaged in conduct described in
subclause (I), (II), or (III) of clause (i) and that an
injunction prohibiting such conduct would not be sufficient
to prevent such person's interference with the proper
administration of this title, or has not paid a penalty
imposed under this section, the court may enjoin the person
from acting as a bankruptcy petition preparer.
``(3) The court shall award to a debtor, trustee, or
creditor that brings a successful action under this
subsection reasonable attorney's fees and costs of the
action, to be paid by the bankruptcy petition preparer.
``(k) Nothing in this section shall be construed to permit
activities that are otherwise prohibited by law, including
rules and laws that prohibit the unauthorized practice of
law.''.
(b) The chapter analysis for chapter 1 of title 11, United
States Code, is amended by adding at the end the following
new item:
``110. Penalty for persons who negligently or fraudulently prepare
bankruptcy petitions.''.
SEC. 309. FAIRNESS TO CONDOMINIUM AND COOPERATIVE OWNERS.
Section 523(a) of title 11, United States Code, as amended
by sections 221 and 304, is amended by adding at the end the
following:
``(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,
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.''.
SEC. 310. NONAVOIDABILITY OF FIXING OF LIEN ON TOOLS AND
IMPLEMENTS OF TRADE, ANIMALS, AND CROPS.
Section 522(f) of title 11, United States Code, as amended
by sections 303 and 304, is amended--
(1) in paragraph (1) by inserting ``but subject to
paragraph (3)'' after ``waiver of exemptions'', and
(2) by adding at the end the following:
``(3) In a case in which State law that is applicable to
the debtor--
``(A) permits a person to voluntarily waive a right to
claim exemptions under subsection (d) or prohibits a debtor
from claiming exemptions under subsection (d); and
``(B) either permits the debtor to claim exemptions under
State law without limitation in amount, except to the extent
that the debtor has permitted the fixing of a consensual lien
on any property or prohibits avoidance of a consensual lien
on property otherwise eligible to be claimed as exempt
property;
the debtor may not avoid the fixing of a lien on an interest
of the debtor or a dependent of the debtor in property if the
lien is a nonpossessory, nonpurchase-money security interest
in implements, professional books, or tools of the trade of
the debtor or a dependent of the debtor or farm animals or
crops of the debtor or a dependent of the debtor to the
extent the value of such implements, professional books,
tools of the trade, animals, and crops exceeds $5,000.''.
SEC. 311. CONVERSION OF CASE UNDER CHAPTER 13.
Section 348 of title 11, United States Code, is amended by
adding at the end the following:
``(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 reduced to the extent that they
have been paid in accordance with the chapter 13 plan.
``(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 in the converted case shall
consist of the property of the estate as of the date of
conversion.''.
SEC. 312. BANKRUPTCY FRAUD.
(a) In General.--
(1) Offenses.--Chapter 9 of title 18, United States Code,
is amended--
(A) by amending sections 152, 153, and 154 to read as
follows:
``Sec. 152. Concealment of assets; false oaths and claims;
bribery
``A person who--
``(1) knowingly and fraudulently conceals from a custodian,
trustee, marshal, or other officer of the court charged with
the control or custody of property, or, in connection with a
case under title 11, from creditors or the United States
Trustee, any property belonging to the estate of a debtor;
``(2) knowingly and fraudulently makes a false oath or
account in or in relation to any case under title 11;
``(3) knowingly and fraudulently makes a false declaration,
certificate, verification, or statement under penalty of
perjury as permitted under section 1746 of title 28, in or in
relation to any case under title 11;
``(4) knowingly and fraudulently presents any false claim
for proof against the estate of a debtor, or uses any such
claim in any case under title 11, in a personal capacity or
as or through an agent, proxy, or attorney;
``(5) knowingly and fraudulently receives any material
amount of property from a debtor after the filing of a case
under title 11, with intent to defeat the provisions of title
11;
``(6) knowingly and fraudulently gives, offers, receives,
or attempts to obtain any money or property, remuneration,
compensation, reward, advantage, or promise thereof for
acting or forbearing to act in any case under title 11;
``(7) in a personal capacity or as an agent or officer of
any person or corporation, in contemplation of a case under
title 11 by or against the person or any other person or
corporation, or with intent to defeat the provisions of title
11, knowingly and fraudulently transfers or conceals any of
his property or the property of such other person or
corporation;
``(8) after the filing of a case under title 11 or in
contemplation thereof, knowingly and fraudulently conceals,
destroys, mutilates, falsifies, or makes a false entry in any
recorded information (including books, documents, records,
and papers) relating to the property or financial affairs of
a debtor; or
``(9) after the filing of a case under title 11, knowingly
and fraudulently withholds from a custodian, trustee,
marshal, or other officer of the court or a United States
Trustee entitled to its possession, any recorded information
(including books, documents, records, and papers) relating to
the property or financial affairs of a debtor,
shall be fined not more than $5,000, imprisoned not more than
5 years, or both.
``Sec. 153. Embezzlement against estate
``(a) Offense.--A person described in subsection (b) who
knowingly and fraudulently appropriates to the person's own
use, embezzles, spends, or transfers any property or secretes
or destroys any document belonging to the estate of a debtor
shall be fined not more than $5,000, imprisoned not more than
5 years, or both.
``(b) Person to Whom Section Applies.--A person described
in this subsection is one who has access to property or
documents belonging to an estate by virtue of the person's
participation in the administration of the estate as a
trustee, custodian, marshal, attorney, or other officer of
the court or as an agent, employee, or other person engaged
by such an officer to perform a service with respect to the
estate.
``Sec. 154. Adverse interest and conduct of officers
``A person who, being a custodian, trustee, marshal, or
other officer of the court--
``(1) knowingly purchases, directly or indirectly, any
property of the estate of which the person is such an officer
in a case under title 11;
``(2) knowingly refuses to permit a reasonable opportunity
for the inspection by parties in interest of the documents
and accounts relating to the affairs of estates in the
person's charge by parties when directed by the court to do
so; or
``(3) knowingly refuses to permit a reasonable opportunity
for the inspection by the United States Trustee of the
documents and accounts relating to the affairs of an estate
in the person's charge,
shall be fined not more than $5,000 and shall forfeit the
person's office, which shall thereupon become vacant.''; and
(B) by adding at the end the following:
``Sec. 156. Knowing disregard of bankruptcy law or rule
``(a) Definitions.--In this section--
```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.
```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.
``(b) Offense.--If a bankruptcy case or related proceeding
is dismissed because of a knowing attempt by a bankruptcy
petition preparer in any manner to disregard the requirements
of title 11, United States Code, or the Federal Rules of
Bankruptcy Procedure, the bankruptcy petition preparer shall
be fined under this title, imprisoned not more than 1 year,
or both.
``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;
``(2) files a document in a proceeding under title 11; or
``(3) makes a false or fraudulent representation, claim, or
promise concerning or in relation to a proceeding under title
11, 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.''.
(2) Technical amendments.--The chapter analysis for chapter
9 of title 18, United States Code, is amended--
(A) by amending the item relating to section 153 to read as
follows:
``Sec. 153. Embezzlement against estate.'';
and
(B) by adding at the end the following new items:
``Sec. 156. Knowing disregard of bankruptcy law or rule.
``Sec. 157. Bankruptcy fraud.''.
(b) RICO.--Section 1961(1)(D) of title 18, United States
Code, is amended by inserting ``(except a case under section
157 of that title)'' after ``title 11''.
SEC. 313. PROTECTION AGAINST DISCRIMINATORY TREATMENT OF
APPLICATIONS FOR STUDENT LOANS.
Section 525 of title 11, United States Code, is amended by
adding at the end the following:
``(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 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 title IV of the
Higher Education Act of 1965 or a similar program operated
under State or local law.''.
TITLE IV--GOVERNMENTAL BANKRUPTCY ISSUES
SEC. 401. EXCEPTION FROM AUTOMATIC STAY FOR POST-PETITION
PROPERTY TAXES.
Section 362(b) of title 11, United States Code, is amended
by inserting after paragraph (16) the following:
``(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.''.
SEC. 402. MUNICIPAL BANKRUPTCY.
Section 109(c)(2) of title 11, United States Code, is
amended by striking ``generally authorized'' and inserting
``specifically authorized, in its capacity as a municipality
or by name,''.
TITLE V--TECHNICAL CORRECTIONS
SEC. 501. AMENDMENTS TO BANKRUPTCY DEFINITIONS, NECESSITATED
BY ENACTMENT OF PUBLIC LAW 101-647.
(a) Alphabetizing and Redesignating Definitions.--Section
101 of title 11 of the United States Code, as amended by
sections 208, 217, 218, and 304, is amended--
(1) by redesignating paragraph (3) as paragraph (21B) and
transferring such paragraph so as to insert it after
paragraph (21A),
(2) by redesignating paragraph (39) as paragraph (51A) and
transferring such paragraph so as to insert it after
paragraph (51),
(3) by redesignating paragraphs (54) through (57), as so
redesignated by section 2522(e) of Public Law 101-647, as
paragraphs (53A) through (53D), respectively,
(4) by redesignating paragraph (56) as in effect
immediately before the enactment of Public Law 101-647, as
paragraph (35A) and transferring such paragraph so as to
insert it after paragraph (35), and
(5) by redesignating paragraph (57), as in effect
immediately before the enactment of Public Law 101-647, as
paragraph (39) and transferring such paragraph so as to
insert it after paragraph (38).
(b) Conforming and Related Amendments to title 11 of the
United States Code, Based on Redesignated Definitions.--(1)
Section 101 of title 11 of the United States Code, as amended
by subsection (a), is amended--
(A) in paragraph (6) by striking ``section 761(9)'' and
inserting ``section 761'',
(B) in paragraph (22) by striking ``section 741(7)'' and
inserting ``section 741'',
(C) in paragraph (35)(B) by striking ``paragraphs (3)'' and
inserting ``paragraphs (21B)'',
(D) in paragraph (49)(B)(ii) by striking ``section
761(13)'' and inserting ``section 761'', and
(E) in paragraph (53A)(A), as so redesignated, by striking
``section 741(2)'' and inserting ``section 741''.
(2) Section 362(b) of title 11, United States Code, is
amended--
(A) in paragraph (6)--
(i) by striking ``section 761(4)'' and inserting ``section
761'',
(ii) by striking ``section 741(7)'' and inserting ``section
741'',
(iii) by striking ``section 101(34), 741(5), or 761(15)''
and inserting ``section 101, 741, or 761'', and
(iv) by striking ``section 101(35) or 741(8)'' and
inserting ``section 101 or 741'', and
(B) in paragraph (7)--
(i) by striking ``section 741(5) or 761(15)'' and inserting
``section 741 or 761'', and
(ii) by striking ``section 741(8)'' and inserting ``section
741''.
(3) Section 507(a)(5) of title 11, United States Code, is
amended--
(A) by striking ``section 557(b)(1)'' and inserting
``section 557(b)'', and
(B) by striking ``section 557(b)(2)'' and inserting
``section 557(b)''.
(4) Section 546 of title 11, United States Code, is
amended--
(A) in subsection (e)--
(i) by striking ``section 101(34), 741(5), or 761(15)'' and
inserting ``section 101, 741, or 761'', and
(ii) by striking ``section 101(35) or 741(8)'' and
inserting ``section 101 or 741'', and
(B) in subsection (f)--
(i) by striking ``section 741(5) or 761(15)'' and inserting
``section 741 or 761'', and
(ii) by striking ``section 741(8)'' and inserting ``section
741''.
(5) Section 548(d)(2) of title 11, United States Code, is
amended--
(A) in subparagraph (B)--
(i) by striking ``section 101(34), 741(5) or 761(15)'' and
inserting ``section 101, 741, or 761'', and
(ii) by striking ``section 101(35) or 741(8)'' and
inserting ``section 101 or 741'', and
(B) in subparagraph (C)--
(i) by striking ``section 741(5) or 761(15)'' and inserting
``section 741 or 761'', and
(ii) by striking ``section 741(8)'' and inserting ``section
741''.
(6) Section 555 of title 11, United States Code, is amended
by striking ``section 741(7)'' and inserting ``section 741 of
this title''.
(7) Section 556 of title 11, United States Code, is amended
by striking ``section 761(4)'' and inserting ``section 761 of
this title''.
(c) Conforming Amendments to Other Laws Based on
Redesignated Definitions.--(1) Section 207(c)(8)(D) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)) is
amended--
(A) in clause (ii)(I) by striking ``section 741(7)'' and
inserting ``section 741'',
(B) in clause (iii) by striking ``section 101(24)'' and
inserting ``section 101'',
(C) in clause (iv)(I) by striking ``section 101(41)'' and
inserting ``section 101'', and
(D) in clause (v) by striking ``section 101(50)'' and
inserting ``section 101''.
(2) Section 11(e)(8)(D) of the Federal Deposit Insurance
Act (12 U.S.C. 1821(e)(8)(D)) is amended--
(A) in clause (ii)(I) by striking ``section 741(7)'' and
inserting ``section 741'',
(B) in clause (iii) by striking ``section 761(4)'' and
inserting ``section 761'',
(C) in clause (iv) by striking ``section 101(24)'' and
inserting ``section 101'',
(D) in clause (v)(I) by striking ``section 101(41)'' and
inserting ``section 101'', and
(E) in clause (viii) by striking ``section 101(50)'' and
inserting ``section 101''.
(d) Other Technical Amendments.--Title 11 of the United
States Code is amended--
(1) in section 101--
(A) in paragraph (33)--
(i) in subparagraph (A) by striking ``(12 U.S.C.
1813(u))'', and
(ii) in subparagraph (B) by striking ``(12 U.S.C.
1786(r))'',
(B) in paragraph (34) by striking ``(12 U.S.C. 1752(7))'',
(C) in paragraph (35)(A) by striking ``(12 U.S.C.
1813(c)(2))'',
(D) in paragraph (48)--
(i) by striking ``(15 U.S.C. 78q-1)'', and
(ii) by striking ``(15 U.S.C. 78c(12))'',
(E) in paragraph (49)--
(i) in subparagraph (A)(xii)--
(I) by striking ``(15 U.S.C. 77a et seq.)'', and
(II) by striking ``(15 U.S.C. 77c(b))'', and
(ii) in subparagraph (B)(vi) by striking ``(15 U.S.C.
77c(b))'', and
(F) in paragraph (53D), as so redesignated by subsection
(a), by striking the period at the end and inserting a
semicolon,
(2) in section 109(b)(2) by striking ``(12 U.S.C.
1813(h))'',
(3) in section 322(a) by striking ``1302, or 1202'' and
inserting ``1202, or 1302'',
(4) in section 346--
(A) in subsection (a) by striking ``Internal Revenue Code
of 1954 (26 U.S.C. 1 et seq.)'' and inserting ``Internal
Revenue Code of 1986'', and
(B) in subsection (g)(1)(C) by striking ``Internal Revenue
Code of 1954 (26 U.S.C. 371)'' and inserting ``Internal
Revenue Code of 1986'',
(5) in section 348--
(A) in subsection (b) by striking ``1301(a), 1305(a),
1201(a), 1221, and 1228(a)'' and inserting ``1201(a), 1221,
1228(a), 1301(a), and 1305(a)'', and
(B) in subsections (b), (c), (d), and (e) by striking
``1307, or 1208'' each place it appears and inserting ``1208,
or 1307'',
(6) in section 349(a) by striking ``109(f)'' and inserting
``109(g)'',
(7) in section 362--
(A) in subsection (a) by striking ``(15 U.S.C.
78eee(a)(3))'', and
(B) in subsection (b)--
(i) by striking ``(15 U.S.C. 78eee(a)(3))'',
(ii) in paragraph (10) by striking ``or'' at the end,
(iii) in paragraph (12)--
(I) by striking ``the Ship Mortgage Act, 1920 (46 App.
U.S.C. 911 et seq.)'' and inserting ``section 31325 of title
46'', and
(II) by striking ``(46 App. U.S.C. 1117 and 1271 et seq.,
respectively)'',
(iv) in paragraph (13)--
(I) by striking ``the Ship Mortgage Act, 1920 (46 App.
U.S.C. 911 et seq.)'' each place it appears and inserting
``section 31325 of title 46'',
(II) by striking ``(46 App. U.S.C. 1117 and 1271 et seq.,
respectively)'', and
(III) by striking ``or'' at the end,
(v) in paragraph (15), as added by Public Law 101-508, by
striking ``or'' at the end,
(vi) in paragraph (16), as added by Public Law 101-508--
(I) by striking ``(20 U.S.C. 1001 et seq.)'', and
(II) by striking the period at the end and inserting a
semicolon, and
(vii) in paragraph (14), as added by Public Law 101-311--
(I) by striking the period at the end and inserting ``;
or'',
(II) by redesignating such paragraph as paragraph (17), and
(III) by transferring such paragraph so as to insert such
paragraph after paragraph (16),
(8) in section 363--
(A) in subsection (b)(2) by striking ``(15 U.S.C. 18a)'',
and
(B) in subsection (c)(1) by striking ``1304, 1203, or
1204'' and inserting ``1203, 1204, or 1304'',
(9) in section 364--
(A) in subsection (a) by striking ``1304, 1203, or 1204''
and inserting ``1203, 1204, or 1304'', and
(B) in subsection (f)--
(i) by striking ``(15 U.S.C. 77e)'', and
(ii) by striking ``(15 U.S.C. 77aaa et seq.)'',
(10) in section 365--
(A) in subsection (d)(6)(C) by striking ``the Federal
Aviation Act of 1958 (49 U.S.C. 1301)'' and inserting
``section 40102 of title 49'',
(B) in subparagraphs (A) and (B) of subsection (g)(2) by
striking ``1307, or 1208'' each place it appears and
inserting ``1208, or 1307'',
(C) in subsection (n)(1)(B) by striking ``to to'' and
inserting ``to'',
(D) in subsection (o) by striking ``the Federal'' the first
place it appears and all that follows through
``successors,'', and inserting ``a Federal depository
institutions regulatory agency (or predecessor to such
agency)'', and
(E) by striking subsection (p),
(11) in section 507, as amended by section 304--
(A) in subsection (a)(9) by striking ``the Federal'' the
first place it appears and all that follows through
``successors,'', and inserting ``a Federal depository
institutions regulatory agency (or predecessor to such
agency)'', and
(B) in subsection (d) by striking ``or (a)(6)'' and
inserting ``(a)(6), (a)(7), (a)(8), or (a)(9)'',
(12) in section 522--
(A) in subsection (b) by striking ``Bankruptcy Rules'' and
inserting ``Federal Rules of Bankruptcy Procedure'', and
(B) in subsection (d)(10)(E)(iii)--
(i) by striking ``408, or 409'' the first place it appears
and inserting ``or 408'', and
(ii) by striking ``Internal Revenue Code of 1954 (26 U.S.C.
401(a), 403(a), 403(b), 408, or 409)'' and inserting
``Internal Revenue Code of 1986'',
(13) in section 523--
(A) in subsection (a)--
(i) by striking ``1141,,'' and inserting ``1141,'', and
(ii) in paragraph (2)(C) by striking ``(15 U.S.C. 1601 et
seq.)'',
(B) in subsection (b)--
(i) by striking ``(20 U.S.C. 1087-3)'', and
(ii) by striking ``(42 U.S.C. 294f)'', and
(C) in subsection (e) by striking ``depository institution
or insured credit union'' and inserting ``insured depository
institution'',
(14) in section 524--
(A) in subsection (a)(3) by striking ``1328(c)(1)'' and
inserting ``1328(a)(1)'',
(B) in subsection (c)(4) by striking ``recission'' and
inserting ``rescission'', and
(C) in subsection (d)(1)(B)(ii) by adding ``and'' at the
end,
(15) in section 525(a)--
(A) by striking ``(7 U.S.C. 499a-499s)'',
(B) by striking ``(7 U.S.C. 181-229)'', and
(C) by striking ``(57 Stat. 422; 7 U.S.C. 204)'',
(16) in section 542(e) by striking ``to to'' and inserting
``to'',
(17) in section 543(d)(1) by striking ``section,'' and
inserting ``section'',
(18) in section 549(b) inserting ``the trustee may not
avoid under subsection (a) of this section'' after
``involuntary case,'',
(19) in section 553--
(A) in subsection (a)(1) by striking ``other than under
section 502(b)(3) of this title'', and
(B) in subsection (b)(1) by striking ``362(b)(14),,'' and
inserting ``362(b)(14),'',
(20) in section 555 by striking ``(15 U.S.C. 78aaa et
seq.)'',
(21) in section 559 by striking ``(15 U.S.C. 78aaa et
seq.)'',
(22) in section 706(a) by striking ``1307, or 1208'' and
inserting ``1208, or 1307'',
(23) in section 724(d) by striking ``Internal Revenue Code
of 1954 (26 U.S.C. 6323)'' and inserting ``Internal Revenue
Code of 1986'',
(24) in section 726(b)--
(A) inserting a comma after ``section 1112'', and
(B) by inserting ``1009,'' after ``chapter under section'',
(25) in section 741(4)(A)(iii) by striking ``(15 U.S.C. 78a
et seq.)'',
(26) in section 742 by striking ``(15 U.S.C. 78aaa et
seq.)'',
(27) in section 743 by striking ``342(a)'' and inserting
``342'',
(28) in section 745(c) by striking ``Internal Revenue Code
of 1954 (26 U.S.C. 1 et seq.)'' and inserting ``Internal
Revenue Code of 1986'',
(29) in section 761--
(A) in paragraph (1) by striking ``(7 U.S.C. 1 et seq.)'',
(B) in paragraph (5) by striking ``(7 U.S.C. 6c(b))'', and
(C) in paragraph (13) by striking ``(7 U.S.C. 23)'',
(30) in section 1104(d), as redesignated by section 211,
inserting a comma after ``interest'',
(31) in section 1123(a)(1) inserting a comma after
``title'' the last place it appears,
(32) in section 1129--
(A) in subsection (a)--
(i) in paragraph (4) by striking the semicolon at the end
and inserting a period, and
(ii) in paragraph (12) inserting ``of title 28'' after
``section 1930'', and
(B) in subsection (d) by striking ``(15 U.S.C. 77e)'',
(33) in section 1145--
(A) in subsection (a)--
(i) by striking ``does'' and inserting ``do'',
(ii) by striking ``(15 U.S.C. 77e)'', and
(iii) in paragraph (3)(B)(i) by striking ``(15 U.S.C. 78m
or 78o(d))'',
(B) in subsection (b)(1) by striking ``(15 U.S.C.
77b(11))'', and
(C) in subsection (d) by striking ``(15 U.S.C. 77aaa et
seq.)'',
(34) in section 1166(2) by striking ``(45 U.S.C. 791(b))'',
(35) in section 1167--
(A) by striking ``(45 U.S.C. 151 et seq.)'', and
(B) by striking ``(45 U.S.C. 156)'',
(36) in section 1226(b)(2)--
(A) by striking ``1202(d)'' and inserting ``1202(c)'', and
(B) by striking ``1202(e)'' and inserting ``1202(d)'',
(37) in section 1302(b)(3) by striking ``and'' at the end,
and
(38) in section 1328(a)--
(A) in paragraph (2) by striking ``(5) or (8)'' and
inserting ``(5), (8), or (9)'', and
(B) by striking the last paragraph (3), and
(39) in the table of chapters by striking the item relating
to chapter 15.
SEC. 502. TITLE 28 OF THE UNITED STATES CODE.
Section 586(a)(3) of title 28, United States Code, is
amended in the matter preceding subparagraph (A) by inserting
``12,'' after ``11,''.
TITLE VI--BANKRUPTCY REVIEW COMMISSION
SEC. 601. SHORT TITLE.
This title may be cited as the ``National Bankruptcy Review
Commission Act''.
SEC. 602. ESTABLISHMENT.
There is established the National Bankruptcy Review
Commission (referred to as the ``Commission'').
SEC. 603. DUTIES OF THE COMMISSION.
The duties of the Commission are--
(1) to investigate and study issues and problems relating
to title 11, United States Code (commonly known as the
``Bankruptcy Code'');
(2) to evaluate the advisability of proposals and current
arrangements with respect to such issues and problems;
(3) to prepare and submit to the Congress, the Chief
Justice, and the President a report in accordance with
section 608; and
(4) to solicit divergent views of all parties concerned
with the operation of the bankruptcy system.
SEC. 604. MEMBERSHIP.
(a) Number and Appointment.--The Commission shall be
composed of 9 members as follows:
(1) Three members appointed by the President, 1 of whom
shall be designated as chairman by the President.
(2) One member shall be appointed by the President pro
tempore of the Senate.
(3) One member shall be appointed by the Minority Leader of
the Senate.
(4) One member shall be appointed by the Speaker of the
House of Representatives.
(5) One member shall be appointed by the Minority Leader of
the House of Representatives.
(6) Two members appointed by the Chief Justice.
Members of Congress, and officers and employees of the
executive branch, shall be ineligible for appointment to the
Commission.
(b) Term.--Members of the Commission shall be appointed for
the life of the Commission.
(c) Quorum.--Five members of the Commission shall
constitute a quorum, but a lesser number may conduct
meetings.
(d) Appointment Deadline.--The first appointments made
under subsection (a) shall be made within 60 days after the
date of enactment of this Act.
(e) First Meeting.--The first meeting of the Commission
shall be called by the chairman and shall be held within 210
days after the date of enactment of this Act.
(f) Vacancy.--A vacancy on the Commission resulting from
the death or resignation of a member shall not affect its
powers and shall be filled in the same manner in which the
original appointment was made.
(g) Continuation of Membership.--If any member of the
Commission who was appointed to the Commission as an officer
or employee of a government leaves that office, or if any
member of the Commission who was not appointed in such a
capacity becomes an officer or employee of a government, the
member may continue as a member of the Commission for not
longer than the 90-day period beginning on the date the
member leaves that office or becomes such an officer or
employee, as the case may be.
(h) Consultation Prior to Appointment.--Prior to the
appointment of members of the Commission, the President, the
President pro tempore of the Senate, the Speaker of the House
of Representatives, and the Chief Justice shall consult with
each other to ensure fair and equitable representation of
various points of view in the Commission and its staff.
SEC. 605. COMPENSATION OF THE COMMISSION.
(a) Pay.--
(1) Nongovernment employees.--Each member of the Commission
who is not otherwise employed by the United States Government
shall be entitled to receive the daily equivalent of the
annual rate of basic pay payable for level IV of the
Executive Schedule under section 5315 of title 5, United
States Code, for each day (including travel time) during
which he or she is engaged in the actual performance of
duties as a member of the Commission.
(2) Government employees.--A member of the Commission who
is an officer or employee of the United States Government
shall serve without additional compensation.
(b) Travel.--Members of the Commission shall be reimbursed
for travel, subsistence, and other necessary expenses
incurred by them in the performance of their duties.
SEC. 606. STAFF OF COMMISSION; EXPERTS AND CONSULTANTS.
(a) Staff.--
(1) Appointment.--The chairman of the Commission may,
without regard to the civil service laws and regulations,
appoint, and terminate an executive director and such other
personnel as are necessary to enable the Commission to
perform its duties. The employment of an executive director
shall be subject to confirmation by the Commission.
(2) Compensation.--The chairman of the Commission may fix
the compensation of the executive director and other
personnel without regard to the provisions of chapter 51 and
subchapter II of chapter 53 of title 5, United States Code,
relating to classification of positions and General Schedule
pay rates, except that the rate of pay for the executive
director and other personnel may not exceed the rate payable
for level V of the Executive Schedule under section 5316 of
that title.
(b) Experts and Consultants.--The Commission may procure
temporary and intermittent services of experts and
consultants under section 3109(b) of title 5, United States
Code.
SEC. 607. POWERS OF THE COMMISSION.
(a) Hearings and Meetings.--The Commission or, on
authorization of the Commission, a member of the Commission,
may hold such hearings, sit and act at such time and places,
take such testimony, and receive such evidence, as the
Commission considers appropriate. The Commission or a member
of the Commission may administer oaths or affirmations to
witnesses appearing before it.
(b) Official Data.--The Commission may secure directly from
any Federal department, agency, or court information
necessary to enable it to carry out this title. Upon request
of the chairman of the Commission, the head of a Federal
department or agency or chief judge of a Federal court shall
furnish such information, consistent with law, to the
Commission.
(c) Facilities and Support Services.--The Administrator of
General Services shall provide to the Commission on a
reimbursable basis such facilities and support services as
the Commission may request. Upon request of the Commission,
the head of a Federal department or agency may make any of
the facilities or services of the agency available to the
Commission to assist the Commission in carrying out its
duties under this title.
(d) Expenditures and Contracts.--The Commission or, on
authorization of the Commission, a member of the Commission
may make expenditures and enter into contracts for the
procurement of such supplies, services, and property as the
Commission or member considers appropriate for the purposes
of carrying out the duties of the Commission. Such
expenditures and contracts may be made only to such extent or
in such amounts as are provided in appropriation Acts.
(e) Mails.--The Commission may use the United States mails
in the same manner and under the same conditions as other
Federal departments and agencies of the United States.
(f) Gifts.--The Commission may accept, use, and dispose of
gifts or donations of services or property.
SEC. 608. REPORT.
The Commission shall submit to the Congress, the Chief
Justice, and the President a report not later than 2 years
after the date of its first meeting. The report shall contain
a detailed statement of the findings and conclusions of the
Commission, together with its recommendations for such
legislative or administrative action as it considers
appropriate.
SEC. 609. TERMINATION.
The Commission shall cease to exist on the date that is 30
days after the date on which it submits its report under
section 608.
SEC. 610. AUTHORIZATION OF APPROPRIATIONS.
There is authorized to be appropriated $1,500,000 to carry
out this title.
TITLE VII--SEVERABILITY; EFFECTIVE DATE; APPLICATION OF AMENDMENTS.
SEC. 701. SEVERABILITY.
If any provision of this Act or amendment made by this Act
or the application of such provision or amendment to any
person or circumstance is held to be unconstitutional, the
remaining provisions of and amendments made by this Act and
the application of such other provisions and amendments to
any person or circumstance shall not be affected thereby.
SEC. 702. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.
(a) Effective Date.--Except as provided in subsection (b),
this Act shall take effect on the date of the enactment of
this Act.
(b) Application of Amendments.--(1) Except as provided in
paragraph (2), the amendments made by this Act shall not
apply with respect to cases commenced under title 11 of the
United States Code before the date of the enactment of this
Act.
(2)(A) Paragraph (1) shall not apply with respect to the
amendment made by section 111.
(B) The amendments made by sections 113 and 117 shall apply
with respect to cases commenced under title 11 of the United
States Code before, on, and after the date of the enactment
of this Act.
(C) Section 1110 of title 11, United States Code, as
amended by section 201 of this Act, shall apply with respect
to any lease, as defined in such section 1110(c) as so
amended, entered into in connection with a settlement of any
proceeding in any case pending under title 11 of the United
States Code on the date of the enactment of this Act.
(D) The amendments made by section 305 shall apply only to
agreements entered into after the date of enactment of this
Act.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Texas [Mr. Brooks] will be recognized for 20 minutes, and the gentleman
from New York [Mr. Fish] will be recognized for 20 minutes.
The Chair recognizes the gentleman from Texas [Mr. Brooks].
(Mr. BROOKS asked and was given permission to revise and extend his
remarks.)
Mr. BROOKS. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, the Bankruptcy Reform Act of 1994 will improve the
administration of bankruptcy cases, as well as provide greater fairness
and certainty for individuals, corporations, and governmental entities.
It will help address problem areas, which have contributed to slow and
inefficient case administration in the courts. The recent surge in the
number of bankruptcy filings has only highlighted the need for a
targeted legislative response.
This bill is clearly a consensus product. It includes most issues
addressed in H.R. 6020--the bill Congressman Fish and I introduced in
the 103d Congress--as well as a select number of issues addressed by
Congressman Synar--a leader in the field--Congresswoman Schroeder and
many others in their bankruptcy proposals.
I don't believe it is an overstatement to say that this legislation
may be one of the most significant pieces of economic legislation to be
considered by the House in this Congress. Without bankruptcy reform,
companies, creditors, and debtors alike will continue to be placed on
endless hold until their rights and obligations are adjudicated under
the present system--and that slows down new ventures, new extensions of
credit, and new investments.
We have been very careful in striking a balance between creditors and
debtors in the legislation. The excellent work of so many of the
committee members on both sides of the aisle has produced a bill that
deserves the wholehearted support of this body.
But time is short. For that reason, we have been in close contact
with our counterparts in the other body concerning the contours and
general direction of the House bill. It is my hope that we can pass
this bill today; that it can be sent to the other body and then
forwarded post-haste to the President's desk to be signed into law.
Mr. Speaker, I insert in the Record a section-by-section analysis of
the provisions of the Bankruptcy Reform Act of 1994.
I urge a favorable vote on this important legislation.
Bankruptcy Reform Act of 1994--Section-by-Section Description
title i. improved bankruptcy administration
Section 101. Expedited hearing on automatic stay
Section 362(e) of the Bankruptcy Code provides that a
preliminary hearing on a motion to lift the automatic stay
must conclude within 30 days, with the final hearing to
commence within 30 days thereafter. Under many court
interpretations, there is no specific limitation on when the
final hearing on the motion to lift the stay must conclude.
See, e.g., In re ML Barge Pool, 98 B.R. 957 (Bankr. E.D. Mo.
1989); In re Bogosian, 112 B.R. 2 (Bankr. D.R.I. 1990).
This section provides that the final hearing must conclude
within 30 days of the preliminary hearing, unless extended by
consent of the parties or for a specific time which the court
finds is required by compelling circumstances. Under this
standard, for example, an extension should not be available
where the debtor was merely seeking to delay the bankruptcy
process or had neglected to consummate a pending contract.
Compelling circumstances that might justify an extension
might include, for example, the bona fide illness of any
party or the judge or the occurrence of an event beyond the
parties' control. Such a finding must be balanced with the
legitimate property rights at stake in each particular case.
The Committee believes speedy conclusion of hearings on the
automatic stay will reduce the time and cost of bankruptcy
proceedings by preventing unjustified or unwarranted
postponements of final action.
Section 102. Expedited filing of plans under chapter 11
Section 1121 of the Code, currently in effect, grants a
debtor the exclusive right to file a plan during the initial
120 days after an order for relief under chapter 11. This
exclusive period expires either at the end of the 120 day
period if the debtor has not filed a plan, or, if the debtor
has filed a plan and the plan has not bee accepted by
creditors, within 180 days after the order for relief.
Thereafter, any party-in-interest may file a plan. The
bankruptcy court may extend or shorten the exclusive period
at the request of the debtor or any other party-in-interest
upon a showing of ``cause.'' Exclusivity is intended to
promote an environment in which the debtor's business may be
rehabilitated and a consensual plan may be negotiated.
However, undue extension can result in excessively, prolonged
and costly delay, to the detriment of the creditors. See.
e.g., ``When Firms Go Bust.'' The Economist, August 1, 1992.
Under current law, an order extending the debtor's
exclusive period to file a plan is an interlocutory order. 28
U.S.C. Sec. 158(a) provides that appeals from interlocutory
orders of a bankruptcy judge may be made to the district
court only upon leave of the district court, and not as a
matter of right. Section 102 of the bill would amend 28
U.S.C. Sec. 158 so as to provide for an immediate appeal as
of right to the district court from a bankruptcy court's
order extending or reducing that debtor's exclusive period in
which to file a plan. This will prevent those parties who
feel they were harmed by an extension, or a failure to
extend, to obtain possible recourse in the district court.
The Committee intends that the district court carefully
consider the circumstances of each case so appealed with a
view to encouraging a fair and equitable resolution of the
bankruptcy.
Section 103. Expedited procedure for reaffirmation of debts
Some uncertainty exists under current law regarding whether
a separate hearing is required for a debtor to reaffirm a
debt, even when the debtor is represented by an attorney who
files an affidavit stating that the reaffirmation was
voluntary and that is would not impose an undue hardship on
the debtor. See In re Richardson, 102 B.R. 254 (Bankr. M.D.
Fla. 1989); In re Churchill, B.R. 878 (Bankr. D. Colo. 1988);
In re James, B.R. 582 (Bankr. W.D. Okla. 1990) (cases holding
reaffirmation hearing is required); In re Carey, 51 B.R. 294
(Bankr. D.D.C. 1985); In re Reidenbach, 59 B.R. 248 (Bankr.
N.D. Ohio 1986); In re Pendlebury, 94 B.R. 120 (Bankr. E.D.
Tenn. 1988) (cases holding reaffirmation hearing is not
required).
This section clarifies that a separate hearing is not
mandatory in order to reaffirm a debt where the debtor is
adequately represented by counsel. In addition, the section
supplements existing safeguards by requiring that the
reaffirmation agreement advise the debtor that reaffirmation
is not required, and by mandating that the attorney's
affidavit indicate that the debtor has been fully advised of
the ramifications of the reaffirmation agreement and any
default thereunder. The Committee intends that such
understandings be appropriately highlighted in the agreement
to ensure adequate notice to the debtor. In each of the above
circumstances, the Committee intends that before the debtor
agrees to a reaffirmation, that the debtor be made fully
aware of his or her rights under the Bankruptcy Code to
discharge the debt and of the effect of a reaffirmation to
continue the debt obligation as though a bankruptcy petition
had not been filed.
Section 104. Powers of bankruptcy courts
This section makes a number of changes to clarify the
powers of bankruptcy courts in managing bankruptcy cases.
Several of these changes are based on the recommendations of
the Federal Courts Study Commission. Subsection (a)
authorizes bankruptcy court judges to hold status conferences
in bankruptcy cases and thereby manage their dockets in a
more efficient and expenditious manner. Notwithstanding the
adoption of Bankruptcy Rule 7016 (relating to pretrial
conferences), some judges have appeared reluctant to do so
without clear and explicit statutory authorization. This
provision clarifies that such authority exists in the
Bankruptcy Code in adversary and nonadversary proceedings.
Subsection (b) allows the full appeal of certain bankruptcy
court refusals to abstain in State law legal proceedings. As
with most other portions of this Act, subsection (b) operates
prospectively and applies only to cases filed after the
effective date of the Act. Accordingly, it does not make any
existing orders appealable. Any future decisions not to
abstain, if made in cases filed before the effective date of
the Act, would also be governed by present law and thus would
not be appealable to the Circuit Court of Appeals. Subsection
(c) provides for the establishment in each judicial circuit
of a bankruptcy appellate panels, composed of sitting
bankruptcy judges, to serve in place of the district court in
reviewing bankruptcy court decisions. Under this subsection,
the judicial council of each circuit would be required to
establish a bankruptcy appellate panel service for this
purpose, unless the council finds there are insufficient
judicial resources available in the circuit or that
establishment would result in undue delay or increased cost
to the parties. Subsection (d) provides that all appeals from
bankruptcy courts shall be heard by a bankruptcy appellate
panel, if established and in operation as provided in 28
U.S.C. 158(b), unless a party makes a timely election to
have an appeal heard by a district court. Subsections (e)
and (f) conform the rulemaking procedure for bankruptcy
courts to the existing procedure for other Federal courts.
Section 105. Participation by bankruptcy administrator at meetings of
creditors and equity security holders.
This section clarifies that for the States in which the
bankruptcy system is administered by a Bankruptcy
Administrator instead of U.S. Trustee, the Bankruptcy
Administrator would have the same power as a U.S. Trustee to
preside at creditor's meetings and conduct examinations of
the debtor.
Section 106. Definition relating to eligibility to serve on chapter 11
committees
This section amends the Bankruptcy Code to include pension
benefit grantors and certain pension plans within the
definition of a ``person'' for purposes of section 1102 of
the Code. This section is intended to clarify that the
Pension Benefit Guaranty Corporation and State employee
pension funds are authorized to serve on chapter 11
committees.
Section 107. Increased incentive compensation for trustees
Private trustees are responsible for supervising chapter 7
cases, and, in some instances, chapter 11 cases, as well as
for distributing funds to creditors. This section provides
for an increase in the court-approved compensation payable to
private trustees. Under current law, the private bankruptcy
trustees may receive 15 percent of the first $1,000 disbursed
in the case; 6 percent of the next $2,000 disbursed; and 3
percent of any additional monies disbursed. The section
increases the maximum compensation to 25 percent of the first
$5,000 in disbursements to creditors; 10 percent of
additional amounts up to $50,000; 5 percent of additional
amounts up to $1 million; and 3 percent of any amounts in
excess of $1 million. This increased compensation is not
borne by the Federal Treasury, but it to be paid by those
involved in the bankruptcy system. The American Bankruptcy
Institute has issued a report recommending increased trustee
compensation. See Am. Bankr. Inst., American Bankruptcy
Institute National Report on Professional Compensation in
Bankruptcy Cases (G.R. Warner rept. 1991).
Section 108. Dollar adjustment
Subsection (a) revises the current debt limits applicable
to a chapter 13 filing from a maximum of $100,000 of
unsecured debt and $350,000 of secured debt to $250,000 of
unsecured debt and $750,000 of secured debt. These changes
should help encourage individual debtors to elect chapter 13
repayment over chapter 7 liquidation. Creditors generally
benefit when a debtor elects chapter 13. Notwithstanding the
fee increases in chapter 13 cases, the Committee does not
intend for debtors to be able to utilize chapter 13 as an
office solely to obtain discharge from certain liabilities.
For example, it is not contemplated that an individual who
committed to heinous crime would be able in good faith to use
chapter 13 solely as a means of discharging a civil
obligation owing to a harmed party. Among other things, the
remaining subsections increase the current dollar limitations
applicable to involuntary filings, bankruptcy priorities, and
bankruptcy exemptions based on recommendations received from
the Judicial Conference. This provision also provides for
automatic increases in response to future inflation every 3
years.
Section 109. Premerger notification
This section conforms section 363(b)(2) of the Bankruptcy
Code more closely to the requirements for antitrust review of
transactions under section 7A of the Clayton Act (15 U.S.C.
18(a)). Section 7A requires parties to a merger or
acquisition to notify the Department of Justice and the
Federal Trade Commission and wait a specified period of time
before completing the transaction, to allow for review of its
competitive implications. Generally, the waiting period
terminates 30 days after the filing requirement is met, but
the period can be extended by a request from the Department
or the FTC for additional information.
Under section 363(b)(2) of the Code, however, the section
7A waiting period for mergers and acquisitions involving
assets in bankruptcy is shortened by 10 days, and could be
shortened even further by order of the bankruptcy court. See,
e.g., CNBC/FNN matter, FTC File No. 911-0067.
Section 109 of the bill extends the initial waiting period
for transactions in bankruptcy to 15 days after the
Department of Justice and the FTC receive the notification
required under section 7A(a). The provision also clarifies
that this waiting period can never be shortened, but only
extended. Finally, the provision specifies three ways in
which the 15-day waiting period can be extended: pursuant to
section 7(e)(2), if the Justice Department or the FTC makes a
``second request''; pursuant to section 7A(g)(2), if the
parties fail to comply; and by the court, for bankruptcy
related or other reasons. The provision also makes a
number of other minor clarifying changes to section
363(b)(2) of the Code.
Section 110. Allowance of creditor committee expenses
The current Bankruptcy Code is silent regarding whether
members of official committees appointed in chapter 11 cases
are entitled to reimbursement of their out-of-pocket expenses
(such as travel and lodging), and the courts have split on
the question of allowing reimbursement. See e.g., In re Lyons
Machinery Co., Inc. 28 B.R. 600 (Bankr. E.D. Ark. 1983); In
re Mason's Nursing Center, Inc., 73 B.R. 360 (Bankr. S.D.
Fla. 1987) (cases prohibiting reimbursement); In re J.E.
Jennings, Inc., 96 B.R. 500 (Bankr. E.D. Pa. 1989); In re
Aviation Technical Support, Inc., 72 B.R. 32 (Bankr. W.D.
Tex. 1987) (cases permitting reimbursement).
This section of the bill amends section 503(b) of the
Bankruptcy Code to specifically permit members of chapter 11
committees to receive court-approved reimbursement of their
actual and necessary out-of-pocket expenses. The new
provision would not allow the payment of compensation for
services rendered by or to the committee members.
Section 111. Bankruptcy code injunctions
This section adds a new subsection (g) to section 524 of
the Code, establishing a procedure for dealing in a chapter
11 reorganization proceeding with future personal injury
claims against the debtor based on exposure to asbestos-
containing products. The procedure involves the establishment
of a trust to pay the future claims, coupled with an
injunction to prevent future claimants from suing the debtor.
The procedure is modeled on the trust/injunction in the
Johns-Manville case, which pioneered the approach a decade
ago in response to the flood of asbestos lawsuits, it was
facing. Asbestos-related disease has a long latency period--
up to 30 years or more--and many of the exposures from the
1940's, when asbestos was in widespread use as an insulating
material, had become the personal injury lawsuits of the
1970's and 1980's. In 1982, when Johns-Manville filed for
bankruptcy, it had been named in 12,500 lawsuits, and
epidemiologists estimated that 50,000 to 100,000 more could
be expected, with a potential liability totalling $2 billion.
Kane v. Johns-Manville Corp., 843 F.2d 636, 639 (2d Cir.
1988).
From the beginning, a central element of the case was how
to deal with future claimants--those who were not yet before
the court, because their disease had not yet manifested
itself. The parties in the Manville case devised a creative
solution to help protect the future asbestos claimants, in
the form of a trust into which would be placed stock of the
emerging debtor company and a portion of future profits,
along with contributions from Johns-Manville's insurers.
Present, as well as future, asbestos personal injury
claimants would bring their actions against the trust. In
connection with the trust, an injunction would be issued
barring new asbestos claims against the emerging debtor
company. Asbestos claimants would have a stake in Johns-
Manville's successful reorganization, because the company's
success would increase both the value of the stock held by
the trust and the company profits set aside for it.
The bankruptcy court appointed a special representative for
the future claimants; this special representative was
centrally involved in formulating the plan and negotiating
support for it among the other creditors. The Johns-Manville
plan was confirmed and upheld on appeal. Kane v. Johns-
Manville Corp., 68 B.R. 618 (Bankr. S.D.N.Y. 1986), aff'd in
part, rev'd in part, 78 B.R. 407 (S.D.N.Y. 1987), aff'd, 843
F.2d 636 (2d Cir. 1988). Nevertheless, lingering uncertainty
in the financial community as to whether the injunction can
withstand all challenges has apparently made it more
difficult for the company to meet its needs for capital and
has depressed the value of its stock. This has undermined the
``fresh start'' objectives of bankruptcy and the goals of the
trust arrangement.
Meanwhile, following Johns-Manville's lead, another
asbestos manufacturer, UNR, has resolved its chapter 11
reorganization with a similar trust/injunction arrangement.
And other asbestos manufacturers are reportedly considering
the same approach.
The Committee remains concerned that full consideration be
accorded to the interests of future claimants, who, by
definition, do not have their own voice. Nevertheless, the
Committee also recognizes that the interests of future
claimants are ill-served if Johns-Manville and other asbestos
companies are forced into liquidation and lose their ability
to generate stock value and profits that can be used to
satisfy claims. Thus, the tension present in the trust/
injunction mechanism is not unlike the tension present in
bankruptcy generally.
The Committee has approved section 111 of the bill in order
to strengthen the Manville and UNR trust/injunction
mechanisms and to offer similar certitude to other asbestos
trust/injunction mechanisms that meet the same kind of high
standards with respect to regard for the rights of claimants,
present and future, as displayed in the two pioneering cases.
The Committee believes Johns-Manville and UNR were aided
in meeting these high standards, in part at least, by the
perceived legal uncertainty surrounding this mechanism,
which created strong incentives to take exceptional
precautions at every stage of the proceeding. The
Committee has concluded, therefore, that creating greater
certitude regarding the validity of the trust/injunction
mechanism must be accompanied by explicit requirements
simulating those met in the Manville case.
Section 111 requires, in order for present claimants to be
bound by a trust/injunction, that the trust have the
capability of owning a majority of the shares of the debtor
or its parent or of a subsidiary; that the debtor prove that
it is likely to be subject to substantial future asbestos
claims, the number of which cannot be easily predicted, and
that the trust is needed in order to deal equitably with
present and future claims; and that a separate creditor class
be established for those with present claims, which must vote
by a 75 percent margin to approve the plan.
In order for future claimants to be bound by a trust/
injunction, section 111 requires that the trust operate in a
structure and manner necessary to give reasonable assurance
that the trust will value, and be able to pay, similar
present and future claims in substantially the same manner.
The asbestos trust/injunction mechanism established in the
bill is available for use by any asbestos company facing a
similarly overwhelming liability. It is written, however, so
that Johns-Manville and UNR, both of which have met and
surpassed the standards imposed in this section, will be able
to take advantage of the certainty it provides without having
to reopen their cases.
Section 111 contains a rule of construction to make clear
that the special rule being devised for the asbestos claim
trust/injunction mechanism is not intended to alter any
authority bankruptcy courts may already have to issue
injunctions in connection with a plan or reorganization.
Indeed, Johns-Manville and UNR firmly believe that the court
in their cases had full authority to approve the trust/
injunction mechanism. And other debtors in other industries
are reportedly beginning to experiment with similar
mechanisms. The Committee expresses no opinion as to how much
authority a bankruptcy court may generally have under its
traditional equitable powers to issue an enforceable
injunction of this kind. The Committee has decided to provide
explicit authority in the asbestos area because of the
singular cumulative magnitude of the claims involved. How the
new statutory mechanism works in the asbestos area may help
the Committee judge whether the concept should be extended
into other areas.
Section 112. Authority of bankruptcy judges to conduct jury
trials in civil proceedings
This section would amend title 28 of the United States Code
to clarify that bankruptcy judges may conduct jury trials and
enter appropriate orders consistent with those trials if
designated by the district court and with the express consent
of all parties to the bankruptcy proceeding.
This amendment world clarify a recent Supreme Court
decision and resolve conflicting opinions among the different
circuits regarding this issue. The Supreme Court in
conflicting opinions among the different circuits regarding
this issue. The Supreme Court in Granfinanciera, S.A. v.
Nordberg, 492 U.S. 33 (1989), held that in bankruptcy core
proceedings, there is a constitutional right to a trial by
jury.
The Granfinanciera court had no finding on whether
bankruptcy judges could conduct civil trials, and the
circuits have reached contrary opinions regarding this issue.
Five circuits have held that, in the absence of enabling
legislation, bankruptcy judges could not hold jury trials.
See Official Committee of Unsecured Creditors v. Schwartzman
(In re Stansbury Poplar Place, Inc.), 13 F.3d 122 (4th Cir.
1993); In re Grabill Corp., 987 F.2d 1153, reh'g en hand
denied, 976 F.2d 1126 (7th Cir. 1992); Raforth v. National
Union Fire Insurance Co. (In re Baker & Getty Financial
Services Inc., 954 F.2d 1169 (6th Cir. 1992); Kaiser Steel
Corp v. Frates (In re Kaiser Steel Corp., 911 F.2d 380 (10th
Cir. 1990); In re United Missouri Bank of Kansas City, N.A.,
901 F.2d 1449 (8th Cir. 1990). The Second Circuit has been
the lone circuit to hold that bankruptcy judges have implicit
authority to conduct jury trials. See In re Ben Cooper, Inc.,
896 F.2d 1394 (2d Cir. 1990).
Section 113. Sovereign immunity
This section would effectively overrule two Supreme Court
cases that have held that the States and Federal Government
are not deemed to have waived their sovereign immunity by
virtue of enacting section 106(c) of the Bankruptcy Code. In
enacting section 106(c), Congress intended to make provisions
of title 11 that encompassed the words ``creditor,''
``entity,'' or ``governmental unit'' applicable to the
States. Congress also intended to make the States subject to
a money judgment. But the Supreme Court in Hoffman v.
Connecticut Department of Income Maintenance, 492 U.S. 96
(1989), held that even if the State did not file a claim, the
trustee in bankruptcy may not recover a money judgment from
the State notwithstanding section 106(c). This holding had
the effect of providing that preferences could not be
recovered from the States. In using such a narrow
construction, the Court held that use of the ``trigger
words'' would only bind the States, and not make them
subject to a money judgment. The Court did not find in the
text of the statute an ``unmistakenly clear'' intent of
Congress to waive sovereign immunity in accordance with
the language promulgated in Atascadero State Hospital v.
Scanlon, 473 U.S. 234, 242 (1985).
The Court applied this reasoning in United States v. Nordic
Village, Inc., 112 S. Ct. 1011 (1992), in not allowing a
trustee to recover a postpetition payment by a chapter 11
debtor to the Internal Revenue Service. The Court found that
there was no such waiver expressly provided within the text
of the statute.
This amendment expressly provides for a waiver of sovereign
immunity by governmental units with respect to monetary
recoveries as well as declaratory and injunctive relief. It
is the Committee's intent to make section 106 conform to the
Congressional intent of the Bankruptcy Reform Act of 1978
waiving the sovereign immunity of the States and the Federal
Government in this regard. Of course the entire Bankruptcy
Code is applicable to governmental units where sovereign
immunity is not or cannot be asserted. As suggested by the
Supreme Court, section 106(a)(1) specifically lists those
sections of title 11 with respect to which sovereign immunity
is abrogated. This allows the assertion of bankruptcy causes
of action, but specifically excludes causes of action
belonging to the debtor that become property of the estate
under section 541. The bankruptcy and appellate courts will
have jurisdiction to apply the specified sections to any kind
of governmental unit as provided in section 106(a)(2). The
bankruptcy court may issue any kind of legal or equitable
order, process, or judgment against a governmental unit
authorized by these sections or the rules, but may not enter
an award for punitive damages. Furthermore, in awarding fees
or costs under the Bankruptcy Code or under the Bankruptcy
Rules, the award is subject to the hourly rate limitations
contained in section 2412(d)(2)(a), title 28, United States
Code, and these limitations are applicable to all
governmental units, not just the Federal Government. Section
106(a)(4) permits an order, process, or judgment to be
enforced against a governmental unit in accordance with
appropriate nonbankruptcy law. Thus, an order against a
governmental unit will not be enforceable by attachment or
seizure of government assets, but will be subject to
collection in the same manner and subject to the same
nonbankruptcy law procedures as other judgments that are
enforceable against governmental units. Of course, the court
retains ample authority to enforce nonmonetary orders and
judgments. Nothing in this section is intended to create
substantive claims for relief or causes of action not
otherwise existing under title 11, the Bankruptcy Rules, or
nonbankruptcy law.
Section 106(b) is clarified by allowing a compulsory
counterclaim to be asserted against a governmental unit only
where such unit has actually filed a proof of claim in the
bankruptcy case. This has the effect of overruling contrary
case law, such as Sullivan v. Town & Country Nursing Home
Services, Inc., 963 F.2d 1146 (9th Cir. 1992); In re Gribben,
158 B.R. 920 (S.D.N.Y. 1993); and In re the Craftsman, Inc.,
163 B.R. 88 (Bankr. W.D. Tex. 1994), that interpreted section
106(a) of current law.
Section 114. Service of process in bankruptcy proceedings on an insured
depository institution
This section operates to amend bankruptcy rule 7004 to
require that service of process to an insured depository
institution be accomplished by certified mail in a contested
matter or adversary proceeding. The rule that is presently in
operation only requires that service be achieved by first
class mail.
Section 115. Meetings of creditors and equity security holders
This section, applicable only in chapter 7 cases, requires
the trustee to orally examine the debtor to ensure that he or
she is informed about the effects of bankruptcy, both
positive and negative. Its purpose is solely informational;
it is not intended to be an interrogation to which the debtor
must give any specific answers or which could be used against
the debtor in some later proceeding. No separate record need
be kept of the examination since it will be preserved along
with the remainder of the record of the meeting, which
normally is recorded on tape.
The trustee conducting the meeting of creditors is directed
to orally inquire whether the debtor is aware of the
consequences of bankruptcy, including protections such as
those provided by the discharge and the automatic stay, as
well as the fact that the bankruptcy filing will appear on
the debtor's credit history. Since different creditors treat
bankruptcy debtors differently, the trustee is not expected
to predict whether the bankruptcy filing will make it more or
less difficult for the debtor to obtain credit; some
creditors may treat the debtor more favorably after
bankruptcy has removed all other debts, and many creditors
consider a bankruptcy filing a barrier to new credit only if
it occurred in the 2 or 3 years prior to the credit
application. For the same reasons, it is not expected that
the trustee would predict whether a dismissal or conversion
of the bankruptcy which has already been filed would
improve the debtor's chances of obtaining credit.
The trustee must also verify that the debtor has knowingly
signed the section of the bankruptcy petition stating the
debtor's awareness of the right to file under other chapters
of the Code.
Finally, the trustee must make sure the debtor is aware of
the effect of reaffirming a debt. Since section 103 of the
bill eliminates for most debtors the warnings and
explanations concerning reaffirmation previously given by the
court at the discharge hearing, it is important that trustees
explain not only the procedures for reaffirmation, but also
the potential risks of reaffirmation and the fact that the
debtor may voluntarily choose to repay any debt to a creditor
without reaffirming the debt, as provided in Bankruptcy Code
section 524(f).
In view of the amount of information involved and the
limits on the time available for meetings of creditors,
trustees or courts may provide written information on these
topics at or in advance of the meeting and the trustee may
then ask questions to ensure that the debtor is aware of the
information.
Section 116. Tax assessment
This section expands the tax exception to the automatic
stay that is contained in 11 U.S.C. Sec. 362(b)(9). This
section will lift the automatic stay as it applies to a tax
audit, a demand for tax returns, assessment of an uncontested
tax liability, or the making of certain assessments of tax
and issuance of a notice and demand for payment for such
assessment. The language of this provision is only intended
to apply to sales or transfers to the debtor. It has no
application to sales or transfers to third parties, such as
in sales free and clear of tax liens under section 363(f).
Section 117. Additional trustee compensation
This section provides an additional $15 compensation for
the services of a trustee in a chapter 7 case in addition to
the $45 already provided for in Bankruptcy code section
330(n). To obtain the funds to pay the additional fees, the
Judicial Conference of the United States is required to
prescribe additional fees payable by parties as provided in
section 1914(b) of title 29; the Judicial Conference of the
United States is also authorized to prescribe fees for
notices of appearances filed by parties-in-interest after a
bankruptcy case is filed and fees to be charged against
distributions to creditors. The latter fees would be
deducted, by trustees or other entities making distributions,
from the monies payable to creditors, constituting user fees
charged to those who participate in bankruptcy cases by
receiving distributions. Since the fees are payable by the
creditors from funds to be distributed to them, such
deductions would not affect the application of the best
interests of creditors test or other tests for confirmation
in chapters 11, 12 or 13. No higher payment from the debtor
would be necessary to meet these tests due to the deduction.
It is the Committee's intention that the funds for this
increase not be borne by the Federal Treasury or by debtors
in chapter 7 or 13 cases.
title ii. commercial bankruptcy issues
Section 201. Aircraft equipment and vessels; rolling stock equipment
Section 201 would effectuate a number of changes. It would
amend both sections 1110 and 1168 to delete the phrase
``purchase-money equipment'' in order to clarify that these
sections protect all lease financing agreements and all debt
financings that involve a security interest, not only
security interests obtained at the time the equipment is
acquired. This change would be phased in so that only new
equipment first placed in service after enactment of the
amendment would be affected. Once this rule is fully phased
in, the distinction between leases and loans would no longer
be relevant for the purposes of these sections.
During the time before this rule is phased in, a safe
harbor definition of the term ``lease'' for equipment first
placed in service prior to the date of enactment would apply.
Under the safe harbor, a lease would receive section 1110 or
section 1168 protection if the lessor and the debtor, as
lessee, have expressed in the lease agreement, or a
substantially contemporaneous writing, that such agreement is
to be treated as a lease for Federal income tax purposes.
This section also clarifies that the rights of a section 1110
or section 1168 creditor would not be affected by section
1129 ``cram-down.''
Section 202. Limitation on liability of non-insider transferee for
avoided transfer
Section 547 of the Bankruptcy Code authorizes trustees to
recapture preferential payments made to creditors within 90
days prior to a bankruptcy filing. Because of the concern
that corporate insiders (such as officers and directors) who
are creditors of their own corporation have an unfair
advantage over outside creditors, secton 547 of the
Bankruptcy Code further authorizes trustees to recapture
preferential payments made to such insiders in their
capacity as creditors a full year prior to a bankruptcy
filing. Several recent court decisions have allowed
trustees to recapture payments made to non-insider
creditors a full year prior to the bankruptcy filing, if
an insider benefits from the transfer in some way. See
Levit v. Ingersoll Rand Financial Corp. (In re V.N.
DePrizio Construction Co.), 874 F.2d 1186 (7th Cir. 1989);
Ray v. City Bank & Trust Co. (In re C&L Cartage Co.), 899
F.2d 1490 (6th Cir. 1990); Manufacturers Hanover Leasing
Corp. v. Lowrey (In re Robinson Brothers Drilling), 892
F.2d 850 (10th Cir. 1989). Although the creditor is not an
insider in these cases, the courts have reasoned that
because the repayment benefitted a corporate insider
(namely the officer who signed the guarantee) the non-
insider transferee should be liable for returning the
transfer to the bankrupt estate as if it were an insider
as well. This section overrules the DePrizio line of cases
and clarifies that non-insider transferees should not be
subject to the preference provisions of the Bankruptcy
Code beyond the 90-day statutory period.
Section 203. Perfection of purchase-money security interest
Section 547(c)(3) of the Bankruptcy Code provides that a
trustee may not avoid the perfection of purchase-money
security interest as a preference if it occurs within 10 days
of the debtor receiving possession of the property. This
section conforms bankruptcy law practices to most States'
practice by granting purchase-money security lenders a 20-day
period in which to perfect their security interest.
Section 204. Continued perfection
This section sets forth an amendment to sections 362 and
546 of the Bankruptcy Code to confirm that certain actions
taken during bankruptcy proceedings pursuant to the Uniform
Commercial Code to maintain a secured creditor's position as
it was at the commencement of the case do not violate the
automatic stay. Such actions could include the filing of a
continuation statement and the filing of a financing
statement. The steps taken by a secured creditor to ensure
continued perfection merely maintain the status quo and do
not improve the position of the secured creditor.
Section 205. Impact of lease rejection on leases
This section clarifies section 365 of the Bankruptcy Code
to mandate that lessees cannot have their rights stripped
away if a debtor rejects its obligations as a lessor in
bankruptcy. This section expressly provides guidance in the
interpretation of the term ``possession'' in the context of
the statute. The term has been interpreted by some courts in
recent cases to be only a right of possession. See In re
Carlton Restaurant, Inc., 151 B.R. 353 (Bankr. E.D. Pa. 1993)
(preventing a tenant from assigning the lease); Home Express,
Inc. v. Arden Associates, Ltd. (In re Arden and Howe
Associates, Ltd.), 152 B.R. 971 (Bankr. E.D. Cal. 1993)
(preventing a tenant from enforcing restrictive covenants in
the least); In re Harborview Development 1986 Limited
Partnership, 152 B.R. 897 (D.S.C. 1993) (holding that
``possession'' contemplated by the Code was physical
possession of the premises denying a holder of a ground lease
protection under the Code). This section will enable the
lessee to retain its rights that are appurtenant to its
leasehold. These rights include the amount and timing of
payment of rent or other amounts payable by the lessee, the
right to use, possess, quiet enjoyment, sublet, or assign.
Section 206. Contents of plan
This amendment conforms the treatment of residential
mortgages in chapter 11 to that in chapter 13, preventing the
modification of the rights of a holder of a claim secured
only by a security interest in the debtor's principal
residence. Since it is intended to apply only to home
mortgages, it applies only when the debtor is an individual.
It does not apply to a commercial property, or to any
transaction in which the creditor acquired a lien on property
other than real property used as the debtor's residence. See
In re Hammond, 276 F.3d 52 (3d Cir. 1994); In re Rameriz, 62
B.R. 668 (Bankr.S.D.Cal. 1986).
Section 207. Priority for independent sales representatives
This section clarifies that independent sales
representatives of a bankrupt debtor are entitled to the same
priority as the employees of the debtor codifying In re Wang
Laboratories, Inc., 164 B.R. 404 (Bankr. Mass. 1994). This
section modifies section 507 of title 11 to include such
representatives in the section's third priority as employees
for the purposes of claims of a bankrupt debtor. The section
specifies that in order to be treated as an employee for the
purposes of priority, at least 75 percent of the income of
the independent sales representative must have been earned as
an independent contracting entity from the bankrupt debtor.
Section 208. Production payments
A production payment is an interest in the product of an
oil or gas producer that lasts for a limited period of time
and that is not affected by production costs. The owner has
no other interest in the property or business of the producer
other than the interest in the product that is produced.
These payments, often transferred by way of oil and gas
leases, represent a means by which capital-strapped oil
producers may generate income from their property without
giving up operating control of their business. Although a
number of states use the ownership theory by treating
production payments as conveying interests in real property
(See In re Simasko Production Co., 74 B.R. 947 (D. Colo.
1987) (production payment treated as separate properly
interest)), it is not clear that this treatment will
necessarily apply in all States in case of bankruptcy. As a
result, this section modifies section 541 of the Bankruptcy
Code to exclude production payments sold by the debtor prior
to a bankruptcy filing from the debtor's estate in
bankruptcy.
Section 209. Seller's rights to reclaim goods
Section 209 addresses the concerns of trade creditors who
claim they often have insufficient notice to exercise their
reclamation rights. Section 209 amends section 546(c)(1) of
the Bankruptcy Code to give trade creditors up to 10 extra
days to utilize reclamation rights after the commencement of
a bankruptcy case.
Section 210. Investment of money of the estate
Section 345 of the Code governs investments of the funds of
bankrupt estates. The purpose is to make sure that the funds
of a bankrupt that are obligated to creditors are invested
prudently and safely with the eventual goal of being able to
satisfy all claims against the bankrupt estate. Under current
law, all investments are required to be FDIC insured,
collateralized or bonded. While this requirement is wise in
the case of a smaller debtor with limited funds that cannot
afford a risky investment to be lost, it can work to
needlessly handcuff larger, more sophisticated debtors. This
section would amend the Code to allow the courts to approve
investments other than those permitted by section 345(b) for
just cause, thereby overruling In re Columbia Gas Systems,
Inc., 1994 WL 463514 (3rd Cir. (Del).
Section 211. Selection of private trustees in chapter 11 cases
This section will conform selection of private trustees in
chapter 11 cases to the selection process in chapter 7 cases,
thereby allowing creditors in a chapter 11 case to elect
their own trustee under section 1104 of chapter 11.
Section 212. Limited liability partnerships
Section 723 of the Bankruptcy Code addresses the personal
liability of general partners for the debts of the
partnership. Section 723 grants the trustee a claim against
``any general partner'' for the full partnership deficiency
owing to creditors to the extent the partner would be
personally liable for claims against the partnership. It is
unclear how this provision would be construed to apply with
regard to registered limited liability partnerships which
have been authorized by a number of States since the advent
of the 1978 Bankruptcy Code. This section clarifies that a
partner of a registered limited liability partnership would
only be liable in bankruptcy to the extent a partner would be
personally liable for a deficiency according to the
registered limited liability statute under which the
partnership was formed.
Section 213. Impairment of Claims and Interests
The principal change in this section is set forth in
subsection (d) and relates to the award of postpetition
interest. In a recent Bankruptcy Court decision in In re New
Valley Corp., 168 B.R. 73 (Bankr. D.N.J. 1994), unsecured
creditors were denied the right to receive postpetition
interest on their allowed claims even though the debtor was
liquidation and reorganization solvent. The New Valley
decision applied section 1124(3) of the Bankruptcy Code
literally by asserting, in a decision granting a declaratory
judgment, that a class that is paid the allowed amount of its
claims in cash on the effective date of a plan is unimpaired
under section 1124(3), therefore is not entitled to vote, and
is not entitled to receive postpetition interest. The Court
left open whether the good faith plan proposal requirement of
section 1129(a)(3) would require the payment of or provision
for postpetition interest. In order to preclude this unfair
result in the future, the Committee finds it appropriate to
delete section 1124(3) from the Bankruptcy Code.
As a result of this change, if a plan proposed to pay a
class of claims in cash in the full allowed amount of the
claims, the class would be impaired entitling creditors to
vote for or against the plan of reorganization. If creditors
vote for the plan of reorganization, it can be confirmed over
the vote of a dissenting class of creditors only if it
complies with the ``fair and equitable'' test under
section 1129(b)(2) of the Bankruptcy code and it can be
confirmed over the vote of dissenting individual creditors
only if it complies with the ``best interests of
creditors'' test under section 1129(a)(7) of the
Bankruptcy Code.
The words ``fair and equitable'' are terms of art that have
a well established meaning under the case law of the
Bankruptcy Act as well as under the Bankruptcy Code.
Specifically, courts have held that where an estate is
solvent, in order for a plan to be fair and equitable,
unsecured and undersecured creditors' claims must be paid in
full, including postpetition interest, before equity holders
may participate in any recovery. See, e.g., Consolidated Rock
Products Co. v. Dubois, 312 U.S. 510, 527, 61 S.Ct. 675, 685
(1941); Dentureholders Protective Committee of Continental
Inv. Corp., 679 F.2d 264 (1st Cir.), cert. denied, 459 U.S.
894 (1982) and cases cited therein.
With respect to section 1124(1) and (2), subsection (d)
would not change the beneficial 1984 amendment to section
1129(a)(7) of the Bankruptcy code, which excluded from
application of the best interests of creditors test classes
that are unimpaired under section 1124.
The other subsections deal with the issue of late-filed
claims. The amendment to section 502(b) is designed to
overrule In re Hausladen, 146 B.R. 557 (Bankr. D. Minn.
1992), and its progeny by disallowing claims that are not
timely filed. The amendment also specifies rules relating to
the filing of certain governmental claims. These changes are
not intended to detract from the ability of the court to
extend the bar date for claims when authorized to do so under
the Federal Rules of Bankruptcy Procedure. The amendments to
section 726(a) of the Code, governing the distribution of
property of the estate in a chapter 7 liquidation, conform to
the amendments to section 1129(b) and 502(b). The amendments
to paragraphs (2) and (3) of section 726(a) assure that the
disallowance of late-filed claims under new section 502(b)(4)
does not affect their treatment under section 726(a).
Section 214. Protection of security interest in postpetition rents
Under current section 552 of the Bankruptcy Code, real
estate lenders are deemed to have a security interest in
postpetition rents only to the extent their security interest
has been ``perfected'' under applicable State law procedures,
Butner v. United States, 440 U.S. 48 (1979). Inclusion under
section 552, in turn, allows such proceeds to be treated as
``cash collateral'' under section 363(a) of the Bankruptcy
Code, which prohibits a trustee or debtor-in-possession from
using such proceeds without the consent of the lender or
authorization by the court. In a number of States, however,
it is not feasible for real estate lenders to perfect their
security interest prior to a bankruptcy filing; and, as a
result, courts have denied lenders having interests in
postpetition rents the protection offered under sections 552
and 363 of the Bankruptcy Code. See, e.g., In re Multi-Group
III Ltd. Partnership, 99 B.R. 5 (Bankr. D. Ariz. 1989); In re
Association Center Ltd. Partnership, 87 B.R. 142 (Bankr. W.D.
Wash. 1988); In re TM Carlton House Partners, Ltd., 91 B.R.
349 (Bankr. E.D. Pa. 1988); In re Metro Square, 93 B.R. 990
(Bankr. D. Minn. 1988). Section 214 provides that lenders may
have valid security interests in postpetition rents for
bankruptcy purposes notwithstanding their failure to have
fully perfected their security interest under applicable
State law. This is accomplished by adding a new provision to
section 552 of the Bankruptcy Code, applicable to lenders
having a valid security interest which extends to the
underlying property and the postpetition rents.
Section 214 also clarifies the bankruptcy treatment of
hotel revenues which have been used to secure loans to hotels
and other lodging accommodations. These revenue streams,
while critical to a hotel's continued operations, are also
the most liquid and most valuable collateral the hotel can
provide to its financiers. When the hotel experiences
financial distress, the interests of the hotel operations,
including employment for clerks, maids, and other workers can
collide with the interests of persons to whom the revenues
are pledged. Section 214 recognizes the importance of this
revenue stream for the two competing interests and attempts
to strike a fair balance between them. Thus, subsection (a)
expressly includes hotel revenues in the category of
collateral in which postpetition revenues are subject to
prepetition security interests, and subsection (b) includes
such revenues in ``cash collateral'' as defined in section
363.
These clarifications of the rights of hotel financiers are,
however, circumscribed. A critical limit is the ``equities of
the case'' provision in subsection (a) which is designed,
among other things, to prevent windfalls for secured
creditors and to give the courts broad discretion to balance
the protection of secured creditors, on the one hand, against
the strong public policies favoring continuation of jobs,
preservation of going concern values and rehabilitation of
distressed debtors, generally. Further circumscription is
supplied by the list of exceptions at the beginning of
subsection (a). Thus, among other things, the reference to
section 363 permits use of pledged revenues if adequate
protection is provided; the reference to section 506(c)
permits broad categories of operating expenses--such as the
cost of cleaning and repair services, utilities, employee
payroll and the like--to be charged against pledged
revenues; the reference to section 522 protects individual
debtors' rights; and the reference to sections 544, 545,
547 and 548 protect the debtor's right to use all its
avoiding powers against the lienholder. These rights,
preserved by the list of sections, would not be waivable
by the debtor, either pre- or postpetition.
Section 215. Netting of swap agreements
Parties active in the foreign exchange market generally
document spot and forward foreign exchange transactions under
a netting agreement. The Bankruptcy Code's definition of
``swap agreement'' refers only to foreign exchange contracts,
but is silent as to whether spot transactions fall within the
definition. This section confirms the market understanding
that spot foreign exchange contracts are included in the term
``swap agreement.'' It is expected that contracts that mature
in a period of time equalling 2 days or less will fall under
the umbrella of ``swap agreements.''
Section 216. Limitation of avoiding powers
This section clarifies section 546(a)(1) of the Bankruptcy
Code which imposes a 2-year statute of limitations within
which an appointed trustee must bring an avoidance action.
The purpose of a statute of limitations is to define the
period of time that a party is at risk of suit. This section
defines the applicable statute of limitations as 2 years from
the entry of an order of relief or 1 year after the
appointment of the first trustee if such appointment occurs
before the expiration of the original 2-year period. The
section is not intended to affect the validity of any tolling
agreement or to have any bearing on the equitable tolling
doctrine where there has been fraud determined to have
occurred. The time limits are not intended to be
jurisdictional and can be extended by stipulation between the
necessary parties to the action or proceeding.
Section 217. Small business
This section amends title 11 to expedite the process by
which small businesses may reorganize under chapter 11. For
the purposes of this section, a small business is defined as
one whose aggregate noncontingent liquidated secured and
unsecured debts are less than $2,000,000 as of the date of
the bankruptcy filing. A qualified small business debtor who
elects coverage under this provision would be permitted to
dispense with creditor committees; would have an exclusivity
period for filing a plan of 100 days; and would be subject to
more liberal provisions for disclosure and solicitation of
acceptances for a proposed reorganization plan under Code
section 1125. This section permits an extension with respect
to the debtor's original filing time if the debtor shows
there were circumstances beyond its control.
Section 218. Single asset real estate
This section will add a new definition to the Code for
``single asset real estate,'' meaning real property that
constitutes a single property or project (other than
residential property with fewer than four units) which
generates substantially all of the gross income of the debtor
and has aggregate noncontingent, liquidated secured debts in
an amount up to $4 million. It amends the automatic stay
provision of section 362 to provide special circumstances
under which creditors of a single asset real estate debtor
may have the stay lifted if the debtor has not filed a
``feasible'' reorganization plan within 90 days of filing, or
has not commenced monthly payments to secured creditors.
Section 219. Leases of personal property
Under current law, when a debtor files for bankruptcy, it
has an unspecified period of time to determine whether to
assume or reject a lease of personal property. Pending a
decision to assume or reject, lessors are permitted to
petition the court to require the lessee to make lease
payments to the extent use of the property actually benefits
the estate. Section 219 responds to concerns that this
procedure may be unduly burdensome on lessors of personal
property, while safeguarding the debtors ability to make
orderly decisions regarding assumption or rejection. The
section amends section 365(d) to specify that 60 days after
the order for relief the debtor must perform all obligations
under an equipment lease, unless the court, after notice and
a hearing and based on the equities of the case, orders
otherwise. This will shift to the debtor the burden of
bringing a motion while allowing the debtor sufficient
breathing room after the bankruptcy petition to make an
informed decision. Section 363(e) is also amended to clarify
that the lessor's interest is subject to ``adequate
protection.'' Such remedy is to the exclusion of the lessor's
being able to seek to lift the automatic stay under section
363. Finally, section 365(b) is clarified to provide that
when sought by a debtor, a lease can be cured at a nondefault
rate (i.e., it would not need to pay penalty rates).
Section 220. Exemption for small business investment companies
This section specifies that small business investment
companies are ineligible to file for bankruptcy protection.
This will prevent such filings from being utilized to
subordinate the interests of the Small Business
Administration to other creditors.
Section 221. Payment of taxes with borrowed funds
This section makes loans that are used to pay Federal taxes
nondischargeable under section 523. This will facilitate
individuals' ability to use their credit cards to pay their
Federal taxes.
Section 222. Return of goods
This section clarifies section 546 of the Bankruptcy Code
by adding a subsection (b) permitting a bankruptcy court to
hold a hearing and allow a buyer to return to the seller
goods shipped before the commencement of the case if it is in
the best interests of the estate. This will allow debtors to
return unsold goods in order to offset their debts. The
notion may only be made by the trustee and must be made
within 120 days after the order for relief.
Section 223. Proceeds of money order agreements
This section excludes from the debtor's estate proceeds
from money orders sold within 14 days of the filing of the
bankruptcy pursuant to an agreement prohibiting the
commingling of such sale proceeds with property of the
debtor. To benefit from this section, the money order issuer
must have acted, prior to the petition, to require compliance
with the commingling prohibition.
Section 224. Trustee duties; professional fees
Subsection (a) requires the United States Trustee to invoke
procedural guidelines regarding fees in bankruptcy cases and
file comments with fee applications. The section also
clarifies the standards for court award of professional fees
in bankruptcy cases. These changes should help foster greater
uniformity in the application for and processing and approval
of fee applications.
Section 225. Notice of creditors
This section amends section 342 of the Bankruptcy Code to
require that notices to creditors set forth the debtor's
name, address, and taxpayer identification (or social
security) number. The failure of a notice to contain such
information will not invalidate its legal effect, for
example, such failure could not result in a debtor failing to
obtain a discharge with respect to a particular creditor.
The Committee anticipates that the Official Bankruptcy
Forms will be amended to provide that the information
required by this section will become a part of the caption on
every notice given in a bankruptcy case. As with other
similar requirements, the court retains the authority to
waive this requirement in compelling circumstances, such as
those of a domestic violence victim who must conceal her
residence for her own safety.
title iii. consumer bankruptcy issues
Section 301. Period for curing default relating to principal residence
Section 1322(b)(3) and (5) of the Bankruptcy Code permit a
debtor to cure defaults in connection with a chapter 13 plan,
including defaults on a home mortgage loan. Until the Third
Circuit's decision in Matter of Roach, 824 F.2d 1370 (3d Cir.
1987), all of the Federal Circuit Courts of Appeal had held
that such right continues at least up until the time of the
foreclosure sale. See In re Glenn, 760 F.2d 1428 (6th Cir.
1985), cert, denied, 474 U.S. 849 (1985); Matter of Clark,
738 F.2d 869 (7th Cir. 1984), cert, denied, 474 U.S. 849
(1985). The Roach case, however, held that the debtor's right
to cure was extinguished at the time of the foreclosure
judgment, which occurs in advance of the foreclosure sale.
This decision is in conflict with the fundamental bankruptcy
principle allowing the debtor a fresh start through
bankruptcy.
This section of the bill safeguards a debtor's rights in a
chapter 13 case by allowing the debtor to cure home mortgage
defaults at least through completion of a foreclosure sale
under applicable nonbankruptcy law. However, if the State
provides the debtor more extensive ``cure'' rights (through,
for example, some later redemption period), the debtor would
continue to enjoy such rights in bankruptcy. The changes made
by this section, in conjunction with those made in section
305 of this bill, would also overrule the result in First
National Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. 1991)
with respect to mortgages on which the last payment on the
original payment schedule is due before the date on which the
final payment under the plan is due. In that case, the Third
Circuit held that subsequent to foreclosure judgment, a
chapter 13 debtor cannot provide for a mortgage debt by
paying the full amount of the allowed secured claim in
accordance with Bankruptcy Code section 1325(a)(5), because
doing so would constitute an impermissible modification of
the mortgage holder's right to immediate payment under
section 1322(b)(2) of the Bankruptcy Code.
Section 302. Nondischargeability of fine under chapter 13
This section adds criminal fines to the list of obligations
which may not be discharged pursuant to a chapter 13 case.
Section 303. Impairment of exemptions
Because the Bankruptcy Code does not currently define the
meaning of the words ``impair an exemption'' in section
522(f), several court decisions have, in recent years,
reached results that were not intended by Congress when it
drafted the Code. This amendment would provide a simple
arithmetic test to determine whether a lien impairs an
exemption, based upon a decision, In re Brantz, 106 B.R. 62
(Bankr.E.D.Pa. 1989), that was favorably cited by the Supreme
Court in Owen v. Owen, 111 S.Ct. 1833, 1838, n.5.
The decisions that would be overruled involve several
scenarios. The first is where the debtor has no equity in a
property over and above a lien senior to the judicial lien
the debtor is attempting to avoid, as in the case, for
example, of a debtor with a home worth $40,000 and a $40,000
mortgage. Most courts and commentators had understood that in
that situation the debtor is entitled to exempt his or her
residual interests, such as a possessory interest in the
property, and avoid a judicial lien or other lien of a type
subject to avoidance, in any amount, that attaches to that
interest. Otherwise, the creditor would retain the lien after
bankruptcy and could threaten to deprive the debtor of the
exemption Congress meant to protect, by executing on the
lien. Unfortunately, a minority of court decisions, such as
In re Gonzales, 149 B.R. 9 (Bankr.D.Mass. 1993), have
interpreted section 522(f) as not permitting avoidance of
liens in this situation. The formula in the section would
make clear that the liens are avoidable.
The second situation is where the judicial lien the debtor
seeks to avoid is partially secured. Again, in an example
where the debtor has a $10,000 homestead exemption, a $50,000
house and a $40,000 first mortgage, most commentators and
courts would have said that a judicial lien of $20,000 could
be avoided in its entirety. Otherwise, the creditor would
retain all or part of the lien and be able to threaten
postbankruptcy execution against the debtor's interest which,
at the time of the bankruptcy is totally exempt. However, a
few courts, including the Ninth Circuit in In re Chabot, 992
F.2d 891 (9th Cir. 1992), held that the debtor could only
avoid $10,000 of the judicial lien in this situation, leaving
the creditor after bankruptcy with a $10,000 lien attached to
the debtor's exempt interest in property. This in turn will
result, at a minimum, in any equity created by mortgage
payments from the debtor's postpetition income--income which
the fresh start is supposed to protect--going to the benefit
of the lienholder. It may also prevent the debtor from
selling his or her home after bankruptcy without paying the
lienholder, even if that payment must come from the debtor's
$10,000 exempt interest. The formula in the section would not
permit this result.
The third situation is in the Sixth Circuit, where the
Court of Appeals, in In re Dixon, 885 F.2d 327 (6th Cir.
1989), has ruled that the Ohio homestead exemption only
applies in execution sale situations. Thus, the court ruled
that the debtor's exemption was never impaired in a
bankruptcy and could never be avoided, totally eliminating
the right to avoid liens. This leaves the debtor in the
situation where, if he or she wishes to sell the house after
bankruptcy, that can be done only by paying the lienholder
out of equity that should have been protected as exempt
property. By focusing on the dollar amount of the exemption
and defining ``impaired,'' the amendment should correct this
problem. By defining ``impairment,'' the amendment also
clarifies that a judicial lien on a property can impair an
exemption even if the lien cannot be enforced through an
execution sale, thereby supporting the result in In re
Henderson, 18 F.3d 1305 (5th Cir. 1994), which permitted a
debtor to avoid a lien that impaired the homestead exemption
even though the lien could not be enforced through a judicial
sale.
The amendment also overrules In re Simonson, 758 F.2d 103
(3d Cir. 1985), in which the Third Circuit Court of Appeals
held that a judicial lien could not be avoided in a case in
which it was senior to a nonavoidable mortgage and the
mortgages on the property exceeded the value of the property.
The position of the dissent in that case is adopted.
Section 304. Protection of child support and alimony
This section is intended to provide greater protection for
alimony, maintenance, and support obligations owing to a
spouse, former spouse or child of a debtor in bankruptcy. The
Committee believes that a debtor should not use the
protection of a bankruptcy filing in order to avoid
legitimate marital and child support obligations.
The section modifies several provisions of the Bankruptcy
Code. Subsection (b) specifies that the automatic stay does
not apply to a proceeding that seeks only the establishment
of paternity or the establishment or modification of an order
for alimony, maintenance, and support. Subsection (c)
provides a new bankruptcy priority relating to debts for
alimony, maintenance or support obligations. Subsection (d)
provides that section 522(f)(1) of the Bankruptcy Code may
not be used to avoid judicial liens securing alimony,
maintenance, or support obligations. (This subsection is
intended to supplement the reach of Farrey v. Sanderfoot, 111
S.Ct. 1825, 114 L.Ed.2d 337 (1991), which held that a former
husband could not avoid a judicial lien on a house previously
owned with his wife.)
Subsection (e) adds a new exception to discharge for some
debts arising out of a divorce decree or separation agreement
that are not in the nature of alimony, maintenance or
support. In some instances, divorcing spouses have agreed to
make payments of marital debts, holding the other spouse
harmless from those debts, in exchange for a reduction in
alimony payments. In other cases, spouses have agreed to
lower alimony based on a larger property settlement. If such
``hold harmless'' and property settlement obligations are not
found to be in the nature of alimony, maintenance, or
support, they are dischargeable under current law. The
nondebtor spouse may be saddled with substantial debt and
little or no alimony or support. This subsection will make
such obligations nondischargeable in cases where the
debtor has the ability to pay them and the detriment to
the nondebtor spouse from their nonpayment outweighs the
benefit to the debtor of discharging such debts. In other
words, the debt will remain dischargeable if paying the
debt would reduce the debtor's income below that necessary
for the support of the debtor and the debtor's dependents.
The Committee believes that payment of support needs must
take precedence over property settlement debts. The debt
will also be discharged if the benefit to the debtor of
discharging it outweighs the harm to the obligee. For
example, if a nondebtor spouse would suffer little
detriment from the debtor's nonpayment of an obligation
required to be paid under a hold harmless agreement
(perhaps because it could not be collected from the
nondebtor spouse or because the nondebtor spouse could
easily pay it) the obligation would be discharged. The
benefits of the debtor's discharge should be sacrificed
only if there would be substantial detriment to the
nondebtor spouse that outweighs the debtor's need for a
fresh start.
The new exception to discharge, like the exceptions under
Bankruptcy Code section 523(a) (2), (4), and (6) must be
raised in an adversary proceeding during the bankruptcy case
within the time permitted by the Federal Rules of Bankruptcy
Procedure. Otherwise the debt in question is discharged. The
exception applies only to debts incurred in a divorce or
separation that are owed to a spouse or former spouse, and
can be asserted only by the other party to the divorce or
separation. If the debtor agrees to pay marital debts that
were owed to third parties, those third parties do not have
standing to assert this exception, since the obligations to
them were incurred prior to the divorce or separation
agreement. It is only the obligation owed to the spouse or
former spouse--an obligation to hold the spouse or former
spouse harmless--which is within the scope of this section.
See In re MacDonald, 69 B.R. 259, 278 (Bankr.D.N.J. 1986).
Subsection (f) specifies that bona fide alimony,
maintenance or support payments are not subject to avoidance
under section 547 of the Bankruptcy Code. Subsection (g)
provides that child support creditors or their
representatives are permitted to appear at bankruptcy court
proceedings.
Section 305. Interest on interest
This section will have the effect of overruling the
decision of the Supreme Court in Rake v. Wade, 113 S.Ct. 2187
(1993). In that case, the Court held that the Bankruptcy Code
required that interest be paid on mortgage arrearages paid by
debtors curing defaults on their mortgages. Notwithstanding
State law, this case has had the effect of providing a
windfall to secured creditors at the expense of unsecured
creditors by forcing debtors to pay the bulk of their income
to satisfy the secured creditors' claims. This had the effect
of giving secured creditors interest on interest payments,
and interest on the late charges and other fees, even where
applicable law prohibits such interest and even when it was
something that was not contemplated by either party in the
original transaction. This provision will be applicable
prospectively only, i.e., it will be applicable to all future
contracts, including transactions that refinance existing
contracts. It will limit the secured creditor to the benefit
of the initial bargain with no court contrived windfall. It
is the Committee's intention that a cure pursuant to a plan
should operate to put the debtor in the same position as if
the default had never occurred.
Section 306. Exception to discharge
This section extends from 40 to 60 days the period in which
a consumer debt to acquire ``luxury goods or services'' may
be presumed nondischargeable in a proceeding under section
523(a)(2) of the Bankruptcy Code. The section also increases
from 20 to 60 days the period in which cash advances under an
open end credit plan may be presumed nondischargeable in such
a proceeding. In addition, the dollar amount necessary to
trigger such a presumption in the case of luxury goods is
increased from $500 to $1,000.
Section 307. Payments under chapter 13
Currently, the practice of making payouts under a chapter
13 plan varies from one court to another. This section
clarifies Congressional intent that the trustee should
commence making the payments ``as soon as practicable'' after
the confirmation of the chapter 13 plan. Such payments should
be made even prior to the bar date for filing claims, but
only if the trustee can provide adequate protection against
any prejudice to later filing claimants caused by
distributions prior to the bar date.
Section 308. Bankruptcy petition preparers
This section adds a new section to chapter 1 of title 11
United States Code to create standards and penalties
pertaining to bankruptcy petition preparers. Bankruptcy
petition preparers not employed or supervised by any attorney
have proliferated across the country. While it is permissible
for a petition preparer to provide services solely limited to
typing, far too many of them also attempt to provide legal
advice and legal services to debtors. These preparers often
lack the necessary legal training and ethics regulation to
provide such services in an adequate and appropriate manner.
These services may take unfair advantage of persons who are
ignorant of their rights both inside and outside the
bankruptcy system. This section requires all bankruptcy
preparation services to provide their relevant personal
identifying information on the bankruptcy filing. It
requires copies of all bankruptcy documents to be given to
the debtor and signed by the debtor. The section also
provides that if the petition is dismissed as the result
of fraud or incompetence on the preparer's account, or if
the preparer commits an inappropriate or deceptive act,
the debtor is entitled to receive actual damages, plus
statutory damages of $2,000 or twice the amount paid to
the preparer, whichever is greater, plus reasonable
attorney's fees and costs of seeking such relief. The
bankruptcy preparer is also subject to injunctive action
preventing the preparer from further work in the
bankruptcy preparation business.
Section 309. Fairness to condominium and cooperative owners
This section amends section 523(a) of the Bankruptcy Code
to except from discharge those fees that become due to
condominiums, cooperatives, or similar membership
associations after the filing of a petition, but only to the
extent that the fee is payable for time during which the
debtor either lived in or received rent for the condominium
or cooperative unit. Except to the extent that the debt is
nondischargeable under this section, obligations to pay such
fees would be dischargeable. See Matter of Rosteck, 899 F.2d
694 (7th Cir. 1990).
Section 310. Nonavoidability of security interests on tools and
implements of trade, animals, and crops
This section adds a limited exception to the debtor's
ability to avoid nonpossessory nonpurchase-money security
interests in implements, professional books, or tools of
trade of the debtor or a dependent of the debtor, or farm
animals or crops of the debtor or a dependent of the debtor.
It applies only in cases in which the debtor has voluntarily
chosen the State exemptions rather than the Federal
bankruptcy exemptions or has been required to utilize State
exemptions because a State has opted out of the Federal
exemptions. In such case, if the State allows unlimited
exemption of property or prohibits avoidance of a consensual
lien on property that could otherwise be claimed as exempt,
the debtor may not avoid a security interest on the types of
property specified above under Bankruptcy Code section
522(f)(2) to the extent the value of such property is in
excess of $5,000. This section has no applicability if the
debtor chooses the Federal bankruptcy exemptions, which
cannot be waived. Like other exemption provisions, the new
provision applies separately to each debtor in a joint case.
Section 311. Conversion of case under chapter 13
This amendment would clarify the Code to resolve a split in
the case of law about what property is in the bankruptcy
estate when a debtor converts from chapter 13 to chapter 7.
The problem arises because in chapter 13 (and chapter 12),
any property acquired after the petition becomes property of
the estate, at least until confirmation of a plan. Some
courts have held that if the case is converted, all of this
after-acquired property becomes part of the estate in the
converted chapter 7 case, even though the statutory
provisions making it property of the estate does not apply to
chapter 7. Other courts have held that the property of the
estate in a converted case is the property the debtor had
when the original chapter 13 petition was filed.
These latter courts have noted that to hold otherwise would
create a serious disincentive to chapter 13 filings. For
example, a debtor who had $10,000 equity in a home at the
beginning of the case, in a State with a $10,000 homestead
exemption, would have to be counseled concerning the risk
that after he or she paid off a $10,000 second mortgage in
the chapter 13 case, creating $10,000 in equity, there would
be a risk that the home could be lost if the case were
converted to chapter 7 (which can occur involuntarily). If
all of the debtor's property at the time of conversion is
property of the chapter 7 estate, the trustee would sell the
home, to realize the $10,000 in equity for the unsecured
creditors and the debtor would lose the home.
This amendment overrules the holding in cases such as
Matter of Lybrook, 951 F.2d 136 (7th Cir. 1991) and adopts
the reasoning of In re Bobroff, 766 F.2d 797 (3d Cir. 1985).
However, it also gives the court discretion, in a case in
which the debtor has abused the right to convert and
converted in bad faith, to order that all property held at
the time of conversion shall constitute property of the
estate in the converted case.
Section 312. Bankruptcy fraud
This section sets out criminal penalties for any person who
knowingly, fraudulently, and with specific intent to defraud
uses the filing of a bankruptcy petition or document, or
makes a false representation, for the purpose of carrying out
a fraudulent scheme. An essential element of the new fraud
action, as with other fraud actions, is requirement of proof
beyond a reasonable doubt of a specific intent to defraud.
Under no circumstance is this section to be operative if the
defendant is adjudicated as having committed the act alleged
to constitute fraud for a lawful purpose.
The section would not apply to a person who makes a
misrepresentation on a financial statement, and then
subsequently files a bankruptcy case, so long as the debtor
had not at the time of the misrepresentation planned the
bankruptcy filing as part of a scheme in connection with this
misrepresentation. This would be the case, for example, where
the misrepresentation occurred a considerable period of time
before the bankruptcy filing, and the primary motivation
for the bankruptcy filing was not related to the
misrepresentation or fraud. It would also not be a crime
under this section for a person to make a false statement
or promise concerning a proceeding under title 11, as long
as the false statement or promise was not made as part of
a scheme to defraud involving the bankruptcy proceeding.
Similarly, a person who conveys incorrect information
about the pendency of a bankruptcy or the planned filing
of a bankruptcy case would not be within the scope of this
section unless that information was conveyed fraudulently
and to further a fraudulent scheme.
The provision could, however, apply to creditors as well as
debtors. For example, if a creditor, as part of a scheme to
defraud a debtor or debtors, knowingly made false statements
to a debtor concerning the debtor's rights in connection with
a bankruptcy case, that creditor could be subject to this
section.
Section 313. Protection against discriminatory treatment of
applications for student loans
This section clarifies the antidiscrimination provisions of
the Bankruptcy Code to ensure that applicants for student
loans or grants are not denied those benefits due to a prior
bankruptcy. The section overrules In re Goldrich, 771 F.2d 28
(2d Cir. 1985), which gave an unduly narrow interpretation to
Code section 525. Like section 525 itself, this section is
not meant to limit in any way other situations in which
discrimination should be prohibited. Under this section, as
under section 525 generally, a debtor should not be treated
differently based solely on the fact that the debtor once
owed a student loan which was not paid because it was
discharged; the debtor should be treated the same as if the
prior student loan had never existed.
title iv. government bankruptcy issues
Section 401. Exception from automatic stay for postpetition property
taxes
Local governments rely on real property taxes to constitute
one of their principal sources of revenue. These taxes are,
in turn, typically secured by statutory liens. Both the
property owner and any mortgage holder recognize that their
interest in real property is subject to the local
government's right to collect such property taxes. However,
several circuit courts have held that the automatic stay
prevents local governments from attaching a statutory lien to
property taxes accruing subsequent to a bankruptcy filing.
See, e.g., In re Paar Meadows, 880 F.2d 1540 (2d Cir. 1989),
cert. denied, 110 S.Ct. 869 (1990); Makaroff v. City of
Lockport, 916 F.2d 890 (3d Cir. 1990). These decisions create
a windfall for secured lenders, who would otherwise be
subordinated to such tax liens, and significantly impair the
revenue collecting capability of local governments. This
section overrules these cases and allow local governments to
utilize their statutory property tax liens in order to secure
the payment of property taxes.
Section 402. Municipal bankruptcy
Under section 901 of the Bankruptcy Code, a municipality
may file for bankruptcy if, among other things, it is
``generally authorized'' to do so under State law. The courts
have split regarding whether this provision requires express
statutory authorization by State law in order for a
municipality to file for bankruptcy. See In re Pleasant View
Utility District, 24 B.R. 632 (Bankr. M.D. Tenn. 1982); In re
City of Wellston, 43 B.R. 348 (Bankr. E.D. Mo. 1984); In re
Greene County Hospital, 59 B.R. 388 (Bankr. S.D. Miss. 1986);
In re City of Bridgeport, 128 B.R. 688 (Bankr. D. Conn. 1991)
(cases not requiring express authorization); but see In re
Carroll Township Authority, 119 B.R. 61 (Bankr. W.D. Pa.
1990); In re North and South Shenango Joint Municipal
Authority, 80 B.R. 57 (Bankr. W.D. Pa 1982) (cases requiring
express authorization). This section clarifies the
eligibility requirements applicable to municipal bankruptcy
filings by requiring that municipalities be specifically
authorized by the State in order to be eligible to file for
bankruptcy.
title v. technical corrections
This title makes a number of technical corrections to the
Bankruptcy Code.
title vi. bankruptcy review commission
This title establishes a National Bankruptcy Review
Commission. The Commission is empowered to review the
Bankruptcy Code and to prepare a report based upon its
findings and opinions. Although no exclusive list is set
forth, the Commission should be aware that Congress is
generally satisfied with the basic framework established in
the current Bankruptcy Code. Therefore, the work of the
Commission should be based upon reviewing, improving, and
updating the Code in ways which do not disturb the
fundamental tenets and balance of current law.
The title mandates a nine-member Commission, Congress
appointing four members, the President appointing three
members, and the Chief Justice of the U.S. Supreme Court
appointing two members. The members of the Commission should
be knowledgeable in bankruptcy law, with diversity of
background and opinion considered in their selection. The
first meeting of the Commission shall be held 210 days after
the date of enactment. No Member of Congress or officer or
employee of the executive branch may be appointed to serve on
the Commission.
title vii. severability; effective date
Section 701 provides that if any provision of the Act is
held to be unconstitutional, the remaining provisions shall
not be affected thereby. Section 702 provides that the
amendments made by the Act shall only apply prospectively,
except as otherwise and specifically noted therein.
Mr. Speaker, I yield 1 minute to the gentleman from Oklahoma, [Mr.
Synar].
(Mr. SYNAR asked and was given permission to revise and extend his
remarks.)
Mr. SYNAR. Mr. Speaker, I thank the chairman of the committee for
yielding this time to me.
Mr. Speaker, our bankruptcy laws have developed since the early
1800's to embody two key principles which are respected in H.R. 5116,
today's bankruptcy reform bill.
First, our bankruptcy laws must continue to encourage economic
expansion by offering creditors the privately enforced protection they
need to feel secure in lending the capital that fuels economic growth.
The reforms we offer today will continue the bankruptcy code's
tradition of keeping private losses private. My colleagues should
remember that there is no taxpayer backup in bankruptcy; no FDIC to
make up losses if a company or an individual becomes insolvent.
Instead, the code provides a system which allows debtors and creditors
to resolve the differences in their ledgers with Government intrusion
or involvement.
And second, we must ensure that our bankruptcy laws protect debtors
as well as creditors. We must truly give debtors a fresh start because
our Nation is a nation of failures and has been since its earliest
days. Capitalism demands that for every winner there are losers and the
economic liberty that has brought generations of immigrants to our
Nation has always embodied the freedom to fail as well as the chance to
succeed.
H.R. 5116 embodies both of these principles and deserves our support
today. The bill helps individual debtors by raising the Chapter 13 debt
limits to a new total of $1 million, by establishing new civil
penalties bankruptcy petition preparers who negligently or fraudulently
prepare bankruptcy petitions and by allowing Chapter 13 debtors to cure
foreclosure judgments at least through the time of foreclosure on the
property.
Crecitors also benefit from today's bill. Specifically, provisions
designed to curtail bankruptcy fraud and abuse and reduce the
unnecessary costs and delays of the bankruptcy process will benefit all
those who rely on the bankruptcy code for settling accounts. Commercial
creditors should also find comfort in a number of reforms contained in
the legislation with regard to bankruptcy trustees and new rights for
creditors in certain bankruptcy situations.
Finally, I would like to extend my warm and heartfelt thanks to
Chairman Brooks for his consideration of this legislation and to the
entire Economic and Commercial Law Subcommittee staff for their long
hours of work on this legislation. Their dedication to commonsense
reform of the code follows a fine tradition on the committee and they
are to be commended for their efforts.
Mr. FISH. Mr. Speaker, I yield myself such time as I may consume.
(Mr. FISH asked and was given permission to revise and extend his
remarks.)
Mr. FISH. Mr. Speaker, I am pleased to speak in support of H.R. 5116,
the Bankruptcy Reform Act of 1994, legislation I have joined with the
gentleman from Texas [Mr. Brooks]--the chairman of the Committee on the
Judiciary--and the gentleman from Oklahoma [Mr. Synar] in sponsoring.
The bill comes to the floor in a form that reflects the outcome of
informal discussions between the two bodies. A number of features of S.
540, an omnibus bankruptcy bill that passed the Senate by unanimous
vote in April of this year, are incorporated in the legislation we
consider today.
In the 102d Congress, the House and Senate Committees on the
Judiciary compiled hearing records that documented the need for
legislation to address a range of problems confronting participants in
the bankruptcy process. The last comprehensive rewrite of U.S.
bankruptcy law had been completed in 1978. By the early 1990's,
substantial updating was needed in response to burgeoning bankruptcy
filings including megacases, greater complexity characterizing
financial transactions, and unanticipated economic consequences of
Bankruptcy Code provisions.
The priorities we recognized were to expedite bankruptcy procedures,
stimulate greater recoveries, and mitigate adverse impacts of financial
distress. Although each body passed a major bankruptcy bill, the 102d
Congress adjourned before the process of reconciling House and Senate
bills could be completed. For that reason, we have returned--although
later in the 103d Congress than I would have hoped--to this important
unfinished business.
Bankruptcy case filings declined last year after eight consecutive
years of significant increases, but the 1993 total nevertheless
exceeded 875,000--more than double the 1985 figure. In view of these
statistics--and the reality that some business bankruptcies in recent
years have involved literally billions of dollars and many thousands of
jobs--the profound economic consequences of bankruptcy cannot be
overlooked. We must meet the challenge of reducing bankruptcy delays,
discouraging abuses of the bankruptcy process, and resolving bankruptcy
law problems that needlessly burden American businesses.
This legislation includes many important provisions. The following
are some of the highlights:
We obviate the necessity of bankruptcy judges holding superfluous
hearings when debtors, with the benefit of representation by counsel,
seek to reaffirm obligations.
We seek to facilitate more expeditious resolutions of requests for
relief from the automatic stay--and we seek to discourage long
postponements for filing proposed reorganization plans.
We encourage greater reliance on Chapter 13 of the Bankruptcy Code--
an alternative to liquidation--by making a broader range of debtors
eligible to file under that chapter and contribute income under a
repayment plan.
We provide explicit statutory authorization for bankruptcy judges to
conduct jury trials with the consent of the parties when so designated
by the district court--thus saving judicial resources in certain
situations where the right to trial by jury is guaranteed.
We give expression to the inappropriateness of penalizing lenders for
obtaining loan guarantees--penalties that eventually can constrict
credit and increase interest rates--and for that reason effectively
overrule the DePrizio case.
We clarify that important Bankruptcy Code protections for entities
that finance or lease aircraft, vessels, and railroad equipment cover a
broad range of transactions.
We modify the automatic stay in response to abuses involving some
single asset real estate entities that file under Chapter 11 solely for
purposes of delay without any expectation of reorganizing successfully.
We provide additional safeguards for equipment lessors in recognition
of problems they often face during the bankruptcy process.
We clarify judicial authority to issue injunctions in certain
circumstances where trusts are created to pay asbestos related claims--
because we recognize that by removing uncertainty over the validity of
such injunctions, the value of trust assets available to fund
recoveries by victims can increase.
We safeguard a seller's important right to reclaim goods by extending
the reclamation period in limited circumstances.
We remove the unjustifiable bar to the Pension Benefit Guaranty
Corporation and State pensions funds serving on creditors' committees.
H.R. 5116 encourages greater utilization of backruptcy appellate
panels to hear appeals--with the consent of the parties--in bankruptcy
cases. We recognize, however, that bankruptcy appellate panels may not
improve the administration of justice in some circuits and therefore
provide judicial councils with flexibility in broadly specified
circumstances.
The provisions of this bill necessarily are diverse because the
bankruptcy process affects a wide range of activity in our complex
economy. When Bankruptcy Code uncertainties make economic transactions
cumbersome, the resulting higher costs affect everyone. Bankruptcy law
reform is very important to the American public because we are all
consumers.
The bill before us makes important improvements in existing law. I
urge my colleagues to support it.
Mr. Speaker, I have no further requests for time, and I yield back
the balance of my time.
Mr. BROOKS. Mr. Speaker, I yield 2 minutes to the distinguished
gentleman from California, [Mr. Howard Berman] an outstanding member of
the committee who has worked long and hard on this issue.
(Mr. BERMAN asked and was given permission to revise and extend his
remarks, and include extraneous matter.)
Mr. BERMAN. Mr. Speaker, I rise in strong support of H.R. 5116, the
Bankruptcy Reform Act. I want to congratulate our chairman, the
gentleman from Texas, for the careful balance he has struck in this
legislation, and for the expert assistance provided by this excellent
staff.
I would like to speak in particular to three sections of the bill.
First, I am very pleased by the inclusion of Section 113 in the bill,
effectively overruling the decisions of the Supreme Court in U.S.
versus Nordic Village and Hoffman versus Connecticut Department of
Income Maintenance, and clarifying the original intent of Congress in
enacting Section 106 of the Bankruptcy Code with regard to sovereign
immunity.
I would particularly note the import of Section 113 with regard to
the rights of taxpayers. Section 113 establishes that the Federal and
State governments cannot seize the property of taxpayers who have filed
for bankruptcy. This provision establishes that the government cannot
assert sovereign immunity as a shield to defend its actions in
violating the automatic stay and discharge provisions of the Code, but
instead must abide by the regular processes of the bankruptcy court
applicable to all claimants.
I would also like to comment on two provisions in the bill which will
help respond to bankruptcy typing mills which have proliferated in the
central district of California. The Justice Department reports that
typing mills were responsible for 30 percent of all bankruptcy filings
in the central district, many by individuals who were unfairly preyed
upon because they do not speak English or understand the bankruptcy
system. Section 308 of the bill creates a new set of civil standards
and penalties pertaining to these typing services. Under this section,
if a bankruptcy petition is dismissed as a result of fraud or
incompetence by the preparer, the debtor will be entitled to actual as
well as statutory damages.
Section 312 of the bill, setting forth new criminal penalties for
bankruptcy fraud, should also help limit abuses by typing mills. While
many legitimate bankruptcy professionals have expressed concern
regarding the scope of section 312, it is my understanding that because
of existing case law precedent relative to mail fraud, section 312
would only apply in cases where there existed proof beyond a reasonable
doubt of a specific intent to defraud. In this regard, I attach an
excerpt from a memorandum prepared by the Department of Justice
acknowledging the very heavy burden they would face in bringing a fraud
action under section 312.
Intent to Defraud Must be Proved Beyond a Reasonable Doubt
Proposed Sec. 157(a), patterned after the mail and wire
fraud statutes (18 U.S.C. Sec. 1341, 1343), would require
proof of devising or intending to devise a ``scheme or
artifice to defraud.'' Like the mail fraud statute, an
essential element of the proposed statute requires proof
beyond a reasonable doubt of a specific intent to defraud.
This is one of the highest mens rea standards in the criminal
law. Because of this high burden of proof, courses of action
permitted under the Bankruptcy Code and allowed by the
bankruptcy courts are unlikely to be prosecutable under this
new law or any fraud statute. Where a statute or case
supports the action taken and the person can show that he or
she relied on such law, it would not be possible to show the
intent to defraud required by the statute proposed.
Knowledge and intent are elements in any fraud prosecution.
See, e.g., U.S. v. White, 879 F.2d 1509, cert. den., 494 U.S.
1027 (1990) (wife who had no knowledge of concealed business
property could not be prosecuted for signing false statements
that omitted such property); U.S. v. Tashjian, 660 F.2d 829,
cert. den., 454 U.S. 1102 (1982); U.S. v. Martin, 408 F.2d
949, cert. den., 396 U.S. 824 (1970); U.S. v. Goodstein, 883
F.2d 1362 (7th Cir.), cert. den., 494 U.S. 1007 (1990).
Similarly, the requirement that any fraud be ``material''
(while not in any statutory language, ``materiality'' is an
element of bankruptcy fraud as well) would contemplate and
include a concept that the fraud would target and interfere
with the bankruptcy process.
Because of this high burden of proof, most courses of
action allowed by the bankruptcy courts are unlikely to be
prosecutable under this new law or any fraud statute. Where a
statute or case supports the action taken and the person can
show that he or she relied on such law, it would be extremely
difficult to show an intent to defraud. Good faith has long
been recognized as a complete defense to any fraud
prosecution. See e.g., United States v. Williams, 728 F.2d
1402 (11th Cir. 1984) (good faith is a complete defense to
the element of intent to defraud). Advice of counsel is also
a defense that will counter a fraud prosecution where a
debtor took certain action based on an attorney's good faith
interpretation of the bankruptcy laws.
The proposed statute is no broader than the mail fraud
statute, and in many respects is narrower because of the body
of bankruptcy law potential defendants could point to in
justifying their actions. The courts have the ability to
ensure that this proposed law is not abused, just as they
have monitored the application of the criminal laws in other
areas. For example, in prosecutions under the income tax
laws, the courts have allowed good faith but mistaken and
misguided reliance on civil laws to be raised as a defense to
a criminal prosecution. See e.g., United States v. Cheek, --
-- U.S. ----, 111 S. Ct. 604 (1991).
Ms. SLAUGHTER. Mr. Speaker, I rise in strong support of H.R. 5116,
the Bankruptcy Reform Act of 1994.
H.R. 5116 contains a number of improvements to the Bankruptcy Code,
including expedited court procedure, increased protection against
bankruptcy fraud, and the establishment of a National Bankruptcy
Commission to pay close attention to key issues in bankruptcy
procedure.
One section of H.R. 5116 which I feel is vitally important is similar
to the text of my own bill, H.R. 4711, the Spousal Equity in Bankruptcy
Amendments. Here, H.R. 5116 gives added protection to child support and
alimony payments in the event of a bankruptcy filing. Under the current
Bankruptcy Code, child support and alimony are given no priority when a
debtor's assets are distributed. It is incomprehensible that while many
creditors can collect their fees, dependent spouses and children have
to wait, and may never be included. H.R. 5116 elevates child support
from its current status as a general, unsecured debt to a formally
prioritized debt. This import change will help ensure that a custodial
parent will not have to wait years to receive payment due.
H.R. 5116 also closes a loophole which can be devastating for single-
parent families. During a divorce agreement, it is not uncommon for the
custodial parent to accept a lower level of child support in exchange
for the other parent assuming the couple's marital debts. If the non-
custodial parent declares bankruptcy, however, the marital debts than
fall to the single parent. Think of what the custodial parent then
faces: little or no child support payments, the heavy responsibilities
of all the marital debts, and the expenses that come with rearing
children alone.
The Bankruptcy Reform Act would obligate the non-custodial spouse,
who agreed to pay the couple's marital debts, to continue
responsibility for these debts. I think it is outrageous that wives and
dependent children must answer to creditors for debts the husband first
agreed to pay. This relatively small--but vital--change in the
Bankruptcy Code would prevent this situation, and ensure a more
equitable treatment of all parties in the event of bankruptcy.
Mr. Speaker, I have heard heartbreaking stories from single parents
who want nothing but the best for their children, but find themselves
forced to fight for their rightful level of child support. With no
other recourse, these families often turn to welfare to provide the
child support the absent parent ought to be responsible for. H.R. 5116
takes an important first step in breaking this tragic cycle by
strengthening current bankruptcy law and enforcing tougher measures for
child support and alimony collection.
Finally, Mr. Speaker, I would like to commend the distinguished
Chairman of the Judiciary Committee, Jack Brooks, and ranking member
Hamilton Fish, for their diligent efforts and hard work in moving
omnibus bankruptcy reform before Congressional adjournment. I encourage
my colleagues to join me in supporting the Bankruptcy Reform Act. Thank
you, Mr. Speaker, and I yield back the balance of my time.
{time} 2030
Mr. BROOKS. Mr. Speaker, I have no further requests for time, and I
yield back the balance of my time.
The SPEAKER pro tempore (Mr. Poshard). The question is on the motion
offered by the gentleman from Texas [Mr. Brooks] that the House suspend
the rules and pass the bill, H.R. 5116, as amended.
The question was taken.
Mr. GEKAS. Mr. Speaker, I object to the vote on the grounds that a
quorum is not present and make the point of order that a quorum is not
present.
The SPEAKER pro tempore. Pursuant to clause 5, rule I, and the
Chair's prior announcement, further proceedings on this motion will be
postponed.
The point of no quorum is considered withdrawn.
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