[House Report 105-540]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-540
_______________________________________________________________________
BANKRUPTCY REFORM ACT OF 1998
_______
May 18, 1998.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hyde, from the Committee on the Judiciary, submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3150]
The Committe on the Judiciary, to whom was referred the
bill (H.R. 3150) to amend title 11 of the United States Code,
and for other purposes, having considered the same, report
favorably thereon with an amendment and recommend that the bill
as amended do pass.
TABLE OF CONTENTS
Page
The Amendment.................................................... 1
Purpose and Summary.............................................. 53
Background and Need for Legislation.............................. 54
Hearings......................................................... 60
Committee Consideration.......................................... 63
Vote of the Committee............................................ 63
New Budget Authority and Tax Expenditures........................ 68
Committee Cost Estimate.......................................... 68
Constitutional Authority Statement............................... 69
Section-by-Section Analysis and Discussion....................... 69
Agency Views..................................................... 125
Changes in Existing Law Made by the Bill, as Reported............ 144
Dissenting Views................................................. 229
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Bankruptcy Reform
Act of 1998''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--CONSUMER BANKRUPTCY PROVISIONS
Subtitle A--Needs-Based Bankruptcy
Sec. 101. Needs-based bankruptcy.
Sec. 102. Adequate income shall be committed to a plan that pays
unsecured creditors.
Sec. 103. Definition of inappropriate use.
Sec. 104. Debtor participation in credit counseling program.
Subtitle B--Adequate Protections for Consumers
Sec. 111. Notice of alternatives.
Sec. 112. Debtor financial management training test program.
Sec. 113. Definitions.
Sec. 114. Disclosures.
Sec. 115. Debtor's bill of rights.
Sec. 116. Enforcement.
Sec. 117. Sense of the Congress.
Sec. 118. Charitable contributions.
Sec. 119. Reinforce the fresh start.
Sec. 119A. Chapter 11 discharge of debts arising from tobacco-related
debts.
Subtitle C--Adequate Protections for Secured Creditors
Sec. 121. Discouraging bad faith repeat filings.
Sec. 122. Definition of household goods.
Sec. 123. Debtor retention of personal property security.
Sec. 124. Relief from stay when the debtor does not complete intended
surrender of consumer debt collateral.
Sec. 125. Giving secured creditors fair treatment in chapter 13.
Sec. 126. Prompt relief from stay in individual cases.
Sec. 127. Stopping abusive conversions from chapter 13.
Sec. 128. Restraining abusive purchases on secured credit.
Sec. 129. Fair valuation of collateral.
Sec. 130. Protection of holders of claims secured by debtor's principal
residence.
Sec. 131. Aircraft equipment and vessels.
Subtitle D--Adequate Protections for Unsecured Creditors
Sec. 141. Debts incurred to pay nondischargeable debts.
Sec. 142. Credit extensions on the eve of bankruptcy presumed
nondischargeable.
Sec. 143. Fraudulent debts are nondischargeable in chapter 13 cases.
Sec. 144. Applying the codebtor stay only when it protects the debtor.
Sec. 145. Credit extensions without a reasonable expectation of
repayment made nondischargeable.
Sec. 146. Debts for alimony, maintenance, and support.
Sec. 147. Nondischargeability of certain debts for alimony,
maintenance, and support.
Sec. 148. Other exceptions to discharge.
Sec. 149. Fees arising from certain ownership interests.
Sec. 150. Protection of child support and alimony.
Sec. 151. Adequate protection for investors.
Subtitle E--Adequate Protections for Lessors
Sec. 161. Giving debtors the ability to keep leased personal property
by assumption.
Sec. 162. Adequate protection of lessors and purchase money secured
creditors.
Sec. 163. Adequate protection for lessors.
Subtitle F--Bankruptcy Relief Less Frequently Available for Repeat
Filers
Sec. 171. Extend period between bankruptcy discharges.
Subtitle G--Exemptions
Sec. 181. Exemptions.
Sec. 182. Limitation.
TITLE II--BUSINESS BANKRUPTCY PROVISIONS
Subtitle A--General Provisions
Sec. 201. Limitation relating to the use of fee examiners.
Sec. 202. Sharing of compensation.
Sec. 203. Chapter 12 made permanent law.
Sec. 204. Meetings of creditors and equity security holders.
Sec. 205. Creditors' and equity security holders' committees.
Sec. 206. Postpetition disclosure and solicitation.
Sec. 207. Preferences.
Sec. 208. Venue of certain proceedings.
Sec. 209. Period for filing plan under chapter 11.
Sec. 210. Period for filing plan under chapter 12.
Sec. 211. Cases ancillary to foreign proceedings involving foreign
insurance companies that are engaged in the business of insurance or
reinsurance in the United States.
Sec. 212. Rejection of executory contracts affecting intellectual
property rights to recordings of artistic performance.
Sec. 213. Unexpired leases of nonresidential real property.
Sec. 214. Definition of disinterested person.
Subtitle B--Specific Provisions
Chapter 1--Small Business Bankruptcy
Sec. 231. Definitions.
Sec. 232. Flexible rules for disclosure statement and plan.
Sec. 233. Standard form disclosure statements and plans.
Sec. 234. Uniform national reporting requirements.
Sec. 235. Uniform reporting rules and forms.
Sec. 236. Duties in small business cases.
Sec. 237. Plan filing and confirmation deadlines.
Sec. 238. Plan confirmation deadline.
Sec. 239. Prohibition against extension of time.
Sec. 240. Duties of the United States trustee and bankruptcy
administrator.
Sec. 241. Scheduling conferences.
Sec. 242. Serial filer provisions.
Sec. 243. Expanded grounds for dismissal or conversion and appointment
of trustee.
Chapter 2--Single Asset Real Estate
Sec. 251. Single asset real estate defined.
Sec. 252. Payment of interest.
TITLE III--MUNICIPAL BANKRUPTCY PROVISIONS
Sec. 301. Petition and proceedings related to petition.
TITLE IV--BANKRUPTCY ADMINISTRATION
Subtitle A--General Provisions
Sec. 401. Adequate preparation time for creditors before the meeting of
creditors in individual cases.
Sec. 402. Creditor representation at first meeting of creditors.
Sec. 403. Filing proofs of claim.
Sec. 404. Audit procedures.
Sec. 405. Giving creditors fair notice in chapter 7 and 13 cases.
Sec. 406. Debtor to provide tax returns and other information.
Sec. 407. Dismissal for failure to file schedules timely or provide
required information.
Sec. 408. Adequate time to prepare for hearing on confirmation of the
plan.
Sec. 409. Chapter 13 plans to have a 5-year duration in certain cases.
Sec. 410. Sense of the Congress regarding expansion of rule 9011 of the
Federal Rules of Bankruptcy Procedure.
Sec. 411. Jurisdiction of courts of appeals.
Sec. 412. Establishment of official forms.
Sec. 413. Elimination of certain fees payable in chapter 11 bankruptcy
cases.
Subtitle B--Data Provisions
Sec. 441. Improved bankruptcy statistics.
Sec. 442. Bankruptcy data.
Sec. 443. Sense of the Congress regarding availability of bankruptcy
data.
TITLE V--TAX PROVISIONS
Sec. 501. Treatment of certain liens.
Sec. 502. Enforcement of child and spousal support.
Sec. 503. Effective notice to Government.
Sec. 504. Notice of request for a determination of taxes.
Sec. 505. Rate of interest on tax claims.
Sec. 506. Tolling of priority of tax claim time periods.
Sec. 507. Assessment defined.
Sec. 508. Chapter 13 discharge of fraudulent and other taxes.
Sec. 509. Chapter 11 discharge of fraudulent taxes.
Sec. 510. The stay of tax proceedings.
Sec. 511. Periodic payment of taxes in chapter 11 cases.
Sec. 512. The avoidance of statutory tax liens prohibited.
Sec. 513. Payment of taxes in the conduct of business.
Sec. 514. Tardily filed priority tax claims.
Sec. 515. Income tax returns prepared by tax authorities.
Sec. 516. The discharge of the estate's liability for unpaid taxes.
Sec. 517. Requirement to file tax returns to confirm chapter 13 plans.
Sec. 518. Standards for tax disclosure.
Sec. 519. Setoff of tax refunds.
TITLE VI--ANCILLARY AND OTHER CROSS-BORDER CASES
Sec. 601. Amendment to add a chapter 6 to title 11, United States Code.
Sec. 602. Amendments to other chapters in title 11, United States Code.
TITLE VII--MISCELLANEOUS
Sec. 701. Technical amendments.
Sec. 702. Application of amendments.
TITLE I--CONSUMER BANKRUPTCY PROVISIONS
Subtitle A--Needs-Based Bankruptcy
SEC. 101. NEEDS-BASED BANKRUPTCY.
Title 11, United States Code, is amended--
(1) in section 101 as follows:
(A) by inserting after paragraph (10) the following:
``(10A) `current monthly total income' means the average
monthly income from all sources derived which the debtor, or in
a joint case, the debtor and the debtor's spouse, receive
without regard to whether it is taxable income, in the six
months preceding the date of determination, and includes any
amount paid by anyone other than the debtor or, in a joint
case, the debtor and the debtor's spouse on a regular basis to
the household expenses of the debtor or the debtor's dependents
and, in a joint case, the debtor's spouse if not otherwise a
dependent;''; and
(B) by inserting after paragraph (40) the following:
``(40A) `national median family income' and `national median
household income for 1 earner' shall mean during any calendar
year, the national median family income and the national median
household income for 1 earner which the Bureau of the Census
has reported as of January 1 of such calendar year for the most
recent previous calendar year;'';
(2) in section 104(b)(1) by striking ``109(e)'' and inserting
``subsections (b), (e), and (h) of section 109'';
(3) in section 109(b)--
(A) in paragraph (2) by striking ``or'' at the end;
(B) in paragraph (3) by striking the period and
inserting ``; or''; and
(C) by adding at the end the following:
``(4) an individual or, in a joint case, an individual and
such individual's spouse, who have income available to pay
creditors as determined under subsection (h).'';
(4) by adding at the end of section 109 the following:
``(h)(1) An individual or, in a joint case, an individual and such
individual's spouse, have income available to pay creditors if the
individual, or, in a joint case, the individual and the individual's
spouse combined, as of the date of the order for relief, have--
``(A) current monthly total income of not less than the
highest national median family income reported for a family of
equal or lesser size or, in the case of a household of 1
person, of not less than the national median household income
for 1 earner, as of the date of the order for relief;
``(B) projected monthly net income greater than $50; and
``(C) projected monthly net income sufficient to repay twenty
percent or more of unsecured nonpriority claims during a five-
year repayment plan.
``(2) Projected monthly net income shall be sufficient under
paragraph (1)(C) if, when multiplied by 60 months, it equals or exceeds
20 percent of the total amount scheduled as payable to unsecured
nonpriority creditors.
``(3) `Projected monthly net income' means current monthly total
income less--
``(A) the expense allowances under the applicable National
Standards, Local Standards and Other Necessary Expenses
allowance (excluding payments for debts) for the debtor, the
debtor's dependents, and, in a joint case, the debtor's spouse
if not otherwise a dependent, in the area in which the debtor
resides as determined under the Internal Revenue Service
financial analysis for expenses in effect as of the date of the
order for relief;
``(B) the average monthly payment on account of secured
creditors, which shall be calculated as the total of all
amounts scheduled as contractually payable to secured creditors
in each month of the 60 months following the date of the
petition by the debtor, or, in a joint case, by the debtor and
the debtor's spouse combined, and dividing that total by 60
months; and
``(C) the average monthly payment on account of priority
creditors, which shall be calculated as the total amount of
debts entitled to priority, reasonably estimated by the debtor
as of the date of the petition, and dividing that total by 60
months.
``(4) In the event that the debtor establishes extraordinary
circumstances that require allowance for additional expenses or
adjustment of current monthly income, projected monthly net income for
purposes of this section shall be the amount calculated under paragraph
(3) less such additional expenses or income adjustment as such
extraordinary circumstances require.
``(A) This paragraph shall not apply unless the debtor files
with the petition--
``(i) a written statement that this paragraph applies
in determining the debtor's eligibility for relief
under chapter 7 of this title;
``(ii) if adjustment of current monthly income is
claimed, an explanation of what income has been lost in
the 6 months preceding the date of determination and
any replacement income that has been offered or
secured, or is expected, and an itemization of such
lost and replacement income;
``(iii) if allowance for additional expenses is
claimed, a list itemizing each additional expense which
exceeds the expenses allowances provided under
paragraph (3)(A);
``(iv) a detailed description of the extraordinary
circumstances that explain why each loss of income
described under clause (ii) will not be replaced or
each additional expense itemized under clause (iii)
requires allowance; and
``(v) a sworn statement signed by the debtor and, if
the debtor is represented by counsel, by the debtor's
attorney, that the information required under this
paragraph is true and correct.
``(B) Until the trustee or any party in interest objects to
the debtor's statement that this paragraph applies and the
court rejects or modifies the debtor's statement, the projected
monthly net income in the debtor's statement shall be the
projected monthly net income for the purposes of this section.
If an objection is filed with the court within 60 days after
the debtor has provided all the information required under
subsections (a)(1) and (c)(1)(A) of section 521, the court,
after notice and hearing, shall determine whether such
extraordinary circumstances exist and shall establish the
amount of the additional expense allowance, if any. The burden
of proving such extraordinary circumstances shall be on the
debtor.'';
(5) in section 704--
(A) by striking ``and'' at the end of paragraph (8);
(B) by striking the period at the end of paragraph
(9) and inserting ``; and''; and
(C) by adding at the end the following:
``(10) with respect to an individual debtor, review all
materials provided by the debtor under subsections (a)(1) and
(c)(1) of section 521, investigate and verify the debtor's
projected monthly net income and within 30 days after such
materials are so provided--
``(A) file a report with the court as to whether the
debtor qualifies for relief under this chapter under
section 109(b)(4); and
``(B) if the trustee determines that the debtor does
not qualify for such relief, the trustee shall provide
a copy of such report to the parties in interest.'';
(6) in section 1302(b)--
(A) in paragraph (4) by striking ``and'' at the end;
(B) in paragraph (5) by striking the period and
inserting a semicolon; and
(C) by adding at the end the following:
``(6) investigate and verify the debtor's monthly net income
and other information provided by the debtor pursuant to
sections 521 and 1322, and pursuant to section 111, if
applicable; and
``(7) file annual reports with the court, with copies to
holders of claims under the plan, as to whether a modification
of the amount paid creditors under the plan is appropriate
because of changes in the debtor's monthly net income.''.
SEC. 102. ADEQUATE INCOME SHALL BE COMMITTED TO A PLAN THAT PAYS
UNSECURED CREDITORS.
Title 11, United States Code, is amended--
(1) in section 101 by inserting after paragraph (39) the
following:
``(39A) `monthly net income' means the amount determined by
taking the current monthly total income of the debtor less--
``(A) the expense allowances under the applicable
National Standards, Local Standards and Other Necessary
Expenses allowance (excluding payments for debts) for
the debtor, the debtor's dependents, and, in a joint
case, the debtor's spouse if not otherwise a dependent,
in the area in which the debtor resides as determined
under the Internal Revenue Service financial analysis
for expenses in effect as of the date it is being
determined;
``(B) the average monthly payment on account of
secured creditors, which shall be calculated as of the
date of determination as the total of all amounts then
remaining to be paid on account of secured claims
pursuant to the plan less any of such amounts to be
paid from sources other than the debtor's income,
divided by the total months remaining of the plan; and
``(C) the average monthly payment on account of
priority creditors, which shall be calculated as the
total of all amounts then remaining to be paid on
account of priority claims pursuant to the plan less
any of such amounts to be paid from sources other than
the debtor's income, divided by the total months
remaining of the plan;'';
(2) in section 104(b)(1) by striking ``and 523(a)(2)(C)'' and
inserting ``523(a)(2)(C), and 1325(b)(1)'';
(3) by adding after section 110 the following:
``Sec. 111. Adjustment to monthly net income
``(a) Monthly net income for purposes of a plan under chapter 13 of
this title shall be adjusted under this section when the debtor's
extraordinary circumstances require adjustment as determined herein.
Under this section, monthly net incomeshall be determined by
subtracting therefrom such loss of income or additional expenses as the
debtor's extraordinary circumstances require as determined under this
section. This section shall not apply unless--
``(1) the debtor files with the court and, in a case in which
a trustee has been appointed, with the trustee at the times
required in subsection (b) a statement of extraordinary
circumstances as follows--
``(A) a written statement that this section applies
in determining the debtor's monthly net income;
``(B) if applicable, an explanation of what income
has been lost in the six months preceding the date of
determination and any replacement income which has been
secured or is expected, and an itemization of such lost
and replacement income;
``(C) if applicable, a list itemizing each additional
expense which exceeds the expense allowance provided in
determining monthly net income under section 101(39A);
``(D) if applicable, a detailed description of the
extraordinary circumstances which explains why each of
the additional expenses itemized under paragraph (C)
requires allowance; and
``(E) a sworn statement signed by the debtor and, if
the debtor is represented by counsel, by the debtor's
attorney, of the amount of monthly net income that the
debtor has pursuant to this subsection and that the
information provided under this subsection is true and
correct; and
``(2) until the trustee or any party in interest objects to
the debtor's request that this section be applied and the court
rejects or modifies the debtor's statement, the monthly net
income in the debtor's statement shall be the monthly net
income for the purposes of the debtor's plan. If an objection
is filed with the court within the times provided in subsection
(b), the court, after notice and hearing, shall determine
whether such extraordinary circumstances asserted by the debtor
exist and establish the amount of the loss of income and such
additional expense allowance, if any. The burden of proving
such extraordinary circumstances and the amount of the loss of
income and the additional expense allowance, if any, shall be
on the debtor. The court may award to the party that prevails
with respect to such objection a reasonable attorney's fee and
costs incurred by the prevailing party in connection with such
objection if the court finds that the position of the
nonprevailing party was not substantially justified, but the
court shall not award such fee or such costs if special
circumstances make the award unjust.
``(b) For the purposes of chapter 13 of this title, the statement of
extraordinary circumstances shall be filed with the court and served on
the trustee on or before 45 days before each anniversary of the
confirmation of the plan in order to be applicable during the next year
of the plan. Any objection thereto shall be filed 30 days after the
statement is filed with the trustee. Whenever a statement is timely
filed with the trustee, the trustee shall give notice to creditors that
such statement has been filed and the amount of monthly net income
stated therein within 15 days of receipt of the statement.'';
(4) in section 1322(a)--
(A) by striking ``and'' at the end of paragraph (2);
(B) by striking the period at the end of paragraph
(3) and inserting ``; and''; and
(C) by adding at the end the following:
``(4) state, under penalties of perjury, the amount of
monthly net income, which may be as adjusted under section 111,
if applicable, of this title and the amount of monthly net
income which will be paid per month to unsecured nonpriority
creditors under the plan.''; and
(5) by amending section 1325(b)(1)(B) to read as follows:
``(B) the plan provides--
``(i) that payments to unsecured nonpriority
creditors who are not insiders shall equal or exceed
$50 in each month of the plan;
``(ii) that during the applicable commitment period
beginning on the date that the first payment is due
under the plan, the total amount of monthly net income
received by the debtor shall be paid to unsecured
nonpriority creditors under the plan less only payments
pursuant to section 1326(b); the `applicable commitment
period' shall be not less than 5 years if the debtor's
total current monthly income is not less than the
highest national median family income reported for a
family of equal or lesser size or, in the case of a
household of 1 person, is not less than the national
median household income for 1 earner, as of the date of
confirmation of the plan and shall be not less than 3
years if the debtor's total current monthly income is
less than the highest national median family income
reported for a family of equal or lesser size or, in
the case of a household of 1 person, is less than the
national median household income for 1 earner, as of
the date of confirmation of the plan;
``(iii) that the amount payable to each class of
unsecured nonpriority claims under the plan shall be
increased or decreased during the plan proportionately
to the extent the debtor's monthly net income during
the plan increases or decreases as reasonably
determined by the trustee, subject to section 111 of
this title, no less frequently than as of each
anniversary of the confirmation of the plan based on
monthly net income as of 45 days before such
anniversary; and
``(iv) nothing in subparagraph (i) or (ii) shall
prevent the payment of obligations described in section
507(a)(7) at the times provided for in the plan, and
the plan shall specify how payments to other creditors
under subparagraph (ii) will be accordingly
adjusted.''; and
(6) by striking section 1325(b)(2).
SEC. 103. DEFINITION OF INAPPROPRIATE USE.
Section 707(b) of title 11, United States Code, is amended to read as
follows:
``(b)(1) After notice and a hearing, the court--
``(A) on its own motion or on the motion of the United States
trustee or any party in interest, shall dismiss a case filed by
an individual debtor under this chapter; or
``(B) with the debtor's consent, convert the case to a case
under chapter 13 of this title;
if the court finds that the granting of relief would be an
inappropriate use of the provisions of this chapter.
``(2) The court shall determine that inappropriate use of the
provisions of this chapter exists if--
``(A) the debtor is excluded from this chapter pursuant to
section 109 of this title; or
``(B) the totality of the circumstances of the debtor's
financial situation demonstrates such inappropriate use.
``(3) In the case of a motion filed by a party in interest other than
the trustee or United States trustee under paragraph (1) that is denied
by the court, the court shall award against the moving party a
reasonable attorney's fee and costs that the debtor incurred in
opposing the motion if the court finds that the position of the moving
party was not substantially justified, but the court shall not award
such fee and costs if special circumstances would make the award
unjust.
``(4)(A) If a trustee appointed under this title or the United States
Trustee files a motion under this subsection and the case is
subsequently dismissed or converted to another chapter, the court shall
award to such party in interest a reasonable attorney's fee and costs
incurred in connection with such motion, payable by the debtor, unless
the court finds that awarding such fee and costs would impose an
unreasonable hardship on the debtor, considering the debtor's conduct.
``(B) The signature of the debtor's attorney on any petition,
pleading, motion, or other paper filed with the court in the case of
the debtor shall constitute a certificate that the attorney has--
``(i) performed a reasonable investigation into the
circumstances that gave rise to the petition and its schedules
and statement of financial affairs or the pleading, as
applicable; and
``(ii) determined that the petition and its schedules and
statement of financial affairs or the pleading, as applicable,
including the choice of this chapter--
``(I) is well grounded in fact; and
``(II) is warranted by existing law or a good-faith
argument for the extension, modification, or reversal
of existing law and does not constitute an
inappropriate use of the provisions of this chapter.
``(C) If the court finds that the attorney for the debtor signed a
paper in violation of subparagraph (B), at a minimum, the court shall
order--
``(i) the assessment of an appropriate civil penalty against
the attorney for the debtor; and
``(ii) the payment of the civil penalty to the trustee or the
United States Trustee.''.
SEC. 104. DEBTOR PARTICIPATION IN CREDIT COUNSELING PROGRAM.
(a) Who May Be a Debtor.--Section 109 of title 11, United States
Code, as amended by section 102, is amended by adding at the end the
following:
``(i)(1) Subject to paragraph (2) and notwithstanding any other
provision of this section, an individual may not be a debtor under this
title unless such individualhas, during the 90-day period preceding the
date of filing of the petition, made a good-faith attempt to create a
debt repayment plan outside the judicial system for bankruptcy law
(commonly referred to as the `bankruptcy system'), through a credit
counseling program offered through credit counseling services described
in section 342(b)(2) that has been approved by--
``(A) the United States trustee; or
``(B) the bankruptcy administrator for the district in which
the petition is filed.
``(2) The United States trustee or bankruptcy administrator may not
approve a program for inclusion on the list under paragraph (1) unless
the counseling service offering the program offers the program without
charge, or at an appropriately reduced charge, if payment of the
regular charge would impose a hardship on the debtor or the debtor's
dependents.
``(3) The United States trustee or bankruptcy administrator shall
designate any geographical areas in the United States trustee region or
judicial district, as the case may be, as to which the United States
trustee or bankruptcy administrator has determined that credit
counseling services needed to comply with this subsection are not
available or are too geographically remote for debtors residing within
the designated geographical areas. The clerk of the bankruptcy court
for each judicial district shall maintain a list of the designated
areas within the district.
``(4) The clerk shall exclude a particular counseling service from
the list maintained under section 342(b)(2) of this title if the United
States trustee or bankruptcy administrator orders that the counseling
service not be included in the list.
``(5) The court may waive the requirement specified in paragraph (1)
if--
``(A) no credit counseling services are available as
designated under paragraphs (2) and (3);
``(B) the providers of credit counseling services available
in the district are unable or unwilling to provide such
services to the debtor in a timely manner; or
``(C) foreclosure, garnishment, attachment, eviction, levy of
execution, or similar claim enforcement procedure that would
have deprived the individual of property had commenced before
the debtor could complete a good-faith attempt to create such a
repayment plan.
``(6) A debtor who is subject to the exemption under paragraph (5)(C)
shall be required to make a good-faith attempt to create a debt
repayment plan outside the judicial system in the manner prescribed in
paragraph (1) during the 30-day period beginning on the date of filing
of the petition of that debtor.
``(7) A debtor shall be exempted from the bad faith presumption for
repeat filing under section 362(c) of title 11 if the case is dismissed
due to the creation of a debt repayment plan.
``(8) Only the United States trustee may make a motion for dismissal
on the ground that the debtor did not comply with this subsection.''.
(b) Debtor's Duties.--Section 521 of title 11, United States Code, as
amended by sections 406 and 407, is amended by adding at the end the
following:
``(g)(1) In addition to the requirements under subsection (a), an
individual debtor shall file with the court--
``(A) a certificate from the credit counseling services that
provided the debtor services under section 109(i), or a
verified statement as to why such attempt was not required
under section 109(i) or other substantial evidence of a good-
faith attempt to create a debt repayment plan outside the
bankruptcy system in the manner prescribed in section 109(i);
and
``(B) a copy of the debt repayment plan, if any, developed
under section 109(i) through the credit counseling service
referred to in paragraph (1).
``(2) Only the United States trustee may make a motion for dismissal
on the ground that the debtor did not comply with this subsection.''.
Subtitle B--Adequate Protections for Consumers
SEC. 111. NOTICE OF ALTERNATIVES.
(a) Section 342(b) of title 11, United States Code, is amended to
read as follows:
``(b)(1) Before the commencement of a case under this title by an
individual whose debts are primarily consumer debts, the individual
shall be given or obtain (as required to be certified under section
521(a)(1)(B)(viii)) a written notice that is prescribed by the United
States trustee for the district in which the petition is filed pursuant
to section 586 of title 28 and that contains the following:
``(A) A brief description of chapters 7, 11, 12 and 13 of
this title and the general purpose, benefits, and costs of
proceeding under each of such chapters.
``(B) A brief description of services that may be available
to the individual from an independent nonprofit debt
counselling service.
``(C) The name, address, and telephone number of each
nonprofit debt counselling service (if any)--
``(i) with an office located in the district in which
the petition is filed; or
``(ii) that offers toll-free telephone communication
to debtors in such district.
``(2) Any such nonprofit debt counselling service that registers with
the clerk of the bankruptcy court on or before December 10 of the
preceding year shall be included in such list unless the chief
bankruptcy judge of the district, after notice to the debt counselling
service and the United States trustee and opportunity for a hearing,
for good cause, orders that such debt counselling service shall not be
so listed.
``(3) The clerk shall make such notice available to individuals whose
debts are primarily consumer debts.''.
(b) Section 586(a) of title 28, United States Code, is amended--
(1) in paragraph (5) by striking ``and'' at the end;
(2) in paragraph (6) by striking the period at the end and
inserting ``; and''; and
(3) by adding at the end the following:
``(7) on or before January 1 of each calendar year, and also
within 30 days of any change in the nonprofit debt counselling
services registered with the bankruptcy court, prescribe and
make available on request the notice described in section
342(b)(1) of title 11 for each district included in the
region.''.
SEC. 112. DEBTOR FINANCIAL MANAGEMENT TRAINING TEST PROGRAM.
(a) Development of Financial Management and Training Curriculum and
Materials.--The Director of the Executive Office for United States
Trustees (in this section referred to as the ``Director'') shall
consult with a wide range of individuals who are experts in the field
of debtor education, including trustees who are appointed under chapter
13 of title 11 of the United States Code and who operate financial
management education programs for debtors, and shall develop a
financial management training curriculum and materials that can be used
to educate individual debtors on how to better manage their finances.
(b) Test--(1) The Director shall select 3 judicial districts of the
United States in which to test the effectiveness of the financial
management training curriculum and materials developed under subsection
(a).
(2) For a 1-year period beginning not later than 60 days after the
date of the enactment of this Act, such curriculum and materials shall
be made available by the Director, directly or indirectly, on request
to individual debtors in cases filed in such 1-year period under
chapter 7 or 13 of title 11 of the United States Code.
(3) The bankruptcy courts in each of such districts may require
individual debtors in such cases to undergo such financial management
training as a condition to receiving a discharge in such case.
(c) Evaluation.--(1) During the 1-year period referred to in
subsection (b), the Director shall evaluate the effectiveness of--
(A) the financial management training curriculum and
materials developed under subsection (a); and
(B) a sample of existing consumer education programs such as
those described in the Report of the National Bankruptcy Review
Commission (October 20, 1997) that are representative of
consumer education programs carried out by the credit industry,
by trustees serving under chapter 13 of title 11 of the United
States Code, and by consumer counselling groups.
(2) Not later than 3 months after concluding such evaluation, the
Director shall submit a report to the Speaker of the House of
Representatives and the President pro tempore of the Senate, for
referral to the appropriate committees of the Congress, containing the
findings of the Director regarding the effectiveness of such
curriculum, such materials, and such programs.
SEC. 113. DEFINITIONS.
(a) Definitions.--Section 101 of title 11, United States Code, is
amended--
(1) by inserting after paragraph (3) the following:
``(3A) `assisted person' means any person whose debts consist
primarily of consumer debts and whose non-exempt assets are
less than $150,000;'';
(2) by inserting after paragraph (4) the following:
``(4A) `bankruptcy assistance' means any goods or services
sold or otherwise provided to an assisted person with the
express or implied purpose of providing information, advice,
counsel, document preparation or filing, or attendance at a
creditors' meeting or appearing in a proceeding on behalf of
another or providing legal representation with respect to a
proceeding under this title;''; and
(3) by inserting after paragraph (12A) the following:
``(12B) `debt relief counselling agency' means any person who
provides any bankruptcy assistance to an assisted person in
return for the payment of money or other valuable
consideration, or who is a bankruptcy petition preparer
pursuant to section 110 of this title, but does not include any
person that is any of the following or an officer, director,
employee or agent thereof--
``(A) any nonprofit organization which is exempt from
taxation under section 501(c)(3) of the Internal
Revenue Code of 1986;
``(B) any creditor of the person to the extent the
creditor is assisting the person to restructure any
debt owed by the person to the creditor; or
``(C) any depository institution (as defined in
section 3 of the Federal Deposit Insurance Act) or any
Federal credit union or State credit union (as those
terms are defined in section 101 of the Federal Credit
Union Act), or any affiliate or subsidiary of such a
depository institution or credit union;''.
(b) Conforming Amendment.--In section 104(b)(1) by inserting
``101(3),'' after ``sections''.
SEC. 114. DISCLOSURES.
(a) Disclosures.--Subchapter II of chapter 5 of title 11, United
States Code, is amended by adding at the end the following:
``Sec. 526. Disclosures
``(a) A debt relief counselling agency providing bankruptcy
assistance to an assisted person shall provide the following notices to
the assisted person:
``(1) the written notice required under section 342(b)(1) of
this title; and
``(2) to the extent not covered in the written notice
described in paragraph (1) of this section and no later than
three business days after the first date on which a debt relief
counselling agency first offers to provide any bankruptcy
assistance services to an assisted person, a clear and
conspicuous written notice advising assisted persons of the
following--
``(A) all information the assisted person is required
to provide with a petition and thereafter during a case
under this title must be complete, accurate and
truthful;
``(B) all assets and all liabilities must be
completely and accurately disclosed in the documents
filed to commence the case, and the replacement value
of each asset as defined in section 506 of this title
must be stated in those documents where requested after
reasonable inquiry to establish such value;
``(C) current monthly total income, projected monthly
net income and, in a chapter 13 case, monthly net
income must be stated after reasonable inquiry; and
``(D) that information an assisted person provides
during their case may be audited pursuant to this title
and that failure to provide such information may result
in dismissal of the proceeding under this title or
other sanction including, in some instances, criminal
sanctions.
``(b) A debt relief counselling agency providing bankruptcy
assistance to an assisted person shall provide each assisted person at
the same time as the notices required under subsection (a)(1) with the
following statement, to the extent applicable, or one substantially
similar. The statement shall be clear and conspicuous and shall be in a
single document separate from other documents or notices provided to
the assisted person:
`` `IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM
AN ATTORNEY OR BANKRUPTCY PETITION PREPARER
`` `If you decide to seek bankruptcy relief, you can represent
yourself, you can hire an attorney to represent you, or you can get
help in some localities from a bankruptcy petition preparer who is not
an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION
PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR
BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST.
Ask to see the contract before you hire anyone.
`` `The following information helps you understand what must be done
in a routine bankruptcy case to help you evaluate how much service you
need. Although bankruptcy can be complex, many cases are routine.
`` `Before filing a bankruptcy case, either you or your attorney
should analyze your eligibility for different forms of debt relief made
available by the Bankruptcy Code and which form of relief is most
likely to be beneficial for you. Be sure you understand the relief you
can obtain and its limitations. To file a bankruptcy case, documents
called a Petition, Schedules and Statement of Financial Affairs, as
well as in some cases a Statement of Intention need to be prepared
correctly and filed with the bankruptcy court. You will have to pay a
filing fee to the bankruptcy court. Once your case starts, you will
have to attend the required first meeting of creditors where you may be
questioned by a court official called a ``trustee'' and by creditors.
`` `If you select a chapter 7 proceeding, you may be asked by a
creditor to reaffirm a debt. You may want help deciding whether to do
so.
`` `If you select a chapter 13 proceeding in which you repay your
creditors what you can afford over three to seven years, you may also
want help with preparing your chapter 13 plan and with the confirmation
hearing on your plan which will be before a bankruptcy judge.'
`` `If you select another type of proceeding under the Bankruptcy
Code other than chapter 7 or chapter 13, you will want to find out what
needs to be done from someone familiar with that type of proceeding.
`` `Your bankruptcy proceeding may also involve litigation. You are
generally permitted to represent yourself in litigation in bankruptcy
court, but only attorneys, not bankruptcy petition preparers, can
represent you in litigation.'.
``(c) Except to the extent the debt relief counselling agency
provides the required information itself after reasonably diligent
inquiry of the assisted person or others so as to obtain such
information reasonably accurately for inclusion on the petition,
schedules or statement of financial affairs, a debt relief counselling
agency providing bankruptcy assistance to an assisted person shall
provide each assisted person at the time required for the notice
required under subsection (a)(1) reasonably sufficient information
(which may be provided orally or in a clear and conspicuous writing) to
the assisted person on how to provide all the information the assisted
person is required to provide under this title pursuant to section 521,
including--
``(1) how to value assets at replacement value, determine
current monthly total income, projected monthly income and, in
a chapter 13 case, net monthly income, and related
calculations;
``(2) how to complete the list of creditors, including how to
determine what amount is owed and what address for the creditor
should be shown; and
``(3) how to determine what property is exempt and how to
value exempt property at replacement value as defined in
section 506 of this title.
``(d) A debt relief counselling agency shall maintain a copy of the
notices required under subsection (a) of this section for two years
after the later of the date on which the notice is given the assisted
person.''.
(b) Conforming Amendment.--The table of section for chapter 5 of
title 11, United States Code, is amended by inserting after the item
relating to section 525 the following:
``526. Disclosures.''.
SEC. 115. DEBTOR'S BILL OF RIGHTS.
(a) Debtor's Bill of Rights.--Subchapter II of chapter 5 of title 11,
United States Code, as amended by section 114, is amended by adding at
the end the following:
``Sec. 527. Debtor's bill of rights
``(a) A debt relief counselling agency shall--
``(1) no later than three business days after the first date
on which a debt relief counselling agency provides any
bankruptcy assistance services to an assisted person, execute a
written contract with the assisted person specifying clearly
and conspicuously the services the agency will provide the
assisted person and the basis on which fees or charges will be
made for such services and the terms of payment, and give the
assisted person a copy of the fully executed and completed
contract in a form the person can keep;
``(2) disclose in any advertisement of bankruptcy assistance
services or of the benefits of bankruptcy directed to the
general public (whether in general media, seminars or specific
mailings, telephonic or electronic messages or otherwise) that
the services or benefits are with respect to proceedings under
this title, clearly and conspicuously using the following
statement: `We are a debt relief counselling agency. We help
people file Bankruptcy petitions to obtain relief under the
Bankruptcy Code.' or a substantially similar statement. An
advertisement shall be of bankruptcy assistance services if it
describes or offers bankruptcy assistance with a chapter 13
plan, regardless of whether chapter 13 is specifically
mentioned, including such statements as `federally supervised
repayment plan' or `Federal debt restructuring help' or other
similar statements which would lead a reasonable consumer to
believe that help with debts was being offered when in fact in
most cases the help available is bankruptcy assistance with a
chapter 13 plan; and
``(3) if an advertisement directed to the general public
indicates that the debt relief counselling agency provides
assistance with respect to credit defaults, mortgage
foreclosures, lease eviction proceedings, excessive debt, debt
collection pressure, or inability to pay any consumer debt,
disclose conspicuously in that advertisement that the
assistance is with respect to or may involve proceedings under
this title, using the following statement: ``We are a debt
relief counselling agency. We help people file Bankruptcy
petitions to obtain relief under the Bankruptcy Code.'' or a
substantially similar statement.
``(b) A debt relief counselling agency shall not--
``(1) fail to perform any service which the debt relief
counseling agency has told the assisted person or prospective
assisted person the agency would provide that person in
connection with the preparation for or activities during a
proceeding under this title;
``(2) make any statement, or counsel or advise any assisted
person to make any statement in any document filed in a
proceeding under this title, which is untrue or misleading or
which upon the exercise of reasonable care, should be known by
the debt relief counselling agency to be untrue or misleading;
``(3) misrepresent to any assisted person or prospective
assisted person, directly or indirectly, affirmatively or by
material omission, what services the debt relief counselling
agency can reasonably expect to provide that person, or the
benefits an assisted person may obtain or the difficulties the
person may experience if the person seeks relief in a
proceeding pursuant to this title; or
``(4) advise an assisted person or prospective assisted
person to incur more debt in contemplation of that person
filing a proceeding under this title or in order to pay an
attorney or bankruptcy petition preparer fee or charge for
services performed as part of preparing for or representing a
debtor in a proceeding under this title.''.
(b) Conforming Amendment.--The table of section for chapter 5 of
title 11, United States Code, as amended by section 114, is amended by
inserting after the item relating to section 526, the following:
``527. Debtor's bill of rights.''.
SEC. 116. ENFORCEMENT.
(a) Enforcement.--Subchapter II of chapter 5 of title 11, United
States Code, as amended by sections 114 and 115, is amended by adding
at the end the following:
``Sec. 528. Debt relief counselling agency enforcement
``(a) Assisted Person Waivers Invalid.--Any waiver by any assisted
person of any protection or right provided by or under section 526 or
527 of this title shall be void and may not be enforced by any Federal
or State court or any other person.
``(b) Noncompliance.--
``(1) Any contract between a debt relief counselling agency
and an assisted person for bankruptcy assistance which does not
comply with the requirements of section 526 or 527 of this
title shall be treated as void and may not be enforced by any
Federal or State court or by any other person.
``(2) Any debt relief counselling agency which has been
found, after notice and hearing, to have--
``(A) failed to comply with any provision of section
526 or 527 with respect to a bankruptcy case or related
proceeding of an assisted person;
``(B) provided bankruptcy assistance to an assisted
person in a case or related proceeding which is
dismissed or converted in lieu of dismissal under
section 707 of this title or because of a failure to
file bankruptcy papers, including papers specified in
section 521 of this title; or
``(C) negligently or intentionally disregarded the
requirements of this title or the Federal Rules of
Bankruptcy Procedure applicable to such debt relief
counselling agency shall be liable to the assisted
person in the amount of any fees and charges in
connection with providing bankruptcy assistance to such
person which the debt relief counselling agency has
already been paid on account of that proceeding and if
the case has not been closed, the court may in addition
require the debt relief counselling agency to continue
to provide bankruptcy assistance services in the
pending caseto the assisted person without further fee
or charge or upon such other terms as the court may order.
``(3) In addition to such other remedies as are provided
under State law, whenever the chief law enforcement officer of
a State, or an official or agency designated by a State, has
reason to believe that any person has violated or is violating
section 526 or 527 of this title, the State--
``(A) may bring an action to enjoin such violation;
``(B) may bring an action on behalf of its residents
to recover the actual damages of assisted persons
arising from such violation, including any liability
under paragraph (2); and
``(C) in the case of any successful action under
subparagraph (A) or (B), shall be awarded the costs of
the action and reasonable attorney fees as determined
by the court.
``(4) The United States District Court for any district
located in the State shall have concurrent jurisdiction of any
action under subparagraph (A) or (B) of paragraph (3).
``(c) Relation to State Law.--This section and sections 526 and 527
shall not annul, alter, affect or exempt any person subject to those
sections from complying with any law of any State except to the extent
that such law is inconsistent with those sections, and then only to the
extent of the inconsistency.''.
(b) Conforming Amendment.--The table of section for chapter 5 of
title 11, United States Code, as amended by sections 114 and 115, is
amended by inserting after the item relating to section 527, the
following:
``528. Debt relief counselling agency enforcement.''.
SEC. 117. SENSE OF THE CONGRESS.
It is the sense of the Congress that States should develop curricula
relating to the subject of personal finance, designed for use in
elementary and secondary schools.
SEC. 118. CHARITABLE CONTRIBUTIONS.
(a) Definitions.--Section 548(d) of title 11, United States Code, is
amended by adding at the end the following:
``(3) In this section, the term `charitable contribution' means a
charitable contribution as defined in section 170(c) of the Internal
Revenue Code of 1986, if such contribution--
``(A) is made by a natural person; and
``(B) consists of--
``(i) a financial instrument (as defined in section
731(c)(2)(C) of the Internal Revenue Code of 1986); or
``(ii) cash.
``(4) In this section, the term `qualified religious or charitable
entity or organization' means--
``(A) an entity described in section 170(c)(1) of the
Internal Revenue Code of 1986; or
``(B) an entity or organization described in section
170(c)(2) of the Internal Revenue Code of 1986.''.
(b) Treatment of Prepetition Qualified Charitable Contributions.
(1) In general.--Section 548(a) of title 11, United States
Code, is amended--
(A) by inserting ``(1)'' after ``(a)'';
(B) by striking ``(1) made'' and inserting ``(A)
made'';
(C) by striking ``(2)(A)'' and inserting ``(B)(i)'';
(D) by striking ``(B)(i)'' and inserting ``(ii)(I)'';
(E) by striking ``(ii) was'' and inserting ``(II)
was'';
(F) by striking ``(iii)'' and inserting ``(III)'';
and
(G) by adding at the end the following:
``(2) A transfer of a charitable contribution to a qualified
religious or charitable entity or organization shall not be considered
to be a transfer covered under paragraph (1)(B) in any case in which--
``(A) the amount of such contribution does not exceed 15
percent of the gross annual income of the debtor for the year
in which the transfer of the contribution is made; or
``(B) the contribution made by a debtor exceeded the
percentage amount of gross annual income specified in
subparagraph (A), if the transfer was consistent with the
practices of the debtor in making charitable contributions.''.
(2) Trustee as lien creditor and as successor to certain
creditors and purchasers.--Section 544(b) of title 11, United
States Code, is amended--
(A) by striking ``(b) The trustee'' and inserting
``(b)(1) Except as provided in paragraph (2), the
trustee''; and
(B) by adding at the end the following:
``(2) Paragraph (1) shall not apply to a transfer of a charitable
contribution (as defined in section 548(d)(3) of this title) that is
not covered under section 548(a)(1)(B) of this title by reason of
section 548(a)(2) of this title. Any claim by any person to recover a
transferred contribution described in the preceding sentence under
Federal or State law in a Federal or State court shall be preempted by
the commencement of the case.''.
(3) Conforming amendments.--Section 546 of title 11, United
States Code, is amended--
(A) in subsection (e)--
(i) by striking ``548(a)(2)'' and inserting
``548(a)(1)(B)''; and
(ii) by striking ``548(a)(1)'' and inserting
``548(a)(1)(A)'';
(B) in subsection (f)--
(i) by striking ``548(a)(2)'' and inserting
``548(a)(1)(B)''; and
(ii) by striking ``548(a)(1)'' and inserting
``548(a)(1)(A)''; and
(C) in the first subsection (g)--
(i) by striking ``section 548(a)(1)'' and
inserting ``section 548(a)(1)(A)''; and
(ii) by striking ``548(a)(2)'' and inserting
``548(a)(1)(B)''.
(c) Treatment of Post-Petition Charitable Contributions Under Chapter
7.--Section 707 of title 11, United States Code, is amended by adding
at the end the following:
``(c) In making a determination whether to dismiss a case under this
section, the court may not take into consideration whether a debtor has
made, or continues to make, charitable contributions (that meet the
definition of `charitable contribution' under section 548(d)(3)) to any
qualified religious or charitable entity or organization (as defined in
section 548(d)(4)).''.
(d) Treatment of Post-Petition Charitable Contributions Under Chapter
13.--Section 111 of title 11, United States Code, as added by section
102, is amended by adding at the end the following:
``(c) For purposes of subsection (a), charitable contributions (that
meet the definition of `charitable contribution' under section
548(d)(3)) to any qualified religious or charitable entity or
organization (defined in section 548(d)(4)), but not to exceed 15
percent of the debtor's gross income for the year in which such
contributions are made, shall be considered to be additional expenses
of the debtor required by extraordinary circumstances.''.
(e) Rule of Construction.--Nothing in the amendments made by this
section is intended to limit the applicability of the Religious Freedom
Restoration Act of 1993 (42 U.S.C. 2002bb et seq.).
SEC. 119. REINFORCE THE FRESH START.
(a) Restoration of an Effective Discharge.--Section 523(a)(17) of
title 11, United States Code, is amended--
(1) by striking ``by a court'' and inserting ``on a prisoner
by any court'',
(2) by striking ``section 1915(b) or (f)'' and inserting
``subsection (b) or (f)(2) of section 1915'', and
(3) by inserting ``(or a similar non-Federal law)'' after
``title 28'' each place it appears.
(b) Protection of Retirement Funds in Bankruptcy.--Section 522 of
title 11, United States Code, is amended--
(1) in subsection (b)(2)--
(A) in subparagraph (A) by striking ``and'' at the
end;
(B) in subparagraph (B) by striking the period at the
end and inserting ``; and''; and
(C) by adding at the end the following:
``(C) retirement funds to the extent exempt from taxation
under section 401, 403, 408, 414, 457, or 501(a) of the
Internal Revenue Code of 1986.''; and
(2) in subsection (d) by adding at the end the following:
``(12) Retirement funds to the extent exempt from taxation
under 401, 403, 408, 414, 457, or 501(a) of the Internal
Revenue Code of 1986.''.
(c) Effective Protection for Utility Service in the Wake of
Deregulation.--Section 366 of title 11, United States Code, is amended
by adding at the end the following:
``(c) For the purposes of this section, the term `utility' includes
any provider of gas, electric, telephone, telecommunication, cable
television, satellite communication, water, or sewer service, whether
or not such service is a regulated monopoly.''.
SEC. 119A. CHAPTER 11 DISCHARGE OF DEBTS ARISING FROM TOBACCO-RELATED
DEBTS.
Section 1141(d) of title 11, United States Code, is amended by adding
at the end the following:
``(5) The confirmation of a plan does not discharge a debtor that is
a corporation from any debt arising from a judicial, administrative, or
other action or proceeding that is--
``(A) related to the consumption or consumer purchase of a
tobacco product; and
``(B) based in whole or in part on false pretenses, a false
representation, or actual fraud.''.
Subtitle C--Adequate Protections for Secured Creditors
SEC. 121. DISCOURAGING BAD FAITH REPEAT FILINGS.
Section 362(c) of title 11, United States Code, is amended--
(1) in paragraph (1) by striking ``and'' at the end;
(2) in paragraph (2) by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following new paragraphs:
``(3) If a single or joint case is filed by or against an
individual debtor under chapter 7, 11, or 13, and if a single
or joint case of that debtor was pending within the previous 1-
year period but was dismissed, other than a case refiled under
a chapter other than chapter 7 after dismissal under section
707(b) of this title, the stay under subsection (a) with
respect to any action taken with respect to a debt or property
securing such debt or with respect to any lease will terminate
with respect to the debtor on the 30th day after the filing of
the later case. If a party in interest requests, the court may
extend the stay in particular cases as to any or all creditors
(subject to such conditions or limitations as the court may
then impose) after notice and a hearing completed before the
expiration of the 30-day period only if the party in interest
demonstrates that the filing of the later case is in good faith
as to the creditors to be stayed. A case is presumptively filed
not in good faith (but such presumption may be rebutted by
clear and convincing evidence to the contrary)--
``(A) as to all creditors if--
``(i) more than 1 previous case under any of
chapters 7, 11, or 13 in which the individual
was a debtor was pending within such 1-year
period;
``(ii) a previous case under any of chapters
7, 11, or 13 in which the individual was a
debtor was dismissed within such 1-year period,
after the debtor failed to file or amend the
petition or other documents as required by this
title or the court without substantial excuse
(but mere inadvertence or negligence shall not
be substantial excuse unless the dismissal was
caused by the negligence of the debtor's
attorney), failed to provide adequate
protection as ordered by the court, or failed
to perform the terms of a plan confirmed by the
court; or
``(iii) there has not been a substantial
change in the financial or personal affairs of
the debtor since the dismissal of the next most
previous case under any of chapters 7, 11, or
13 of this title, or any other reason to
conclude that the later case will be concluded,
if a case under chapter 7 of this title, with a
discharge, and if a chapter 11 or 13 case, a
confirmed plan which will be fully performed;
``(B) as to any creditor that commenced an action
under subsection (d) in a previous case in which the
individual was a debtor if, as of the date of dismissal
of that case, that action was still pending or had been
resolved by terminating, conditioning, or limiting the
stay as to actions of that creditor.
``(4) If a single or joint case is filed by or against an
individual debtor under this title, and if 2 or more single or
joint cases of that debtor were pending within the previous
year but were dismissed, other than a case refiled under
section 707(b) of this title, the stay under subsection (a)
will not go into effect upon the filing of the later case. On
request of a party in interest, the court shall promptly enter
an order confirming that no stay is in effect. If a party in
interest requests within 30 days of the filing of the later
case, the court may order the stay to take effect in the case
as to any or all creditors (subject to such conditions or
limitations as the court may impose), after notice and hearing,
only if the party in interest demonstrates that the filing of
the later case is in good faith as to the creditors to be
stayed. A stay imposed pursuant to the preceding sentence will
be effective on the date of entry of the order allowing the
stay to go into effect. A case is presumptively not filed in
good faith (but such presumption may be rebutted by clear and
convincing evidence to the contrary)--
``(A) as to all creditors if--
``(i) 2 or more previous cases under this
title in which the individual was a debtor were
pending within the 1-year period;
``(ii) a previous case under this title in
which the individual was a debtor was dismissed
within the time period stated in this paragraph
after the debtor failed to file or amend the
petition or other documents as required by this
title or the court without substantial excuse
(but mere inadvertence or negligence shall not
be substantial excuse unless the dismissal was
caused by the negligence of the debtor's
attorney), failed to pay adequate protection as
ordered by the court, or failed to perform the
terms of a plan confirmed by the court; or
``(iii) there has not been a substantial
change in the financial or personal affairs of
the debtor since the dismissal of the next most
previous case under this title, or any other
reason to conclude that the later case will not
be concluded, if a case under chapter 7, with a
discharge, and if a case under chapter 11 or
13, with a confirmed plan that will be fully
performed; or
``(B) as to any creditor that commenced an action
under subsection (d) in a previous case in which the
individual was a debtor if, as of the date of dismissal
of that case, that action was still pending or had been
resolved by terminating, conditioning, or limiting the
stay as to action of that creditor.
``(5)(A) If a request is made for relief from the stay under
subsection (a) with respect to real or personal property of any
kind, and such request is granted in whole or in part, the
court may order in addition that the relief so granted shall be
in rem either for a definite period not less than 1 year or
indefinitely. After the issuance of such an order, the stay
under subsection (a) shall not apply to any property subject to
such an in rem order in any case of the debtor under this
title. If such an order so provides, such stay shall also not
apply in any pending or later-filed case of any entity under
this title that claims or has an interest in the subject
property other than those entities identified in the court's
order.
``(B) The court shall cause any order entered pursuant to
this paragraph with respect to real property to be recorded in
the applicable real property records, which recording shall
constitute notice to all parties having or claiming an interest
in such real property for purpose of this section.
``(6) For the purposes of this section, a case is pending
from the time of the order for relief until the case is
closed.''.
SEC. 122. DEFINITION OF HOUSEHOLD GOODS.
Section 101 of title 11, United States Code, is amended by inserting
after paragraph (27) the following:
``(27A) `household goods' has the meaning given such term in
the Trade Regulation Rule on Credit Practices promulgated by
the Federal Trade Commission (16 C.F.R. 444.1(i)), as in effect
on the effective date of this paragraph;''.
SEC. 123. DEBTOR RETENTION OF PERSONAL PROPERTY SECURITY.
Title 11, United States Code, is amended--
(1) in section 521--
(A) in paragraph (4) by striking ``and'' at the end;
(B) in paragraph (5) by striking the period at the
end and inserting ``; and''; and
(C) by adding at the end the following:
``(6) in an individual case under chapter 7 of this title,
not retain possession of personal property as to which a
creditor has an allowed claim for the purchase price secured in
whole or in part by an interest in that personal property
unless, in the case of an individual debtor, the debtor takes 1
of the following actions within 30 days after the first meeting
of creditors under section 341(a)--
``(A) enters into a reaffirmation agreement with the
creditor pursuant to section 524(c) of this title with
respect to the claim secured by such property; or
``(B) redeems such property from the security
interest pursuant to section 722 of this title.
``If the debtor fails to so act within the 30-day period, the
personal property affected shall no longer be property of the
estate, and the creditor may take whatever action as to such
property as is permitted by applicable nonbankruptcy law,
unless the court determines on the motion of the trustee, and
after notice and a hearing, that such property is of
consequential value or benefit to the estate.''; and
(2) in section 722 by inserting ``in full at the time of
redemption'' before the period at the end.
SEC. 124. RELIEF FROM STAY WHEN THE DEBTOR DOES NOT COMPLETE INTENDED
SURRENDER OF CONSUMER DEBT COLLATERAL.
Title 11, United States Code, is amended as follows--
(1) in section 362--
(A) by striking ``(e), and (f)'' in subsection (c)
and inserting in lieu thereof ``(e), (f), and (h)'';
and
(B) by redesignating subsection (h) as subsection (i)
and by inserting after subsection (g) the following:
``(h) In an individual case pursuant to chapter 7, 11, or 13 the stay
provided by subsection (a) is terminated with respect to property of
the estate securing in whole or in part a claim, or subject to an
unexpired lease, if the debtor fails within the applicable time set by
section 521(a)(2) of this title--
``(1) to file timely any statement of intention required
under section 521(a)(2) of this title with respect to that
property or to indicate therein that the debtor will either
surrender the property or retain it and, if retaining it,
either redeem the property pursuant to section 722 of this
title, reaffirm the debt it secures pursuant to section 524(c)
of this title, or assume the unexpired lease pursuant to
section 365(p) of this title if the trustee does not do so, as
applicable; or
``(2) to take timely the action specified in that statement
of intention, as it may be amended before expiration of the
period for taking action, unless the statement of intention
specifies reaffirmation and the creditor refuses to reaffirm on
the original contract terms;
unless the court determines on the motion of the trustee, and after
notice and a hearing, that such property is of consequential value or
benefit to the estate.'';
(2) in section 521, as amended by sections 104, 406, and
407--
(A) in paragraph (2) by striking ``consumer'';
(B) in paragraph (2)(B)--
(i) by striking ``forty-five days after the
filing of a notice of intent under this
section'' and inserting ``30 days after the
first date set for the meeting of creditors
under section 341(a)''; and
(ii) by striking ``forty-five day'' the
second place it appears and inserting ``30-
day'';
(C) in paragraph (2)(C) by inserting ``except as
provided in section 362(h)'' before the semicolon; and
(D) by adding at the end the following:
``(h) If the debtor fails timely to take the action specified in
subsection (a)(6) of this section, or in paragraphs (1) and (2) of
section 362(h) of this title, with respect to property which a lessor
or bailor owns and has leased, rented, or bailed to the debtor or as to
which a creditor holds a security interest not otherwise voidable under
section 522(f), 544, 545, 547, 548, or 549, nothing in this title shall
prevent or limit the operation of a provision in the underlying lease
or agreement which has the effect of placing the debtor in default
under such lease or agreement by reason of the occurrence, pendency, or
existence of a proceeding under this title or the insolvency of the
debtor. Nothing in this subsection shall be deemed to justify limiting
such a provision in any other circumstance.''.
SEC. 125. GIVING SECURED CREDITORS FAIR TREATMENT IN CHAPTER 13.
Section 1325(a)(5)(B)(i) of title 11, United States Code, is amended
to read as follows:
``(i) the plan provides that the holder of such claim
retain the lien securing such claim until the earlier
of payment of the underlying debt determined under
nonbankruptcy law or discharge under section 1328, and
that if the case under this chapter is dismissed or
converted without completion of the plan, such lien
shall also be retained by such holder to the extent
recognized by applicable nonbankruptcy law; and''.
SEC. 126. PROMPT RELIEF FROM STAY IN INDIVIDUAL CASES.
Section 362(e) of title 11, United States Code, is amended by
inserting at the end the following:
``Notwithstanding the foregoing, in the case of an individual filing
under chapter 7, 11, or 13, the stay under subsection (a) shall
terminate 60 days after a request under subsection (d) of this section,
unless--
``(1) a final decision is rendered by the court within such
60-day period; or
``(2) such 60-day period is extended either by agreement of
all parties in interest or by the court for a specific time
which the court finds is required by compelling
circumstances.''.
SEC. 127. STOPPING ABUSIVE CONVERSIONS FROM CHAPTER 13.
Section 348(f)(1) of title 11, United States Code, is amended--
(1) by striking in subparagraph (B) ``in the converted case,
with allowed secured claims'' and inserting in lieu thereof
``only in a case converted to chapter 11 or 12 but not in one
converted to chapter 7, with allowed secured claims in cases
under chapters 11 and 12''; and
(2) in subparagraph (A) by striking ``and'' at the end;
(3) in subparagraph (B) by striking the period and inserting
``; and''; and
(4) by adding at the end the following:
``(C) with respect to cases converted from chapter 13, the
claim of any creditor holding security as of the date of the
petition shall continue to be secured by that security unless
the full amount of that claim determined under applicable
nonbankruptcy law has been paid in full as of the date of
conversion, notwithstanding any valuation or determination of
the amount of an allowed secured claim made for the purposes of
the case under chapter of this title. Unless a prebankruptcy
default has been fully cured pursuant to the plan at the time
of conversion, in any proceeding under this title or otherwise,
the default shall have the effect given under applicable
nonbankruptcy law.''.
SEC. 128. RESTRAINING ABUSIVE PURCHASES ON SECURED CREDIT.
Section 506 of title 11, United States Code, is amended by adding at
the end the following:
``(e) In an individual case under chapter 7, 11, 12, or 13--
``(1) subsection (a) shall not apply to an allowed claim to
the extent attributable in whole or in part to the purchase
price of personal property acquired by the debtor within 180
days of the filing of the petition, except for the purpose of
applying paragraph (3) of this subsection;
``(2) if such allowed claim attributable to the purchase
price is secured only by the personal property so acquired, the
value of the personal property and the amount of the allowed
secured claim shall be the sum of the unpaid principal balance
of the purchase price and accrued and unpaid interest and
charges at the contract rate;
``(3) if such allowed claim attributable to the purchase
price is secured by the personal property so acquired and other
property, the value of the security may be determined under
subsection (a), but the value of the security and the amount of
the allowed secured claim shall be not less than the unpaid
principal balance of the purchase price of the personal
property acquired and unpaid interest and charges at the
contract rate; and
``(4) in any subsequent case under this title that is filed
by or against the debtor in the 2-year period beginning on the
date the petition is filed in the original case, the value of
the personal property and the amount of the allowed secured
claim shall be deemed to be not less than the amount provided
under paragraphs (2) and (3).''.
SEC. 129. FAIR VALUATION OF COLLATERAL.
Section 506(a) of title 11, United States Code, is amended by adding
at the end the following:
``In the case of an individual debtor under chapters 7 and 13, such
value with respect to personal property securing an allowed claim shall
be determined based on the replacement value of such property as of the
date of filing the petition without deduction for costs of sale or
marketing. With respect to property acquired for personal, family, or
household purpose, replacement value shall mean the price a retail
merchant would charge for property of that kind considering the age and
condition of the property at the time value is determined.''.
SEC. 130. PROTECTION OF HOLDERS OF CLAIMS SECURED BY DEBTOR'S PRINCIPAL
RESIDENCE.
Title 11, United States Code, is amended--
(1) in section 101 by inserting after paragraph (13) the
following:
``(13A) `debtor's principal residence' means a residential
structure including incidental property when the structure
contains 1 to 4 units, whether or notthat structure is attached
to real property, and includes, without limitation, an individual
condominium or cooperative unit or mobile or manufactured home or
trailer;
``(13B) `incidental property' means property incidental to
such residence including, without limitation, property commonly
conveyed with a principal residence where the real estate is
located, window treatments, carpets, appliances and equipment
located in the residence, and easements, appurtenances,
fixtures, rents, royalties, mineral rights, oil and gas rights,
escrow funds and insurance proceeds;'';
(2) in section 362(b)--
(A) in paragraph (17) by striking ``or'' at the end
thereof;
(B) in paragraph (18) by striking the period at the
end and inserting ``; or''; and
(C) by inserting after paragraph (18) the following:
``(19) under subsection (a), until a prepetition default is
cured fully in a case under chapter 13 of this title case by
actual payment of all arrears as required by the plan, of the
postponement, continuation or other similar delay of a
prepetition foreclosure proceeding or sale in accordance with
applicable nonbankruptcy law, but nothing herein shall imply
that such postponement, continuation or other similar delay is
a violation of the stay under subsection (a).''; and
(3) by amending section 1322(b)(2) to read as follows:
``(2) modify the rights of holders of secured claims, other
than a claim secured primarily by a security interest in
property used as the debtor's principal residence at any time
during 180 days prior to the filing of the petition, or of
holders of unsecured claims, or leave unaffected the rights of
holders of any class of claims;''.
SEC. 131. AIRCRAFT EQUIPMENT AND VESSELS.
Section 1110(a)(1) of title 11, United States Code, is amended--
(1) in subparagraph (A) by striking ``that become due on or
after the date of the order'';
(2) in subparagraph (B)--
(A) in clause (i) by striking ``and'' at the end; and
(B) in clause (ii)--
(i) by inserting ``and within such 60-day
period'' after ``order''; and
(ii) in subclause (II) by striking the period
at the end and inserting ``; and''; and
(3) by adding at the end the following:
``(iii) that occurs after the date of the order and
such 60-day period is cured in accordance with the
terms of such security agreement, lease, or conditional
sale contract.''.
Subtitle D--Adequate Protections for Unsecured Creditors
SEC. 141. DEBTS INCURRED TO PAY NONDISCHARGEABLE DEBTS.
(a) Priority of Claims for Debts Incurred To Pay Nondischargeable
Debts.--Section 507(a) of title 11, United States Code, is amended by
adding at the end the following:
``(10) Tenth, remaining allowed unsecured claims for debts
that are nondischargeable under section 523(a)(19), but which
shall be payable under this paragraph in the higher order of
priority (if any) as the respective claims paid by incurring
such debts.''.
(b) Nondischargeability of Debts Incurred To Pay Nondischargeable
Debts.--Section 523(a) of title 11, United States Code, is amended--
(1) in paragraph (17) by striking ``or'' at the end;
(2) in paragraph (18) by striking the period and inserting
``; or''; and
(3) by adding at the end the following:
``(19) incurred to pay a debt that is nondischargeable under
any other paragraph of this subsection.''.
SEC. 142. CREDIT EXTENSIONS ON THE EVE OF BANKRUPTCY PRESUMED
NONDISCHARGEABLE.
Section 523(a)(2)(C) of title 11, United States Code, is amended to
read as follows:
``(C) for purposes of subparagraph (A), consumer
debts owed to a single creditor incurred by an
individual debtor on or within 90 days before the order
for relief under this title are presumed to be
nondischargeable, except that such presumption shall
not apply to consumer debts owed to a single creditor
which are incurred for necessaries and aggregate $250
or less.''.
SEC. 143. FRAUDULENT DEBTS ARE NONDISCHARGEABLE IN CHAPTER 13 CASES.
Section 1328(a)(2) of title 11, United States Code, is amended--
(1) by inserting ``(2), (3)(B), (4),'' after ``paragraph'';
and
(2) by inserting ``(6),'' after ``(5),''.
SEC. 144. APPLYING THE CODEBTOR STAY ONLY WHEN IT PROTECTS THE DEBTOR.
Section 1301(b) of title 11, United States Code, is amended--
(1) by inserting ``(1)'' after ``(b)''; and
(2) by adding at the end the following:
``(2) When the debtor did not receive the consideration for the claim
held by a creditor, the stay provided by subsection (a) does not apply
to such creditor, notwithstanding subsection (c), to the extent the
creditor proceeds against the individual which received such
consideration or against property not in the possession of the debtor
which secures such claim, but this subsection shall not apply if the
debtor is primarily obligated to pay the creditor in whole or in part
with respect to the claim under a legally binding separation agreement,
or divorce or dissolution decree, with respect to such individual or
the person who has possession of such property.
``(3) When the debtor's plan provides that the debtor's interest in
personal property subject to a lease as to which the debtor is the
lessee will be surrendered or abandoned or no payments will be made
under the plan on account of the debtor's obligations under the lease,
the stay provided by subsection (a) shall terminate as of the date of
confirmation of the plan notwithstanding subsection (c).''.
SEC. 145. CREDIT EXTENSIONS WITHOUT A REASONABLE EXPECTATION OF
REPAYMENT MADE NONDISCHARGEABLE.
Section 523(a)(2) of title 11, United States Code, is amended--
(1) in subparagraph (A) by striking ``or actual fraud,'' and
inserting ``actual fraud, or use of a credit or charge card or
other device to access a credit line without a reasonable
expectation or ability to repay unless access to such credit,
credit or charge card or other device to access the credit line
was extended without an application therefor and reasonable
evaluation of the debtor's ability to repay,'', and
(2) in subparagraph (B)(iv) by striking ``with intent to
deceive'' and inserting ``without taking reasonable steps to
ensure the accuracy of the statement''.
SEC. 146. DEBTS FOR ALIMONY, MAINTENANCE, AND SUPPORT.
(a) Nondischargeability.--Title 11, United States Code, is amended--
(1) in section 523(a)(18)--
(A) by inserting ``(including interest)'' after
``law''; and
(B) in subparagraph (A) by striking ``and'' at the
end and inserting ``or''; and
(2) in section 1328(a)(2) by striking ``or (9)'' and
inserting ``(9), or (18)''.
(b) Automatic Stay.--Section 362(b) of title 11, United States Code,
as amended by section 130, is amended--
(1) in paragraph (19) by striking ``or'' at the end;
(2) in paragraph (19) by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following:
``(20) under subsection (a) with respect to the withholding
of income pursuant to an order as specified in section 466(b)
of the Social Security Act; or
``(21) under subsection (a) with respect to the withholding,
suspension, or restriction of drivers' licenses, professional
and occupational licenses, and recreational licenses pursuant
to State law as specified in section 466(a)(15) of the Social
Security Act or with respect to the reporting of overdue
support owed by an absent parent to any consumer reporting
agency as specified in section 466(a)(7) of the Social Security
Act.''.
(c) Continued Liability of Property.--Section 522(c) of title 11,
United States Code, is amended by striking ``section 523(a)(1) or
523(a)(5)'' and inserting ``paragraph (1), (5), or (18) of section
523(a)''.
(d) Priority of Claims.--Section 507(a) of title 11, United States
Code, as amended by section 141, is amended--
(1) in paragraph (10) by striking ``(10) Tenth'' and
inserting ``(11) Eleventh'';
(2) in paragraph (9) by striking ``(9) Ninth'' and inserting
``(10) Tenth'';
(3) in paragraph (8) by striking ``(8) Eighth '' and
inserting ``(9) Ninth''; and
(4) by inserting after paragraph (7) the following:
``(8) Eighth, allowed unsecured claims for debts that are
nondischargeable under section 523(a)(18).''.
(e) Confirmation of Plans.--Title 11 of the United States Code is
amended--
(1) in section 1129(a) by adding at the end the following:
``(14) If the debtor is required by a judicial or
administrative order to pay alimony to, maintenance for, or
support of a spouse, former spouse, or child of the debtor, the
debtor has paid all amounts payable under such order for
alimony, maintenance, or support that are due after the date
the petition is filed.'';
(2) in section 1225(a)--
(A) in paragraph (5) by striking ``and'' at the end;
(B) in paragraph (6) by striking the period at the
end and inserting ``; and''; and
(C) by adding at the end the following:
``(7) the debtor is required by a judicial or administrative
order to pay alimony to, maintenance for, or support of a
spouse, former spouse, or child of the debtor, the debtor has
paid all amounts payable under such order for alimony,
maintenance, or support that are due after the date the
petition is filed.''; and
(3) in section 1325(a)--
(A) in paragraph (5) by striking ``and'' at the end;
(B) in paragraph (6) by striking the period at the
end and inserting ``; and''; and
(C) by adding at the end the following:
``(7) if the debtor is required by a judicial or
administrative order to pay alimony to, maintenance for, or
support of a spouse, former spouse, or child of the debtor, the
debtor has paid all amounts payable under such order for
alimony, maintenance, or support that are due after the date
the petition is filed.''.
(f) Discharge.--Title 11 United States Code is amended--
(1) in section 1228(a) by inserting ``and only after a debtor
who is required by a judicial or administrative order to pay
alimony to, maintenance for, or support of a spouse, former
spouse, or child of the debtor, certifies that all amounts
payable under such order for alimony, maintenance, or support
that are due after the date the petition is filed have been
paid,'' after ``this title,''; and
(2) in section 1328(a) by inserting ``and only after a debtor
who is required by a judicial or administrative order to pay
alimony to, maintenance for, or support of a spouse, former
spouse, or child of the debtor, certifies that all amounts
payable under such order for alimony, maintenance, or support
that are due after the date the petition is filed have been
paid,'' after ``plan,'' the 1st place it appears.
(g) Conforming Amendments.--Section 456(b) of the Social Security Act
(42 U.S.C. 656(b)) is amended--
(1) by inserting ``, including interest,'' after ``Code)'';
(2) by striking ``and'' and inserting ``or''; and
(3) by striking ``released by a discharge'' and inserting
``dischargeable''.
SEC. 147. NONDISCHARGEABILITY OF CERTAIN DEBTS FOR ALIMONY,
MAINTENANCE, AND SUPPORT.
Section 523(a)(5) of title 11, United States Code, is amended to read
as follows:
``(5) to a spouse, former spouse, or child of the debtor for
alimony to, maintenance for, or support of such spouse or
child, or to a spouse, former spouse, or child of the debtor,
to the extent such debt is the result of a property settlement
agreement, a hold harmless agreement, or any other type of debt
that is not in the nature of alimony, maintenance, or support
in connection with or incurred by the debtor in the course of a
separation agreement, divorce decree, any modifications
thereof, or other order of a court of record, determination
made in accordance with State or territorial law by a
governmental unit, but not to the extent that such debt is
assigned to another entity, voluntarily, by operation of law,
or otherwise (other than debts assigned pursuant to section
408(a)(3) of the Social Security Act, or such debt that has
been assigned to the Federal government, or to a State or
political subdivision of such State, or the creditor's
attorney);''.
SEC. 148. OTHER EXCEPTIONS TO DISCHARGE.
Section 523 of title 11, United States Code, is amended--
(1) by striking subsection (a)(15), as added by section
304(e)(1) of Public Law 103-394;
(2) in subsection (a)(7) by inserting ``(including property
or funds required to be disgorged)'' after ``penalty''; and
(3) in subsection (c)(1) by striking ``(6), or (15)'' and
inserting ``or (6)''.
SEC. 149. FEES ARISING FROM CERTAIN OWNERSHIP INTERESTS.
(a) Exception to Discharge.--Section 523(a)(16) of title 11, United
States Code, is amended--
(1) by striking ``dwelling'' the 1st place it appears;
(2) by striking ``ownership or'' and inserting
``ownership,'';
(3) by striking ``housing'' the 1st place it appears; and
(4) by striking ``but only'' and all that follows through
``such period,'', and inserting ``or a lot in a homeowners
association, for as long as the debtor or the trustee has a
legal, equitable, or possessory ownership interest in such
unit, such corporation, or such lot,''.
(b) Executory Contracts.--Section 365 of title 11, United States
Code, as amended by section 161, is amended by adding at the end the
following:
``(q) A debt of a kind described in section 523(a)(16) of this title
shall not be considered to be a debt arising from an executory
contract.''
SEC. 150. PROTECTION OF CHILD SUPPORT AND ALIMONY.
(a) Amendment.--Title 11 of the United States Code, as amended by
section 116, is amended by inserting after section 528 the following:
``Sec. 529. Protection of child support and alimony payments after the
discharge
``Notwithstanding the provisions of the constitution or law of any
State providing a different priority, any debts of the individual who
has received a discharge under this title to a spouse, former spouse,
or child 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--
``(1) is assigned to another entity, voluntarily, by
operation of law, or otherwise; or
``(2) includes a liability designated as alimony,
maintenance, or support, unless such liability is actually in
the nature of alimony, maintenance, or support,
shall have priority in payment and collection over a creditor's claim
which is not discharged in the individual's case pursuant to paragraph
(2), (4), or (14) of section 523(a) of this title, but such priority
shall not affect the priority of any consensual lien, mortgage, or
security interest securing such creditor's claim.''.
(b) Conforming Amendment.--The table of sections of chapter 5 of
title 11, United States Code, as amended by section 116, is amended by
inserting after the item relating to section 528 the following:
``529. Protection of child support and alimony.''.
SEC. 151. ADEQUATE PROTECTION FOR INVESTORS.
(a) Definition.--Section 101 of title 11, United States Code, is
amended by inserting after paragraph (48) the following:
``(48A) `securities self regulatory organization' means
either a securities association registered with the Securities
and Exchange Commission pursuant to section 15A of the
Securities Exchange Act of 1934 or a national securities
exchange registered with the Securities and Exchange Commission
pursuant to section 6 of the Securities Exchange Act of
1934;''.
(b) Automatic Stay.--Section 362(b) of title 11, United States Code,
as amended by sections 130 and 146, is amended--
(1) in paragraph (20) by striking ``or'' at the end;
(2) in paragraph (21) by striking the period at the end and a
inserting ``; or''; and
(3) by adding at the end the following:
``(22) under subsection (a) of this section, of the
commencement or continuation of an investigation or action by a
securities self regulatory organization to enforce such
organization's regulatory power; of the enforcement of an order
or decision, other than for monetary sanctions, obtained in an
action by the securities self regulatory organization to
enforce such organization's regulatory power; or of any act
taken by the securities self regulatory organization to delist,
delete, or refuse to permit quotation of any stock that does
not meet applicable regulatory requirements.''.
Subtitle E--Adequate Protections for Lessors
SEC. 161. GIVING DEBTORS THE ABILITY TO KEEP LEASED PERSONAL PROPERTY
BY ASSUMPTION.
Section 365 of title 11, United States Code, is amended by adding at
the end the following:
``(p)(1) If a lease of personal property is rejected or not timely
assumed by the trustee under subsection (d), the leased property is no
longer property of the estate and the stay under section 362(a) of this
title is automatically terminated.
``(2) In the case of an individual under chapter 7, the debtor may
notify the creditor in writing that the debtor desires to assume the
lease. Upon being so notified, the creditor may, at its option, notify
the debtor that it is willing to have the lease assumed by the debtor
and may condition such assumption on cure of any outstanding default on
terms set by the lessor. If within 30 days of such notice the debtor
notifies the lessor in writing that the lease is assumed, the liability
under the lease will be assumed by the debtor and not by the estate.
The stay under section 362 of this title and the injunction under
section 524(a)(2) of this title shall not be violated by notification
of the debtor and negotiation of cure under this subsection.
``(3) In a case under chapter 11 of this title in which the debtor is
an individual and in a case under chapter 13 of this title, if the
debtor is the lessee with respect to personal property and the lease is
not assumed in the plan confirmed by the court, the lease is deemed
rejected as of the conclusion of the hearing on confirmation. If the
lease is rejected, the stay under section 362 of this title and any
stay under section 1301 is automatically terminated with respect to the
property subject to the lease.''.
SEC. 162. ADEQUATE PROTECTION OF LESSORS AND PURCHASE MONEY SECURED
CREDITORS.
Title 11, United States Code, is amended by adding after section 1307
the following:
``Sec. 1307A. Adequate protection in chapter 13 cases
``(a)(1) On or before 30 days after the filing of a case under this
chapter, the debtor shall make cash payments in the amount described
below to any lessor of personal property and to any creditor holding a
claim secured by personal property to the extent such claim is
attributable to the purchase of such property by the debtor. The debtor
or the plan shall continue such payments until the earlier of--
``(A) the time at which the creditor begins to receive actual
payments under the plan; or
``(B) the debtor relinquishes possession of such property to
the lessor or creditor, or to any third party acting under
claim of right, as applicable.
``(2) Such cash payments shall be in the amount of any weekly,
biweekly, monthly or other periodic payment scheduled as payable under
the contract between the debtor and creditor; shall be paid at the
times at which such payments are scheduled to be made; and shall not
include any arrearages, penalties, or default or delinquency charges.
Such payments shall be deemed to be adequate protection payments under
section 362 of this title.
``(b) The court may, after notice and hearing, change the amount and
timing of the adequate protection payment under subsection (a), but in
no event shall it be payable less frequently than monthly or in an
amount less than the reasonable depreciation of such property month to
month.
``(c) Notwithstanding section 1326(b) of this title, if a confirmed
plan provides for payments to a creditor or lessor described in
subsection (a) and provides that payments to such creditor or lessor
under the plan will be deferred until payment of amounts described in
section 1326(b) of this title, the payments required hereunder shall
nonetheless be continued in addition to plan payments until actual
payments to the creditor begin under the plan.
``(d) Notwithstanding sections 362, 542, and 543 of this title, a
lessor or creditor described in subsection (a) may retain possession of
property described in subsection (a) which was obtained rightfully
prior to the date of filing of the petition until the first such
adequate protection payment is received by the lessor or creditor. Such
retention of possession and any acts reasonably related thereto shall
not violate the stay imposed under section 362(a) of this title, nor
any obligations imposed under section 542 or 543 of this title.
``(e) On or before 60 days after the filing of a case under this
chapter, a debtor retaining possession of personal property subject to
a lease or securing a claim attributable in whole or in part to the
purchase price of that property shall provide each creditor or lessor
reasonable evidence of the maintenance of any required insurance
coverage with respect to the use or ownership of such property and
continue to do so for so long as the debtor retains possession of such
property.''.
SEC. 163. ADEQUATE PROTECTION FOR LESSORS.
Section 362(b)(10) of title 11, United States Code, is amended by
striking ``nonresidential''.
Subtitle F--Bankruptcy Relief Less Frequently Available for Repeat
Filers
SEC. 171. EXTEND PERIOD BETWEEN BANKRUPTCY DISCHARGES.
Title 11, United States Code, is amended--
(1) in section 727(a)(8) by striking ``six'' and inserting
``10''; and
(2) in section 1328 by adding at the end the following:
``(f) Notwithstanding subsections (a) and (b), the court shall not
grant a discharge of all debts provided for by the plan or disallowed
under section 502 of this titleif the debtor has received a discharge
in any case filed under this title within 5 years of the order for
relief under this chapter.''.
Subtitle G--Exemptions
SEC. 181. EXEMPTIONS.
Section 522(b)(2)(A) of title 11, United States Code, is amended--
(1) by striking ``180'' and inserting ``365''; and
(2) by striking ``, or for a longer portion of such 180-day
period than in any other place''.
SEC. 182. LIMITATION.
Section 522 of title 11, United States Code, is amended--
(1) in subsection (b)(2)(A) by inserting ``subject to
subsection (n),'' before ``any property''; and
(2) by adding at the end the following:
``(n)(1) Except as provided in paragraph (2), as a result of electing
under subsection (b)(2)(A) to exempt property under State or local law,
a debtor may not exempt any interest to the extent that such interest
exceeds $100,000 in value, in the aggregate, in--
``(A) real or personal property that the debtor or a
dependent of the debtor uses as a residence;
``(B) a cooperative that owns property that the debtor or a
dependent of the debtor uses as a residence; or
``(C) a burial plot for the debtor or a dependent of the
debtor.
``(2) The limitation under paragraph (1) shall not apply to an
exemption claimed under subsection (b)(2)(A) by a family farmer for the
principal residence of that farmer.''.
TITLE II--BUSINESS BANKRUPTCY PROVISIONS
Subtitle A--General Provisions
SEC. 201. LIMITATION RELATING TO THE USE OF FEE EXAMINERS.
Section 330 of title 11, United States Code, is amended by adding at
the end the following:
``(e) The court may not appoint any person to examine any request for
compensation or reimbursement payable under this section.''.
SEC. 202. SHARING OF COMPENSATION.
Section 504 of title 11, United States Code, is amended by adding at
the end the following:
``(c) This section shall not apply with respect to sharing, or
agreeing to share, compensation with a bona fide public service
attorney referral program that operatesin accordance with non-Federal
law regulating attorney referral services and with rules of
professional responsibility applicable to attorney acceptance of
referrals.''.
SEC. 203. CHAPTER 12 MADE PERMANENT LAW.
Section 302(f) of the Bankruptcy Judges, United States Trustees, and
Family Farmer Bankruptcy Act of 1986 (11 U.S.C. 1201 note) is repealed.
SEC. 204. MEETINGS OF CREDITORS AND EQUITY SECURITY HOLDERS.
Section 341 of title 11, United States Code, is amended by adding at
the end the following:
``(e) Notwithstanding subsections (a) and (b), the court, on the
request of a party in interest and after notice and a hearing, for
cause may order that the United States trustee not convene a meeting of
creditors or equity security holders if the debtor has filed a plan as
to which the debtor solicited acceptances prior to the commencement of
the case.''.
SEC. 205. CREDITORS' AND EQUITY SECURITY HOLDERS' COMMITTEES.
Section 1102(b) of title 11, United States Code, is amended by adding
at the end the following:
``(3) The court on its own motion or on request of a party in
interest, and after notice and a hearing, may order a change in
membership of a committee appointed under subsection (a) if necessary
to ensure adequate representation of creditors or of equity security
holders.''.
SEC. 206. POSTPETITION DISCLOSURE AND SOLICITATION.
Section 1125 of title 11, United States Code, is amended by adding at
the end the following:
``(g) Notwithstanding subsection (b), an acceptance or rejection of
the plan may be solicited from a holder of a claim or interest if such
solicitation complies with applicable nonbankruptcy law and if such
holder was solicited before the commencement of the case in a manner
complying with applicable nonbankruptcy law.''.
SEC. 207. PREFERENCES.
Section 547(c) of title 11, United States Code, is amended--
(1) by amending paragraph (2) to read as follows:
``(2) to the extent that such transfer was in payment of a
debt incurred by the debtor in the ordinary course of business
or financial affairs of the debtor and the transferee, and such
transfer was--
``(A) made in the ordinary course of business or
financial affairs of the debtor and the transferee; or
``(B) made according to ordinary business terms;'';
(2) in paragraph (7) by striking ``or'' at the end;
(3) in paragraph (8) by striking the period at the end and
inserting ``; or''; and
(4) by adding at the end the following:
``(9) if, in a case filed by a debtor whose debts are not
primarily consumer debts, the aggregate value of all property
that constitutes or is affected by such transfer is less than
$5000.''.
SEC. 208. VENUE OF CERTAIN PROCEEDINGS.
Section 1409(b) of title 28, United States Code, is amended by
inserting ``, or a nonconsumer debt against a noninsider of less than
$10,000,'' after ``$5,000''.
SEC. 209. PERIOD FOR FILING PLAN UNDER CHAPTER 11.
Section 1121(d) of title 11, United States Code, is amended--
(1) by striking ``On'' and inserting ``(1) Subject to
paragraph (1), on''; and
(2) by adding at the end the following:
``(2)(A) Such 120-day period may not be extended beyond a date that
is 18 months after the date of the order for relief under this chapter.
``(B) Such 180-day period may not be extended beyond a date that is
20 months after the date of the order for relief under this chapter.''.
SEC. 210. PERIOD FOR FILING PLAN UNDER CHAPTER 12.
(a) Extension of Period.--Section 1221 of title 11, United States
Code, is amended by inserting ``to any period not later than 150 days
after the order for relief'' after ``period''.
(b) Relief From the Stay.--Section 362(d) of title 11, United States
Code, is amended--
(1) in paragraph (2) by striking ``or'' at the end;
(2) in paragraph (3) by striking the period at the end and
inserting ``; or''; and
(3) by adding at the end the following:
``(4) with respect to a stay of an act against property under
subsection (a) of a debtor in a case under chapter 12, by a
creditor whose claim is secured by an interest in such
property, unless the debtor has filed a plan in accordance with
section 1221.''.
(c) Special Treatment of Secured Claims.--(1) Chapter 12 of title 11,
United States Code, is amended by inserting after section 1231 the
following:
``Sec. 1232. Special treatment of secured claims
``(a)(1) A claim secured by a lien on property of the estate shall be
allowed or disallowed under section 502 of this title the same as if
the holder of such claim had recourse against the debtor on account of
such claim, whether or not such holder has such recourse, unless--
``(A) subject to paragraph (2), the holder of such claim
elects to apply subsection (b); or
``(B) such holder does not have such recourse, and such
property is sold under section 363 of this title or is to be
sold under the plan.
``(2) A holder of a claim may not elect to apply subsection (b) if--
``(A) such claim is of inconsequential value; or
``(B) the holder of a claim has recourse against the debtor
on account of such claim, and such property is sold under
section 363 of this title or is to be sold under the plan.
``(b) If such an election is made to apply this subsection, then
notwithstanding section 506(a) of this title, such claim is a secured
claim to the extent such claim is allowed.''.
(2) The table of sections of chapter 12 of title 11, United States
Code, is amended by inserting after the item relating to section 1231
the following:
``1232. Special treatment of secured claims.''.
SEC. 211. CASES ANCILLARY TO FOREIGN PROCEEDINGS INVOLVING FOREIGN
INSURANCE COMPANIES THAT ARE ENGAGED IN THE
BUSINESS OF INSURANCE OR REINSURANCE IN THE UNITED
STATES.
Section 304 of title 11, United States Code, is amended--
(1) in subsection (b) by striking ``provisions of subsection
(c)'' and inserting ``subsections (c) and (d)''; and
(2) by adding at the end the following:
``(d) The court may not grant to a foreign representative of the
estate of an insurance company that is not organized under the law of a
State and that is engaged in the business of insurance, or reinsurance,
in the United States relief under subsection (b) with respect to
property that is--
``(1) a deposit required by a State law relating to insurance
or reinsurance;
``(2) a multibeneficiary trust required by a State law
relating to insurance or reinsurance to protect holders of
insurance policies issued in the United States or to protect
holders or claimants against such policies; or
``(3) a multibeneficiary trust authorized by a State law
relating to insurance or reinsurance to allow a person engaged
in the business of insurance in the United States--
``(A) to cede reinsurance to such an insurance
company; and
``(B) to treat so ceded reinsurance as an asset, or
deduction from liability, in financial statements of
such person.''.
SEC. 212. REJECTION OF EXECUTORY CONTRACTS AFFECTING INTELLECTUAL
PROPERTY RIGHTS TO RECORDINGS OF ARTISTIC
PERFORMANCE.
Section 365(n) of title 11, United States Code, is amended at the end
the following:
``(5) The rejection by the trustee of an executory contract affecting
the intellectual property rights to recordings of artistic performance
shall not in any way diminish or impair any applicable nonbankruptcy
law rights to enforce noncompetition provision or provisions regarding
the rendering of exclusive services as a performing artist that may be
contained in such contracts, except that such enforcement shall be
subject to the nondebtor party providing to the debtor notice of an
offer to perform the contract under all of its original terms. The
rights to enforce such noncompetition or exclusivity provision shall
not be treated as claims that can be discharged under this title.''.
SEC. 213. UNEXPIRED LEASES OF NONRESIDENTIAL REAL PROPERTY.
Section 365(d)(4) of title 11, United States Code, is amended to read
as follows:
``(4) In a case under any chapter of this title, if the trustee does
not assume or reject an unexpired lease of nonresidential real property
under which the debtor is the lessee before the earlier of (A) 120 days
after the date of the order for relief, or (B) the entry of an order
confirming a plan, then such lease is deemed rejected, and the trustee
shall immediately surrender such nonresidential real property to the
lessor but in no event shall such time period exceed 120 days.
Notwithstanding the immediately preceding sentence, and provided no
plan has been confirmed, upon debtor's motion, and after notice and a
hearing, the court may within such 120-day period extend the 120-day
period by a period not to exceed 150 days, contingent upon written
consent of the affected lessor or with the approval of the court, and
provided trustee has timely performed all post-petition lease
obligations, but in no circumstance shall such period extend beyond the
earlier of (i) 270 days from the date of the order for relief or (ii)
the entry of an order approving a disclosure statement, without the
consent of the lessor.''.
SEC. 214. DEFINITION OF DISINTERESTED PERSON.
Section 101(14) of title 11, United States Code, is amended to read
as follows:
``(14) `disinterested person' means a person that--
``(A) is not a creditor, an equity security holder,
or an insider;
``(B) is not and was not, within 2 years before the
date of the filing of the petition, a director,
officer, or employee of the debtor; and
``(C) does not have an interest materially adverse to
the interest of the estate or of any class of creditors
or equity security holders, by reason of any direct or
indirect relationship to, connection with, or interest
in, the debtor, or for any other reason;''.
Subtitle B--Specific Provisions
CHAPTER 1--SMALL BUSINESS BANKRUPTCY
SEC. 231. DEFINITIONS.
(a) Definitions.--Section 101 of title 11, United States Code, is
amended by striking paragraph (51C) and inserting the following:
``(51C) `small business case' means a case filed under
chapter 11 of this title in which the debtor is a small
business debtor;
``(51D) `small business debtor' means--
``(A) a person (including affiliates of such person
that are also debtors under this title) that has
aggregate noncontingent, liquidated secured and
unsecured debts as of the date of the petition or the
order for relief in an amount not more than $5,000,000
(excluding debts owed to 1 or more affiliates or
insiders); or
``(B) a debtor of the kind described in paragraph
(51B) but without regard to the amount of such debtor's
debts;
except that if a group of affiliated debtors has aggregate
noncontingent liquidated secured and unsecured debts greater
than $5,000,000 (excluding debt owed to 1 or more affiliates or
insiders), then no member of such group is a small business
debtor;''.
(b) Conforming Amendment.--Section 1102(a)(3) of title 11, United
States Code, is amended by inserting ``debtor'' after ``small
business''.
SEC. 232. FLEXIBLE RULES FOR DISCLOSURE STATEMENT AND PLAN.
Section 1125(f) of title 11, United States Code, is amended to read
as follows:
``(f) Notwithstanding subsection (b), in a small business case--
``(1) in determining whether a disclosure statement provides
adequate information, the court shall consider the complexity
of the case, the benefit of additional information to creditors
and other parties in interest, and the cost of providing
additional information;
``(2) the court may determine that the plan itself provides
adequate information and that a separate disclosure statement
is not necessary;
``(3) the court may approve a disclosure statement submitted
on standard forms approved by the court or adopted pursuant to
section 2075 of title 28; and
``(4)(A) the court may conditionally approve a disclosure
statement subject to final approval after notice and a hearing;
``(B) acceptances and rejections of a plan may be solicited
based on a conditionally approved disclosure statement if the
debtor provides adequate information to each holder of a claim
or interest that is solicited, but a conditionally approved
disclosure statement shall be mailed not less than 20 days
before the date of the hearing on confirmation of the plan; and
``(C) the hearing on the disclosure statement may be combined
with the hearing on confirmation of a plan.''.
SEC. 233. STANDARD FORM DISCLOSURE STATEMENTS AND PLANS.
The Advisory Committee on Bankruptcy Rules of the Judicial Conference
of the United States shall, within a reasonable period of time after
the date of the enactment of this Act, propose for adoption standard
form disclosure statements and plans of reorganization for small
business debtors (as defined in section 101) of title 11, United States
Code, as amended by this Act), designed to achieve a practical balance
between--
(1) the reasonable needs of the courts, the United States
trustee or bankruptcy administrator, creditors, and other
parties in interest for reasonably complete information; and
(2) economy and simplicity for debtors.
SEC. 234. UNIFORM NATIONAL REPORTING REQUIREMENTS.
(a) Reporting Required.--(1) Title 11 of the United States Code is
amended by inserting after section 307 the following:
``Sec. 308. Debtor reporting requirements
``A small business debtor shall file periodic financial and other
reports containing information including--
``(1) the debtor's profitability, that is, approximately how
much money the debtor has been earning or losing during current
and recent fiscal periods;
``(2) reasonable approximations of the debtor's projected
cash receipts and cash disbursements over a reasonable period;
``(3) comparisons of actual cash receipts and disbursements
with projections in prior reports;
``(4) whether the debtor is--
``(A) in compliance in all material respects with
postpetition requirements imposed by this title and the
Federal Rules of Bankruptcy Procedure; and
``(B) timely filing tax returns and paying taxes and
other administrative claims when due, and, if not, what
the failures are and how, at what cost, and when the
debtor intends to remedy such failures; and
``(5) such other matters as are in the best interests of the
debtor and creditors, and in the public interest in fair and
efficient procedures under chapter 11 of this title.''.
(2) The table of sections of chapter 3 of title 11, United States
Code, is amended by inserting after the item relating to section 307
the following:
``308. Debtor reporting requirements.''.
(b) Effective Date.--The amendments made by subsection (a) shall take
effect 60 days after the date on which rules are prescribed pursuant to
section 2075, title 28, United States Code to establish forms to be
used to comply with section 308 of title 11, United States Code, as
added by subsection (a).
SEC. 235. UNIFORM REPORTING RULES AND FORMS.
After consultation with the Director of the Executive for United
States Trustees and with the Judicial Conference of the United States,
the Attorney General of the United States shall propose for adoption
amended Federal Rules of Bankruptcy Procedure and Official Bankruptcy
Forms to be used by small business debtors to comply with section 308
of title 11, United States Code, as added by section 234 of this Act to
achieve a practical balance between--
(1) the reasonable needs of the courts, the United States
trustee or bankruptcy administrator, creditors, and other
parties in interest for reasonably complete information; and
(2) economy and simplicity for debtors in cases under such
title.
SEC. 236. DUTIES IN SMALL BUSINESS CASES.
(a) Duties in Chapter 11 Cases.--Title 11 of the United States Code
is amended by inserting after section 1114 the following:
``Sec. 1115. Duties of trustee or debtor in possession in small
business cases
``In a small business case, a trustee or the debtor in possession, in
addition to the duties provided in this title and as otherwise required
by law, shall--
``(1) append to the voluntary petition or, in an involuntary
case, file within 3 days after the date of the order for
relief--
``(A) its most recent balance sheet, statement of
operations, cash-flow statement, Federal income tax
return; or
``(B) a statement made under penalty of perjury that
no balance sheet, statement of operations, or cash-flow
statement has been prepared and no Federal tax return
has been filed;
``(2) attend, through its senior management personnel and
counsel, meetings scheduled by the court or the United States
trustee, including initial debtor interviews, scheduling
conferences, and meetings of creditors convened under section
341 of this title;
``(3) timely file all schedules and statements of financial
affairs, unless the court, after notice and a hearing, grants
an extension, which shall not extend such time period to a date
later than 30 days after the date of the order for relief,
absent extraordinary and compelling circumstances;
``(4) file all postpetition financial and other reports
required by the Federal Rules of Bankruptcy Procedure or by
local rule of the district court;
``(5) subject to section 363(c)(2), maintain insurance
customary and appropriate to the industry;
``(6)(A) timely file tax returns;
``(B) subject to section 363(c)(2), timely pay all
administrative expense tax claims, except those being contested
by appropriate proceedings being diligently prosecuted; and
``(C) subject to section 363(c)(2), establish 1 or more
separate deposit accounts not later than 10 business days after
the date of order for relief (or as soon thereafter as possible
if all banks contacted decline the business) and deposit
therein, not later than 1 business day after receipt thereof,
all taxes payable for periods beginning after the date the case
is commenced that are collected or withheld by the debtor for
governmental units; and
``(7) allow the United States trustee or bankruptcy
administrator, or its designated representative, to inspect the
debtor's business premises, books, and records at reasonable
times, after reasonable prior written notice, unless notice is
waived by the debtor.''.
(b) Technical Amendment.--The table of sections of chapter 11, United
States Code, is amended by inserting after the item relating to section
1114 the following:
``1115. Duties of trustee or debtor in possession in small business
cases.''.
SEC. 237. PLAN FILING AND CONFIRMATION DEADLINES.
Section 1121(e) of title 11, United States Code, is amended to read
as follows:
``(e) In a small business case--
``(1) only the debtor may file a plan until after 90 days
after the date of the order for relief, unless shortened on
request of a party in interest made during the 90-day period,
or unless extended as provided by this subsection, after notice
and hearing the court, for cause, orders otherwise;
``(2) the plan, and any necessary disclosure statement, shall
be filed not later than 90 days after the date of the order for
relief; and
``(3) the time periods specified in paragraphs (1) and (2),
and the time fixed in section 1129(e) of this title, within
which the plan shall be confirmed may be extended only if--
``(A) the debtor, after providing notice to parties
in interest (including the United States trustee),
demonstrates by a preponderance of the evidence that it
is more likely than not that the court will confirm a
plan within a reasonable time;
``(B) a new deadline is imposed at the time the
extension is granted; and
``(C) the order extending time is signed before the
existing deadline has expired.''.
SEC. 238. PLAN CONFIRMATION DEADLINE.
Section 1129 of title 11, United States Code, is amended by adding at
the end the following:
``(e) In a small business case, the plan shall be confirmed not later
than 150 days after the date of the order for relief unless such 150-
day period is extended as provided in section 1121(e)(3) of this
title.''.
SEC. 239. PROHIBITION AGAINST EXTENSION OF TIME.
Section 105(d) of title 11, United States Code, is amended--
(1) in paragraph (2)(B)(vi) by striking the period at the end
and inserting ``; and''; and
(2) by adding at the end the following:
``(3) in a small business case, not extend the time periods
specified in sections 1121(e) and 1129(e) of this title except
as provided in section 1121(e)(3) of this title.''.
SEC. 240. DUTIES OF THE UNITED STATES TRUSTEE AND BANKRUPTCY
ADMINISTRATOR.
(a) Duties of the United States Trustee.--Section 586(a) of title 28,
United States Code, as amended by section 111, is amended--
(1) in paragraph (3)--
(A) in subparagraph (G) by striking ``and'' at the
end;
(B) by redesignating subparagraph (H) as subparagraph
(I); and
(C) by inserting after subparagraph (G) the
following:
``(H) in small business cases (as defined in section
101 of title 11), performing the additional duties
specified in title 11 pertaining to such cases;'',
(2) in paragraph (6) by striking ``and'' at the end,
(3) in paragraph (7) by striking the period at the end and
inserting ``; and'', and
(4) by inserting after paragraph (7) the following:
``(8) in each of such small business cases--
``(A) conduct an initial debtor interview as soon as
practicable after the entry of order for relief but
before the first meeting scheduled under section 341(a)
of title 11 at which time the United States trustee
shall begin to investigate the debtor's viability,
inquire about the debtor's business plan, explain the
debtor's obligations to file monthly operating reports
and other required reports, attempt to develop an
agreed scheduling order, and inform the debtor of other
obligations;
``(B) when determined to be appropriate and
advisable, visit the appropriate business premises of
the debtor and ascertain the state of the debtor's
books and records and verify that the debtor has filed
its tax returns;
``(C) review and monitor diligently the debtor's
activities, to identify as promptly as possible whether
the debtor will be unable to confirm a plan; and
``(D) in cases where the United States trustee finds
material grounds for any relief under section 1112 of
title 11 move the court promptly for relief.''.
(b) Duties of the Bankruptcy Administrator.--In a small business case
(as defined in section 101 of title 11 of the United States Code), the
bankruptcy administrator shall perform the duties specified in section
586(a)(6) of title 28 of the United States Code.
SEC. 241. SCHEDULING CONFERENCES.
Section 105(d) of title 11, United States Code, is amended--
(1) in the matter preceding paragraph (1) by striking ``,
may'';
(2) by amending paragraph (1) to read as follows:
``(1) shall hold such status conferences as are necessary to
further the expeditious and economical resolution of the case;
and''; and
(3) in paragraph (2) by striking ``unless inconsistent with
another provision of this title or with applicable Federal
Rules of Bankruptcy Procedure,'' and inserting ``may''.
SEC. 242. SERIAL FILER PROVISIONS.
Section 362 of title 11, United States Code, is amended--
(1) in subsection (i) as so redesignated by section 124--
(A) by striking ``An'' and inserting ``(1) Except as
provided in paragraph (2), an''; and
(B) by adding at the end the following:
``(2) If such violation is based on an action taken by an entity in
the good-faith belief that subsection (h) applies to the debtor, then
recovery under paragraph (1) against such entity shall be limited to
actual damages.''; and
(2) by inserting after subsection (i), as redesignated by
section 124, the following:
``() The filing of a petition under chapter 11 of this title operates
as a stay of the acts described in subsection (a) only in an
involuntary case involving no collusion by the debtor with creditors
and in which the debtor--
``(1) is a debtor in a small business case pending at the
time the petition is filed;
``(2) was a debtor in a small business case which was
dismissed for any reason by an order that became final in the
2-year period ending on the date of the order for relief
entered with respect to the petition;
``(3) was a debtor in a small business case in which a plan
was confirmed in the 2-year period ending on the date of the
order for relief entered with respect to the petition; or
``(4) is an entity that has succeeded to substantially all of
the assets or business of a small business debtor described in
subparagraph (A), (B), or (C) unless the debtor proves, by a
preponderance of the evidence, that the filing of such petition
resulted from circumstances beyond the control of the debtor
not foreseeable at the time the case then pending was filed;
and that it is more likely than not that the court will confirm
a feasible plan, but not a liquidating plan, within a
reasonable time.''.
SEC. 243. EXPANDED GROUNDS FOR DISMISSAL OR CONVERSION AND APPOINTMENT
OF TRUSTEE.
(a) Expanded Grounds for Dismissal or Conversion.--Section 1112(b) of
title 11, United States Code, is amended to read as follows:
``(b)(1) Except as provided in paragraph (2), in subsection (c), and
in section 1104(a)(3) of this title, on request of a party in interest,
and after notice and a hearing, the court shall convert a case under
this chapter to a case under chapter 7 of this title or dismiss a case
under this chapter, whichever is in the best interest of creditors and
the estate, if the movant establishes cause.
``(2) The relief provided in paragraph (1) shall not be granted if
the debtor or another party in interest objects and establishes, by a
preponderance of the evidence that--
``(A) it is more likely than not that a plan will be
confirmed within a time as fixed by this title or by order of
the court entered pursuant to section 1121(e)(3), or within a
reasonable time if no time has been fixed; and
``(B) if the reason is an act or omission of the debtor
that--
``(i) there exists a reasonable justification for the
act or omission; and
``(ii) the act or omission will be cured within a
reasonable time fixed by the court not to exceed 30
days after the court decides the motion, unless the
movant expressly consents to a continuance for a
specific period of time, or compelling circumstances
beyond the control of the debtor justify an extension.
``(3) For purposes of this subsection, cause includes--
``(A) substantial or continuing loss to or diminution of the
estate;
``(B) gross mismanagement of the estate;
``(C) failure to maintain appropriate insurance;
``(D) unauthorized use of cash collateral harmful to 1 or
more creditors;
``(E) failure to comply with an order of the court;
``(F) failure timely to satisfy any filing or reporting
requirement established by this title or by any rule applicable
to a case under this chapter;
``(G) failure to attend the meeting of creditors convened
under section 341(a) of this title or an examination ordered
under rule 2004 of the Federal Rules of Bankruptcy Procedure;
``(H) failure timely to provide information or attend
meetings reasonably requested by the United States trustee;
``(I) failure timely to pay taxes due after the date of the
order for relief or to file tax returns due after the order for
relief;
``(J) failure to file a disclosure statement, or to file or
confirm a plan, within the time fixed by this title or by order
of the court;
``(K) failure to pay any fees or charges required under
chapter 123 of title 28;
``(L) revocation of an order of confirmation under section
1144 of this title, and denial of confirmation of another plan
or of a modified plan under section 1129 of this title;
``(M) inability to effectuate substantial consummation of a
confirmed plan;
``(N) material default by the debtor with respect to a
confirmed plan; and
``(O) termination of a plan by reason of the occurrence of a
condition specified in the plan.
``(4) The court shall commence the hearing on any motion under this
subsection not later than 30 days after filing of the motion, and shall
decide the motion within 15 days after commencement of the hearing,
unless the movant expressly consentsto a continuance for a specific
period of time or compelling circumstances prevent the court from
meeting the time limits established by this paragraph.''.
(b) Additional Grounds for Appointment of Trustee.--Section 1104(a)
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) if grounds exist to convert or dismiss the case under
section 1112 of this title, but the court determines that the
appointment of a trustee is in the best interests of creditors
and the estate.''.
CHAPTER 2--SINGLE ASSET REAL ESTATE
SEC. 251. SINGLE ASSET REAL ESTATE DEFINED.
Section 101(51B) of title 11, United States Code, is amended to read
as follows:
``(51B) `single asset real estate' means undeveloped real
property or other real property constituting a single property
or project, other than residential real property with fewer
than 4 residential units, on which is located a single
development or project which property or project generates
substantially all of the gross income of a debtor and on which
no substantial business is being conducted by a debtor, or by a
commonly controlled group of entities all of which are
concurrently debtors in a case under chapter 11 of this title,
other than the business of operating the real property and
activities incidental thereto;''.
SEC. 252. PAYMENT OF INTEREST.
Section 362(d)(3) of title 11, United States Code, is amended--
(1) by inserting ``or 30 days after the court determines that
the debtor is subject to this paragraph, whichever is later''
after ``90-day period)''; and
(2) by amending subparagraph (B) to read as follows:
``(B) the debtor has commenced monthly payments
(which payments may, in the debtor's sole discretion,
notwithstanding section 363(c)(2) of this title, be
made from rents or other income generated before or
after the commencement of the case by or from the
property) to each creditor whose claim is secured by
such real estate (other than a claim secured by a
judgment lien or by an unmatured statutory lien), which
payments are in an amount equal to interest at the
then-applicable nondefault contract rate of interest on
the value of the creditor's interest in the real
estate; or''.
TITLE III--MUNICIPAL BANKRUPTCY PROVISIONS
SEC. 301. PETITION AND PROCEEDINGS RELATED TO PETITION.
(a) Technical Amendment Relating to Municipalities.--Section 921(d)
of title 11, United States Code, is amended by inserting
``notwithstanding section 301(b)'' before the period at the end.
(b) Conforming Amendment.--Section 301 of title 11, United States
Code, is amended--
(1) by inserting ``(a)'' before ``A voluntary''; and
(2) by amending the last sentence to read as follows:
``(b) The commencement of a voluntary case under a chapter of this
title constitutes an order for relief under such chapter.''.
TITLE IV--BANKRUPTCY ADMINISTRATION
Subtitle A--General Provisions
SEC. 401. ADEQUATE PREPARATION TIME FOR CREDITORS BEFORE THE MEETING OF
CREDITORS IN INDIVIDUAL CASES.
Section 341(a) of title 11, United States Code, is amended by
inserting after the first sentence the following: ``If the debtor is an
individual in a voluntary case under chapter 7, 11, or 13, the meeting
of creditors shall not be convened earlier than 60 days (or later than
90 days) after the date of the order for relief, unless the court,
after notice and hearing, determines unusual circumstances justify an
earlier meeting.''.
SEC. 402. CREDITOR REPRESENTATION AT FIRST MEETING OF CREDITORS.
Section 341(c) of title 11, United States Code, is amended by
inserting after the first sentence the following: ``Notwithstanding any
local court rule, provision of a State constitution, any other State or
Federal nonbankruptcy law, or other requirement that representation at
the meeting of creditors under subsection (a) be by an attorney, a
creditor holding a consumer debt or its representatives (which
representatives may include an entity or an employee of an entity and
may be a representative for more than 1 creditor) shall be permitted to
appear at and participate in the meeting of creditors in a case under
chapter 7 or 13 either alone or in conjunction with an attorney for the
creditor. Nothing in this subsection shall be construed to require any
creditor to be represented by an attorney at any meeting of
creditors.''.
SEC. 403. FILING PROOFS OF CLAIM.
Section 501 of title 11, United States Code, is amended by adding at
the end the following:
``(e) In a case under chapter 7 or 13, a proof of claim or interest
is deemed filed under this section for any claim or interest that
appears in the schedules filed under section 521(a)(1) of this title,
except a claim or interest that is scheduled as disputed, contingent,
or unliquidated.''.
SEC. 404. AUDIT PROCEDURES.
(a) Amendment.--Section 586 of title 28, United States Code, as
amended by sections 111 and 240, is amended--
(1) by amending subsection (a)(6) to read as follows:
``(6) make such reports as the Attorney General directs,
including the results of audits performed under subsection
(f),'';
(2) by inserting at the end the following:
``(f)(1) The Attorney General shall establish procedures for the
auditing of the accuracy and completeness of petitions, schedules, and
other information which the debtor is required to provide under
sections 521 and 1322, and, if applicable, section 111, of title 11 in
individual cases filed under chapter 7 or 13 of such title. Such audits
shall be in accordance with generally accepted auditing standards and
performed by independent certified public accountants or independent
licensed public accountants. Such procedures shall--
``(A) establish a method of selecting appropriate qualified
persons to contract with the United States trustee to perform
such audits;
``(B) establish a method of randomly selecting cases to be
audited according to generally accepted audit standards,
provided that no less than 1 out of every 100 cases in each
Federal judicial district shall be selected for audit;
``(C) require audits for schedules of income and expenses
which reflect higher than average variances from the
statistical norm of the district in which the schedules were
filed;
``(D) establish procedures for reporting the results of such
audits and any material misstatement of income, expenditures or
assets of a debtor to the Attorney General, the United States
Attorney and the court, as appropriate, and for providing
public information no less than annually on the aggregate
results of such audits including the percentage of cases, by
district, in which a material misstatement of income or
expenditures is reported; and
``(E) establish procedures for fully funding such audits.
``(2) The United States trustee for each district is authorized to
contract with auditors to perform audits in cases designated by the
United States trustee according to the procedures established under
paragraph (1) of this subsection.
``(3) According to procedures established under paragraph (1), upon
request of a duly appointed auditor, the debtor shall cause the
accounts, papers, documents, financial records, files and all other
papers, things or property belonging to the debtor as the auditor
requests and which are reasonably necessary to facilitate an audit to
be made available for inspection and copying.
``(4) The report of each such audit shall be filed with the court,
the Attorney General, and the United States Attorney, as required under
procedures established by the Attorney General under paragraph (1). If
a material misstatement of income or expenditures or of assets is
reported, a statement specifying such misstatement shall be filed with
the court and the United States trustee shall give notice thereof to
the creditors in the case and, in an appropriate case, in the opinion
of the United States trustee, requires investigation with respect to
possible criminal violations, the United States Attorney for the
district.''.
(b) Effective Date.--The amendments made by this section shall take
effect 18 months after the date of the enactment of this Act.
SEC. 405. GIVING CREDITORS FAIR NOTICE IN CHAPTER 7 AND 13 CASES.
Section 342 of title 11, United States Code, is amended--
(1) in subsection (c)--
(A) by striking ``, but the failure of such notice to
contain such information shall not invalidate the legal
effect of such notice''; and
(B) by adding the following at the end:
``If the credit agreement between the debtor and the creditor or the
last communication before the filing of the petition in a voluntary
case from the creditor to a debtor who is an individual states an
account number of the debtor which is the current account number of the
debtor with respect to any debt held by the creditor against the
debtor, the debtor shall include such account number in any notice to
the creditor required to be given under this title. If the creditor has
specified to the debtor an address at which the creditor wishes to
receive correspondence regarding the debtor's account, any notice to
the creditor required to be given by the debtor under this title shall
be given at such address. For the purposes of this section, `notice'
shall include, but shall not be limited to, any correspondence from the
debtor to the creditor after the commencement of the case, any
statement of the debtor's intention under section 521(a)(2) of this
title, notice of the commencement of any proceeding in the case to
which the creditor is a party, and any notice of the hearing under
section 1324.'';
(2) by adding at the end the following:
``(d) At any time, a creditor in a case of an individual debtor under
chapter 7 or 13 may file with the court and serve on the debtor a
notice of the address to be used to notify the creditor in that case.
Five days after receipt of such notice, if the court or the debtor is
required to give the creditor notice, such notice shall be given at
that address.
``(e) An entity may file with the court a notice stating its address
for notice in cases under chapters 7 and 13. After 30 days following
the filing of such notice, any notice in any case filed under chapter 7
or 13 given by the court shall be to that address unless specific
notice is given under subsection (d) with respect to a particular case.
``(f) Notice given to a creditor other than as provided in this
section shall not be effective notice until it has been brought to the
attention of the creditor. If the creditor has designated a person or
department to be responsible for receiving notices concerning
bankruptcy cases and has established reasonable procedures so that
bankruptcy notices received by the creditor will be delivered to such
department or person, notice will not be brought to the attention of
the creditor until received by such person or department. No sanction
under section 362(h) of this title or any other sanction which a court
may impose on account of violations of the stay under section 362(a) of
this title or failure to comply with section 542 or 543 of this title
may be imposed on any action of the creditor unless the action takes
place after the creditor has received notice of the commencement of the
case effective under this section.''.
SEC. 406. DEBTOR TO PROVIDE TAX RETURNS AND OTHER INFORMATION.
Section 521 of title 11, United States Code, is amended--
(1) by inserting ``(a)'' before ``The'';
(2) by amending paragraph (1) to read as follows:
``(1) file--
``(A) a list of creditors, and
``(B) unless the court orders otherwise--
``(i) a schedule of assets and liabilities;
``(ii) a schedule of current income and
current expenditures;
``(iii) a statement of the debtor's financial
affairs;
``(iv) copies of all payment advices or other
evidence of payment, if any, received by the
debtor from any employer of the debtor in the
period 60 days prior to the filing of the
petition;
``(v) a statement of the amount of projected
monthly net income, itemized to show how
calculated;
``(vi) if applicable, any statement under
paragraphs (3) and (4) of section 109(h);
``(vii) a statement disclosing any reasonably
anticipated increase in income or expenditures
over the next 12 months; and
``(viii) a certificate, if applicable--
``(I) of an attorney whose name is on
the petition as the attorney for the
debtor, or of any bankruptcy petition
preparer who signed the petition
pursuant to section 110(b)(1) of this
title, indicating that such attorney or
bankruptcy petition preparer delivered
to the debtor any notice required by
section 342(b)(1) of this title; or
``(II) if no attorney for the debtor
is indicated and no bankruptcy petition
preparer signed the petition of the
debtor, that such notice was obtained
and read by the debtor;''; and
(3) by adding at the end the following:
``(b) At any time, a creditor in a case of an individual debtor under
chapter 7 or 13 may file with the court and serve on the debtor notice
that the creditor requests the petition, schedules, and statement of
financial affairs filed by the debtor in the case. At any time, a
creditor in a case under chapter 13 of this title may file with the
court and serve on the debtor notice that the creditor requests the
plan filed by the debtor in the case. Within 10 days of the first such
request in a case under this subsection for the petition, schedules,
and statement of financial affairs and the first such request for the
plan under this subsection, the debtor shall serve on that creditor a
conformed copy of the requested documents or plan and any amendments
thereto as of that date, and shall thereafter promptly serve on that
creditor at the time filed with the court--
``(1) any requested document or plan which is not filed with
the court at the time requested; and
``(2) any amendment to any requested document or plan.
``(c)(1) An individual debtor in a case under chapter 7 or 13 shall
provide to the United States trustee--
``(A) copies of all Federal tax returns (including any
schedules and attachments) filed by the debtor for the 3 most
recent tax years preceding the order for relief;
``(B) at the time the debtor files them with the Commissioner
of Internal Revenue, all Federal tax returns (including any
schedules and attachments) for the debtor's tax years ending
while such case is pending; and
``(C) at the time the debtor files them with the Commissioner
of Internal Revenue, all amendments to the tax returns
(including schedules and attachments) described in
subparagraphs (A) and (B).
``(2)(A) The United States trustee shall make such Federal tax
returns (including schedules, attachments, and amendments) available to
any party in interest for inspection and copying not later than 10 days
after receiving a request by such party.
``(B) If the United States trustee does not comply with subparagraph
(A), on the motion of such party, the court shall issue an order
compelling the United States trustee to comply with subparagraph (A).
``(d) A debtor in a case under chapter 13 of this title shall file,
from a time which is the later of 90 days after the close of the
debtor's tax year or 1 year after the order for relief unless a plan
has then been confirmed, and thereafter on or before 45 days before
each anniversary of the confirmation of the plan until the case is
closed, a statement subject to the penalties of perjury by the debtor
of the debtor's income and expenditures in the preceding tax year and
monthly net income, showing how calculated. Such statement shall
disclose the amount and sources of income of the debtor, the identity
of any persons responsible with the debtor for the support of any
dependents of the debtor, and any persons who contributed and the
amount contributed to the household in which the debtor resides. Such
tax returns, amendments and statement of income and expenditures shall
be available to the United States trustee, any bankruptcy
administrator, any trustee and any party in interest for inspection and
copying.''.
SEC. 407. DISMISSAL FOR FAILURE TO FILE SCHEDULES TIMELY OR PROVIDE
REQUIRED INFORMATION.
Section 521 of title 11, United States Code, as amended by section
406, is amended by adding at the end the following:
``(e) Notwithstanding section 707(a) of this title, if an individual
debtor in a voluntary case under chapter 7 or 13 fails to provide all
of the information required under subsections (a)(1) and (c)(1)(A)
within 45 days after the filing of the petition, the case shall be
automatically dismissed effective on the 46th day after the filing of
the petition without the need for any order of court, but any party in
interest may request the court to enter an order dismissing the case
and the court shall, if so requested, enter an order of dismissal
within 5 days of such request. Upon request of the debtor made within
45 days after the filing of the petition, the court may allow the
debtor up to an additional 15 days to provide the informationrequired
under subsections (a)(1) and (c)(1)(A) if the court finds compelling
justification for doing so.
``(f) If an individual debtor in a case under chapter 7 or 13 fails
to perform any of the duties imposed by subsections (b), (c)(1)(B),
(c)(1)(C), and (d), any party in interest may request that the court
order the debtor to comply. Within 10 days of such request the court
shall order that the debtor do so within a period of time set by the
court no longer than 30 days. If the debtor does not comply with that
order within the period of time set by the court, the court shall, on
request of any party in interest certifying that the debtor has not so
complied, enter an order dismissing the case within 5 days of such
request.''.
SEC. 408. ADEQUATE TIME TO PREPARE FOR HEARING ON CONFIRMATION OF THE
PLAN.
Section 1324 of title 11, United States Code, is amended--
(1) by striking ``After'' and inserting the following:
``(a) Except as provided in subsection (b) and after''; and
(2) by adding at the end the following:
``(b) The hearing on confirmation of the plan may be held not earlier
than 20 days, and not later than 45 days, after the meeting of
creditors under section 341(a) of this title.''.
SEC. 409. CHAPTER 13 PLANS TO HAVE A 5-YEAR DURATION IN CERTAIN CASES.
Title 11, United States Code, is amended--
(1) by amending section 1322(d) to read as follows:
``(d) If the total current monthly income of the debtor and in a
joint case, the debtor and the debtor's spouse combined, is not less
than the highest national median family income reported for a family of
equal or lesser size or, in the case of a household of 1 person, not
less than the national median household income for 1 earner, the plan
may not provide for payments over a period that is longer than 5 years,
unless the court, for cause, approves a longer period, but the court
may not approve a period that exceeds 7 years. If the total current
monthly income of the debtor or in a joint case, the debtor and the
debtor's spouse combined, is less than the highest national median
family income reported for a family of equal or lesser size, or in the
case of a household of 1 person less than the national median household
income for 1 earner, the plan may not provide for payments over a
period that is longer than 3 years, unless the court, for cause,
approves a longer period, but the court may not approve a period that
is longer than 5 years.'';
(2) in section 1329--
(A) by striking in subsection (c) ``three years'' and
inserting ``the applicable commitment period under
section 1325(b)(1)(B)(ii)'' and by striking ``five
years'' and inserting ``maximum duration period''; and
(B) by inserting at the end of subsection (c) the
following:
``The maximum duration period shall be 5 years if the total current
monthly income of the debtor, and in a joint case, the debtor and the
debtor's spouse combined, is not less than the highest national median
family income reported for a family of equal or lesser size or, in the
case of a household of 1 person, not less than the national median
household income for 1 earner, as of the date of the modification and
shall be 3 years if the total current monthly income is less than the
highest national median family income reported for a family of equal or
lesser size or, in the case of a household of 1 person, less than the
national median household income for 1 earner as of the date of the
modification.''.
SEC. 410. SENSE OF THE CONGRESS REGARDING EXPANSION OF RULE 9011 OF THE
FEDERAL RULES OF BANKRUPTCY PROCEDURE.
It is the sense of the Congress that rule 9011 of the Federal Rules
of Bankruptcy Procedure (11 U.S.C. App) should be modified to include a
requirement that all documents (including schedules), signed and
unsigned, submitted to the court or to a trustee by debtors who
represent themselves and debtors who are represented by an attorney be
submitted only after the debtor or the debtor's attorney has made
reasonable inquiry to verify that the information contained in such
documents is well grounded in fact, and is warranted by existing law or
a good-faith argument for the extension, modification, or reversal of
existing law.
SEC. 411. JURISDICTION OF COURTS OF APPEALS.
(a) Jurisdiction.--Title 28 of the United States Code is amended--
(1) by striking section 158;
(2) by inserting after section 1292 the following:
``Sec. 1293. Bankruptcy appeals
``The courts of appeals (other than the United States Court of
Appeals for the Federal Circuit) shall have jurisdiction of appeals
from the following:
``(1) Final orders and judgments of bankruptcy courts entered
under--
``(A) section 157(b) of this title in core
proceedings arising under title 11, or arising in or
related to a case under title 11; or
``(B) section 157(c)(2) of this title in proceedings
referred to such courts.
``(2) Final orders and judgments of district courts entered
under section 157 of this title in--
``(A) core proceedings arising under title 11, or
arising in or related to a case under title 11; or
``(B) proceedings that are not core proceedings, but
that are otherwise related to a case under title 11.
``(3) Orders and judgments of bankruptcy courts or district
courts entered under section 105 of title 11, or the refusal to
enter an order or judgment under such section.
``(4) Orders of bankruptcy courts or district courts entered
under section 1104(a) or 1121(d) of title 11, or the refusal to
enter an order under such section.
``(5) An interlocutory order of a bankruptcy court or
district court entered in a case under title 11, in a
proceeding arising under title 11, or in a proceeding arising
in or related to a case under title 11, if--
``(A) such court is of the opinion that--
``(i) such order involves a controlling
question of law as to which there is
substantial ground for difference of opinion;
and
``(ii) an immediate appeal from such order
may materially advance the ultimate termination
of such case or such proceeding; or
``(B) the court of appeals that would have
jurisdiction of an appeal of a final order entered in
such case or such proceeding permits, in its
discretion, appeal to be taken from such interlocutory
order.''; and
(3) in--
(A) the table of sections for chapter 6 by striking
the item relating to section 158; and
(B) the table of sections for chapter 83 by inserting
after the item relating to section 1292 the following:
``1293. Bankruptcy appeals.''.
(b) Conforming Amendments.--(1) Section 305(c) of title 11, the
United States Code, is amended by striking ``158(d), 1291, or 1292''
and inserting ``1291, 1292, or 1293''.
(2) Title 28, United States Code, is amended--
(A) in subsections (b)(1) and (c)(2) of section 157 by
striking ``section 158'' and inserting ``section 1293'';
(B) in section 1334(d) by striking ``158(d), 1291, or 1292''
and inserting ``1291, 1292, or 1293''; and
(C) in section 1452(b) by striking ``158(d), 1291, or 1292''
and inserting ``1291, 1292, or 1293''.
SEC. 412. ESTABLISHMENT OF OFFICIAL FORMS.
The Judicial Conference of the United States shall establish official
forms to facilitate compliance with the amendments made by sections 101
and 102.
SEC. 413. ELIMINATION OF CERTAIN FEES PAYABLE IN CHAPTER 11 BANKRUPTCY
CASES.
(a) Amendments.--Section 1930(a)(6) of title 28, United States Code,
is amended--
(1) in the 1st sentence by striking ``until the case is
converted or dismissed, whichever occurs first'', and
(2) in the 2d sentence--
(A) by striking ``The'' and inserting ``Until the
plan is confirmed or the case is converted (whichever
occurs first) the'', and
(B) by striking ``less than $300,000;'' and inserting
``less than $300,000. Until the case is converted or
dismissed (whichever occurs first and without regard to
confirmation of the plan) the fee shall be''.
(b) Delayed Effective Date.--The amendments made by subsection (a)
shall take effect on October 1, 1999.
Subtitle B--Data Provisions
SEC. 441. IMPROVED BANKRUPTCY STATISTICS.
(a) Amendment.--Title 28, United States Code, is amended by adding
after section 158 the following new section:
``Sec. 159. Bankruptcy statistics
``The Director of the Executive Office for United States Trustees
shall compile statistics regarding individual debtors with primarily
consumer debts seeking relief under chapters 7, 11, and 13 of title 11.
Such statistics shall be in a form prescribed by the Administrative
Office of the United States Courts. The Office shall compile such
statistics, and make them public, and report annually to the Congress
on the information collected, and on its analysis thereof, no later
than October 31 of each year. Such compilation shall be itemized by
chapter of title 11, shall be presented in the aggregate and for each
district, and shall include the following:
``(1) Total assets and total liabilities of such debtors, and
in each category of assets and liabilities, as reported in the
schedules prescribed pursuant to section 2075 of this title and
filed by such debtors.
``(2) The current total monthly income, projected monthly net
income, and average income and average expenses of such debtors
as reported on the schedules and statements the debtor has
filed under sections 111, 521, and 1322 of title 11.
``(3) The aggregate amount of debt discharged in the
reporting period, determined as the difference between the
total amount of debt and obligations of a debtor reported on
the schedules and the amount of such debt reported in
categories which are predominantly nondischargeable.
``(4) The average time between the filing of the petition and
the closing of the case.
``(5) The number of cases in the reporting period in which a
reaffirmation was filed and the total number of reaffirmations
filed in that period, and of those cases in which a
reaffirmation was filed, the number in which the debtor was not
represented by an attorney, and of those the number of cases in
which the reaffirmation was approved by the court.
``(6) With respect to cases filed under chapter 13 of title
11--
``(A) the number of cases in which a final order was
entered determining the value of property securing a
claim less than the claim, and the total number of such
orders in the reporting period; and
``(B) the number of cases dismissed for failure to
make payments under the plan.
``(7) The number of cases in which the debtor filed another
case within the 6 years previous to the filing.''.
(b) Effective Date.--The amendment made by subsection (a) shall take
effect 18 months after the date of the enactment of this Act.
SEC. 442. BANKRUPTCY DATA.
(a) Amendment.--Title 28 of the United States Code is amended by
inserting after section 589a the following:
``Sec. 589b. Bankruptcy data
``(a) Rules.--The Attorney General shall, within a reasonable time
after the effective date of this section, issue rules requiring uniform
forms for (and from time to time thereafter to appropriately modify and
approve)--
``(1) final reports by trustees in cases under chapters 7,
12, and 13 of title 11; and
``(2) periodic reports by debtors in possession or trustees,
as the case may be, in cases under chapter 11 of title 11.
``(b) Reports.--All reports referred to in subsection (a) shall be
designed (and the requirements as to place and manner of filing shall
be established) so as to facilitate compilation of data and maximum
possible access of the public, both by physical inspection at 1 or more
central filing locations, and by electronic access through the Internet
or other appropriate media.
``(c) Required Information.--The information required to be filed in
the reports referred to in subsection (b) shall be that which is in the
best interests of debtors and creditors, and in the public interest in
reasonable and adequate information to evaluate the efficiency and
practicality of the Federal bankruptcy system. In issuing rules
proposing the forms referred to in subsection (a), the Attorney General
shall strike the best achievable practical balance between--
``(1) the reasonable needs of the public for information
about the operational results of the Federal bankruptcy system;
and
``(2) economy, simplicity, and lack of undue burden on
persons with a duty to file reports.
``(d) Final Reports.--Final reports proposed for adoption by trustees
under chapters 7, 12, and 13 of title 11 shall, in addition to such
other matters as are required by law or as the Attorney General in the
discretion of the Attorney General, shall propose, include with respect
to a case under such title--
``(1) information about the length of time the case was
pending;
``(2) assets abandoned;
``(3) assets exempted;
``(4) receipts and disbursements of the estate;
``(5) expenses of administration;
``(6) claims asserted;
``(7) claims allowed; and
``(8) distributions to claimants and claims discharged
without payment;
in each case by appropriate category and, in cases under chapters 12
and 13 of title 11, date of confirmation of the plan, each modification
thereto, and defaults by the debtor in performance under the plan.
``(e) Periodic Reports.--Periodic reports proposed for adoption by
trustees or debtors in possession under chapter 11 of title 11 shall,
in addition to such other matters as are required by law or as the
Attorney General, in the discretion of the Attorney General, shall
propose, include--
``(1) information about the standard industry classification,
published by the Department of Commerce, for the businesses
conducted by the debtor;
``(2) length of time the case has been pending;
``(3) number of full-time employees as at the date of the
order for relief and at end of each reporting period since the
case was filed;
``(4) cash receipts, cash disbursements and profitability of
the debtor for the most recent period and cumulatively since
the date of the order for relief;
``(5) compliance with title 11, whether or not tax returns
and tax payments since the date of the order for relief have
been timely filed and made;
``(6) all professional fees approved by the court in the case
for the most recent period and cumulatively since the date of
the order for relief (separately reported, in for the
professional fees incurred by or on behalf of the debtor,
between those that would have been incurred absent a bankruptcy
case and those not); and
``(7) plans of reorganization filed and confirmed and, with
respect thereto, by class, the recoveries of the holders,
expressed in aggregate dollar values and, in the case of
claims, as a percentage of total claims of the class
allowed.''.
(b) Technical Amendment.--The table of sections of chapter 39 of
title 28, United States Code, is amended by adding at the end the
following:
``589b. Bankruptcy data.''.
SEC. 443. SENSE OF THE CONGRESS REGARDING AVAILABILITY OF BANKRUPTCY
DATA.
It is the sense of the Congress that--
(1) the national policy of the United States should be that
all data held by bankruptcy clerks in electronic form, to the
extent such data reflects only public records (as defined in
section 107 of title 11 of the United States Code), should be
released in a usable electronic form in bulk to the public
subject to such appropriate privacy concerns and safeguards as
the Judicial Conference of the United States may determine; and
(2) there should be established a bankruptcy data system in
which--
(A) a single set of data definitions and forms are
used to collect data nationwide; and
(B) data for any particular bankruptcy case are
aggregated in the same electronic record.
TITLE V--TAX PROVISIONS
SEC. 501. TREATMENT OF CERTAIN LIENS.
(a) Treatment of Certain Liens.--Section 724 of title 11, United
States Code, is amended--
(1) in subsection (b), in the matter preceding paragraph (1),
by inserting ``(other than to the extent that there is a
properly perfected unavoidable tax lienarising in connection
with an ad valorem tax on real or personal property of the estate)''
after ``under this title'';
(2) in subsection (b)(2), after ``507(a)(1)'', insert
``(except that such expenses, other than claims for wages,
salaries, or commissions which arise after the filing of a
petition, shall be limited to expenses incurred under chapter 7
of this title and shall not include expenses incurred under
chapter 11 of this title)''; and
(3) by adding at the end the following:
``(e) Before subordinating a tax lien on real or personal property of
the estate, the trustee shall--
``(1) exhaust the unencumbered assets of the estate; and
``(2) in a manner consistent with section 506(c) of this
title, recover from property securing an allowed secured claim
the reasonable, necessary costs and expenses of preserving or
disposing of that property.
``(f) Notwithstanding the exclusion of ad valorem tax liens set forth
in this section and subject to the requirements of subsection (e)--
``(1) claims for wages, salaries, and commissions that are
entitled to priority under section 507(a)(3) of this title; or
``(2) claims for contributions to an employee benefit plan
entitled to priority under section 507(a)(4) of this title,
may be paid from property of the estate which secures a tax lien, or
the proceeds of such property.''.
(b) Determination of Tax Liability.--Section 505(a)(2) of title 11,
United States Code, is amended--
(1) in subparagraph (A), by striking ``or'' at the end;
(2) in subparagraph (B), by striking the period at the end
and inserting ``; or''; and
(3) by adding at the end the following:
``(C) the amount or legality of any amount arising in
connection with an ad valorem tax on real or personal property
of the estate, if the applicable period for contesting or
redetermining that amount under any law (other than a
bankruptcy law) has expired.''.
SEC. 502. ENFORCEMENT OF CHILD AND SPOUSAL SUPPORT.
Section 522(c)(1) of title 11, United States Code, is amended by
inserting ``, except that, notwithstanding any other Federal law or
State law relating to exempted property, exempt property shall be
liable for debts of a kind specified in paragraph (1) or (5) of section
523(a) of this title'' before the semicolon at the end.
SEC. 503. EFFECTIVE NOTICE TO GOVERNMENT.
(a) Effective Notice to Governmental Units.--Section 342 of title 11,
United States Code, as amended by section 405, is amended by adding at
the end the following:
``(g) If a debtor lists a governmental unit as a creditor in a list
or schedule, any notice required to be given by the debtor under this
title, any rule, any applicable law, or any order of the court, shall
identify the department, agency, or instrumentality through which the
debtor is indebted. The debtor shall identify (with information such as
a taxpayer identification number, loan, account or contract number, or
real estate parcel number, where applicable), and describe the
underlying basis for the governmental unit's claim. If the debtor's
liability to a governmental unit arises from a debt or obligation owed
or incurred by another individual, entity, or organization, or under a
different name, the debtor shall identify such individual, entity,
organization, or name.
``(h) The clerk shall keep and update quarterly, in the form and
manner as the Director of the Administrative Office of the United
States Courts prescribes, and make available to debtors, a register in
which a governmental unit may designate a safe harbor mailing address
for service of notice in cases pending in the district. A governmental
unit may file a statement with the clerk designating a safe harbor
address to which notices are to be sent, unless such governmental unit
files a notice of change of address.''.
(b) Adoption of Rules Providing Notice.--The Advisory Committee on
Bankruptcy Rules of the Judicial Conference shall, within a reasonable
period of time after the date of the enactment of this Act, propose for
adoption enhanced rules for providing notice to State, Federal, and
local government units that have regulatory authority over the debtor
or which may be creditors in the debtor's case. Such rules shall be
reasonably calculated to ensure that notice will reach the
representatives of the governmental unit, or subdivision thereof, who
will be the proper persons authorized to act upon the notice. At a
minimum, the rules should require that the debtor--
(1) identify in the schedules and the notice, the
subdivision, agency, or entity in respect of which such notice
should be received;
(2) provide sufficient information (such as case captions,
permit numbers, taxpayer identification numbers, or similar
identifying information) to permit the governmental unit or
subdivision thereof, entitled to receive such notice, to
identify the debtor or the person or entity on behalf of which
the debtor is providing notice where the debtor may be a
successor in interest or may not be the same as the person or
entity which incurred the debt or obligation; and
(3) identify, in appropriate schedules, served together with
the notice, the property in respect of which the claim or
regulatory obligation may have arisen, if any, the nature of
such claim or regulatory obligation and the purpose for which
notice is being given.
(c) Effect of Failure of Notice.--Section 342 of title 11, United
States Code, as amended by subsection (a) and section 405, is amended
by adding at the end the following:
``(i)(1) A notice that does not comply with subsections (d) and (e)
shall have no effect unless the debtor demonstrates, by clear and
convincing evidence, that timely notice was given in a manner
reasonably calculated to satisfy the requirements of this section was
given, and that--
``(A) either the notice was timely sent to the safe harbor
address provided in the register maintained by the clerk of the
district in which the case was pending for such purposes; or
``(B) no safe harbor address was provided in such list for
the governmental unit and that an officer of the governmental
unit who is responsible for the matter or claim had actual
knowledge of the case in sufficient time to act.
``(2) No sanction under section 362(h) of this title or any other
sanction which a court may impose on account of violations of the stay
under section 362(a) of this title or failure to comply with section
542 or 543 of this title may be imposed unless the action takes place
after notice of the commencement of the case as required by this
section has been received.''.
SEC. 504. NOTICE OF REQUEST FOR A DETERMINATION OF TAXES.
Section 505(b) of title 11, United States Code, is amended by
striking ``Unless'' at the beginning of the second sentence thereof and
inserting ``If the request is made in the manner designated by the
governmental unit and unless''.
SEC. 505. RATE OF INTEREST ON TAX CLAIMS.
Chapter 5 of title 11, United States Code, is amended by adding at
the end the following:
``Sec. 511. Rate of interest on tax claims
``Notwithstanding any provision of this title that requires the
payment of interest on a claim, if interest is required to be paid on a
tax claim, the rate of interest shall be as follows:
``(1) In the case of ad valorem tax claims, whether secured
or unsecured, other unsecured tax claims where interest is
required to be paid under section 726(a)(5) of this title and
secured tax claims the rate shall be determined under
applicable nonbankruptcy law.
``(2) In the case of unsecured claims for taxes arising
before the date of the order for relief and paid under a plan
of reorganization, the minimum rate of interest to be applied
during the period after the filing of the petition shall be the
Federal short-term rate rounded to the nearest full percent,
determined under section 1274(d) of the Internal Revenue Code
of 1986, for the calendar month in which the plan is confirmed,
plus 3 percentage points.''.
SEC. 506. TOLLING OF PRIORITY OF TAX CLAIM TIME PERIODS.
Section 507(a)(9)(A) of title 11, United States Code, as so
redesignated, is amended--
(1) in clause (i) by inserting after ``petition'' and before
the semicolon ``, plus any time, plus 6 months, during which
the stay of proceedings was in effect in a prior case under
this title''; and
(2) amend clause (ii) to read as follows:
``(ii) assessed within 240 days before the
date of the filing of the petition, exclusive
of--
``(I) any time plus 30 days during
which an offer in compromise with
respect of such tax, was pending or in
effect during such 240-day period;
``(II) any time plus 30 days during
which an installment agreement with
respect of such tax was pending or in
effect during such 240-day period, up
to 1 year; and
``(III) any time plus 6 months during
which a stay of proceedings against
collections was in effect in a prior
case under this title during such 240-
day period.''.
SEC. 507. ASSESSMENT DEFINED.
(a) Assessment Defined for Priority Purposes.--Section 101 of title
11, United States Code, is amended by inserting after paragraph (2) the
following:
``(3) `assessment'--
``(A) for purposes of State and local taxes, means
that point in time when all actions required have been
taken so that thereafter a taxing authority may
commence an action to collect the tax, and
``(B) for Federal tax purposes has the meaning given
such term in the Internal Revenue Code of 1986;
and `assessed' and `assessable' shall be interpreted in light
of the definition of assessment in this paragraph;''.
(b) Assessment Defined for the Stay of Proceedings.--Section
362(b)(9)(D) of title 11, United States Code, is amended by inserting
after ``the making of an assessment'' the following: ``as defined by
applicable nonbankruptcy law notwithstanding the definition of an
`assessment' elsewhere in this title''.
SEC. 508. CHAPTER 13 DISCHARGE OF FRAUDULENT AND OTHER TAXES.
Section 1328(a)(2) of title 11, United States Code, is amended by
inserting ``(1),'' after ``paragraph''.
SEC. 509. CHAPTER 11 DISCHARGE OF FRAUDULENT TAXES.
Section 1141(d) of title 11, United States Code, as amended by
section 119A, is amended by adding at the end the following:
``(6) Notwithstanding the provisions of paragraph (1), the
confirmation of a plan does not discharge a debtor which is a
corporation from any debt for a tax or customs duty with respect to
which the debtor made a fraudulent return or willfully attempted in any
manner to evade or defeat such tax.''.
SEC. 510. THE STAY OF TAX PROCEEDINGS.
(a) The Section 362 Stay Limited to Prepetition Taxes.--Section
362(a)(8) of title 11, United States Code, is amended by striking the
period at the end and inserting ``, in respect of a tax liability for a
taxable period ending before the order for relief.''.
(b) The Appeal of Tax Court Decisions Permitted.--Section 362(b)(9)
of title 11, United States Code, is amended--
(1) in subparagraph (C) by striking ``or'' at the end,
(2) in subparagraph (D) by striking the period at the end and
inserting ``; or'', and
(3) by adding at the end the following:
``(E) the appeal of a decision by a court or
administrative tribunal which determines a tax
liability of the debtor without regard to whether such
determination was made prepetition or postpetition.''.
SEC. 511. PERIODIC PAYMENT OF TAXES IN CHAPTER 11 CASES.
Section 1129(a)(9) of title 11, United States Code, is amended--
(1) in subparagraph (B) by striking ``and'' at the end; and
(2) in subparagraph (C)--
(A) by striking ``deferred cash payments, over a
period not exceeding six years after the date of
assessment of such claim,'' and inserting ``regular
installment payments in cash, but in no case with a
balloon provision, and no more than three months apart,
beginning no later than the effective date of the plan
and ending on the earlier of five years after the
petition date or the last date payments are to be made
under the plan to unsecured creditors,'';
(B) by striking the period at the end and inserting
``; and''; and
(3) by adding at the end the following:
``(D) with respect to a secured claim which would be
described in section 507(a)(8) of this title but for
its secured status, the holder of such claim will
receive on account of such claim cash payments of not
less than is required in subparagraph (C) and over a
period no greater than is required in such
subparagraph.''.
SEC. 512. THE AVOIDANCE OF STATUTORY TAX LIENS PROHIBITED.
Section 545(2) of title 11, United States Code, is amended by
striking the semicolon at the end and inserting ``, except where such
purchaser is a purchaser described in section 6323 of the Internal
Revenue Code of 1986 or similar provision of State or local law;''.
SEC. 513. PAYMENT OF TAXES IN THE CONDUCT OF BUSINESS.
(a) Payment of Taxes Required.--Section 960 of title 28, United
States Code, is amended--
(1) by inserting ``(a)'' before ``Any''; and
(2) by adding at the end the following:
``(b) Such taxes shall be paid when due in the conduct of such
business unless--
``(1) the tax is a property tax secured by a lien against
property that is abandoned within a reasonable time after the
lien attaches, by the trustee of a bankruptcy estate, pursuant
to section 554 of title 11; or
``(2) payment of the tax is excused under a specific
provision of title 11.
``(c) In a case pending under chapter 7 of title 11, payment of a tax
may be deferred until final distribution is made under section 726 of
title 11 if--
``(1) the tax was not incurred by a trustee duly appointed
under chapter 7 of title 11; or
``(2) before the due date of the tax, the court has made a
finding of probable insufficiency of funds of the estate to pay
in full the administrative expenses allowed under section
503(b) of title 11 that have the same priority in distribution
under section 726(b) of title 11 as such tax.''.
(b) Payment of Ad Valorem Taxes Required.--Section 503(b)(1)(B) of
title 11, United States Code, is amended in clause (i) by inserting
after ``estate,'' and before ``except'' the following: ``whether
secured or unsecured, including property taxes for which liability is
in rem only, in personam or both,''.
(c) Request for Payment of Administrative Expense Taxes Eliminated.--
Section 503(b)(1) of title 11, United States Code, is amended by adding
at the end the following:
``(D) notwithstanding the requirements of subsection (a) of
this section, a governmental unit shall not be required to file
a request for the payment of a claim described in subparagraph
(B) or (C);''.
(d) Payment of Taxes and Fees as Secured Claims.--Section 506 of
title 11, United States Code, is amended--
(1) in subsection (b) by inserting ``or State statute'' after
``agreement''; and
(2) in subsection (c) by inserting ``, including the payment
of all ad valorem property taxes in respect of the property''
before the period at the end.
SEC. 514. TARDILY FILED PRIORITY TAX CLAIMS.
Section 726(a)(1) of title 11, United States Code, is amended by
striking ``before the date on which the trustee commences distribution
under this section'' and inserting ``on or before the earlier of 10
days after the mailing to creditors of the summary of the trustee's
final report or the date on which the trustee commences final
distribution under this section''.
SEC. 515. INCOME TAX RETURNS PREPARED BY TAX AUTHORITIES.
Section 523(a)(1)(B) of title 11, United States Code, is amended--
(1) by inserting ``or equivalent report or notice,'' after
``a return,'';
(2) in clause (i)--
(A) by inserting ``or given'' after ``filed''; and
(B) by striking ``or'' at the end;
(3) in clause (ii)--
(A) by inserting ``or given'' after ``filed'';
(B) by inserting ``, report, or notice'' after
``return''; and
(4) by adding at the end the following:
``(iii) for purposes of this subsection, a
return--
``(I) must satisfy the requirements
of applicable nonbankruptcy law, and
includes a return prepared pursuant to
section 6020(a) of the Internal Revenue
Code of 1986, or similar State or local
law, or a written stipulation to a
judgment entered by a nonbankruptcy
tribunal, but does not include a return
made pursuant to section 6020(b) of the
Internal Revenue Code of 1986, or
similar State or local law, and
``(II) must have been filed in a
manner permitted by applicable
nonbankruptcy law; or''.
SEC. 516. THE DISCHARGE OF THE ESTATE'S LIABILITY FOR UNPAID TAXES.
Section 505(b) of title 11, United States Code, is amended in the
second sentence by inserting ``the estate,'' after
``misrepresentation,''.
SEC. 517. REQUIREMENT TO FILE TAX RETURNS TO CONFIRM CHAPTER 13 PLANS.
(a) Filing of Prepetition Tax Returns Required for Plan
Confirmation.--Section 1325(a) of title 11, United States Code, as
amended by section 146, is amended--
(1) in paragraph (6) by striking ``and'' at the end;
(2) in paragraph (7) by striking the period at the end and
inserting ``; and''; and
(3) by adding at the end the following:
``(8) if the debtor has filed all Federal, State, and local
tax returns as required by section 1308 of this title.''.
(b) Additional Time Permitted for Filing Tax Returns.--(1) Chapter 13
of title 11, United States Code, is amended by adding at the end the
following:
``Sec. 1308. Filing of prepetition tax returns
``(a) On or before the day prior to the day on which the first
meeting of the creditors is convened under section 341(a) of this
title, the debtor shall have filed with appropriate tax authorities all
tax returns for all taxable periods ending in the 6-year period ending
on the date of filing of the petition.
``(b) If the tax returns required by subsection (a) have not been
filed by the date on which the first meeting of creditors is convened
under section 341(a) of this title, the trustee may continue such
meeting for a reasonable period of time, to allow the debtor additional
time to file any unfiled returns, but such additional time shall be no
more than--
``(1) for returns that are past due as of the date of the
filing of the petition, 120 days from such date,
``(2) for returns which are not past due as of the date of
the filing of the petition, the later of 120 days from such
date or the due date for such returns under the last automatic
extension of time for filing such returns to which the debtor
is entitled, and for which request has been timely made,
according to applicable nonbankruptcy law, and
``(3) upon notice and hearing, and order entered before the
lapse of any deadline fixed according to this subsection, where
the debtor demonstrates, by clear and convincing evidence, that
the failure to file the returns as required is because of
circumstances beyond the control of the debtor, the court may
extend the deadlines set by the trustee as provided in this
subsection for--
``(A) a period of no more than 30 days for returns
described in paragraph (1) of this subsection, and
``(B) for no more than the period of time ending on
the applicable extended due date for the returns
described in paragraph (2).
``(c) For purposes of this section only, a return includes a return
prepared pursuant to section 6020 (a) or (b) of the Internal Revenue
Code of 1986 or similar State or local law, or a written stipulation to
a judgment entered by a nonbankruptcy tribunal.''.
(2) The table of sections of chapter 13 of title 11, United States
Code, is amended by inserting after the item relating to section 1307
the following:
``1308. Filing of prepetition tax returns.''.
(c) Dismissal or Conversion on Failure To Comply.--Section 1307 of
title 11, United States Code, is amended--
(1) by redesignating subsections (e) and (f) as subsections
(f) and (g), respectively, and
(2) by inserting after subsection (d) the following:
``(e) Upon the failure of the debtor to file tax returns under
section 1308 of this title, on request of a party in interest or the
United States trustee and after notice and a hearing, the court shall
dismiss a case or convert a case under this chapter to a case under
chapter 7 of this title, whichever is in the best interests of
creditors and the estate.''.
(d) Timely Filed Claims.--Section 502(b)(9) of title 11, United
States Code, is amended by striking the period at the end and inserting
``, and except that in a case under chapter 13 of this title, a claim
of a governmental unit for a tax in respect of a return filed under
section 1308 of this title shall be timely if it is filed on or before
60 days after such return or returns were filed as required.''.
(e) Rules for Objections to Claims and to Confirmation.--It is the
sense of Congress that the Advisory Committee on Bankruptcy Rules of
the Judicial Conference should, within a reasonable period of time
after the date of the enactment of this Act, propose for adoption
amended Federal Rules of Bankruptcy Procedure which provide that--
(1) notwithstanding the provisions of Rule 3015(f), in cases
under chapter 13 of title 11, United States Code, a
governmental unit may object to the confirmation of a plan on
or before 60 days after the debtor files all tax returns
required under sections 1308 and 1325(a)(7) of title 11, United
States Code, and
(2) in addition to the provisions of Rule 3007, in a case
under chapter 13 of title 11, United States Code, no objection
to a tax in respect of a return required to be filed under such
section 1308 shall be filed until such return has been filed as
required.
SEC. 518. STANDARDS FOR TAX DISCLOSURE.
Section 1125(a) of title 11, United States Code, is amended in
paragraph (1)--
(1) by inserting after ``records,'' the following:
``including a full discussion of the potential material
Federal, State, and local tax consequences of the plan to the
debtor, any successor to the debtor, and a hypothetical
investor domiciled in the State in which the debtor resides or
has its principal place of business typical of the holders of
claims or interests in the case,'',
(2) by inserting ``such'' after ``enable'', and
(3) by striking ``reasonable'' where it appears after
``hypothetical'' and by striking ``typical of holders of claims
or interests'' after ``investor''.
SEC. 519. SETOFF OF TAX REFUNDS.
Section 362(b) of title 11, United States Code, as amended by
sections 130, 146, and 150 is amended--
(1) in paragraph (21) by striking ``or'',
(2) in paragraph (22) by striking the period at the end and
inserting ``; or'', and
(3) by inserting after paragraph (22) (as so redesignated)
the following:
``(23) under subsection (a) of the setoff of an income tax
refund, by a governmental unit, in respect of a taxable period
which ended before the order for relief against an income tax
liability for a taxable period which also ended before the
order for relief, unless--
``(A) prior to such setoff, an action to determine
the amount or legality of such tax liability under
section 505(a) was commenced; or
``(B) where the setoff of an income tax refund is not
permitted because of a pending action to determine the
amount or legality of a tax liability, the governmental
unit may hold the refund pending the resolution of the
action.''.
TITLE VI--ANCILLARY AND OTHER CROSS-BORDER CASES
SEC. 601. AMENDMENT TO ADD A CHAPTER 6 TO TITLE 11, UNITED STATES CODE.
(a) In General.--Title 11, United States Code, is amended by
inserting after chapter 5 the following:
``CHAPTER 6--ANCILLARY AND OTHER CROSS-BORDER CASES
``Sec.
``601. Purpose and scope of application.
``SUBCHAPTER I--GENERAL PROVISIONS
``602. Definitions.
``603. International obligations of the United States.
``604. Commencement of ancillary case.
``605. Authorization to act in a foreign country.
``606. Public policy exception.
``607. Additional assistance.
``608. Interpretation.
``SUBCHAPTER II--ACCESS OF FOREIGN REPRESENTATIVES AND CREDITORS TO THE
COURT
``609. Right of direct access.
``610. Limited jurisdiction.
``611. Commencement of bankruptcy case under section 301 or 303.
``612. Participation of a foreign representative in a case under this
title.
``613. Access of foreign creditors to a case under this title.
``614. Notification to foreign creditors concerning a case under this
title.
``SUBCHAPTER III--RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF
``615. Application for recognition of a foreign proceeding.
``616. Presumptions concerning recognition.
``617. Order recognizing a foreign proceeding.
``618. Subsequent information.
``619. Relief that may be granted upon petition for recognition of a
foreign proceeding.
``620. Effects of recognition of a foreign main proceeding.
``621. Relief that may be granted upon recognition of a foreign
proceeding.
``622. Protection of creditors and other interested persons.
``623. Actions to avoid acts detrimental to creditors.
``624. Intervention by a foreign representative.
``SUBCHAPTER IV--COOPERATION WITH FOREIGN COURTS AND FOREIGN
REPRESENTATIVES
``625. Cooperation and direct communication between the court and
foreign courts or foreign representatives.
``626. Cooperation and direct communication between the trustee and
foreign courts or foreign representatives.
``627. Forms of cooperation.
``SUBCHAPTER V--CONCURRENT PROCEEDINGS
``628. Commencement of a case under this title after recognition of a
foreign main proceeding.
``629. Coordination of a case under this title and a foreign
proceeding.
``630. Coordination of more than 1 foreign proceeding.
``631. Presumption of insolvency based on recognition of a foreign main
proceeding.
``632. Rule of payment in concurrent proceedings.
``Sec. 601. Purpose and scope of application
``(a) The purpose of this chapter is to incorporate the Model Law on
Cross-Border Insolvency so as to provide effective mechanisms for
dealing with cases of cross-border insolvency with the objectives of--
``(1) cooperation between--
``(A) United States courts, United States Trustees,
trustees, examiners, debtors, and debtors in
possession; and
``(B) the courts and other competent authorities of
foreign countries involved in cross-border insolvency
cases;
``(2) greater legal certainty for trade and investment;
``(3) fair and efficient administration of cross-border
insolvencies that protects the interests of all creditors, and
other interested entities, including the debtor;
``(4) protection and maximization of the value of the
debtor's assets; and
``(5) facilitation of the rescue of financially troubled
businesses, thereby protecting investment and preserving
employment.
``(b) This chapter applies where--
``(1) assistance is sought in the United States by a foreign
court or a foreign representative in connection with a foreign
proceeding;
``(2) assistance is sought in a foreign country in connection
with a case under this title;
``(3) a foreign proceeding and a case under this title with
respect to the same debtor are taking place concurrently; or
``(4) creditors or other interested persons in a foreign
country have an interest in requesting the commencement of, or
participating in, a case or proceeding under this title.
``(c) This chapter does not apply to--
``(1) a proceeding concerning an entity identified by
exclusion in subsection 109(b); or
``(2) an individual, or to an individual and such
individual's spouse, who have debts within the limits specified
in under section 109(e) and who are citizens of the United
States or aliens lawfully admitted for permanent residence in
the United States.
``SUBCHAPTER I--GENERAL PROVISIONS
``Sec. 602. Definitions
``For the purposes of this chapter, the term--
``(1) `debtor' means an entity that is the subject of a
foreign proceeding;
``(2) `establishment' means any place of operations where the
debtor carries out a nontransitory economic activity;
``(3) `foreign court' means a judicial or other authority
competent to control or supervise a foreign proceeding;
``(4) `foreign main proceeding' means a foreign proceeding
taking place in the country where the debtor has the center of
its main interests;
``(5) `foreign nonmain proceeding' means a foreign
proceeding, other than a foreign main proceeding, taking place
in a country where the debtor has an establishment;
``(6) `trustee' includes a trustee, a debtor in possession in
a case under any chapter of this title, or a debtor under
chapters 9 or 13 of this title; and
``(7) `within the territorial jurisdiction of the United
States' when used with reference to property of a debtor refers
to tangible property located within the territory of the United
States and intangible property deemed under applicable
nonbankruptcy law to be located within that territory,
including any property subject to attachment or garnishment
that may properly be seized or garnished by an action in a
Federal or State court in the United States.
``Sec. 603. International obligations of the United States
``To the extent that this chapter conflicts with an obligation of the
United States arising out of any treaty or other form of agreement to
which it is a party with 1 or more other countries, the requirements of
the treaty or agreement prevail.
``Sec. 604. Commencement of ancillary case
``A case under this chapter is commenced by the filing of a petition
for recognition of a foreign proceeding under section 615.
``Sec. 605. Authorization to act in a foreign country
``A trustee or another entity (including an examiner) authorized by
the court may be authorized by the court to act in a foreign country on
behalf of an estate created under section 541. An entity authorized to
act under this section may act in any way permitted by the applicable
foreign law.
``Sec. 606. Public policy exception
``Nothing in this chapter prevents the court from refusing to take an
action governed by this chapter if the action would be manifestly
contrary to the public policy of the United States.
``Sec. 607. Additional assistance
``(a) Nothing in this chapter limits the power of the court, upon
recognition of a foreign proceeding, to provide additional assistance
to a foreign representative under this title or under other laws of the
United States.
``(b) In determining whether to provide additional assistance under
this title or under other laws of the United States, the court shall
consider whether such additional assistance, consistent with the
principles of comity, will reasonably assure--
``(1) just treatment of all holders of claims against or
interests in the debtor's property;
``(2) protection of claim holders in the United States
against prejudice and inconvenience in the processing of claims
in such foreign proceeding;
``(3) prevention of preferential or fraudulent dispositions
of property of the debtor;
``(4) distribution of proceeds of the debtor's property
substantially in accordance with the order prescribed by this
title; and
``(5) if appropriate, the provision of an opportunity for a
fresh start for the individual that such foreign proceeding
concerns.
``Sec. 608. Interpretation
``In interpreting this chapter, the court shall consider its
international origin, and the need to promote an application of this
chapter that is consistent with the application of similar statutes
adopted by foreign jurisdictions.
``SUBCHAPTER II--ACCESS OF FOREIGN REPRESENTATIVES AND CREDITORS TO THE
COURT
``Sec. 609. Right of direct access
``(a) A foreign representative is entitled to commence a case under
section 604 by filing a petition for recognition under section 615, and
upon recognition, to apply directly to other Federal and State courts
for appropriate relief in those courts.
``(b) Upon recognition, and subject to section 610, a foreign
representative has the capacity to sue and be sued, and shall be
subject to the laws of the United States of general applicability.
``(c) Recognition under this chapter is prerequisite to the granting
of comity or cooperation to a foreign proceeding in any State or
Federal court in the United States. Any request for comity or
cooperation in any court shall be accompanied by a sworn statement
setting forth whether recognition under section 615 has been sought and
the status of any such petition.
``(d) Upon denial of recognition under this chapter, the court may
issue appropriate orders necessary to prevent an attempt to obtain
comity or cooperation from courts in the United States without such
recognition.
``Sec. 610. Limited jurisdiction
``The sole fact that a foreign representative files a petition under
sections 615 does not subject the foreign representative to the
jurisdiction of any court in the United States for any other purpose.
``Sec. 611. Commencement of case under section 301 or 303
``(a) Upon filing a petition for recognition, a foreign
representative may commence--
``(1) an involuntary case under section 303; or
``(2) a voluntary case under section 301 or 302, if the
foreign proceeding is a foreign main proceeding.
``(b) The petition commencing a case under subsection (a) of this
section must be accompanied by a statement describing the petition for
recognition and its current status. The court where the petition for
recognition has been filed must be advised of the foreign
representative's intent to commence a case under subsection (a) of this
section prior to such commencement.
``(c) A case under subsection (a) shall be dismissed unless
recognition is granted.
``Sec. 612. Participation of a foreign representative in a case under
this title
``Upon recognition of a foreign proceeding, the foreign
representative in that proceeding is entitled to participate as a party
in interest in a case regarding the debtor under this title.
``Sec. 613. Access of foreign creditors to a case under this title
``(a) Foreign creditors have the same rights regarding the
commencement of, and participation in, a case under this title as
domestic creditors.
``(b)(1) Subsection (a) of this section does not change or codify
present law as to the priority of claims under section 507 or 726 of
this title, except that the claim of a foreign creditor under those
sections shall not be given a lower priority than that of general
unsecured claims without priority solely because the holder of such
claim is a foreign creditor.
``(2)(A) Subsection (a) of this section and paragraph (1) of this
subsection do not change or codify present law as to the allowability
of foreign revenue claims or other foreign public law claims in a
proceeding under this title.
``(B) Allowance and priority as to a foreign tax claim or other
foreign public law claim shall be governed by any applicable tax treaty
of the United States, under the conditions and circumstances specified
therein.
``Sec. 614. Notification to foreign creditors concerning a case under
this title
``(a) Whenever in a case under this title notice is to be given to
creditors generally or to any class or category of creditors, such
notice shall also be given to the known creditors generally, or to
creditors in the notified class or category, that do not have addresses
in the United States. The court may order that appropriate steps be
taken with a view to notifying any creditor whose address is not yet
known.
``(b) Such notification to creditors with foreign addresses described
in subsection (a) shall be given individually, unless the court
considers that, under the circumstances, some other form of
notification would be more appropriate. No letters rogatory or other
similar formality is required.
``(c) When a notification of commencement of a case is to be given to
foreign creditors, the notification shall--
``(1) indicate the time period for filing proofs of claim and
specify the place for their filing;
``(2) indicate whether secured creditors need to file their
proofs of claim; and
``(3) contain any other information required to be included
in such a notification to creditors pursuant to this title and
the orders of the court.
``(d) Any rule of procedure or order of the court as to notice or the
filing of a claim shall provide such additional time to creditors with
foreign addresses as is reasonable under the circumstances.
``SUBCHAPTER III--RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF
``Sec. 615. Application for recognition of a foreign proceeding
``(a) A foreign representative applies to the court for recognition
of the foreign proceeding in which the foreign representative has been
appointed by filing a petition for recognition.
``(b) A petition for recognition shall be accompanied by--
``(1) a certified copy of the decision commencing the foreign
proceeding and appointing the foreign representative;
``(2) a certificate from the foreign court affirming the
existence of the foreign proceeding and of the appointment of
the foreign representative; or
``(3) in the absence of evidence referred to in paragraphs
(1) and (2), any other evidence acceptable to the court of the
existence of the foreign proceeding and of the appointment of
the foreign representative.
``(c) A petition for recognition shall also be accompanied by a
statement identifying all foreign proceedings with respect to the
debtor that are known to the foreign representative.
``(d) The documents referred to in paragraphs (1) and (2) of
subsection (b) must be translated into English. The court may require a
translation into English of additional documents.
``Sec. 616. Presumptions concerning recognition
``(a) If the decision or certificate referred to in section 615(b)
indicates that the foreign proceeding is a foreign proceeding within
the meaning of section 101(23) and that the person or body is a foreign
representative within the meaning of section 101(24), the court is
entitled to so presume.
``(b) The court is entitled to presume that documents submitted in
support of the petition for recognition are authentic, whether or not
they have been legalized.
``(c) In the absence of evidence to the contrary, the debtor's
registered office, or habitual residence in the case of an individual,
is presumed to be the center of the debtor's main interests.
``Sec. 617. Order recognizing a foreign proceeding
``(a) Subject to section 606, an order recognizing a foreign
proceeding shall be entered if--
``(1) the foreign proceeding is a foreign main proceeding or
foreign nonmain proceeding within the meaning of section 602;
``(2) the foreign representative applying for recognition is
a person or body within the meaning of section 101(24); and
``(3) the petition meets the requirements of section 615.
``(b) The foreign proceeding shall be recognized--
``(1) as a foreign main proceeding if it is taking place in
the country where the debtor has the center of its main
interests; or
``(2) as a foreign nonmain proceeding if the debtor has an
establishment within the meaning of section 602 in the foreign
country where the proceeding is pending.
``(c) A petition for recognition of a foreign proceeding shall be
decided upon at the earliest possible time. Entry of an order
recognizing a foreign proceeding shall constitute recognition under
this chapter.
``(d) The provisions of this subchapter do not prevent modification
or termination of recognition if it is shown that the grounds for
granting it were fully or partially lacking or have ceased to exist,
but in considering such action the court shall give due weight to
possible prejudice to parties that have relied upon the granting of
recognition. The case under this chapter may be closed in the manner
prescribed for a case under section 350.
``Sec. 618. Subsequent information
``From the time of filing the petition for recognition of the foreign
proceeding, the foreign representative shall file with the court
promptly a notice of change of status concerning--
``(1) any substantial change in the status of the foreign
proceeding or the status of the foreign representative's
appointment; and
``(2) any other foreign proceeding regarding the debtor that
becomes known to the foreign representative.
``Sec. 619. Relief that may be granted upon petition for recognition of
a foreign proceeding
``(a) From the time of filing a petition for recognition until the
petition is decided upon, the court may, at the request of the foreign
representative, where relief is urgently needed to protect the assets
of the debtor or the interests of the creditors, grant relief of a
provisional nature, including--
``(1) staying execution against the debtor's assets;
``(2) entrusting the administration or realization of all or
part of the debtor's assets located in the United States to the
foreign representative or another person authorized by the
court, including an examiner, in order to protect and preserve
the value of assets that, by their nature or because of other
circumstances, are perishable, susceptible to devaluation or
otherwise in jeopardy; and
``(3) any relief referred to in paragraph (3), (4), or (7) of
section 621(a).
``(b) Unless extended under section 621(a)(6), the relief granted
under this section terminates when the petition for recognition is
decided upon.
``(c) It is a ground for denial of relief under this section that
such relief would interfere with the administration of a foreign main
proceeding.
``(d) The court may not enjoin a police or regulatory act of a
governmental unit, including a criminal action or proceeding, under
this section.
``(e) The standards, procedures, and limitations applicable to an
injunction shall apply to relief under this section.
``Sec. 620. Effects of recognition of a foreign main proceeding
``(a) Upon recognition of a foreign proceeding that is a foreign main
proceeding--
``(1) section 362 applies with respect to the debtor and that
property of the debtor that is within the territorial
jurisdiction of the United States; and
``(2) transfer, encumbrance, or any other disposition of an
interest of the debtor in property within the territorial
jurisdiction of the United States is restrained as and to the
extent that is provided for property of an estate under
sections 363, 549, and 552.
Unless the court orders otherwise, the foreign representative may
operate the debtor's business and may exercise the powers of a trustee
under section 549, subject to sections 363 and 552.
``(b) The scope, and the modification or termination, of the stay and
restraints referred to in subsection (a) of this section are subject to
the exceptions and limitations provided in subsections (b), (c), and
(d) of section 362, subsections (b) and (c) of section 363, and
sections 552, 555 through 557, 559, and 560.
``(c) Subsection (a) of this section does not affect the right to
commence individual actions or proceedings in a foreign country to the
extent necessary to preserve a claim against the debtor.
``(d) Subsection (a) of this section does not affect the right of a
foreign representative or an entity to file a petition commencing a
case under this title or the right of any party to file claims or take
other proper actions in such a case.
``Sec. 621. Relief that may be granted upon recognition of a foreign
proceeding
``(a) Upon recognition of a foreign proceeding, whether main or
nonmain, where necessary to effectuate the purpose of this chapter and
to protect the assets of the debtor or the interests of the creditors,
the court may, at the request of the foreign representative, grant any
appropriate relief, including--
``(1) staying the commencement or continuation of individual
actions or individual proceedings concerning the debtor's
assets, rights, obligations or liabilities to the extent they
have not been stayed under section 620(a);
``(2) staying execution against the debtor's assets to the
extent it has not been stayed under section 620(a);
``(3) suspending the right to transfer, encumber or otherwise
dispose of any assets of the debtor to the extent this right
has not been suspended under section 620(a);
``(4) providing for the examination of witnesses, the taking
of evidence or the delivery of information concerning the
debtor's assets, affairs, rights, obligations or liabilities;
``(5) entrusting the administration or realization of all or
part of the debtor's assets within the territorial jurisdiction
of the United States to the foreign representative or another
person, including an examiner, authorized by the court;
``(6) extending relief granted under section 619(a); and
``(7) granting any additional relief that may be available to
a trustee, except for relief available under sections 522, 544,
545, 547, 548, 550, and 724(a).
``(b) Upon recognition of a foreign proceeding, whether main or
nonmain, the court may, at the request of the foreign representative,
entrust the distribution of all or part of the debtor's assets located
in the United States to the foreign representative or another person,
including an examiner, authorized by the court, provided that the court
is satisfied that the interests of creditors in the United States are
sufficiently protected.
``(c) In granting relief under this section to a representative of a
foreign nonmain proceeding, the court must be satisfied that the relief
relates to assets that, under the law of the United States, should be
administered in the foreign nonmain proceeding or concerns information
required in that proceeding.
``(d) The court may not enjoin a police or regulatory act of a
governmental unit, including a criminal action or proceeding, under
this section.
``(e) The standards, procedures, and limitations applicable to an
injunction shall apply to relief under paragraphs (1), (2), (3), and
(6) of subsection (a).
``Sec. 622. Protection of creditors and other interested persons
``(a) In granting or denying relief under section 619 or 621, or in
modifying or terminating relief under subsection (c) of this section,
the court must find that the interests of the creditors and other
interested persons or entities, including the debtor, are sufficiently
protected.
``(b) The court may subject relief granted under section 619 or 621
to conditions it considers appropriate.
``(c) The court may, at the request of the foreign representative or
an entity affected by relief granted under section 619 or 621, or at
its own motion, modify or terminate such relief.
``Sec. 623. Actions to avoid acts detrimental to creditors
``(a) Upon recognition of a foreign proceeding, the foreign
representative has standing in a pending case under another chapter of
this title to initiate actions under sections 522, 544, 545, 547, 548,
550, and 724(a).
``(b) When the foreign proceeding is a foreign nonmain proceeding,
the court must be satisfied that an action under subsection (a) of this
section relates to assets that, under United States law, should be
administered in the foreign nonmain proceeding.
``Sec. 624. Intervention by a foreign representative
``Upon recognition of a foreign proceeding, the foreign
representative may intervene in any proceedings in a State or Federal
court in the United States in which the debtor is a party.
``SUBCHAPTER IV--COOPERATION WITH FOREIGN COURTS AND FOREIGN
REPRESENTATIVES
``Sec. 625. Cooperation and direct communication between the court and
foreign courts or foreign representatives
``(a) In all matters included within section 601, the court shall
cooperate to the maximum extent possible with foreign courts or foreign
representatives, either directly or through the trustee.
``(b) The court is entitled to communicate directly with, or to
request information or assistance directly from, foreign courts or
foreign representatives, subject to the rights of parties in interest
to notice and participation.
``Sec. 626. Cooperation and direct communication between the trustee
and foreign courts or foreign representatives
``(a) In all matters included in section 601, the trustee or other
person, including an examiner, authorized by the court, shall, subject
to the supervision of the court, cooperate to the maximum extent
possible with foreign courts or foreign representatives.
``(b) The trustee or other person, including an examiner, designated
by the court is entitled, subject to the supervision of the court, to
communicate directly with foreign courts or foreign representatives.
``(c) Section 1104(d) shall apply to the appointment of an examiner
under this chapter. Any examiner shall comply with the qualification
requirements imposed on a trustee by section 322.
``Sec. 627. Forms of cooperation
``Cooperation referred to in sections 625 and 626 may be implemented
by any appropriate means, including--
``(1) appointment of a person or body, including an examiner,
to act at the direction of the court;
``(2) communication of information by any means considered
appropriate by the court;
``(3) coordination of the administration and supervision of
the debtor's assets and affairs;
``(4) approval or implementation of agreements concerning the
coordination of proceedings; and
``(5) coordination of concurrent proceedings regarding the
same debtor.
``SUBCHAPTER V--CONCURRENT PROCEEDINGS
``Sec. 628. Commencement of a case under this title after recognition
of a foreign main proceeding
``After recognition of a foreign main proceeding, a case under
another chapter of this title may be commenced only if the debtor has
assets in the United States. The effects of that case shall be
restricted to the assets of the debtor that are within the territorial
jurisdiction of the United States and, to the extent necessary to
implement cooperation and coordination under sections 625, 626, and
627, to other assets of the debtor that are within the jurisdiction of
the court under sections 541(a) of this title, and 1334(e) of title 28,
to the extent that such other assets are not subject to the
jurisdiction and control of a foreign proceeding that has been
recognized under this chapter.
``Sec. 629. Coordination of a case under this title and a foreign
proceeding
``Where a foreign proceeding and a case under another chapter of this
title are taking place concurrently regarding the same debtor, the
court shall seek cooperation and coordination under sections 625, 626,
and 627, and the following shall apply:
``(1) When the case in the United States is taking place at
the time the petition for recognition of the foreign proceeding
is filed--
``(A) any relief granted under sections 619 or 621
must be consistent with the case in the United States;
and
``(B) even if the foreign proceeding is recognized as
a foreign main proceeding, section 620 does not apply.
``(2) When a case in the United States under this title
commences after recognition, or after the filing of the
petition for recognition, of the foreign proceeding--
``(A) any relief in effect under sections 619 or 621
shall be reviewed by the court and shall be modified or
terminated if inconsistent with the case in the United
States; and
``(B) if the foreign proceeding is a foreign main
proceeding, the stay and suspension referred to in
section 620(a) shall be modified or terminated if
inconsistent with the case in the United States.
``(3) In granting, extending, or modifying relief granted to
a representative of a foreign nonmain proceeding, the court
must be satisfied that the relief relates to assets that, under
the law of the United States, should be administered in the
foreign nonmain proceeding or concerns information required in
that proceeding.
``(4) In achieving cooperation and coordination under
sections 628 and 629, the court may grant any of the relief
authorized under section 305.
``Sec. 630. Coordination of more than 1 foreign proceeding
``In matters referred to in section 601, with respect to more than 1
foreign proceeding regarding the debtor, the court shall seek
cooperation and coordination under sections 625, 626, and 627, and the
following shall apply:
``(1) Any relief granted under section 619 or 621 to a
representative of a foreign nonmain proceeding after
recognition of a foreign main proceeding must be consistent
with the foreign main proceeding.
``(2) If a foreign main proceeding is recognized after
recognition, or after the filing of a petition for recognition,
of a foreign nonmain proceeding, any relief in effect under
section 619 or 621 shall be reviewed by the court and shall be
modified or terminated if inconsistent with the foreign main
proceeding.
``(3) If, after recognition of a foreign nonmain proceeding,
another foreign nonmain proceeding is recognized, the court
shall grant, modify, or terminate relief for the purpose of
facilitating coordination of the proceedings.
``Sec. 631. Presumption of insolvency based on recognition of a foreign
main proceeding
``In the absence of evidence to the contrary, recognition of a
foreign main proceeding is for the purpose of commencing a proceeding
under section 303, proof that the debtor is generally not paying its
debts.
``Sec. 632. Rule of payment in concurrent proceedings
``Without prejudice to secured claims or rights in rem, a creditor
who has received payment with respect to its claim in a foreign
proceeding pursuant to a law relating to insolvency may not receive a
payment for the same claim in a case under any other chapter of this
title regarding the debtor, so long as the payment to other creditors
of the same class is proportionately less than the payment the creditor
has already received.''.
(b) Clerical Amendment.--The table of chapters for title 11, United
States Code, is amended by inserting after the item relating to chapter
5 the following:
``6. Ancillary and Other Cross-Border Cases................. 601''.
SEC. 602. AMENDMENTS TO OTHER CHAPTERS IN TITLE 11, UNITED STATES CODE.
(a) Applicability of Chapters.--Section 103 of title 11, United
States Code, is amended--
(1) in subsection (a), by inserting before the period the
following: ``and this chapter, sections 307, 555 through 557,
559, and 560 apply in a case under chapter 6''; and
(2) by adding at the end the following:
``(j) Chapter 6 applies only in a case under that chapter, except
that section 605 applies to trustees and to any other entity authorized
by the court, including an examiner, under chapters 7, 11, and 12, to
debtors in possession under chapters 11 and 12, and to debtors or
trustees under chapters 9 and 13 who are authorized to act under
section 605.''.
(b) Definitions.--Section 101 of title 11, United States Code, is
amended by striking paragraphs (23) and (24) and inserting the
following:
``(23) `foreign proceeding' means a collective judicial or
administrative proceeding in a foreign state, including an
interim proceeding, pursuant to a law relating to insolvency in
which proceeding the assets and affairs of the debtor are
subject to control or supervision by a foreign court, for the
purpose of reorganization or liquidation;
``(24) `foreign representative' means a person or body,
including a person or body appointed on an interim basis,
authorized in a foreign proceeding to administer the
reorganization or the liquidation of the debtor's assets or
affairs or to act as a representative of the foreign
proceeding;''.
(c) Amendments to Title 28, United States Code.--
(1) Procedures.--Section 157(b)(2) of title 28, United States
Code, is amended--
(A) in subparagraph (N), by striking ``and'' at the
end;
(B) in subparagraph (O), by striking the period at
the end and inserting ``; and''; and
(C) by adding at the end the following:
``(P) recognition of foreign proceedings and other matters
under chapter 6 of title 11.''.
(2) Bankruptcy cases and proceedings.--Section 1334(c)(1) of
title 28, United States Code, is amended by striking ``Nothing
in'' and inserting ``Except with respect to a case under
chapter 6 of title 11, nothing in''.
(3) Duties of trustees.--Section 586(a)(3) of title 28,
United States Code, is amended by inserting ``6,'' after
``chapter''.
TITLE VII--MISCELLANEOUS
SEC. 701. TECHNICAL AMENDMENTS.
Title 11 of the United States Code is amended--
(1) in section 109(b)(2) by striking ``subsection (c) or (d)
of'';
(2) in section 541(b)(4) by adding ``or'' at the end; and
(3) in section 552(b)(1) by striking ``product'' each place
it appears and inserting ``products''.
SEC. 702. APPLICATION OF AMENDMENTS.
The amendments made by this Act shall apply only with respect to
cases commenced under title 11 of the United States Code after the date
of the enactment of this Act.
Purpose and Summary
The purpose of H.R. 3150 is to improve bankruptcy law and
practice by restoring personal responsibility and integrity in
the bankruptcy system and by ensuring that it is fair for both
debtors and creditors.
H.R. 3150 is a comprehensive package of reforms pertaining
to consumer and business bankruptcy law and practice, and
includes provisions regarding the treatment of tax claims and
enhanced data collection. H.R. 3150 also establishes a separate
chapter under the Bankruptcy Code devoted to the special issues
and concerns presented by international insolvencies.
The consumer bankruptcy reforms of H.R. 3150 are
implemented through a self-evaluating income/expense screening
mechanism, the establishment of new eligibility standards for
bankruptcy relief, the imposition of additional financial
disclosure requirements for consumer debtors, and augmented
responsibilities for those charged with administering consumer
bankruptcy cases. In addition, H.R. 3150 institutes a panoply
of consumer bankruptcy reforms designed to increase the
protections afforded to debtors and creditors.
Background and Need for the Legislation
Background
Representative George W. Gekas (R-Pa.) (for himself and
Representatives Bill McCollum (R-Fla.), Rick Boucher (D-Va.),
and James P. Moran (D-Va.)), introduced H.R. 3150 on February
3, 1998. H.R. 3150 is derived from four major sources, one of
which is H.R. 2500, the ``Responsible Borrower Bankruptcy
Protection Act.'' Introduced by Representative McCollum (for
himself and Representative Boucher) on September 18, 1997, H.R.
2500 provided the conceptual foundation for needs-based
consumer bankruptcy reform, one of the principal precepts of
H.R. 3150. Since its introduction last fall, H.R. 2500 has
received broad bipartisan support and currently has 185 co-
sponsors.
In addition to including the principal features of H.R.
2500, H.R. 3150 implements many of the recommendations issued
by the National Bankruptcy Review Commission in its report of
October 20, 1997, notably those regarding small business
debtors, appellate reform, international insolvencies, and data
collection. 1
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\1\ See Report of the National Bankruptcy Review Commission (Oct.
20, 1997). The National Bankruptcy Review Commission was an independent
commission established pursuant to the Bankruptcy Reform Act of 1994,
Pub. L. No. 103-394, 108 Stat. 4106. The nine-member Commission was
created to investigate and study issues relating to the Bankruptcy
Code; solicit divergent views of parties concerned with the operation
of the bankruptcy system; evaluate the advisability of proposals with
respect to such issues; and prepare a report for the President,
Congress and the Chief Justice. The 1300-page Report, which was issued
on October 20, 1997, contains a detailed statement of the Commission's
findings and conclusions together with recommendations for legislative
and administrative action.
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Reflecting its bipartisan sponsorship, H.R. 3150 also
incorporates provisions from H.R. 3146, the ``Consumer Lenders
and Borrowers Bankruptcy Accountability Act of 1998,''
2 which give consumer debtors additional protections
concerning the treatment of pension funds and the provision of
utility services under Section 366 of the Bankruptcy Code. In
addition, H.R. 3150 responds to various issues raised during
hearings on this legislation before the Subcommittee on
Commercial and Administrative Law.
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\2\ H.R. 3146 was introduced on February 3, 1998 by Representative
Jerrold Nadler (D-NY) (for himself and Representatives John Conyers,
Jr. (D-Mich.) and Earl Hilliard (D-Ala.)).
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Need for the Legislation
Consumer bankruptcy
Overview. According to statistics released by the
Administrative Office of the United States Courts, more than
1.4 million Americans filed for bankruptcy relief in calendar
year 1997.3 The number of bankruptcy cases filed
last year was 19.1 percent more than the previous year. The
Administrative Office, which compiles statistics on a quarterly
basis, reported that this represented the seventh ``consecutive
record high for a 12-month period since filings passed the one-
million mark for the first time in the 12-month period ending
June 30, 1996.'' 4 Paradoxically, this explosion in
bankruptcy filing rates is occurring during a period when the
economy is robust. Unemployment is low, personal incomes are
rising, and consumer confidence is high.5
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\3\ Administrative Office for United States Courts, Calendar Year
1997 Shows Bankruptcy Filings Up 19 Percent Over 1996, Feb. 27, 1998,
at 1 (press release).
\4\ Id. (emphasis added).
\5\ See, e.g., Hearing Before the Subcomm. on Commercial and
Administrative Law on Consumer Bankruptcy Issues in H.R. 3150,
``Bankruptcy Reform Act of 1988,'' H.R. 2500, ``Responsible Borrower
Bankruptcy Protection Act,'' and H.R. 3146, ``Consumer Lenders and
Borrowers Bankruptcy Accountability Act of 1998,'' 105th Cong. (Mar.
10, 1998) (Statement of Stuart A. Feldstein).
---------------------------------------------------------------------------
The extraordinary increase in bankruptcy filings has
significant adverse economic consequences. According to one
study, financial losses in 1997 resulting from these bankruptcy
filings are estimated to exceed $44 billion, which translates
into a loss equal to more than $400 per household.6
This study projects that even if the growth rate in personal
bankruptcies slows to only 15 percent over the next three
years, the American economy will have to absorb a cumulative
cost of more than $220 billion.7 Notwithstanding
these projections, recent studies conclude that many debtors
who file for bankruptcy relief can, in fact, repay a
significant portion, if not all, of their debts. 8
---------------------------------------------------------------------------
\6\ See, e.g., id. (Statement of WEFA Group Resource Planning
Service, ``Final Report: The Financial Costs of Personal Bankruptcy at
16-17 (Feb. 1998)).
\7\ Id.
\8\ See, e.g., Hearing Before the Subcomm. on Commercial and
Administrative Law on Consumer Bankruptcy Issues in H.R. 3150,
``Bankruptcy Reform Act of 1988,'' H.R. 2500, ``Responsible Borrower
Bankruptcy Protection Act,'' and H.R. 3146, ``Consumer Lenders and
Borrowers Bankruptcy Accountability Act of 1998,'' 105th Cong. (Mar.
12, 1998) (Statement of Ernst & Young LLP--Policy Economics and
Quantitative Analysis Group, ``Chapter 7 Bankruptcy Petitioners''
Ability to Repay: Additional Evidence from Bankruptcy Petition Files''
(Feb. 1998); Michael E. Staten & John M. Barron, ``Personal Bankruptcy:
A Report on Petitioners'' Ability to Pay'' (Oct. 6, 1997)).
---------------------------------------------------------------------------
The consumer bankruptcy provisions of H.R. 3150 address the
needs of creditors as well as debtors. Title I's creditor
protections consist of three main components: needs-based
bankruptcy, general protections for creditors, and protections
for specific types of creditors. The debtor protections in
Title I consist of enhanced requirements for those
professionals and others who assist consumer debtors in
connection with their bankruptcy cases, expanded notice
requirements with regard to alternatives to bankruptcy relief,
required participation in a debt repayment program, and the
institution of a pilot program to study the effectiveness of
consumer financial education for debtors.
Consumer creditor protections: needs-based reforms. The
heart of H.R. 3150's consumer bankruptcy reforms is the
implementation of a mechanism that ensures consumer debtors
repay their creditors the maximum that they can afford. For
chapter 7 of the Bankruptcy Code (a form of bankruptcy relief
where the debtor generally receives a discharge of his or her
personal liability for most unsecured debts), H.R. 3150
implements mandatory eligibility standards for those
individuals who seek this form of bankruptcy relief. Parties in
interest, such as creditors, are empowered under H.R. 3150 to
seek dismissal of Chapter 7 cases where debtors are ineligible.
These reforms should have no impact on consumer debtors who
lack the ability to repay their debts and deserve a fresh
start.
H.R. 3150's needs-based reforms also create additional
financial disclosure requirements for debtors who file for
relief under chapter 7 and 13 (a form of bankruptcy relief
where the debtor commits to a repayment plan in exchange for
receiving a discharge that is broader than a chapter 7
discharge), and augment the monitoring responsibilities of
chapter 7 and 13 trustees, among other measures. With regard to
chapter 13 cases, H.R. 3150 ensures that these debtors repay
the most that they can afford over the entire life of the plan.
The needs-based test operates through objective criteria so
that debtors and their counsel can self-evaluate their
eligibility for relief under chapter 7 or chapter
13.9 The needs-based formula is fair and balanced.
Expenses are localized and a debtor's extraordinary
circumstances are recognized, including episodic losses of
income. H.R. 3150 allows the debtor to identify and explain
expenses that exceed the specified standards under
``extraordinary circumstance'' provisions, such as educational
expenses for dependents or excessive automobile expenses
associated with the operation of the debtor's business.
---------------------------------------------------------------------------
\9\ The current system as well as other legislative proposals that
rely on an amended version of Section 707(b) of the Bankruptcy Code,
which provides for the dismissal of chapter 7 cases for ``substantial
abuse,'' suffer from the same problem: lack of certainty. Given its
inherent uncertainty of application and interpretation, an approach to
consumer bankruptcy reform that relies on Section 707(b) will simply
engender more litigation, a cost that would have to be borne by
creditors and debtors alike, and yield disparate results. H.R. 3150's
goal of uniformity, on the other hand, assists both creditors and
debtors.
---------------------------------------------------------------------------
The Subcommittee on Commercial and Administrative Law heard
testimony that, if H.R. 3150's needs-based and other consumer
bankruptcy reforms are implemented, the rate of repayment to
creditors will increase while the number of bankruptcy filings
will decrease.10 This is because more debtors will
be shifted into chapter 13 as opposed to chapter
7.11
---------------------------------------------------------------------------
\10\ See, e.g., Hearing Before the Subcomm. on Commercial and
Administrative Law on Consumer Bankruptcy Issues in H.R. 3150,
``Bankruptcy Reform Act of 1988,'' H.R. 2500, ``Responsible Borrower
Bankruptcy Protection Act,'' and H.R. 3146, ``Consumer Lenders and
Borrowers Bankruptcy Accountability Act of 1998,'' 105th Cong. (Mar.
10, 1998) (Statement of WEFA Group Resource Planning Service, ``Final
Report: The Financial Costs of Personal Bankruptcy,'' at 20 (Feb.
1998)).
\11\ Based on the results of one economic analysis of H.R. 3150 as
originally introduced, the cumulative savings to the American economy
that could result from the implementation of these needs-based reforms
over the period of 1998 to 2000 may range from $15 billion to $30
billion. Id. at 23.
---------------------------------------------------------------------------
A critical component of H.R. 3150's needs-based reforms is
that they are designed to target only those debtors who have
the ability to repay. The Committee approved an amendment
offered by Chairman Hyde (for himself and Ms. Jackson Lee) that
modifies the needs-based formula by increasing the applicable
income level in determining chapter 7 eligibility.12
Those in the upper half of the income scale are more likely to
have the ability to repay a portion of their debts out of
future income without significant hardship to themselves and
their families. Moreover, the 100 percent of national median
income threshold should significantly reduce administrative
overhead by limiting numbers of debtors potentially subject to
the needs based formula.13
---------------------------------------------------------------------------
\12\ The initial screening issue will no longer be whether
individuals or couples have 75 percent or more of national median
income figures that take into account family size but whether the
incomes of debtors at least equal national median figures.
\13\ According to one study, only 15 percent of consumer debtors
would met H.R. 3150's needs- based test under the former 75 percent
income threshold when other requirements of the screening mechanism are
taken into account. See Hearing Before the Subcomm. on Commercial and
Administrative Law on Consumer Bankruptcy Issues in H.R. 3150,
``Bankruptcy Reform Act of 1988,'' H.R. 2500, ``Responsible Borrower
Bankruptcy Protection Act,'' and H.R. 3146, ``Consumer Lenders and
Borrowers Bankruptcy Accountability Act of 1998,'' 105th Cong. (Mar.
12, 1998) (Statement of Ernst & Young, Chapter 7 Bankruptcy
Petitioners'' Ability to Repay: the National Perspective, 1997). As
amended, H.R. 3150 will impact on an even lower percent of consumer
debtors.
---------------------------------------------------------------------------
Rather than creating entirely new standards defining income
and expenses, H.R. 3150's needs-based test parallels current
law and practice. Under current law, a debtor must complete a
schedule that lists all sources of income and
expenses.14 Debtors do not have the discretion to
determine whether any source of income or expense should not be
disclosed.15 Without this mandatory disclosure
requirement, debtors could shield important financial
information.
---------------------------------------------------------------------------
\14\ 11 U.S.C. Sec. 521; Official and Procedural Bankruptcy Form
6--Schedules I and J.
\15\ Id. For example, on Schedule I, a debtor must report all
sources of income, including: estimated monthly overtime; regular
income from the operation of a business; alimony, maintenance or
support payments payable to the debtor for the debtor's use or that of
the debtor's dependents; social security or other government
assistance, such as disability income or income a debtor receives from
other Federal programs that provide financial assistance; and pension
or retirement income.
Correlatively, Schedule J requires the debtor to disclose all
expenses, including: alimony, maintenance, and support paid to others;
payments for support of additional dependents not living at the
debtor's home; and regular expenses from the operation of the debtor's
business, profession, or farm.
---------------------------------------------------------------------------
Protections for creditors--in general. H.R. 3150 contains a
panoply of reforms that will provide greater protections for
creditors, while ensuring that the claims of those creditors
entitled to priority treatment, such as spousal and child
support claims, are not adversely impacted. H.R. 3150
accomplishes this goal by (1) ensuring that creditors receive
proper and timely notice and have sufficient time to respond to
the filing of a bankruptcy case, (2) by limiting abusive serial
filings and extending the period between successive discharges,
(3) by implementing various provisions designed to improve the
accuracy of the information contained in debtors'' schedules
and statements of financial affairs, and (4) by limiting
abusive use of exemptions.
Protection of family support obligations. Family support
obligations receive a number of special protections in
bankruptcy, which they will continue to enjoy under the law as
amended by H.R. 3150. The claims of spouses, former spouses,
and children for alimony, maintenance, or support will retain
their current priority status, with the consequence that during
the life of a bankruptcy case such obligations will be paid
ahead of lower priority claims and general unsecured claims.
H.R. 3150 also retains the nondischargeability of family
support obligations, with the result that such debts will not
be extinguished at the end of the bankruptcy process.
H.R. 3150, as reported by the Committee on the Judiciary,
incorporates additional safeguards for family support. The
requirements for court confirmation of repayment plans in cases
under chapter 11 (reorganization), chapter 12 (adjustment of
debts of family farmers), and chapter 13 (adjustment of debts
of individuals) are expanded to include full payment of amounts
due--after the filing of a bankruptcy petition--under orders
for alimony, maintenance, or support. In addition, a debtor
will be required to certify full payment of amounts due post-
petition under orders for alimony, maintenance, or support in
order to qualify for a discharge (of dischargeable obligations)
based on completion of plan payments in a chapter 12 or 13
case.
Underscoring the importance the Committee places on family
support, the first amendment it adopted was language proposed
by Chairman Hyde designed to protect spouses, former spouses,
and children from the diversion of funds to other priority
creditors.16 That amendment continues to accord
priority to claims for debts incurred to pay nondischargeable
obligations, but effectively subordinates such new derivative
priority claims to the existing priorities. As a result, the
priority treatment of family support claims of spouses, former
spouses, and children will not be diluted by according similar
priority treatment to the claims of banks and others that loan
money for family support related purposes. Such derivative
priority claims instead would receive a lower priority.
---------------------------------------------------------------------------
\16\ Section 141 of H.R. 3150 as introduced had provided that a
claim arising from a debt incurred to pay a nondischargeable obligation
would have the same priority as the underlying obligation. The
potential problem was such derivative debts might compete for priority
treatment with alimony, maintenance, or support, depending on the
priority status of a claim for the underlying obligation.
---------------------------------------------------------------------------
Finally, Chairman Hyde's amendment addressed a related
problem. The language of the legislation as reported by the
Subcommittee on Commercial and Administrative Law had given the
same priority treatment to debts in the nature of support owed
to a state or a municipality as was accorded to direct support
obligations to spouses, former spouses, and children. Debts to
states or municipalities that arise out of support obligations,
under Chairman Hyde's amendment, were given a priority status
immediately below direct support obligations--thus not
competing with family support needs.
The Committee on the Judiciary adopted Chairman Hyde's
family support amendment as well as four amendments by Mr.
Boucher that addressed family support related issues. Mr.
Boucher's first amendment--now reflected in a new section 150
of the Committee Amendment in the Nature of a Substitute--
provides enhanced post-bankruptcy protection to family support
claims of spouses, former spouses, and children (in the nature
of alimony, maintenance, or support) by subordinating certain
other nondischargeable obligations. His second amendment
protects judicial flexibility over the timing of payments for
family support arrearages; the Committee accepted an amendment
by Mr. Nadler (to the amendment by Mr. Boucher) that ensures
family support payments are not adversely affected by the
minimum chapter 13 planpayment required under H.R. 3150 for
general unsecured creditors. Mr. Boucher's third amendment makes H.R.
3150's presumption of nondischargeability for credit extensions during
the ninety-day prebankruptcy period inapplicable to certain limited
consumer debts. The fourth amendment offered by Mr. Boucher restores
the scope of current law's stay of actions against codebtors in limited
situations involving obligations under separation agreements or divorce
decrees.
Protections for secured creditors. H.R. 3150's reforms with
respect to secured creditors clarify important issues such as
those concerning the definition of household goods, valuation
of a secured interest, and the debtor's retention of property
subject to a secured interest. H.R. 3150 also addresses the
problem of abusive purchases by debtors on a secured credit
basis just before they file for bankruptcy relief. In addition,
H.R. 3150 resolves the issue of whether secured debts with
respect to personal property of the debtor can ``ride through''
bankruptcy. These provisions will reduce the potential for
abuse that exists under current law.
Protections for unsecured creditors, including lessors.
These reforms are reasonable and balanced responses to abuse
and fraud in the present bankruptcy system. They mainly address
abusive practices by consumer debtors who, for example,
knowingly load up with credit card purchases or recklessly
obtain credit and then file for bankruptcy relief.
H.R. 3150 responds to the problem of debtors who obtain
credit extensions on the eve of bankruptcy. It also prevents
the discharge of debts incurred by debtors who lack any
reasonable expectation that they can repay their debts on an
objective basis. In addition, H.R. 3150 prevents the discharge
of debts based on fraud, embezzlement and malicious injury in
chapter 13 cases.
With respect to the interests of lessors, chapter 13
debtors, under H.R. 3150, must remain current on their personal
property leases. The bill also addresses a problem faced by
thousands of small landlords across the nation regarding the
widespread practice of tenants who file for bankruptcy relief
so that they can live ``rent free.''
Debtor protections--in general. H.R. 3150 codifies various
debtor protections. One requires that notice of bankruptcy
alternatives be supplied to individuals with primarily consumer
debts before they file for bankruptcy relief. In addition, H.R.
3150 creates a pilot consumer debtor financial management
training program. It also regulates the activities of debt
relief counseling agencies.
H.R. 3150 creates a debtor's ``bill of rights'' with regard
to the services and notice that a consumer should receive from
those that render assistance in connection with the filing of
bankruptcy cases. Through misleading advertising and deceptive
practices, ``petition mills'' deceive consumers about the
benefits and detriments of bankruptcy. H.R. 3150 responds to
this problem by instituting mandatory disclosure and
advertising requirements as well as enforcement mechanisms.
H.R. 3150 also ensures that consumers are informed about
alternatives to bankruptcy relief and the availability of
credit counseling. It is very important that debtors know
before they file for bankruptcy relief that there may be viable
and cost-effective alternatives to bankruptcy. Unless otherwise
excepted, consumers will be required under H.R. 3150 to
participate in a debt repayment plan sponsored by a credit
counseling service before they file for bankruptcy relief. The
bill also establishes a pilot consumer debtor financial
management training project, which will assess the
effectiveness of such educational measures.
The bill also reinforces a debtor's ``fresh start.'' It
provides a simplified and uniform approach to the exemption of
tax-qualified retirement funds and protects the interests of
debtors with regard to the continued provision of basic utility
services.
Business bankruptcy
H.R. 3150 addresses the special problems presented by small
business cases by instituting a variety of time frames and
enforcement mechanisms that will identify and weed out small
business debtors who are not likely to reorganize. It also
requires more active monitoring of these cases by United States
Trustees and the bankruptcy courts. In addition, H.R. 3150
includes provisions dealing with business bankruptcy cases in
general, and chapter 12 (family farmer bankruptcies).
Small business/single asset real estate debtors. Most
chapter 11 cases are filed by small business debtors. Although
the Bankruptcy Code envisions that creditors should play a
major role in the oversight of chapter 11 cases, in practice
this does not often occur with small business debtors. The main
reason is that creditors in these cases do not have claims
large enough to warrant the time and money to participate
actively in them. The resulting lack of creditor oversight
creates a greater need for United States Trustees to monitor
these cases actively. Nevertheless, monitoring of these debtors
by United States Trustees varies throughout the nation.
The small business and single asset real estate provisions
of H.R. 3150 are largely derived from consensus recommendations
of the National Bankruptcy Review Commission. These provisions
in H.R. 3150 have received broad support from those in the
bankruptcy community, including various bankruptcy judges and
creditor groups, and the Executive Office for United States
Trustees.
With regard to single asset real estate debtors, H.R. 3150
eliminates the monetary cap from the definition currently in
the Bankruptcy Code and makes these debtors subject to the
small business provisions of the bill. It also amends the
automatic stay provisions by permitting a single asset real
estate debtor to make requisite interest payments out of rents
or other proceeds generated by the real property.
Other provisions having general impact
H.R. 3150 contains several provisions having general impact
with respect to bankruptcy law and practice. Under H.R. 3150,
most appeals from final bankruptcy court decisions will be
heard directly by the court of appeals for the appropriate
circuit. Another general provision of H.R. 3150 requires the
Executive Office for United States Trustees to compile various
statistics regarding chapter 7, 11 and 13 cases and to make
these data available to the public and to report annually to
Congress on the data collected. Other general provisions
include a prohibition against the appointment of fee examiners
and the allowance of shared compensation with bona fide public
service attorney referral programs.
Hearings
The Committee began its consideration of comprehensive
bankruptcy reform more than one year ago. On April 16, 1997,
the Subcommittee on Commercial and Administrative Law conducted
a hearing on the operation of the bankruptcy system that was
combined with a status report from the National Bankruptcy
Review Commission.17 This was the first of nine
hearings that the Subcommittee would conduct on bankruptcy
reform over the ensuing year.18
---------------------------------------------------------------------------
\17\ Hearing Before the Subcommittee on Commercial and
Administrative Law on the Operation of the Bankruptcy System and Status
Report from the National Bankruptcy Review Commission, 105th Cong.
(1997).
\18\ The dates and subject matters of these hearings are as
follows:
April 16, 1997: Hearing on the operation of the bankruptcy system
and status report from the National Bankruptcy Review Commission.
April 30, 1997: H.R. 764 & H.R. 120: Bankruptcy Amendments of 1997.
October 9, 1997: H.R. 2592: Private Trustee Reform Act.
November 13, 1997: Hearing on the Report of the National Bankruptcy
Review Commission.
February 12, 1998: H.R. 2604 & H.R. 2611: Religious Liberty and
Charitable Donation Protection Act of 1997.
March 10, 1998: H.R. 3150, 3146 & 2500: Bankruptcy Reform.
March 11, 1998: Same.
March 18, 1998: Same.
March 19, 1998: Same.
---------------------------------------------------------------------------
With regard to H.R. 3150 alone, the Subcommittee held four
hearings. Over the course of those hearings, more than 60
witnesses, representing a broad cross-section of interests and
constituencies in the bankruptcy community, testified. Nearly
every major organization having an interest in bankruptcy
reform had an opportunity to participate in these hearings.
Witnesses at the March 10, 1998 hearing included the following:
Congressmen Bill McCollum, Rick Boucher and Jim Moran; Hon.
Edith Hollan Jones, Judge, United States Court of Appeals for
the Fifth Circuit; Hon. Randall J. Newsome, United States
Bankruptcy Judge, Northern District of California; Lloyd N.
Cutler, Wilmer, Cutler & Pickering, representing the Bankruptcy
Issues Council; Hon. Heidi Heitkamp, Attorney General of the
State of North Dakota, representing the National Association of
Attorneys General; Karen Cosgrove, Vice President of Business
Operations, Kemp Management, representing the National Multi-
Housing Council and National Apartment Association; John J.
Gleason, Vice President/Credit, Bon-Ton Department Stores,
representing the National Retail Federation; Bruce L. Hammonds,
Senior Vice Chairman, MBNA America Bank, N.A.; Janet Kubica,
Chief Executive Officer, Postmark Credit Union, representing
the Credit Union National Association; William T. Kosturko,
Executive Vice President of People's Bank of Bridgeport,
representing America's Community Bankers; Nicholl Russell, a
former chapter 7 debtor; James ``Ike'' Shulman, representing
the National Association of Consumer Bankruptcy Attorneys;
Henry J. Sommer, Consumer Bankruptcy Assistance Project;
Matthew J. Mason, Assistant Director, UAW-GM Legal Services
Plan; Stuart A. Feldstein, President, SMR Research Corporation;
Mark Lauritano, Senior Vice President, WEFA, Inc.; Prof.
Lawrence M. Ausubel, Department of Economics, University of
Maryland; and Vern McKinley, regular policy contributor for
Cato Institute.
Witnesses at the March 12, 1998 hearing included the
following: Dr. Michael E. Staten, Credit Research Center,
Georgetown University School of Business; Richard M. Stana,
Associate Director, Administration of Justice Issues, U.S.
General Accounting Office; Dr. Thomas S. Neubig, National
Director, Policy Economics & Quantitative Analysis, Ernst &
Young; Dr. Fritz J. Scheuren, Associate National Technical
Director, Statistical Sampling, Ernst & Young; George J.
Wallace, Eckert Seamons Cherin & Mellott, representing the
American Financial Services Association; Robert F. Mitsch,
Mitsch & Crutchfield, representing the National Retail
Federation; Robert H. Waldschmidt, Howell & Fisher,
representing the National Association of Bankruptcy Trustees;
Norma L. Hammes, Gold & Hammes, representing National
Association of Consumer Bankruptcy Attorneys; Prof. Karen
Gross, New York Law School; Lewis Mandell, Dean, Marquette
University; Marion A. Olson, Jr., Standing Chapter 13 Trustee,
Western District of Texas--San Antonio Division; and William
Brewer, Jr., National Association of Consumer Bankruptcy
Attorneys.
Witnesses at the March 18, 1998 hearing included the
following: Judith R. Starr, Assistant Chief Litigation Counsel,
Enforcement Division, Securities and Exchange Commission;
Donald B. Banks, Director of Legal Services, Hudson
Corporation, representing the National Retail Federation; Brian
L. McDonnell, President and Chief Executive Officer, Navy
Federal Credit Union, representing the National Association of
Federal Credit Unions; Judith Greenstone Miller, representing
the Commercial Law League of America; Hon. Bernice Donald,
Judge, United States District Court for the Western District of
Tennessee; Thomas H. Boone, Managing Director of Portfolio
Services, Countrywide Home Loans, Inc.; Jeffrey A. Tassey,
Senior Vice President of Government & Legal Affairs, American
Financial Services Association; Mallory B. Duncan, Vice
President and General Counsel, National Retail Federation;
Michael F. McEneney, Partner, Morrison & Foerster, representing
the Bankruptcy Issues Council; Hon. Eugene R. Wedoff, United
States Bankruptcy Judge, Northern District of Illinois,
representing the American Bankruptcy Institute; Prof. Jeffrey
W. Morris, University of Dayton School of Law, representing the
National Bankruptcy Conference; Michael J. Kane, Deputy
Secretary for Enforcement, Pennsylvania Department of Revenue;
James I. Shepard, former member of the National Bankruptcy
Review Commission; Prof. Grant William Newton, Pepperdine
University; and Paul H. Asofsky, former member of the Tax
Advisory Committee of the National Bankruptcy Review
Commission.
Witnesses at the fourth and final hearing on March 19, 1998
included the following: Stephen H. Case of Davis, Polk &
Wardwell, Senior Advisor to the National Bankruptcy Review
Commission; John A. Gose of Preston, Gates & Ellis, former
member of the National Bankruptcy Review Commission; Patricia
A. Staiano, United States Trustee for Region 3; Christopher F.
Graham of Thacher Proffit & Wood, representing the American
Bankruptcy Institute; Prof. Alan N. Resnick, Hofstra University
School of Law, representing the National Bankruptcy Conference;
Hon. Robert F. Hershner, Jr., Chief Bankruptcy Judge, Middle
District of Georgia, and President of the National Conference
of Bankruptcy Judges; Norman Kranzdorf, President, Kranzco
Realty Trust, representing the International Council of
Shopping Centers; James E. Smith, President and Chief Executive
Officer, Union State Bank and Trust of Clinton, representing
the American Bankers Association; Charles M. Tatelbaum,
Johnson, Blakely, Pope, Bakar & Ruppel, representing National
Association of Credit Managers; Leon S. Forman, Blank Rome
Comisky & McCauley, representing American College of
Bankruptcy; William J. Perlstein of Wilmer Cutler & Pickering,
representing American Bar Association-Business Section; Harold
J. Bordwin, Keen Realty Consultants Inc.; Kevyn Orr, Deputy
Director, Executive Office for United States Trustees; Hon.
Michael J. Kaplan, Chief Bankruptcy Judge, Western District of
New York; and Prof. Lynn M. LoPucki, Cornell Law School, Senior
Advisor/Data Study Project for the National Bankruptcy Review
Commission.
Committee Consideration
On April 23, 1998, the Subcommittee on Commercial and
Administrative Law met in open session and ordered reported the
bill H.R. 3150, as amended, by a voice vote, a quorum being
present. On May 12, 13, and 14, 1998, the Committee met in open
session and ordered reported favorably the bill H.R. 3150, with
an amendment in the nature of a substitute, by a recorded vote
of 18 to 10, a quorum being present.
Vote of the Committee
1. An amendment offered by Ms. Jackson Lee concerning the
treatment of child support paid by a debtor under section 102
of H.R. 3150. Defeated 12 to 13.
AYES NAYS
Mr. Conyers Mr. Hyde
Mr. Frank Mr. Gekas
Mr. Nadler Mr. Smith
Mr. Scott Mr. Gallegly
Mr. Watt Mr. Inglis
Ms. Lofgren Mr. Goodlatte
Ms. Jackson Lee Mr. Buyer
Ms. Waters Mr. Bryant
Mr. Meehan Mr. Chabot
Mr. Delahunt Mr. Pease
Mr. Wexler Mr. Cannon
Mr. Rothman Mr. Rogan
Mr. Boucher
2. An amendment offered by Ms. Jackson Lee concerning the
treatment of child support received by a debtor as income under
section 101 of H.R. 3150. Defeated 12 to 17.
AYES NAYS
Mr. Conyers Mr. Hyde
Mr. Frank Mr. McCollum
Mr. Nadler Mr. Gekas
Mr. Scott Mr. Coble
Mr. Watt Mr. Smith
Ms. Lofgren Mr. Gallegly
Ms. Jackson Lee Mr. Inglis
Ms. Waters Mr. Goodlatte
Mr. Meehan Mr. Buyer
Mr. Delahunt Mr. Bryant
Mr. Wexler Mr. Chabot
Mr. Rothman Mr. Barr
Mr. Jenkins
Mr. Pease
Mr. Cannon
Mr. Graham
Mr. Boucher
3. An amendment offered by Ms. Jackson Lee striking certain
provisions under section 102 of H.R. 3150 pertaining to chapter
13 plans. Defeated 5 to 18.
AYES NAYS
Mr. Nadler Mr. Hyde
Mr. Scott Mr. Sensenbrenner
Ms. Jackson Lee Mr. Gekas
Mr. Meehan Mr. Coble
Mr. Delahunt Mr. Canady
Mr. Inglis
Mr. Goodlatte
Mr. Buyer
Mr. Bryant
Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Pease
Mr. Cannon
Mr. Rogan
Mr. Boucher
Mr. Rothman
4. An amendment offered by Mr. Meehan striking sections 141
(debts incurred to pay nondischargeable debts), 142 (credit
extensions on the eve of bankruptcy presumed nondischargeable)
and 145 (credit extensions without a reasonable expectation of
repayment made nondischargeable) from H.R. 3150. Defeated 6 to
18.
AYES NAYS
Mr. Nadler Mr. Hyde
Mr. Scott Mr. Sensenbrenner
Mr. Meehan Mr. Gekas
Mr. Delahunt Mr. Smith
Mr. Wexler Mr. Gallegly
Mr. Rothman Mr. Canady
Mr. Inglis
Mr. Goodlatte
Mr. Buyer
Mr. Bryant
Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Pease
Mr. Cannon
Mr. Rogan
Mr. Boucher
5. An amendment offered by Mr. Meehan amending the needs-
based formula in section 101 and striking sections 130
(protection of holders of claims secured by debtor's principal
residence) and 409 (chapter 13 plans to have a five-year
duration in certain cases) of H.R. 3150. Defeated 9 to 15.
AYES NAYS
Mr. Conyers Mr. Hyde
Mr. Frank Mr. Sensenbrenner
Mr. Nadler Mr. Gekas
Mr. Scott Mr. Coble
Ms. Lofgren Mr. Canady
Ms. Jackson Lee Mr. Goodlatte
Mr. Meehan Mr. Buyer
Mr. Delahunt Mr. Bryant
Mr. Rothman Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Rogan
Mr. Graham
Mr. Boucher
6. An amendment offered by Mr. Meehan striking the totality
of the circumstances provision as a ground for dismissal of a
chapter 7 case. Defeated 9 to 15.
AYES NAYS
Mr. Conyers Mr. Hyde
Mr. Nadler Mr. Sensenbrenner
Mr. Scott Mr. McCollum
Mr. Watt Mr. Gekas
Ms. Lofgren Mr. Gallegly
Ms. Jackson Lee Mr. Canady
Mr. Meehan Mr. Goodlatte
Mr. Delahunt Mr. Buyer
Mr. Rothman Mr. Bryant
Mr. Chabot
Mr. Barr
Mr. Pease
Mr. Rogan
Mr. Frank
Mr. Boucher
7. An amendment offered by Mr. Delahunt that would except a
debtor's receipt of social security as income under H.R. 3150's
needs-based formula of H.R. 3150. Defeated 7 to 17.
AYES NAYS
Mr. Conyers Mr. Hyde
Mr. Nadler Mr. Sensenbrenner
Mr. Scott Mr. McCollum
Ms. Lofgren Mr. Gekas
Ms. Jackson Lee Mr. Coble
Ms. Waters Mr. Smith
Mr. Delahunt Mr. Canady
Mr. Goodlatte
Mr. Buyer
Mr. Bryant
Mr. Chabot
Mr. Barr
Mr. Pease
Mr. Cannon
Mr. Rogan
Mr. Graham
Mr. Boucher
8. An amendment offered by Ms. Jackson Lee providing a safe
harbor for middle class families under the needs-based formula
of H.R. 3150. Defeated 4 to 11.
AYES NAYS
Mr. Berman Mr. Hyde
Ms. Jackson Lee Mr. Gekas
Mr. Meehan Mr. Smith
Mr. Delahunt Mr. Canady
Mr. Inglis
Mr. Goodlatte
Mr. Bryant
Mr. Barr
Mr. Jenkins
Mr. Pease
Mr. Rogan
9. An amendment offered by Ms. Jackson Lee setting a date
by which the needs-based reforms of H.R. 3150 must sunset and
directing the General Accounting Office to study whether they
have a disparate economic impact on certain categories of
individuals. Defeated 7 to 14.
AYES NAYS
Mr. Berman Mr. Hyde
Mr. Nadler Mr. Gekas
Mr. Scott Mr. Canady
Ms. Jackson Lee Mr. Inglis
Ms. Waters Mr. Goodlatte
Mr. Meehan Mr. Bryant
Mr. Delahunt Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Pease
Mr. Rogan
Mr. Graham
Mr. Boucher
10. An amendment offered by Ms. Jackson Lee setting a date
by which the needs-based reforms of H.R. 3150 must sunset and
directing the General Accounting Office to study whether they
produced more than $200 in collections. Defeated 10 to 16.
AYES NAYS
Mr. Conyers Mr. Hyde
Mr. Frank Mr. McCollum
Mr. Berman Mr. Gekas
Mr. Nadler Mr. Coble
Mr. Scott Mr. Gallegly
Ms. Lofgren Mr. Canady
Ms. Jackson Lee Mr. Inglis
Ms. Waters Mr. Goodlatte
Mr. Delahunt Mr. Bryant
Mr. Wexler Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Pease
Mr. Rogan
Mr. Boucher
11. An amendment offered by Mr. Nadler disallowing certain
claims incurred in or adjacent to a gambling facility. Defeated
8 to17.
AYES NAYS
Mr. Conyers Mr. Hyde
Mr. Nadler Mr. McCollum
Mr. Scott Mr. Gekas
Ms. Lofgren Mr. Coble
Ms. Waters Mr. Gallegly
Mr. Delahunt Mr. Canady
Mr. Inglis Mr. Goodlatte
Mr. Pease Mr. Bryant
Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Rogan
Mr. Frank
Mr. Berman
Mr. Boucher
Mr. Wexler
12. An amendment offered by Mr. Nadler regarding the
definition of small business case and striking sections 235
(uniform reporting rules and forms), 236 (duties in small
business cases) 237 (plan filing and confirmation deadlines),
238 (plan confirmation deadline), 239 (prohibition against
extension of time), 240 (duties of the United States Trustee
and bankruptcy administrator), and 242 (serial filer
provisions). Defeated 5 to 14.
AYES NAYS
Mr. Nadler Mr. Hyde
Mr. Scott Mr. Gekas
Ms. Lofgren Mr. Coble
Ms. Jackson Lee Mr. Gallegly
Mr. Delahunt Mr. Canady
Mr. Inglis
Mr. Goodlatte
Mr. Bryant
Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Pease
Mr. Rogan
Mr. Boucher
13. Vote on final passage of H.R. 3150. Adopted 18 to 10.
AYES NAYS
Mr. Hyde Mr. Conyers
Mr. Sensenbrenner Mr. Nadler
Mr. McCollum Mr. Scott
Mr. Gekas Mr. Watt
Mr. Coble Ms. Lofgren
Mr. Smith Ms. Jackson Lee
Mr. Canady Ms. Waters
Mr. Goodlatte Mr. Meehan
Mr. Buyer Mr. Delahunt
Mr. Bryant Mr. Wexler
Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Pease
Mr. Cannon
Mr. Rogan
Mr. Boucher
Mr. Rothman
Committee Oversight Findings
In compliance with clause 2(l)(3)(A) of rule XI of the
Rules of the House of Representatives, the Committee reports
that the findings and recommendations of the Committee, based
on oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform and Oversight Findings
No findings or recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(l)(3)(D) of rule XI of the Rules of the House of
Representatives.
New Budget Authority and Tax Expenditures
Clause 2(l)(3)(B) of House Rule XI is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Committee Cost Estimate
The estimate of the Congressional Budget Office was not
available at the time of filing this report. In compliance with
clause 7 (a) of rule XIII of the Rules of the House of
Representatives, the Committee believes that enactment of H.R.
3150 will not have a substantial budget effect for fiscal year
1999 and subsequent years.
The Congressional Budget Office, in a letter dated May 8,
1998 to Senator Charles E. Grassley, compared the bankruptcy
needs-based provisions of H.R. 3150 (as introduced) and S.
1301. The Congressional Budget Office estimated preliminarily
that these provisions of H.R. 3150 would likely cost between
$16 million and $20 million annually. However, that estimate
was based on the assumption that there would be no substantial
change in the number of bankruptcy filings. The Congressional
Budget Office noted that if, as some experts predict, the
enactment of H.R. 3150 would lead to a noticeable decline in
such filings, then federal costs would be reduced. Moreover, an
amendment to H.R. 3150 adopted during Committee consideration
raised the income level relevant for the needs-based formula
under H.R. 3150 from 75 percent of the national median family
income to 100 percent, which is another factor that would
likely reduce federal costs required to implement this
legislation.
Although the bill provides for eliminating quarterly fees
for certain chapter 11 debtors, which may result in reduced
collections in an estimated amount of $6 million dollars
annually, it is anticipated that there will be offsetting
adjustments that will be enacted before the effective date of
this provision.
It is anticipated that the cost of H.R. 3150's audit
provisions will require additional expenditure. Nevertheless,
these costs are likely to be offset by enhanced collections
resulting from greater protections accorded to federal taxing
authorities.
Constitutional Authority Statement
Pursuant to Rule XI, clause 2(l)(4) of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in Article I, section 8, clause 4 of the
Constitution.
Section-by-Section Analysis and Discussion
TITLE I. CONSUMER BANKRUPTCY PROVISIONS
Subtitle A. Needs Based Bankruptcy
Section 101. Needs-based bankruptcy
Section 101 implements the needs-based reforms of H.R. 3150
by creating a self-evaluating mechanism for individuals to
assess their eligibility for bankruptcy relief based on the
ability to repay their debts. Specifically, section 101
establishes an income and expense formula that individuals must
use before they file for bankruptcy relief. Individuals having
the ability to repay their debts under this formula would be
ineligible for relief under chapter 7 of the Bankruptcy Code,
which grants debtors a discharge of their prepetition unsecured
debts without any requirement of repayment, unless excepted
from such discharge. Individuals ineligible for relief under
chapter 7 would have the option of filing for relief under
other chapters of the Bankruptcy Code, such as chapter 13,
which requires debtors to commit their available income to a
plan of repayment.
Subsection (1) establishes two new definitions under
section 101 of the Bankruptcy Code. ``Current monthly total
income'' means the average monthly income that a debtor derives
from all sources without regard to whether it is taxable income
in the six months preceding the date of determination. It also
includes any amount of money paid by anyone other than the
debtor or, in a joint case, the debtor's spouse, on a regular
basis for the household expenses of the debtor or the debtor's
dependents and, in a joint case, the debtor's spouse. In
addition, subsection (1) defines ``national median family
income'' and ``national median household income for 1 earner''
as the amounts reported by the Bureau of the Census as of
January 1 for the most recent calendar year.
Subsection (2) amends section 104 of the Bankruptcy Code,
which provides for the adjustment of dollar amounts, to include
references to subsections (b), (e) and (h) of section 109 of
the Bankruptcy Code, as amended by H.R. 3150.
Subsection (3) amends section 109(b) of the Bankruptcy
Code, which sets forth the eligibility criteria for who may be
a chapter 7 debtor. Specifically, subsection (3) provides that
an individual and such individual's spouse, if they intend to
file for relief under chapter 7 in a joint case, who have
income available to pay creditors as determined under new
section 109(h), are not eligible to be debtors under chapter 7
of the Bankruptcy Code.
Subsection (4) adds subsection (h) to section 109 of the
Bankruptcy Code. Section 109(h) sets forth a three-stage test
by which an individual must assess his or her ability to repay
such individual's creditors. Should an individual fail to meet
one or more stages of this test, such individual is eligible to
be a debtor under chapter 7 of the Bankruptcy Code. On the
other hand, should the debtor meet all three stages of this
test, such individual is ineligible for relief under chapter 7.
The first stage of this eligibility test requires the
debtor to have ``current monthly total income,'' as defined in
section 101(1) of H.R. 3150, that is not less than the highest
``national median family income,'' 19 as defined in
section 101(1) of H.R. 3150, for a family of
------------
19 The following table sets forth the 1996 median
household income figures based on size of the household:
Size of household 1996 median income
1.......................................................... $17,897
2.......................................................... 37,283
3.......................................................... 44,813
4.......................................................... 51,405
5.......................................................... 47,841
6.......................................................... 42,438
7 or more.................................................. 40,337
equal or lesser size.20 In the case of a household
of one person, the individual's income must be not less than
the ``national median household income for 1 earner,'' as
defined in section 101(1) of H.R. 3150. Should an individual
have income below the applicable threshold amount, that
individual is eligible to be a chapter 7 debtor.21
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\20\ In light of the fact that the Census Bureau statistics may
trend downward for larger households, section 101(4) of H.R. 3150
permits individuals with larger households to claim the highest
national median family income reported by the Census Bureau for a
family of equal or lesser size.
\21\ An individual, in a sworn statement, may explain any lost
income that occurred during the six-month reachback determination
period. This statement must also contain an explanation of whether the
individual was offered any replacement income or whether such
individual expected the lost income to be replaced. In addition, the
individual must explain why the lost income will not be replaced.
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The second stage requires the individual to determine
whether he or she has ``projected monthly net income'' greater
than $50. An individual's ``projected monthly net income'' is
determined by deducting three categories of expenses from such
individual's ``current total monthly income,'' as defined in
section 101(1) of H.R. 3150.
The first category of expense items that must be deducted
from an individual's current monthly total income consists of
certain expenses determined pursuant to the Internal Revenue
Manual Handbook,22 which sets forth National
Standards,23 Local Standards24 and Other
Necessary Expenses Allowances.25 In the event that
an individual establishes extraordinary circumstances that
require allowance for expenses in excess of the amounts
recognized in the Internal Revenue Manual Handbook, such
individual may deduct these additional expenses from his or her
current total monthly income. The existence of any
``extraordinary circumstances'' must be documented by the
individual in a sworn statement signed by the debtor and his or
her counsel.26 A trustee or party in interest may
object to an assertion of extraordinary circumstances within 60
days from the date on which the debtor's sworn statement of
extraordinary circumstances is filed. If an objection is filed,
the court, after notice and hearing, must determine the
propriety of such claimed extraordinary circumstances and their
amount. The debtor has the burden of proof on these issues.
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\22\ Internal Revenue Manual Handbook, Part 5, Collection Activity
(Sept. 25, 1996). This Manual is utilized by the Internal Revenue
Service to assess a taxpayer's ability to repay back taxes.
\23\ The National Standards Expense Allowances pertain to food,
housekeeping supplies, apparel, and personal care product expenditures.
As the title implies, these expense allowances are determined on a
national basis, without adjustment for regional variation.
\24\ The Local Standards Expense Allowances consist of housing,
utilities and transportation costs. These expenses are determined
regionally by county where the taxpayer resides.
\25\ Expenses in this category include taxes, health care, court-
ordered payments and involuntary deductions.
\26\ The amendment in the nature of a substitute responds to
certain concerns expressed regarding ``phantom income.'' As reported
out of the Subcommittee, section 101 permits a debtor to file an
explanation of any income lost within the six-months preceding the date
of determination. The debtor must also explain any replacement income
that was offered or expected together with an itemization of such lost
and replacement income. If applicable, the debtor must explain why the
lost income will not be replaced.
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The two remaining categories of expenses that an individual
may deduct from his or her current monthly total income consist
of the following: the individual's average monthly payments to
secured creditors (calculated as the total of all amounts
scheduled as contractually payable over a five-year period,
divided by 60 months) and the individual's average monthly
payment to priority creditors 27 (calculated as the
total of all estimated payments over a five-year period,
divided by 60 months).
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\27\ A ``creditor,'' under section 101(10) of the Bankruptcy Code
means an entity that has a claim against the debtor that arose at the
time of or before the filing of the debtor's bankruptcy case. Section
507 of the Bankruptcy Code, inter alia, accords priority status to
certain types of prepetition debts owed by a debtor. These include
debts for spousal and child support and certain unsecured claims of
governmental units, such as income taxes.
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If the amount remaining after these three types of expenses
are deducted from the individual's current total monthly income
is less than $50, the individual is eligible for relief under
chapter 7 of the Bankruptcy Code.
The third and final stage of H.R. 3150's eligibility test
requires the individual to determine whether he or she has
sufficient projected monthly net income to repay at least 20%
of unsecured nonpriority claims scheduled by the debtor
28 over a five-year repayment plan.29 To
make this determination, the individual must multiply his or
her projected monthly net income by 60 months. If the end
result is less than 20 percent ``of the total amount scheduled
as payable to unsecured nonpriority creditors,'' then the
debtor is eligible for relief under chapter 7 of the Bankruptcy
Code.
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\28\ This refers to nonpriority claims as scheduled by the debtor
and therefore includes contingent, unliquidated and disputed claims,
which typically are not ``allowed claims'' within the meaning of 11
U.S.C. Sec. 502 and thus not entitled to payment. By contrast, 11
U.S.C. Sec. 109(e) presently defines chapter 13 eligibility based on
the amount of the debtor's ``noncontingent, liquidated'' debts.
\29\ The requisite percentage does not refer to a present value
amount nor does it include trustee and attorney fees.
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If an individual satisfies all three components of this
eligibility test, then he or she is not eligible for relief
under chapter 7. If such individual nevertheless requires
bankruptcy relief, he or she would have to file under other
chapters of the Bankruptcy Code, such as chapters 11, 12, or
13.
Subsection (5) amends section 704 of the Bankruptcy Code to
require the chapter 7 trustee to perform additional
responsibilities. First, the chapter 7 trustee must review
financial disclosure documents and tax returns filed by the
debtor under section 521 of the Bankruptcy Code, as amended by
H.R. 3150. Second, the chapter 7 trustee must verify the
debtor's ``projected monthly net income,'' as defined in
subsection 101(4) of H.R. 3150. Third, the chapter 7 trustee
must file a report within 30 days from the date on which the
debtor supplies the disclosure document. This report must state
whether the debtor is eligible for relief under chapter 7. If
the chapter 7 trustee concludes that an individual is
ineligible to be a debtor under chapter 7, then the trustee
must provide a copy of the report to parties in interest.
Subsection (5) also requires a chapter 13 trustee to
perform many of the duties it assigns to chapter 7 trustees. In
addition, subsection (5) amends section 1302(b) of the
Bankruptcy Code to require a chapter 13 trustee to file annual
reports with the court, with copies to allowed claimants,
regarding whether a debtor is devoting sufficient income to
fund his or her plan of repayment based on changes in the
debtor's ``monthly net income,'' a term defined in section 102
of H.R. 3150.
Section 102. Adequate income shall be committed to a plan that pays
unsecured creditors
Section 102 of H.R. 3150 implements needs-based reforms to
chapter 13 cases to ensure that debtors commit the maximum
amount of income that they can afford to their repayment plans.
It also institutes a requirement that chapter 13 trustees
scrutinize the amount debtors repay prior to confirmation of
their plans and on an annual basis thereafter.
Subsection (1) adds to the Bankruptcy Code the definition
of the term ``monthly net income.'' It is defined as the
debtor's ``current monthly total income,'' which is, in turn,
defined in section 101(1) of H.R. 3150, less certain expenses.
These include the Internal Revenue Service's National
Standards, Local Standards and Other Necessary Expense
Allowances; the debtor's average monthly payment to secured
creditors (calculated as the total of all amounts remaining to
be paid as of the date of determination [less any amounts to be
paid by third parties] divided by the total months remaining
under the chapter 13 plan); the debtor's average monthly
payment to priority creditors (calculated as the total of all
amounts remaining to be paid as of the date of determination
[less any amounts to be paid by third parties] divided by the
total months remaining under the chapter 13 plan); and any
additional expenses occasioned by ``extraordinary
circumstances'' (as documented in a sworn statement by the
debtor and his or her counsel).
Subsection (2) amends section 104(b)(1) of the Bankruptcy
Code, which provides for the adjustment of dollar amounts, to
include a reference to section 1325(b)(1) of the Bankruptcy
Code, as amended by H.R. 3150.
Subsection (3) adds a new provision that allows adjustments
to a chapter 13 debtor's ``monthly net income'' if the debtor
has ``extraordinary circumstances,'' which can include loss of
income or additional expenses. The debtor must document such
changed financial circumstances by a sworn statement signed by
the debtor and his or her counsel. This statement must be filed
with the court and served on the chapter 13 trustee 45 days
before the anniversary of the confirmation date of his or her
plan. Within 15 days from receipt of this statement, the
chapter 13 trustee must notify the debtor's creditors of the
amount of monthly net income it states. Any objection to this
statement must be filed within 30 days from when the trustee
receives the statement.
Subsection (4) requires a chapter 13 debtor to include a
statement in his or her plan of repayment, under penalty of
perjury, specifying the amount of monthly net income to be paid
to unsecured nonpriority creditors under the plan.
Subsection (5) amends section 1325(b)(1)(B) of the
Bankruptcy Code by instituting the following additional
requirements for confirmation of a chapter 13 plan:
(1) The plan must provide that the monthly payment to
unsecured nonpriority creditors equals at least $50.
(2) The duration of the plan may not be less than five
years if the debtor's total current monthly income is more than
the highest national median family income reported for a family
of equal or lesser size (or in the case of a household of one
person, the debtor's income is not less than the national
median household income for one earner). If the debtor's income
falls below the that income threshold, then the plan can be not
less than three years in length.
(3) The amount to be paid to the class of unsecured
nonpriority claimants under the plan must be increased or
decreased proportionately to the debtor's monthly net income
during the term of the plan, as determined by the annual
statement that the debtor must file under section 102(3) of
H.R. 3150.
Section 102(5)'s provisions are not intended to prevent the
payment of spousal and child support obligations entitled to
priority under section 507(a)(7) of the Bankruptcy Code.
Subsection (6) eliminates the current ``disposable income''
test of section 1325(b)(2) of the Bankruptcy Code. Under
current law, if a holder of an allowed unsecured claim or the
trustee objects to confirmation of a chapter 13 plan, all of
the debtor's disposable income must be devoted to the plan.
Section 102(6) replaces the disposable income test under
chapter 13 with one based on the debtor's monthly net income.
30
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\30\ ``Disposable income,'' under section 1325(b)(2) of the
Bankruptcy Code, is defined as income received by the debtor less that
portion that is reasonably necessary for the maintenance and support of
the debtor and his or her dependents. If the debtor is engaged in
business, operational expenses for the business can be deducted from
this amount.
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Section 103. Definition of inappropriate use
Section 707(b) of the Bankruptcy Code provides that a
bankruptcy court may sua sponte or on motion of the United
States Trustee dismiss a chapter 7 case filed by an individual
debtor whose debts are primarily consumer debts if the granting
of relief under chapter 7 constitutes a ``substantial abuse.''
This provision has been inconsistently applied across the
nation as the case law interpreting the meaning of
``substantial abuse'' is disparate. 31
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\31\ See, e.g., David White, Disorder in the Court: Section 707(b)
of the Bankruptcy Code, 1995-96 Annual Survey of Bankruptcy Law 333,
476 (1996). Mr. White describes at least four different definitions of
``substantial abuse'' utilized by the courts as well as other
interpretive quandaries presented by section 707(b).
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Section 103 amends section 707(b) in several respects.
First, it allows parties in interest, such as creditors, to
seek relief under this provision, in addition to the bankruptcy
court and United States Trustee. Second, it replaces the term
``substantial abuse'' with ``inappropriate use'' and defines
two grounds constituting ``inappropriate use.'' Third, section
103 makes the dismissal of a chapter 7 case under section
707(b) mandatory. Under current law, the bankruptcy court has
discretion as to whether to dismiss a chapter 7 case for
substantial abuse under section 707(b).
Under section 707(b), as amended, a chapter 7 case may be
dismissed for inappropriate use if the debtor is ineligible for
relief under chapter 7 pursuant to section 109 of the
Bankruptcy Code, as amended by H.R. 3150. Alternatively, a
bankruptcy court may dismiss a chapter 7 case if the granting
of relief under the totality of the circumstances based on the
debtor's financial condition would constitute an inappropriate
use of chapter 7.
Section 103 also provides for the mandatory imposition of
attorney's fees and costs if the bankruptcy court finds that
the moving party's position was not substantially justified,
unless special circumstances would make the award unjust. This
mandatory provision, however, does not apply to bankruptcy
trustees or United States Trustees.
If a chapter 7 debtor's bankruptcy case is dismissed or
converted to another chapter for relief under the Bankruptcy
Code on motion of a trustee or the United States Trustee,
section 103 mandates the award of reasonable attorney's fees
and costs payable by the debtor, unless the payment of such
fees and costs would impose an undue hardship on the debtor.
Section 103 further provides that the signature of a debtor's
attorney on any paper filed in connection with the debtor's
bankruptcy case shall constitute a certificate that the
attorney performed a reasonable investigation into the
circumstances warranting the filing of such pleading and that
it is well grounded in fact and comports with existing law or
can be supported by a good faith argument for the extension,
modification or reversal of existing law. A paper found to be
filed in violation of this provision requires the court to
assess an appropriate civil penalty against the debtor's
attorney, which is payable to the chapter 7 trustee or United
States Trustee.
Section 104. Debtor participation in credit counseling program.
Section 104 creates an additional eligibility requirement
under section 109 of the Bankruptcy Code. Under this provision,
an individual may not be a debtor under the Bankruptcy Code
unless such individual during the 90-day period preceding the
filing of his or her bankruptcy case has made a good faith
attempt to participate in a debt repayment plan through a
credit counseling program approved by the United States Trustee
or bankruptcy administrator. Such program may not be approved
unless its services are available without charge or at an
appropriate reduced charge, if payment at the regular rate
would impose a hardship on the debtor. To document his or her
participation in a debt repayment plan, the debtor must file a
certificate from the credit counseling agency together with a
copy of the debt repayment plan, if any. If the debtor did not
participate in a repayment plan, he or she must file a verified
statement as to why no attempt was required.
A bankruptcy court may waive the requirement for
participation in a prepetition debt repayment plan under the
following circumstances: no credit counseling services are
available in the debtor's geographic location, the providers of
the credit counseling services are unable or unwilling to
provide such services to the debtor, or a foreclosure or
similar creditor enforcement action that would deprive the
debtor of his or her property commenced before the debtor could
complete a good faith attempt to participate in a repayment
plan. If the debtor does not participate in a repayment plan
prepetition, then he or she must participate in one within 30
days following the filing of the bankruptcy case.
Should the debtor fail to comply with these requirements,
the United States Trustee may move for dismissal of the
debtor's bankruptcy case on the basis of such noncompliance.
Subtitle B. Adequate Protections for Consumers
Section 111. Notice of alternatives
Under current law, the bankruptcy clerk is required to
provide written notice of the forms of bankruptcy relief to
consumer debtors before they file for bankruptcy
relief.32 Nevertheless, some debtors may not be
aware that there are alternatives to bankruptcy and the adverse
consequences that bankruptcy relief may present.
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\32\ 11 U.S.C. Sec. 342; Official Form 1--Voluntary Petition. This
notice requirement is effectuated by requiring the consumer debtor and
his or her attorney to sign a statement that appears on the petition
used to commence the bankruptcy case: ``I am aware that I may proceed
under chapter 7, 11, or 12, or 13 of title 11, United States Code,
understand the relief available under such chapter, and choose to
proceed under chapter 7 of such title.''
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To ensure that debtors know about alternatives to
bankruptcy before they file for bankruptcy relief, section 111
mandates that notice of these alternatives to bankruptcy be
supplied to these individuals before they file for bankruptcy
relief.33 The notice must contain a brief
description of the forms of relief available under chapters 7,
11, 12 and 13, including the benefits and costs of each. In
addition, the notice must include a list of independent
nonprofit debt counseling entities in the judicial district
together with a description of the services they provide and
contact information.34 Section 111 also ensures that
debtors are notified about the availability of nonprofit debt
counseling services outside the debtor's district that can be
contacted toll-free. The procedures for including and removing
such services from the list of non-profit debt counseling
services are specified in section 111 as well as the procedures
for periodic updating of this list.
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\33\ This requirement only applies to individuals with primarily
consumer debts. Section 101(8) of the Bankruptcy Code defines
``consumer debt'' as debt incurred by an individual primarily for a
personal, family, or household purpose.
\34\ The bankruptcy clerk's office is responsible for maintaining
this list. Although any nonprofit debt counseling service is eligible
to appear on this list, the chief bankruptcy judge of the district, on
motion of the United States Trustee, may determine that a particular
debt counseling service should not be included on this list.
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In addition, section 111 requires bankruptcy clerks to make
the requisite notice available to debtors upon request. This
requirement ensures that pro se debtors receive this notice.
The Committee intends that the clerk provide these materials to
each debtor whose debts are primarily consumer debts. The
Committee does not, however, intend the failure of the clerk to
fulfill his or her duties under this subsection to act as a bar
to any form of relief to which the debtor might otherwise be
entitled under title 11, nor does the Committee intend to
create a cause of action for a United States Trustee, trustee,
or party in interest against a debtor based on the clerk's
failure to provide such notice.
Section 112. Debtor financial management training test program.
Section 112 of H.R. 3150 establishes a one-year pilot
program on financial management education for debtors under the
auspices of the Executive Office for United States
Trustees.35 The program should be tested in three
judicial districts for the purpose of evaluating individual
debtor education efforts aimed at assisting debtors in better
managing their finances. Bankruptcy judges in those districts
where the pilot program is in effect have the authority to
require debtors to undergo this financial training as a
condition to receiving a discharge in their cases. Upon the
conclusion of the pilot program, the Director of the Executive
Office for United States Trustees is required to submit a
report to Congress and the President conveying his or her
findings regarding the effectiveness of the program as well as
other consumer education programs described in the Report of
the National Bankruptcy Review Commission.36
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\35\ Section 112 requires the Director of the Executive Office for
United States Trustees to consult with a wide range of individuals who
are experts in the field of debtor education, in addition to chapter 13
trustees.
\36\ Report of the National Bankruptcy Review Commission, at 293-
94; Recommendations for Reform of Consumer Bankruptcy Law by Four
Dissenting Commissioners, at 49-51 (1997).
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This provision authorizes bankruptcy courts in each of the
test districts to require individual debtors to undergo such
financial management training as a condition to receiving a
discharge. The Committee intends courts to use this authority
only on a case-by-case basis after evaluating a debtor's
individual circumstances, including the debtor's need for such
training and the likelihood that the debtor would benefit from
such training. The Committee does not intend to give the
bankruptcy courts the authority to require such training as a
condition of discharge of all individual debtors, or to certain
classes of debtors, in the test districts.
Section 113. Definitions
Section 113 creates several mechanisms designed to regulate
the activities of a ``debt relief counseling agency''
(``DRCA''). As defined under this section, a DRCA includes any
person who provides ``bankruptcy assistance'' to ``assisted
persons.'' 37 It applies to attorneys as well as to
non-attorneys, such as petition preparers. The term
``bankruptcy assistance'' includes the provision of any goods
or services with the ``express or implied purpose of providing
information, advice, counsel, document preparation or filing,''
including the provision of legal representation. Outside the
scope of H.R. 3150's definition of DRCAs are nonprofit
organizations and creditors, as well as state and federal
credit unions.
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\37\ The term, ``assisted person,'' under H.R. 3150, includes any
person with primarily consumer debts and whose nonexempt assets were
less than $150,000.
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Section 114. Disclosures
Under section 114, a DRCA must provide written notice to
the assisted person informing him or her that all documents
filed in connection with a bankruptcy case must be complete,
accurate, and truthful and that the information they contain
may be subject to audit.38 The agency must also
supply a statement alerting the assisted person of his or her
responsibilities should he or she file for bankruptcy relief.
In addition, section 114 specifies that an assisted person is
entitled to a contract specifying exactly what services the
DRCA will provide in connection with the bankruptcy case.
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\38\ The DRCA must retain a copy of the requisite notices for two
years following the date on which it provided the notice to the
assisted person.
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Further, section 114 of H.R. 3150 requires the DRCA to
provide assistance with regard to the following matters:
(1) How to value assets at replacement value.
(2) How to determine current monthly total income,
projected monthly income and, for chapter 13 cases, how
to determine net monthly income and related
calculations.
(3) How to complete the list of creditors (including
proper addresses and amounts owed).
(4) How to determine whether property can be claimed
as exempt and how to value such property at replacement
value as defined in 11 U.S.C. Sec. 506.
Section 115. Debtor's bill of rights
DRCAs, under section 115, are required to execute a written
contract with the assisted person that clearly and
conspicuously identifies the services to be provided, how fees
are determined, and the terms of payment. In addition, DRCAs
must include in any advertisement directed to the public
regarding the benefits of bankruptcy a statement that contains,
inter alia, the following statement: ``We are a debt relief
counseling agency. We help people file Bankruptcy petitions to
obtain relief under the Bankruptcy Code.'' This requirement
also applies to advertisements by DRCAs regarding their
assistance with respect to credit defaults, mortgage
foreclosures, lease eviction proceedings, excessive debt, debt
collection pressure or inability to pay consumer debts.
Section 115 of H.R. 3150 mandates that DRCAs perform all
services as stated to the assisted person in connection with
the bankruptcy case. DRCAs are also prohibited from advising
any assisted person to make an untrue or misleading statement
in connection with a bankruptcy case. In addition, DRCAs are
prohibited from advising an assisted person or prospective
assisted person to incur additional debt in contemplation of
filing for bankruptcy relief or for the purpose of paying fees
for services rendered by an attorney or petition preparer in
connection with the filing of a bankruptcy case.
Section 116. Enforcement.
A series of enforcement and penalty mechanisms with regard
to DRCAs are instituted under section 116 of H.R. 3150. These
include the following:
(1) Any waiver by an assisted person of the protections and
rights as established by this legislation is invalid.
(2) Any DRCA contract that does not comply with the
requirements as specified by the legislation is deemed void.
(3) A DRCA may be required to return to the assisted person
all fees he or she paid to the DRCA for any of the following
reasons:
(a) The DRCA failed to comply with the requirements
as previously described.
(b) The DRCA provided assistance to a debtor whose
case was dismissed or converted in lieu of dismissal
under section 707 or such case was dismissed because of
a failure to file any requisite document in connection
with the bankruptcy case.
(c) The DRCA negligently or intentionally disregarded
the requirements of the Bankruptcy Code or Federal
Rules of Bankruptcy Procedure.
In addition to ordering the DRCA to return to the debtor
all fees she or he paid, the bankruptcy court may also direct
the DRCA to provide bankruptcy assistance services to the
debtor without further charge or upon such terms as the court
may order. Section 116 specifies that DRCAs must comply with
the mandatory disclosure requirements of section 114 as well as
the mandatory services and other requirements set forth in
section 115 of H.R. 3150.
Section 116 authorizes states to seek various remedies
39 for violation of the requirements imposed on
DRCAs. The United States District Court, under this provision,
has concurrent jurisdiction with the state courts to hear such
actions.
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\39\ These include injunctions, actual damages, and the imposition
of costs, including reasonable attorney's fees.
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Section 117. Sense of the Congress
Section 117 memorializes the sense of the Congress that the
States develop curricula relating to the subject of personal
finance to be used in elementary and secondary schools.
Section 118. Charitable contributions
Section 118 incorporates H.R. 2604, the ``Religious Liberty
and Charitable Donation Protection Act of 1997,'' which was
introduced by Mr. Packard on October 2, 1997.40 This
section institutes several protections for qualified religious
or charitable entities, defined by reference to the Internal
Revenue Code.
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\40\ On February 12, 1998, the Subcommittee on Commercial and
Administrative Law conducted a hearing on this bill as well as on H.R.
2611, the ``Religious Fairness in Bankruptcy Act of 1997,'' which was
introduced by Mrs. Chenoweth. S. 1244, the ``Religious Liberty and
Charitable Donation Protection Act of 1998,'' which is nearly identical
to H.R. 2604, was reported by the Senate Judiciary Committee on
February 28, 1998.
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Section 118 excepts religious and charitable contributions
made by a debtor before filing for bankruptcy relief from the
applicability of certain fraudulent transfer avoidance
provisions of section 548 of the Bankruptcy Code. In effect,
prepetition transfers made by a debtor to a religious or
charitable organization may not be avoided under section 548 if
they did not exceed 15 percent of the debtor's gross income or
were in a higher amount if they comported with the debtor's
prior pattern of giving. This provision also preempts state and
Federal law with regard to the trustee's status as a lien
creditor under section 544(b) of the Bankruptcy Code.
In addition to protecting charitable contributions made by
a debtor before he or she filed for bankruptcy relief, section
118 protects a debtor's postpetition charitable contributions.
For a chapter 7 debtor, it prevents a bankruptcy court from
considering such debtor's charitable contributions in
determining a motion to dismiss the case under section 707(b)
of the Bankruptcy Code. Likewise, section 118 allows a chapter
13 debtor to contribute up to 15 percent of his or her gross
income postpetition to qualified religious and charitable
organizations.
Section 119. Reinforce the fresh start
Section 119 is derived from section 13 of H.R. 3146,
``Consumer Lenders and Borrowers Bankruptcy Accountability Act
of 1998,'' introduced by Representative Nadler, the Ranking
Member of the Subcommittee on Commercial and Administrative
Law, on February 3, 1998. This provision has several
components. First, it clarifies that the nondischargeability
provisions regarding certain court fees under section
523(a)(17) of the Bankruptcy Code apply to such fees incurred
by prisoners. Second, it allows debtors to claim as exempt
property certain retirement funds to the extent that they are
exempt from taxation under applicable provisions of the
Internal Revenue Code of 1986. Third, the amendment clarifies
the protections against termination of utility services under
section 366 of the Bankruptcy Code by specifying the types of
utility services covered. These services include providers of
gas, electric, telephone, telecommunication, cable television,
and satellite communication as well as water and sewer service.
Section 119A. Chapter 11 discharge of debts arising from tobacco-
related products
Section 119A amends the discharge provisions for confirmed
chapter 11 cases in section 1141 of the Bankruptcy Code for
certain claims related to the consumption or consumer purchase
of a tobacco product. Specifically, claims that are based in
whole or in part on a false pretense, false representation or
actual fraud are not discharged notwithstanding confirmation.
Subtitle C. Adequate Protections for Secured Creditors
Section 121. Discouraging bad faith repeat filings
Under current law, debtors may file successive bankruptcy
cases following the dismissal of their prior cases with limited
exception.41 The filing of a bankruptcy case causes
the immediate imposition of an automatic stay, which prevents
creditors from pursuing actions against debtors and their
property.42 In light of this, some debtors file
successive bankruptcy cases to prevent secured creditors from
foreclosing on their collateral.
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\41\ Section 109(g) of title 11 only imposes a limited ban on
repeat filings. Under this provision, a debtor is ineligible for
bankruptcy relief if, within the preceding 180 days, the prior case was
dismissed based on the debtor's willful failure to abide by orders of
the court or ``to appear before the court in proper prosecution of the
case.'' 11 U.S.C. Sec. 109(g)(1). In addition, the debtor is also
ineligible for bankruptcy relief if, within the preceding 180 days, he
or she in the prior case sought and obtained its dismissal following
the filing of a request for relief from the automatic stay.
\42\ 11 U.S.C. Sec. 362(a). Exceptions to the automatic stay are
set forth in 11 U.S.C. Sec. 362(b).
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Section 121 remedies this problem by terminating the
automatic stay in cases filed by an individual debtor under
chapters 7, 11 and 13 if his or her prior case was dismissed
within the preceding year. In the subsequently filed bankruptcy
case, the automatic stay terminates 30 days following the
filing date of the case unless the court, upon request of a
party in interest, grants an extension. The party in interest
must demonstrate that the subsequent bankruptcy case was filed
in good faith ``as to the creditors stayed.'' A case is deemed
to be presumptively filed in bad faith 43 as to all
creditors if:
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\43\ This presumption can be rebutted by clear and convincing
evidence.
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(1) More than one bankruptcy case under chapter 7, 11
or 13 was filed either by or against the debtor within
the one-year period preceding the filing of the instant
bankruptcy case.
(2) The prior bankruptcy case was dismissed for the
debtor's failure to file any requisite bankruptcy
document or to amend any bankruptcy document without
substantial excuse.44
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\44\ Mere inadvertence or negligence does not constitute
substantial excuse, unless the dismissal was caused by the debtor's
attorney.
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(3) The prior bankruptcy case was dismissed for the
debtor's failure to provide ``adequate protection.''
45
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\45\ This term is defined in 11 U.S.C. Sec. 361 as follows:
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(1) requiring the trustee to make a cash payment or periodic
cash payments to such entity, to the extent that the
[automatic] stay under section 362 of this title, use, sale or
lease under section 363 of this title, or any grant of a lien
under section 364 of this title results in a decrease in the
value of such entity's interest in such property;
(2) providing to such entity an additional or replacement
lien to the extent that such stay, use, sale, lease, or grant
results in a decrease in the value of such entity's interest in
such property; or
(3) granting such other relief, other than entitling such
entity to compensation allowable under section 503(b)(1) of
this title as an administrative expense, as will result in the
realization by such entity of the indubitable equivalent of
such entity's interest in such property.
(4) There has not been a substantial change in the
debtor's financial or personal affairs since the
dismissal of the prior case.
A case is presumptively deemed filed in bad faith as to any
creditor who sought relief from the automatic stay in the prior
case if such action was still pending at the time of dismissal
or had been resolved by the granting of relief from the
automatic stay.
The court must promptly enter an order confirming that the
automatic stay does not apply in a bankruptcy case filed by an
individual debtor where such debtor had previously filed a
bankruptcy case within the previous year and such case was
dismissed. Section 121 specifies the grounds that the
bankruptcy court may consider in reimposing the automatic stay
in the later filed bankruptcy case.
Section 121 also responds to another problem presented by
successive filings. Occasionally, debtors transfer their
property interests to others who then file for bankruptcy
relief to invoke the protection of the automatic stay under
section 362 of the Bankruptcy Code. Under section 121, this
abuse is addressed by allowing bankruptcy courts to grant
prospective in rem relief from the automatic stay with respect
to real or personal property in future bankruptcy cases filed
by the debtor. It also extends this protection to bankruptcy
cases filed by other entities to whom the subject property was
transferred.46 In addition, it requires in rem
orders pertaining to real property to be recorded. Such
recording constitutes notice to all parties having or claiming
an interest in such property.
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\46\ Both the majority and minority viewpoints expressed by the
National Bankruptcy Review Commission's members supported in rem relief
from the automatic stay. See Report of the National Bankruptcy Review
Commission at 281-287; Recommendations for Reform of Consumer
Bankruptcy Law by Four Dissenting Commissioners, at 57-59 (1997).
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Section 122. Definition of household goods
Under current law, debtors must list all personal property
that they own.47 The applicable official bankruptcy
form requires inter alia that a description and current market
valuation of these items be stated. Among the types of personal
property items that are required to be disclosed by debtors are
``household goods.'' 48 The Bankruptcy Code,
however, does not define this term. Accordingly, section 122
defines this term by reference to applicable regulatory
provisions issued by the Federal Trade Commission.49
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\47\ 11 U.S.C. Sec. 521(1); Official Form 6--Schedule B.
\48\ Official Form 6--Schedule B.
\49\ C.F.R. 444.1(i). This regulation defines ``household goods''
as follows: Clothing, furniture, appliances, one radio and one
television, linens, china, crockery, kithenware, and personal effects
(including wedding rings) of the consumer and his or her dependents,
provided that the following are not included within the scope of the
term ``household goods'':
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(1) Works of art;
(2) Electronic entertainment equipment (except one television
and one radio);
(3) Items acquired as antiques; and
(4) Jewelry (except wedding rings).
Section 123. Debtor retention of personal property security
Under the Bankruptcy Code, a debtor may agree to reaffirm a
debt that is otherwise dischargeable, providing certain
procedures are followed.50 Alternatively, a chapter
7 debtor may chose to redeem certain types of personal property
from a lien securing a dischargeable debt by paying the
lienholder the amount of the allowed secured
claim.51
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\50\ 11 U.S.C. Sec. 524(c), (d).
\51\ 11 U.S.C. Sec. 722.
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Section 123 responds to two areas of uncertainty in the
law with regard to how personal property interests are treated
under the current law. One concerns the unsettled law as to
whether a chapter 7 debtor may retain personal property without
having either to reaffirm the underlying obligation
52 or redeem it.53 While a literal
reading of section 521 of the Bankruptcy Code would appear to
require that a debtor must either reaffirm the underlying
obligation or redeem the property, not all courts have so
interpreted this provision.54
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\52\ 11 U.S.C. Sec. 524(c).
\53\ 11 U.S.C. Sec. 722.
\54\ See, e.g., Capital Communications Fed. Credit Union v. Boodrow
(In re Boodrow), 126 F.3d 43, 53 (2d Cir. 1997) (holding that 11 U.S.C.
Sec. 521(2) ``does not prevent a bankruptcy court from allowing a
debtor who is current on loan obligations to retain the collateral and
keep making payments under the original loan agreement.'').
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Subsection (1) addresses this issue by requiring chapter 7
debtors to reaffirm the underlying debt for such property or
redeem it, as recommended by the National Bankruptcy Review
Commission, 55 If the debtor fails to do either, the
subject property is no longer property of the estate. This
means that the creditor having an interest in this personal
property could take whatever action with regard to such
property as permitted under applicable nonbankruptcy law. A
bankruptcy trustee, upon notice and hearing, may oppose the
automatic abandonment of such property to the extent that such
property has value for the estate.
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\55\ This recommendation had the support of both the Commission's
majority and minority viewpoints. See Report of the National Bankruptcy
Review Commission, at 165-69; Recommendation for Reform of Consumer
Bankruptcy Law by Four Dissenting Commissioners, at 57-59 (1997).
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Subsection (2) also responds to a current split in
authority regarding the debtor's redemption rights under
section 722 of the Bankruptcy Code. While most courts have
interpreted this provision to require chapter 7 debtors to pay
the redemption value in a lump sum payment, some permit debtors
to stretch this payment out over time. H.R. 3150 amends section
722 to specify that the required payment must be made in full
at the time of redemption.
Section 124. Relief from stay when the debtor does not complete
intended surrender of consumer debt collateral
Subsection (1) of this provision expands the grounds upon
which the automatic stay of section 362 of the Bankruptcy Code
expires. Currently, section 362(c) provides that the automatic
stay expires once property is no longer property of the
estate.56 In addition, the automatic stay expires
once the bankruptcy case is closed, dismissed or a discharge is
granted or denied.
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\56\ In consumer bankruptcy cases, the process by which property
leaves a bankruptcy estate is typically accomplished by abandonment. 11
U.S.C. Sec. 554. Under section 554, the bankruptcy trustee is permitted
to abandon any property of the estate that is burdensome to the estate
or that is of inconsequential value and benefit to the estate. 11
U.S.C. Sec. 554(a). A party in interest, such as a creditor, may
likewise seek to have property abandoned from the estate. 11 U.S.C.
Sec. 554(b). In addition, property of the estate that is not otherwise
administered by the bankruptcy trustee (e.g., sold or transferred) is
automatically deemed to be abandoned upon the closing of the bankruptcy
case pursuant to section 350 of the Bankruptcy Code. 11 U.S.C.
Sec. 554(c).
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To provide greater protection to secured creditors and
lessors, subsection (1) causes the automatic stay to terminate
should an individual chapter 7, 11 or 13 debtor fail to comply
timely with certain duties with respect to property of the
estate securing a claim or subject to an unexpired lease under
section 521 of the Bankruptcy Code. Under current law, an
individual debtor must file a statement of intention with
respect to his or her secured property. In the statement of
intention, the debtor is required to indicate whether he or she
will reaffirm, redeem or surrender the property. Under
subsection (1), the automatic stay terminates if the debtor
fails to timely file the statement of intention or to execute
the stated intention.57 A bankruptcy trustee may
oppose, upon notice and hearing, the termination of the
automatic stay with respect to such property.
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\57\ H.R. 3150 creates an exception for instances where the debtor
seeks to reaffirm the underlying obligation, but the creditor refuses
to enter into a reaffirmation agreement with the debtor. H.R. 3150 also
provides that the automatic stay does not prevent or limit the
operation of default provisions in an underlying lease or bailment
agreement ``by reason of the occurrence, pendency or existence'' of a
bankruptcy case or the debtor's insolvency.
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Subsection (2) makes several revisions to section
521(a)(2). First, this provision amends section 521(a)(2) to
make it apply to all debts, not just consumer debts. Second, a
debtor must fulfill his or her stated intention within 30 days
after the first date set for the meeting of creditors under
section 341 of the Bankruptcy Code. 58 With respect
to property that has been leased or bailed to a debtor or in
which a creditor holds a security interest, Subsection (2)
provides that nothing in the Bankruptcy Code shall prevent or
limit the operation of a provision in the underlying lease or
agreement that has the effect of placing the debtor in default
by reason of the debtor's insolvency or filing for bankruptcy
relief.
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\58\ Under current procedure, the section 341 meeting is usually
held between 25 and 40 days following the petition date. Fed. R. Bankr.
P. 2003(a).
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Section 125. Giving secured creditors fair treatment in chapter 13
During the course of a chapter 13 case, the rights of
secured creditors may be modified. Notwithstanding such
modification, the chapter 13 case could thereafter be converted
to one under chapter 7 or dismissed. Section 125 requires, as
an element of confirmation, that the chapter 13 plan provide
that secured creditors retain their lienholder status even if
the chapter 13 case is subsequently dismissed or converted
prior to consummation of the plan.
Section 126. Prompt relief from stay in individual cases
Section 362(e) of the Bankruptcy Code provides that within
30 days of a request for relief from the automatic stay, such
stay is terminated unless the bankruptcy court orders the stay
continued after notice and hearing. The hearing, as
contemplated under section 362(e), can be preliminary or deemed
final. If the hearing is preliminary, the final hearing must be
concluded not later than 30 days from the conclusion of the
preliminary hearing. This 30-day period can be extended by the
court with consent of the parties or if the court finds that
such extension is warranted based on compelling circumstances.
For chapter 7, 11 or 13 cases filed by individuals, Section
126 creates an exception to section 362(e). Specifically, this
provision requires the automatic stay to terminate within 60
days following a request for relief from the stay, unless the
bankruptcy court renders a final decision prior to the
expiration of such 60-day time period, or such 60-day time
period is extended on consent of the parties, or the court
finds that there are compelling circumstances.
Section 127. Stopping abusive conversions from chapter 13
Section 506 of the Bankruptcy Code 59 provides
that a creditor secured by a lien in property of the estate has
an allowed secured claim to the extent of the value of such
creditor's interest in the property and an unsecured claim to
the extent that the value of the creditor's interest is less
than the amount of the claim. A chapter 13 debtor, during the
course of his or her case, may apply for a determination from
the bankruptcy court that fixes the value of a secured
creditor's interest in property of the estate. Under present
law, if the chapter 13 case is subsequently converted to
another chapter under the Bankruptcy Code, such valuations
apply in the converted case, with allowance, of course, for any
payments made on such secured claims.60
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\59\ H.R. 3150 provides for an exception with regard to bankruptcy
cases of individuals under chapters 7, 11, 12 and 13.
\60\ 11 U.S.C. Sec. 348(f)(1)(B).
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Section 127 of H.R. 3150 carves out an exception for
chapter 13 cases converted to chapter 7. It specifies that a
secured creditor in any bankruptcy case converted from chapter
13 continues to be secured unless its claim was paid in full as
of the date of conversion, notwithstanding any valuation
determination made during the pendency of the chapter 13 case.
In addition, H.R. 3150 recognizes the effect of a prebankruptcy
default under applicable nonbankruptcy law, unless such default
was cured prior to the conversion of the bankruptcy case.
Section 128. Restraining abusive purchases on secured credit
Section 128 creates an exception to the valuation standards
of section 506 of the Bankruptcy Code with regard to personal
property purchased by the debtor on secured credit within 180
days preceding the filing of his or her bankruptcy case. This
provision addresses the following problem. Under present law, a
debtor, for instance, can finance the purchase of an automobile
with a showroom value of $20,000 by giving the lender a
security interest in the vehicle. If the debtor then files for
bankruptcy relief one day later, then the value of the secured
creditor's lien must be determined under section 506 of the
Bankruptcy Code. Even though the vehicle is one day old, the
amount of the secured creditor's claim is, under current law,
limited to the value of the automobile taking into account the
immediate effect of depreciation upon purchase. Accordingly,
that secured creditor has an allowed secured claim in a reduced
amount based on the value of a used automobile and an allowed
unsecured claim for the difference between the present value of
the automobile and the amount owed to the secured creditor.
Section 128 protects against this abuse by providing that
if the claim is secured only by personal property acquired by
the debtor within 180 days prior to filing for bankruptcy
relief, then the value of the property as well as the allowed
amount of the secured claim is the sum of the unpaid principal
balance and the amount of accrued and unpaid interest and
charges at the contract rate. If the allowed claim is secured
by property in addition to the personal property so acquired,
then section 506 may be used to determine the value of the
underlying security. Nevertheless, section 128 provides that
the amount of the allowed secured claim may not be less than
the unpaid principal balance of the personal property's
purchase price together with unpaid interest and charges at the
contract rate. The protections interposed by section 128 also
apply to any subsequent bankruptcy case that the debtor files
within two years from the filing date of the original
bankruptcy case.
Section 129. Fair valuation of collateral
Section 129 resolves the unsettled state of the law
following a decision rendered by the Supreme Court that
concerned the proper valuation standard applicable to secured
property under section 506 of the Bankruptcy Code.61
Under section 129, the valuation standard with respect to
property securing an allowed claim in chapter 7 and 13 cases of
individuals is based on the property's replacement value as of
the petition filing date, without deduction for costs of sale
or marketing. With respect to property acquired for personal,
family or household use, replacement value is the price a
retail merchant would charge for such property given its age
and condition at time of valuation.
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\61\ Associates Comm. Corp. v. Rash, 117 S. Ct. 1879, n. 6 (1997)
(Utilizing ``replacement value,'' the Court explained that this meant
the ``price a willing buyer in the debtor's trade, business, or
situation would pay a willing seller to obtain property of like age and
condition.''). The National Bankruptcy Review Commission also
considered a valuation test. See Report of National Bankruptcy Review
Commission, at 243-58; Recommendations for Reform of Consumer
Bankruptcy Law by Four Dissenting Commissioners, at 44-47(1997).
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Section 130. Protection of holders of claims secured by the debtor's
principal residence
Section 130 provides various protections to creditors
secured by an interest in a debtor's principal residence.
Subsection (1) defines the term ``debtor's principal
residence,'' as including residential structures containing up
to four units as well as structures not attached to real
property, such as mobile homes, trailers and manufactured
homes. This definition also includes an individual condominium
or cooperative unit as well as ``incidental property.''
Subsection (1), in turn, provides that ``incidental property''
includes such items as window treatments, carpets, appliances
and equipment located in the residence as well as easements,
appurtenances, fixtures, rents, royalties, mineral rights, oil
and gas rights, escrow funds and insurance proceeds.
In subsection (2), an additional exception to the automatic
stay provisions of the Bankruptcy Code is codified with regard
to chapter 13 cases where a prepetition default has not been
fully cured. Specifically, until such default is cured, the
postponement, continuation or other similar delay in a
prepetition foreclosure proceeding or sale does not constitute
a violation of the automatic stay. In effect, subsection 2
permits secured creditors to maintain the status quo with
regard to prepetition foreclosure actions pending at the time a
chapter 13 case is filed.
Subsection (3) further limits the ability of a chapter 13
debtor to modify the rights of secured creditors having an
interest in the debtor's principal residence. Specifically, the
debtor may not modify the rights of claimants secured primarily
by an interest in property used as the debtor's principal
residence within the 180 days preceding the filing of the
bankruptcy case.
Section 131. Aircraft equipment and vessels
Section 131 amends section 1110(a)(1) of the Bankruptcy
Code, which defines the rights of secured creditors and lessors
having an interest in aircraft and aircraft equipment. It
clarifies that a default under a security agreement, lease or
conditional sale contract with respect to such property must be
cured within 60 days from the filing of the bankruptcy case.
Section 131 also provides that if the default occurs after the
expiration of this time period, it must be cured in accordance
with the terms of the underlying security agreement, lease or
conditional sales contract.
Subtitle D. Adequate Protections for Unsecured Creditors
Section 141. Debts incurred to pay nondischargeable debts
Under the Bankruptcy Code, certain unsecured debts are not
discharged, notwithstanding the entry of a discharge order
relieving the debtor from personal liability for these
obligations in general. Section 523(a) of the Bankruptcy Code
presently lists 18 categories of obligations that may not be
discharged, under certain circumstances. To avoid the obvious
consequences of section 523(a), debtors can borrow money to pay
these nondischargeable debts and then seek to discharge the
debt incurred for the money borrowed. For example, a debtor,
under current law, can obtain a cash advance with a credit card
and use those funds to pay an outstanding obligation for child
support, which would have not been discharged.
Under section 141, a debt incurred, such as the cash
advance, to pay an obligation that otherwise would be
nondischargeable under section 523(a) is itself
nondischargeable. Section 523(a)(19) is amended to create a new
category for these nondischargeable debts.
In addition, Section 141 accords the same priority of
payment to these types of debts. Under current law, all
unsecured creditors are not equal. For various reasons, the
Bankruptcy Code recognizes a hierarchy of payment among
unsecured creditors.62 If there are sufficient
nonexempt assets in a bankruptcy case available for
distribution to unsecured creditors, the Bankruptcy Code in
section 507 fixes an order of priority with regard to
entitlement to payment. Child support obligations, for
instance, are entitled to paid out of estate assets before tax
claims are paid. In turn, certain tax claims are entitled to be
paid in full before the claims of general unsecured creditors
may be paid.
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\62\ 11 U.S.C. Sec. Sec. 507, 726.
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Under section 141, a general unsecured claim incurred by a
debtor to pay a tax or child support obligation is entitled to
priority of payment after payment of higher order priority
claims in Section 507(a)(10), as amended by this provision.
Claims within this tenth category of priority claims are paid
according to their respective priority. This ensures that
higher priority claims, such as child support claims, will be
paid in full, before estate assets can be used to pay those
obligations accorded a lower priority under section 507 of the
Bankruptcy Code.
Section 142. Credit extensions on the eve of bankruptcy presumed
nondischargeable
Under current law, only certain credit extensions obtained
on the eve of a debtor's filing for bankruptcy relief are
nondischargeable under the Bankruptcy Code. For example,
consumer debts in excess of $1,000 incurred for ``luxury goods
or services'' incurred within 60 days or certain cash advances
obtained within the same time period are presumed to be
nondischargeable.63
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\63\ 11 U.S.C. Sec. 523(a)(2)(C).
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Section 142 amends Section 523(a)(2)(C) of the Bankruptcy
Code to provide that consumer debts incurred by an individual
debtor within 90 days before the bankruptcy filing are presumed
to be nondischargeable. This presumption, however, does not
apply to consumer debts owed to a single creditor that were
incurred for necessaries and do not exceed $250 in the
aggregate.
Section 143. Fraudulent debts are nondischargeable in chapter 13 cases
Under current law, a chapter 13 debtor may discharge the
following types of obligations for money, property or services
or extensions of credit obtained by:
(1) false pretenses, false representations and actual
fraud (other than a statement regarding the debtor's or
an insider's financial condition);
(2) materially false written statements regarding the
debtor's or insider's financial condition that the
debtor prepared with intent to deceive on which the
creditor reasonably relied;
(3) fraud or defalcation while acting in a fiduciary
capacity;
(4) embezzlement; and
(5) larceny.
In addition, obligations resulting from the debtor's willful
and malicious injury to another person or to the property of
another person can also be discharged under chapter
13.64
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\64\ See generally Susan Jensen-Conklin, Nondischargeable Debts in
Chapter 13: ``Fresh Start'' or ``Haven for Criminals?'', 7 Bankr. Dev.
J. 517 (1990).
---------------------------------------------------------------------------
Section 143 amends the discharge provisions of chapter 13
by making the above-specified debts nondischargeable.
Section 144. Applying the codebtor stay only when it protects the
debtor
With regard to the co-debtor stay provisions of chapter 13,
section 144 limits the applicability of this stay to instances
where the debtor received value for the underlying obligation.
Further, the co-debtor stay does not apply where the chapter 13
plan provides that the debtor's interest in personal property
subject to a lease is to be surrendered or abandoned. This
exception, however, does not apply if the debtor is primarily
obligated to pay the creditor in whole or in part with respect
to the claim under a legally binding separation agreement, or
divorce or dissolution decree, with respect to the person who
has possession of such property.
Section 145. Credit extensions without a reasonable expectation of
repayment made nondischargeable
To establish the nondischargeability of the underlying
debt, a creditor, under current law, must prove that the
debtor, with intent to deceive, prepared a materially false
financial statement by which money, property, services or
credit was obtained. With regard to determining whether the use
of a credit or charge card by a debtor who has no reasonable
expectation or ability to repay constitutes a nondischargeable
debt, the courts currently diverge on the factors that should
be considered to impute intent.65
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\65\ See, e.g., Anastas v. American Sav. Bank (In re Anastas), 94
F.3d 1280 (9th Cir. 1996) (reviews factors).
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Section 145 clarifies that obligations incurred through the
use of a credit or charge card or similar device to access a
credit line without a reasonable expectation or ability to
repay are nondischargeable under section 523(a)(2)(A) of the
Bankruptcy Code, unless access to such credit was extended
without an application therefor and reasonable evaluation of
the debtor's ability to repay.
Section 145 also eliminates the requirement that a creditor
prove the debtor's intent to deceive in section 523(a)(2(B) of
the Bankruptcy Code. Rather, the creditor can merely establish
that the debtor prepared the materially false financial
statement ``without taking reasonable steps to ensure'' its
accuracy.
Section 146. Debts for alimony, maintenance, and support
Section 146 institutes various provisions designed to
ensure payment of spousal and child support notwithstanding the
intervention of bankruptcy. It also provides greater
protections to governmental units that hold claims under
Section 523(a)(18) of the Bankruptcy Code, which makes
obligations in the nature of support owed to states or
municipalities nondischargeable.
In addition, section 146 excepts from the automatic stay
certain enforcement actions by governmental units in connection
with such obligations. Section 146 also provides for the
continued liability of exempt property to debts under section
523(a)(18) of the Bankruptcy Code and accords priority status
to these debts under section 507(a)(7) as well. Further,
section 146 requires chapter 11, 12 and 13 debtors to be
current on their postpetition spousal and child support
payments as a requirement of confirmation of their plans. It
also imposes a similar requirement with regard to the entry of
a discharge order in chapter 12 and 13 cases. Finally, section
146 creates an exception to the discharge provisions of chapter
13 for debts owed to states or municipalities that are in the
nature of support. Conforming amendments to Section 456(b) of
the Social Security Act are made by section 146.
Section 147. Nondischargeability of certain debts for alimony,
maintenance, and support
Section 147 clarifies that spousal and child support
obligations resulting from property settlements, hold harmless
agreements or other obligations not in the nature of support
are also nondischargeable under section 523(a)(5) of the
Bankruptcy Code. In addition, this provision also deems such
debts to be nondischargeable if assigned to the obligee's
attorney.
Section 148. Other exceptions to discharge
Section 148 amends section 523(a)(7) of the Bankruptcy Code
to prevent the discharge of judgments for disgorgement and
restitution obtained by government units. It also eliminates
section 523(a)(15), which limits the discharge of obligations
incurred by a debtor in connection with a divorce or separation
that are not in the nature of support.
Section 149. Fees arising from certain ownership interests
Section 149 amends section 523(a)(16) of the Bankruptcy
Code to clarify that it applies to fees or assessments arising
from the debtor's interest in a condominium, cooperative or
homeowners association, irrespective of whether or not the
debtor physically occupies such property. It also provides that
the executory contract provisions of section 365 of the
Bankruptcy Code do not apply to this type of obligation.
Section 150. Protection of child support and alimony
Section 150 provides that, notwithstanding the provisions
of any state constitution or state law providing otherwise,
support obligations owed by a debtor who has received a
discharge are entitled to priority in payment and collection
over certain debts determined to be nondischargeable under
section 523(a)(2), (4) and (14) of the Bankruptcy Code. This
priority, however, does not affect the priority accorded to
consensual liens, mortgages or security interests.
Section 151. Adequate protection for investors
Section 151 creates an exception to the automatic stay
provisions of Section 362 of the Bankruptcy Code for
nonmonetary enforcement actions 66 by ``securities
self regulatory organizations.'' Such organizations, as defined
under Section 151 by reference to applicable provisions of the
Securities Exchange Act of 1934, include either a securities
association or a national securities exchange registered with
the Securities and Exchange Commission.
---------------------------------------------------------------------------
\66\ Such actions include the delisting or refusal to permit
quotation of any stock that does not meet applicable regulatory
requirements.
---------------------------------------------------------------------------
Subtitle E. Adequate Protections for Lessors
Section 161. Giving debtors the ability to keep leased personal
property by assumption
Under current law, a trustee may assume, reject or assign
the interest that the bankruptcy estate has in a lease of
personal property.67 Upon the trustee's rejection or
failure to timely assume a lease of personal property, section
161 provides that such lease is no longer property of the
estate and that the provisions of the automatic stay no longer
apply. In addition, section 161 allows a chapter 7 debtor to
notify the lessor of his or her desire to assume the lease. The
lessor, at its option, may then agree to allow the debtor to
assume the lease of personal property and may condition such
assumption upon the cure of any outstanding default by the
debtor.
---------------------------------------------------------------------------
\67\ 11 U.S.C. Sec. 365.
---------------------------------------------------------------------------
For chapter 11 and 13 debtors, if they fail to assume the
personal property lease prior to confirmation, such lease shall
be deemed to be rejected as of the conclusion of the
confirmation hearing, under section 161. Further, if such lease
is rejected, neither the automatic stay nor the co- debtor
stay, which applies in chapter 13 cases, applies.
Section 162. Adequate protection in chapter 13 cases for lessors
Section 162 requires a chapter 13 debtor to make
postpetition payments on personal property lessors and
creditors secured by personal property of the debtor within 30
days from the filing of the bankruptcy case. The payments must
be in cash and paid at least on a monthly basis. Although the
bankruptcy court may alter the amount of the requisite
payments, they cannot be reduced to less than the reasonable
depreciation of such property on a month-to-month basis. If the
property was repossessed prepetition, the creditor can retain
such property postpetition until it receives the first adequate
protection payments required under this provision. A creditor's
postpetition possession of the debtor's personal property does
not constitute a violation of the automatic stay under section
162. If required, the debtor must provide to the lessor
evidence of insurance. This requirement continues for as long
as the debtor remains in possession of such property.
Section 163. Adequate protection for lessors
Residential lessee-debtors, under current law, can invoke
the protection of the automatic stay to prevent their eviction
even if the underlying lease has terminated. As a result, many
debtors repeatedly file for bankruptcy relief for the sole
purpose of reinvoking the automatic stay and thereby halt the
eviction proceeding yet again.68 Section 163 excepts
from the automatic stay provisions of section 362 of the
Bankruptcy Code any act by a lessor with respect to a
residential lease that has terminated prepetition.
---------------------------------------------------------------------------
\68\ See, e.g, Report of the National Bankruptcy Review Commission,
Recommendations for Reform of Consumer Bankruptcy Law by Four
Dissenting Commissioners, at 62-64 (1997).
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Subtitle F. Extend Period Between Bankruptcy Discharges
Section 171. Extend period between bankruptcy discharges
Under current law, a chapter 7 debtor may not receive a
discharge in a subsequently filed chapter 7 case if the latter
case was filed within six years of when the debtor obtained a
discharge in the prior case. Section 171 of H.R. 3150 extends
the current six-year period to ten years.
With only limited exception,69 no refiling bar
currently applies to successively filed chapter 13 cases.
Section 171 institutes a five-year bar.
---------------------------------------------------------------------------
\69\ See, e.g., 11 U.S.C. Sec. 109(g).
---------------------------------------------------------------------------
Subtitle G. Exemptions
Section 181. Exemptions
Section 522 of the Bankruptcy Code describes the various
property interests that a debtor may claim as exempt, that is,
property that may not be liquidated in order to satisfy the
claims of his or her creditors. Under section 522(b), states
may chose to opt out of the federal exemption scheme set forth
under the Bankruptcy Code. As a result of this provision, the
amount and type of exempt property interests that may be
claimed varies widely among the states. Some debtors
intentionally relocate to states with more generous exemption
provisions to protect assets, which would have been liquidated
to pay the debtor's debts under his or her home state's
exemption provisions.
Section 181 addresses the potential for abuse under present
law. Section 522(b)(2)(A) currently provides that the
applicable exemption laws of the state where the debtor's
domicile is located for the 180 days 70 preceding
the filing applies. Section 181 requires a debtor to be
domiciled in the state for one year before he or she can assert
that state's exemption scheme.
---------------------------------------------------------------------------
\70\ Section 522(b)(2)(A) alternatively provides ``or for a longer
portion of such 180-day period than in any other place[.]''
---------------------------------------------------------------------------
Section 182. Limitation
Section 182 limits the amount of the exemption in certain
property that a debtor may claim under Section 522 of the
Bankruptcy Code. Specifically, a debtor may not exempt under
state or local law any interest that exceeds $100,000 in
aggregate value in real or personal property that a debtor uses
as a residence, a cooperative or burial plot. This limitation
under Section 182,however, does not apply to the principal
residence of a family farmer.
TITLE II. BUSINESS BANKRUPTCY PROVISIONS
Subtitle A. General Provisions
Section 201. Limiting the use of fee examiners
Section 330 of the Bankruptcy Code requires the bankruptcy
court to approve all applications for compensation and
reimbursement of expenses made by trustees and professionals
employed by trustees.71 In practice, some bankruptcy
courts have appointed fee examiners to review applications for
compensation. This practice typically occurs in large chapter
11 cases where professionals seek millions of dollars in
compensation from these estates.
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\71\ The reference to ``trustees'' here also applies to chapter 11
debtors in possession.
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Section 201 prohibits a bankruptcy court from having the
authority to appoint a fee examiner.72 The National
Bankruptcy Review Commission, which made a similar
recommendation, noted that ``fee examiners assume a judicial
role, akin to special masters, whose appointment is not
permitted in bankruptcy cases.'' 73
---------------------------------------------------------------------------
\72\ The National Bankruptcy Review Commission made a similar
recommendation. See Report of the National Bankruptcy Review
Commission, at 888-92 (1997).
\73\ Id. at 889.
---------------------------------------------------------------------------
Section 202. Sharing of compensation
Current law prohibits professionals in bankruptcy cases
from sharing their fees with other persons.74
Section 202 carves out a limited exception to this prohibition
to allow compensation to be shared with bona fide public
service attorney referral programs.75
---------------------------------------------------------------------------
\74\ See 11 U.S.C. Sec. 504.
\75\ This proposal comports with one adopted by the National
Bankruptcy Review Commission. See Report of the National Bankruptcy
Review Commission, at 892-94 (1997).
---------------------------------------------------------------------------
Section 203. Chapter 12 made permanent law
Chapter 12 is a form of bankruptcy relief only available to
``family farmers,'' a defined term.76 It was enacted
in response to the particularized needs of farmers in financial
distress as part of the Bankruptcy Judges, United States
Trustees, and Family Farmer Bankruptcy Act of 1986.
Nevertheless, the Act only provided for the creation of chapter
12 on a temporary basis. Chapter 12 is due to sunset on October
1, 1998.
---------------------------------------------------------------------------
\76\ See 11 U.S.C. Sec. 101(18).
---------------------------------------------------------------------------
Section 203 makes chapter 12 a permanent component of the
Bankruptcy Code. The National Bankruptcy Review Commission made
a similar recommendation.77
---------------------------------------------------------------------------
\77\ See Report of the National Bankruptcy Review Commission, at
1014-16 (1997).
---------------------------------------------------------------------------
Section 204. Meetings of creditors and equity security holders
Under current law, all chapter 11 debtors must appear for
examination under oath pursuant to section 341 of the
Bankruptcy Code. This examination provides an opportunity for
the United States Trustee, creditors, and other parties in
interest to assess the debtor's financial condition.
Section 204 allows the bankruptcy court to dispense with
this requirement for cause where the chapter 11 debtor
solicited prepetition acceptances of its plan of
reorganization.78 This provision particularly
applies to ``prepackaged chapter 11 plans,'' that is, plans
where the debtor, before filing for bankruptcy relief, obtained
the acceptance of creditors and interest holders in its plan of
reorganization. Section 204 requires notice and hearing as a
prerequisite to dispensing with the requirement for a meeting
of creditors and equity security holders.
---------------------------------------------------------------------------
\78\ The National Bankruptcy Review Commission made a similar
recommendation. See Report of the National Bankruptcy Review
Commission, at 487-89 (1997).
---------------------------------------------------------------------------
Section 205. Creditors' and equity security holders' committees
An important premise in a chapter 11 case is the need to
have creditor participation. This participation theoretically
fosters the debtor's reorganization and serves an oversight
function as well. One of the principal means by which creditor
participation is encouraged and implemented is through the
appointment of a creditors' committee.79 The United
States Trustee is charged with the responsibility to appoint
creditors' and equity security holders' committees. The
membership of a committee ordinarily consists of creditors
holding the seven largest claims that are representative of the
types of creditors in the chapter 11 case.
---------------------------------------------------------------------------
\79\ Correlatively, if the debtor has equity security holders, a
committee representing these interests can also be appointed. See 11
U.S.C. Sec. 1102.
---------------------------------------------------------------------------
Section 205 clarifies that bankruptcy courts may, on their
own motion or on motion of a party in interest, order a change
in a committee's membership to ensure adequate representation
of other parties in a case.80
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\80\ The National Bankruptcy Review Commission made a similar
recommendation. See Report of the National Bankruptcy Review
Commission, at 492-501 (1997).
---------------------------------------------------------------------------
Section 206. Postpetition disclosure and solicitation
Under current law, the acceptance or rejection of a chapter
11 plan of reorganization may not be solicited from parties
affected by the plan absent a court-approved disclosure
statement.81 The disclosure statement is required to
ensure that these parties receive adequate information about
the plan and its consequences.
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\81\ See 11 U.S.C. Sec. 1125(b).
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Section 206 permits postpetition solicitation of creditors
and equity security holders in chapter 11 cases if they were
solicited prepetition in compliance with applicable
nonbankruptcy law.82 This creates an exception to
the requirement that these parties receive a court-approved
disclosure statement prior to their solicitation.
---------------------------------------------------------------------------
\82\ The National Bankruptcy Review Commission made a similar
recommendation. See Report of the National Bankruptcy Review
Commission, at 595-98 (1997).
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Section 207. Preferences
One of the linchpins of the Bankruptcy Code is equality of
treatment among similarly situated creditors. To effectuate
this goal, section 547 of the Bankruptcy Code permits the
avoidance of certain prepetition transfers of property made by
the debtor that effectively prefer some creditors over others.
While the Bankruptcy Code acknowledges defenses to preferential
transfer actions,83 defendants cite the difficulty
of establishing certain defenses as well as the attendant
inconvenience and costs of litigation.
---------------------------------------------------------------------------
\83\ See, e.g., 11 U.S.C. Sec. 547(c).
---------------------------------------------------------------------------
Section 207 allows a defendant in a preference action to
establish that the transfer was made in the ordinary course of
the debtor's financial affairs or business or that the transfer
was made in accordance with ordinary business
terms.84 Presently, the Bankruptcy Code requires
both of these grounds to be established in order to sustain a
defense to a preferential transfer action.
---------------------------------------------------------------------------
\84\ The National Bankruptcy Review Commission made a similar
recommendation. See Report of the National Bankruptcy Review
Commission, at 800-803 (1997).
---------------------------------------------------------------------------
Section 207 also establishes a threshold amount for a
preferential transfer action.85 To file a
preferential transfer action in a case where the claims are not
primarily consumer debts, the aggregate amount of all property
constituting the transfer must be at least $5,000 or more.
---------------------------------------------------------------------------
\85\ Id. at 797-98.
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Section 208. Venue of certain proceedings
Section 208 amends the venue provisions for preferential
transfer actions. A preferential transfer action in the amount
of $10,000 or less must be filed in the district where the
defendant resides. 86 Currently, this amount is
fixed at $1,000.87
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\86\ Id. at 799-800.
\87\ See 28 U.S.C. Sec. 1409(b).
---------------------------------------------------------------------------
Section 209. Period for filing plan under chapter 11
Section 209 mandates that a chapter 11 debtor's exclusive
period for filing a plan may not be extended beyond a date that
is 18 months after the order for relief. It likewise provides
that the debtor's exclusive period for obtaining acceptances of
the plan may not be extended beyond 20 months after the order
for relief.
Section 210. Period for filing plan under chapter 12
Section 210 has three components. First, it mandates that a
chapter 12 debtor must file its plan not later than 150 days
after the order for relief. Second, it provides for relief from
theautomatic stay if the debtor has not filed a plan in
accordance with section 1221 of the Bankruptcy Code. Third, it creates
a new provision recognizing special treatment for secured claims. This
provision allows secured claimants to elect to have their claims be
treated as secured to the extent that such claims are allowed,
notwithstanding section 506(a) of the Bankruptcy Code.
Section 211. Cases ancillary to foreign proceedings involving foreign
insurance companies that are engaged in the business of
insurance or reinsurance in the United States
Section 211 amends section 304 of the Bankruptcy Code to
prohibit a foreign representative for the estate of an
insurance company from obtaining relief with respect to certain
types of property. The property interests that are protected
under this provision include a deposit required by State
insurance and reinsurance laws and certain multibeneficiary
trusts.
Section 212. Rejection of executory contracts affecting intellectual
property rights to recordings of artistic performance
Section 212 provides that the rejection of an executory
contract affecting the intellectual property rights to
recordings of artistic performances does not impair any
applicable nonbankruptcy law to enforce noncompetition or
exclusivity provisions that may be contained in such contract.
The enforcement is subject to the nondebtor party's provision
of notice of an offer to perform the contract under all of its
original terms. In addition, the amendment provides that the
rights to enforce such noncompetition and exclusivity
provisions cannot be treated as dischargeable claims.
Section 213. Unexpired leases of nonresidential real property
Under current law, a bankruptcy trustee or a chapter 11
debtor in possession has 60 days to either assume, assign, or
reject a nonresidential lease of real property in which the
bankruptcy estate is a lessee.88 In practice,
however, trustees and debtors typically seek and obtain
multiple extensions of this period.
---------------------------------------------------------------------------
\88\ See 11 U.S.C. Sec. 365(d)(4).
---------------------------------------------------------------------------
Section 213 amends section 365(d)(4) of the Bankruptcy Code
to establish finite deadlines by which a nonresidential lease
of real property must be assumed or rejected. It provides that
this period is the earlier of 120 days after the date of the
order for relief or the entry of an order confirming a plan.
The failure to act within that period causes the lease to be
deemed rejected automatically. This provision does permit the
120-day period to be extended for an additional period of 150
days if the lessor agrees or the court approves such extension,
providing that all postpetition lease obligations have been
performed by the lessee. Section 213 provides that under no
circumstance may this period be extended beyond 270 days from
the order for relief or the entry of an order approving a
disclosure statement.
Section 214. Definition of disinterested person
Section 214 amends the definition of a disinterested person
under section 101(14) of the Bankruptcy Code by eliminating its
references to investment bankers.89
---------------------------------------------------------------------------
\89\ Section 101(14) of the Bankruptcy Code provides that an
investment banker is not a disinterested person nor an attorney for
such investment banker. See 11 U.S.C. Sec. 101(14)(B),(C), (D).
---------------------------------------------------------------------------
Subtitle B. Specific Provisions
Chapter 1. Small Business Bankruptcy
Section 231. Definitions
Section 231 defines a ``small business debtor'' as an
entity that has aggregate noncontingent, liquidated secured and
unsecured debts in the amount of $5 million 90 or
less as of the commencement of the case. The definition also
includes a single asset real estate debtor without regard to
the amount of its debts, unless such debtor is one of a group
of affiliated debtors having aggregate noncontingent liquidated
secured and unsecured debts greater than $5 million.
---------------------------------------------------------------------------
\90\ This cap excludes debts owed to one or more affiliates or
insiders of the debtor.
---------------------------------------------------------------------------
Section 232. Flexible rules for disclosure statements and plans
Under current law, a chapter 11 debtor must obtain court
approval of a disclosure statement before it can solicit
acceptances of its reorganization plan.91 The
disclosure statement must provide creditors and other
interested parties basic information about the plan, including
its feasibility and consequences. Typically, court approval is
obtained after a hearing on 25 days' notice to all creditors
and parties in interest. The current process can be costly and
time- consuming.
---------------------------------------------------------------------------
\91\ See 11 U.S.C. Sec. 1125(b).
---------------------------------------------------------------------------
Section 232 authorizes a bankruptcy court, in determining
whether a disclosure statement provides adequate information,
to consider the complexity of the small business debtor's case
and the cost of providing such information to the debtor's
creditors. If, for example, the court finds that the plan of
reorganization itself provides adequate information, it may
allow the debtor to solicit acceptances without having to
prepare and send a disclosure statement along with the plan.
Further, it permits a court to approve conditionally a
disclosure statement subject to final approval after notice and
hearing, which would then be combined with the confirmation
hearing.
Section 233. Standard form disclosure statements and plans
Section 233 implements section 232 of H.R. 3150 bill by
requiring the Advisory Committee on Bankruptcy Rules of the
Judicial Conference of the United States Courts to issue form
disclosure statements and plans of reorganization for small
business debtors. The forms are designed to achieve a practical
balance between the needs of those charged with administration
of these cases and parties in interest who require information
about the case with the need for economy and simplicity.
Section 234. Uniform national reporting requirements
The United States Trustee Guidelines generally require
chapter 11 debtors to report their financial circumstances on a
monthly basis. These reports are used to determine a chapter 11
debtor's economic viability. If completed accurately, these
reports can provide valuable information about the case to the
bankruptcy court, the United States Trustee, and parties in
interest, such as creditors. In practice, however, some debtors
fail to file these reports or file incomplete or inaccurate
reports, thereby frustrating the ability of those charged with
the oversight of these cases to fulfill their responsibility.
Section 234 mandates that a small business debtor file periodic
financial reports containing specified
information.92
---------------------------------------------------------------------------
\92\ The types of disclosures that must appear in these reports are
the following:
---------------------------------------------------------------------------
(1) the debtor's profitability;
(2) reasonable approximations of the debtor's projected cash
receipts and disbursements;
(3) comparisons of actual cash receipts and disbursements
with projections in prior reports;
(4) a statement as to whether or not the debtor is in
compliance with certain other postpetition requirements; and
(5) a statement as to whether the debtor has timely filed tax
returns and paid taxes and administrative expenses when due.
Section 235. Uniform reporting rules and forms
Section 235 mandates that the Attorney General shall issue
uniform reporting rules and forms and requires the Attorney
General to consult with the Executive Office for United States
Trustees and the Administrative Office of the United States
Courts.
Section 236. Duties in small business cases
To implement greater administrative controls over small
business chapter 11 debtors, section 236 institutes additional
duties that these debtors must perform. First, the small
business debtor must include with the bankruptcy petition its
most recent financial statements, including a balance sheet,
statement of operations, cash flow statement and federal income
tax return.93
---------------------------------------------------------------------------
\93\ If the debtor lacks such information, then it must file a
statement under penalty of perjury verifying this fact.
---------------------------------------------------------------------------
Second, the small business debtor is required to attend,
through its senior management, meetings scheduled by the
bankruptcy court or the United States Trustee as well as
meetings held pursuant to section 341 of the Bankruptcy Code.
Meetings held by the bankruptcy court include scheduling
conferences where the court could fix deadlines by which a plan
must be filed and confirmation achieved. Meetings scheduled by
the United States Trustee also include ``initial debtor
interviews,'' where the United States Trustee explains to the
debtor various requirements such as the need to maintain
insurance, to file periodic financial reports, and to remain
current on postpetition obligations. Meetings held pursuant to
section 341, alternatively known as ``Section 341 meetings'' or
the ``first meetings of creditors,'' provide an opportunity for
the debtor to be examined under oath by the United States
Trustee and by other parties in interest, such as creditors.
Third, the small business debtor is required to file in a
timely manner all requisite schedules and the statement of
financial affairs as well as postpetition financial reports.
Fourth, the small business debtor must maintain insurance that
was customary and appropriate for the industry.
Fifth, section 236 establishes special protections with
regard to taxes. All tax returns must be timely
filed. In addition, all postpetition taxes must be
paid, except for those that are contested, subject to section
363(c) of the Bankruptcy Code.94 Separate bank
accounts for the deposit of taxes collected or withheld for
government authorities must be established not later than ten
business days following the entry of the order for relief.
---------------------------------------------------------------------------
\94\ Section 363(c)(2) prohibits the use of cash collateral without
consent of those having an interest in such collateral or the court
authorizes such use.
---------------------------------------------------------------------------
Sixth, section 236 permits the United States Trustee to
inspect the debtor's books and records and business premises at
reasonable hours with proper notice.
Section 237. Plan filing and confirmation deadlines
Under current law, a chapter 11 debtor has the exclusive
right to file a plan within the 120 days following the entry of
the order for relief.95 The Bankruptcy Court also
extends to the chapter 11 debtor the exclusive right to effect
confirmation of the plan within 180 days following the entry of
the order for relief.96 As a result of amendments
made in 1994 to the Bankruptcy Code, the exclusive period that
a small business debtor has to file a plan and achieve
confirmation were reduced to 100 days and 160 days respectively
from the entry of the order for relief.97
---------------------------------------------------------------------------
\95\ See 11 U.S.C. Sec. 1121(b).
\96\ See 11 U.S.C. Sec. 1121(c).
\97\ See 11 U.S.C. Sec. 1121(e). Under this provision, a party in
interest may apply for an order reducing or enlarging this period. 11
U.S.C. Sec. 1121(e)(3).
---------------------------------------------------------------------------
Section 237 further reduces the time periods for filing
plans and achieving confirmation for small business debtors.
First, the small business debtor's exclusive period to file a
plan is 90 days from the entry date of the order for relief. A
bankruptcy court may extend this time period on request of a
party in interest for cause. Section 237 clarifies that while
the debtor has the exclusive right to file a plan for 90 days
following the date of the order for relief, this period may be
shortened on request of a party in interest. Likewise, section
237 requires a small business debtor to effect confirmation
within 150 days from the entry date of the order for relief,
unless this period is extended by the court on request of a
party in interest.
Section 238. Plan confirmation deadline
Should a debtor seek to extend either of these time
periods, the debtor has to demonstrate by a preponderance of
the evidence that it is more likely than not that the debtor
will confirm a plan of reorganization within a reasonable time
under section 238.
Section 239. Prohibition against extension of time
To ensure that the strict time frames instituted by H.R.
3150 are not eviscerated, section 239 of this bill limits a
court's authority to avoid the impact of these
provisions.98
---------------------------------------------------------------------------
\98\ Under section 105(a) of the Bankruptcy Code, a bankruptcy
court is empowered to ``issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions'' of the
Bankruptcy Code. In practice, section 105(a) has been used to avoid
specific provisions of the Bankruptcy Code based on equitable grounds.
H.R. 3150 specifically limits the court's authority to use section
105(a) to extend the time frames fixed for filing and comfirming the
plans of small business debtors.
---------------------------------------------------------------------------
Section 240. Duties of the United States Trustee and bankruptcy
administrator
Section 240 mandates that the United States Trustee conduct
an ``initial debtor interview'' of all small business debtors.
This interview, which must be held shortly after the case was
filed, allows the United States Trustee to investigate the
debtor's viability and business plan. It also provides an
opportunity for the United States Trustee to explain the
debtor's obligation to file monthly operating reports and other
requirements. During the course of the interview, the United
States Trustee may explore whether the debtor would consent to
the entry of a scheduling order fixing various time frames,
such as the date for filing a plan and effecting confirmation.
Section 240 also authorizes the United States Trustee to
inspect the debtor's premises, review its books and records,
and verify that the debtor has filed its tax returns. The
United States Trustee, under this provision, is responsible for
diligently monitoring the small business debtor's activities
and determining its ability to confirm a plan. Should the
United States Trustee discover material grounds warranting
either dismissal or conversion of the chapter 11 case to one
under chapter 7 for liquidation, section 240 requires the
United States Trustee to apply promptly for such relief.
Section 241. Scheduling conferences
Under current law, a bankruptcy court may conduct a
scheduling conference on its own motion or on request of a
party in interest in any bankruptcy case. In a chapter 11 case,
for example, a scheduling conference provides an opportunity
for the court to set certain dates bywhich the debtor must file
and confirm a plan, among other matters.
Section 241 mandates that a bankruptcy court conduct
scheduling conferences in all bankruptcy cases, if necessary,
to further the expeditious and economical resolution of such
cases.
Section 242. Serial filer provisions
Under section 242, the automatic stay does not apply to
four categories of small business chapter 11 debtors who have
previously sought bankruptcy relief. The effect of this
provision is to restrict repetitive filings by these debtors.
The automatic stay does not apply when:
(1) the small business debtor is simultaneously a
debtor in another bankruptcy case pending at the time
of the filing of the second case;
(2) the small business debtor's prior case was
dismissed within two years from the filing of the
second case;
(3) the second case was filed within two years
following the confirmation of the prior case; or
(4) an entity that acquired substantially all of the
assets of a small business debtor has itself filed for
bankruptcy relief, unless that entity can establish by
a preponderance of the evidence that the filing was
necessitated by circumstances beyond its control and
that it will confirm a feasible plan of reorganization
99 within a reasonable time.
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\99\ This exception specifically excludes liquidation plans.
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This provision also limits the type of sanctions that may
be imposed to actual damages for violations of the automatic
stay resulting from a good faith belief. In addition, it
provides that the automatic stay applies to an involuntarily
commenced chapter 11 case involving no collusion between a
small business debtor and its creditors.
Section 243. Expanded grounds for dismissal or conversion and
appointment of trustee
The Bankruptcy Code currently lists ten grounds that a
bankruptcy court may consider in determining whether to convert
a chapter 11 case to one under chapter 7 for liquidation or to
dismiss the case.100 Section 243 requires the
conversion or dismissal of a chapter 11 case if the movant
establishes cause. An exception to this mandate is also
specified in this Section.101 Cause warranting
either mandatory conversion or dismissal of a chapter 11 case
under section 243 includes the following:
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\100\ See 11 U.S.C. Sec. 1112(b). The ten grounds enumerated in
this provision, however, are not exclusive.
\101\ The debtor or other party in interest must prove by a
preponderance of the evidence that a plan can be confirmed within a
time fixed by the court or within a reasonable time. In addition, the
debtor must establish that a reasonable justification supports its
action or omission that prompted the filing of the motion under section
1112(b) and that it will be cured by a date certain.
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(1) substantial or continuing loss to or diminution
of the estate;
(2) gross mismanagement of the estate;
(3) failure to maintain appropriate insurance;
(4) unauthorized use of cash collateral that is
harmful to creditors;
(5) failure to comply with a court order;
(6) failure to comply timely with any filing or
reporting requirement;
(7) failure to attend the section 341 meeting of
creditors;
(8) failure to provide timely information or to
attend meetings requested by the United States Trustee;
(9) failure to pay postpetition taxes when due;
(10) failure to file a disclosure statement or to
confirm a plan within the time fixed by a court;
(11) failure to pay any requisite fees or charges;
(12) revocation of a confirmation order;
(13) denial of confirmation of another plan or
modified plan;
(14) inability to effectuate substantial consummation
of a confirmed plan;
(15) material default by a debtor with respect to a
confirmed plan; and
(16) termination of a plan by reason of the
occurrence of a condition specified in the plan.
Section 243 also requires the bankruptcy court to hold a
hearing on a motion seeking either conversion or dismissal of
the case within 30 days of the filing of such motion. In
addition, the bankruptcy court is required to decide this
motion within 15 days following the commencement of the
hearing, unless the moving party expressly consents to a
continuance.
Should grounds exist for either conversion or dismissal of
the chapter 11 case, the bankruptcy court, under Section 243,
has the authority to appoint a chapter 11 trustee, if this is
in the best interests of creditors and the bankruptcy estate.
Chapter 2. Single Asset Real Estate Cases
A single asset real estate chapter 11 case presents special
concerns. As the name implies, the principal asset in this type
of case consists of some form of real estate, such as
undeveloped land, a shopping mall or building. Typically, the
form of ownership of a single asset real estate debtor is a
corporation or limited partnership. For tax planning purposes,
the limited partnership is formed to acquire the underlying
asset.
The largest creditor in a single asset real estate case is
usually the secured lender who advanced the funds to the debtor
to acquire the real property. Often, a single asset real estate
debtor resorts to filing for bankruptcy relief for the sole
purpose of staying an impending foreclosure proceeding or sale
commenced by the secured lender. Foreclosure actions are filed
when the debtor lacks sufficient cash flow to service the debt
and maintain the property. Taxing authorities may also have
liens against the property.
Based on the nature of its principal asset, a single asset
real estate debtor often has few, if any, unsecured creditors.
If unsecured creditors exist, they may have only nominal claims
against the single asset real estate debtor. Depending on the
nature and ownership of any business operating on the debtor's
real property, the debtor may have few, if any, employees.
Accordingly, there may be little interest on behalf of
unsecured creditors in a single asset real estate case to serve
on a creditors'' committee.
In 1994, the Bankruptcy Code was amended to accord special
treatment for a single asset real estate debtor. It defined
this type of debtor as a bankruptcy estate comprised of a
single piece of real property or project, other than
residential real property with fewer than four residential
units. The property or project must generate substantially all
of the debtor's gross income. A debtor that conducts
substantial business on the property beyond that relating to
its operation is excluded from this definition. In addition,
the definition fixed a monetary cap. To qualify as a single
asset real estate debtor, the debtor could not have
noncontingent, liquidated secured debts in excess of $4
million.102
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\102\ See 11 U.S.C. Sec. 101(51B).
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In addition, the 1994 amendments to the Bankruptcy Code
created two new alternativegrounds for relief from the
automatic stay as applied to single asset real estate debtors. For
creditors secured by an interest in the debtor's real property, relief
from the automatic stay is available if the debtor fails, within 90
days from entry date of the order for relief, to file a plan that has a
reasonable likelihood of being confirmed. Another ground is the
debtor's failure to commence making monthly payments to the secured
creditor (other than a creditor secured by virtue of a judgment lien or
unmatured statutory lien) within the same 90-day period. The amount of
the payment must equal the current fair market interest rate based on
the value of that creditor's claim against the property.103
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\103\ See 11 U.S.C. Sec. 362(d)(3).
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Last year, the House passed a bill that amended the
Bankruptcy Code's definition of a single asset real
estate.104 It increased the monetary cap from $4
million to $15 million, determined as of the date the case was
commenced. The Report accompanying this bill explained:
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\104\ Bankruptcy Amendments Act of 1997, H.R. 764, 105th Cong.
(1997).
The present $4 million cap prevents use of the
expedited relief procedure in many commercial property
reorganizations, and effectively provides an
opportunity for a number of debtors to abusively file
for bankruptcy in order to obtain the protection of the
automatic stay against their creditors. The bill raises
the ceiling to $15 million at this time, thereby
deferring the issue of eliminating the ceiling
altogether, as proposed in H.R. 764 as introduced, to a
later date.105
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\105\ H.R. Rep. No. 105-342, at 10 (1997).
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Section 251. Single asset real estate defined
Section 251 restructures the Bankruptcy Code's definition
of a single asset real estate debtor in several respects.
First, it eliminates the monetary cap from the definition.
Second, section 251 includes as part of the definition a
specific reference to undeveloped real property. Third, the
definition extends the ``substantial business'' requirement to
activities conducted by a commonly controlled group of entities
where they are all concurrently chapter 11 debtors.
Section 252. Payment of interest
Section 252 amends the automatic stay termination provision
that applies to single asset real estate debtors. Specifically,
it permits a debtor to make the requisite interest payments out
of rents or other proceeds generated by the real property. It,
however, changes the amount of these payments. Under section
252, the amount must equal the interest at the then-applicable
nondefault contract rate of interest based on the value of the
creditor's claim against the real estate.
TITLE III. MUNICIPAL BANKRUPTCY PROVISIONS
Section 301. Petition and proceedings
Chapter 9 is a form of bankruptcy relief that is only
available to municipalities. Section 301 clarifies that a court
must enter the order for relief for these cases.
TITLE IV. BANKRUPTCY ADMINISTRATION
Subtitle A. General Provisions
Section 401. Adequate preparation time for creditors before the first
meeting of creditors in individual cases
The Bankruptcy Code provides that a debtor must be examined
under oath by a bankruptcy trustee.106 Variously
known as the ``first meeting of creditors'' or ``section 341
meeting,'' creditors and other parties in interest are
permitted to attend this examination. At the section 341
meeting, creditors can question the debtor with regard to his
or her financial circumstances and eligibility for a discharge,
among other matters. Important deadlines, such as the time
within which to object to the debtor's discharge,107
obtain a determination of the nondischargeability of a
particular debt,108 or to file a proof of
claim,109 are based on the first date set for the
meeting of creditors. Pursuant to the Federal Rules of
Bankruptcy Procedure, the first meeting of creditors in a
chapter 7 or 11 case must be held not less than 20 days and not
more than 40 days following the order for relief.110
For chapter 13 cases, the requisite time period is between 20
and 35 days.
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\106\ 11 U.S.C. Sec. 343.
\107\ 11 U.S.C. Sec. 727(a); Fed. R. Bankr. P. 4004(a).
\108\ See, e.g., 11 U.S.C. Sec. 523(a)(2), (4), (6); Fed. R. Bankr.
P. 4007(c).
\109\ 11 U.S.C. Sec. 502; Fed. R. Bankr. P. 3002(a).
\110\ Fed. R. Bankr. P. 2003(a).
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For chapter 7, 11, or 13 cases filed by individual debtors,
section 401 amends section 341 of the Bankruptcy Code to
require that the first meeting of creditors be held not earlier
than 60 days and not later than 90 days following the order for
relief. This is intended to give creditors more time to prepare
for the first meeting of creditors. It also allows creditors
additional time to object to a debtor's discharge, oppose the
discharge of certain debts, and file proofs of claim.
Section 402. Creditor participation at first meeting of creditors
Section 402 permits pro se creditors to appear and
participate at the section 341 meeting of creditors in chapter
7 and 13 cases. Currently, some districts require corporate
creditors and others to be represented by counsel in legal
proceedings, such as the section 341 meeting of creditors. This
amendment allows creditors to save the cost of obtaining legal
representation to participate in the section 341 meeting.
Section 403. Filing proofs of claim
Currently, creditors in chapter 13 cases and in asset
chapter 7 cases must timely file proofs of claim to ensure that
they receive a distribution in the case. The filing of a proof
of claim is prima facie evidence of its validity and amount. In
chapter 11 cases, however, creditors are not required to file
proofs of claim if the debtor has scheduled their claims as
undisputed, noncontingent, and in a liquidated
amount.111
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\111\ 11 U.S.C. Sec. 1111(a). This, of course, presumes that the
creditor agrees with how the debt has been scheduled (e.g., priority or
general unsecured) and its amount.
---------------------------------------------------------------------------
Section 403 extends the procedure under chapter 11 to
chapter 7 and chapter 13 cases. As a result, creditors in
chapter 7 and 13 cases do not have to file proofs of claim if
their claims were scheduled as undisputed, noncontingent, and
in a liquidated amount. This amendment is intended to save
creditors the time and expense of having to file proofs of
claim.
Section 404. Audit procedures
Section 404 requires the Attorney General to establish
procedures for auditing the accuracy and completeness of
information supplied by individuals in connection with their
bankruptcy cases under chapter 7 and chapter 13 of the
Bankruptcy Code. The audit must be performed by independent
certified public accountants or independent licensed public
accountants pursuant to generally accepted auditing standards.
One in every 100 cases are to be selected on a randombasis for
audit. Procedures for fully funding such audits also must be
established.
Should the audit disclose a material misstatement with
regard to a debtor's income, expenses or assets, a statement
must be filed with the court specifying the facts constituting
the material misstatement. Notice thereof must also be provided
to the debtor's creditors. Where appropriate, the matter could
be referred to the United States Attorney for possible criminal
prosecution.
Section 405. Giving creditors fair notice in chapter 7 and chapter 13
cases
To ensure that a creditor receives proper notice, section
405 requires debtors to identify the account number for all
obligations and to supply the address as specified by the
creditor. Failure to do so invalidates any notice otherwise
provided to the creditor. In addition, noncompliance prevents
the imposition of sanctions against a creditor who violates the
automatic stay.112
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\112\ Under present law, an individual injured as a result of any
willful violation of the automatic stay is entitled to actual damages,
including costs and attorney's fees, and may recover punitive damages
in appropriate circumstances. 11 U.S.C. Sec. 362(h).
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Section 406. Debtor to provide tax returns and other information
To augment the integrity of the financial disclosure that
must be provided, section 406 requires the debtor to file the
following additional documents:
(1) Copies of all payment advices or other evidence
of payment from any employer within 60 days of the
bankruptcy filing.
(2) An itemized statement of the debtor's projected
net monthly income.
(3) If applicable, a statement of any extraordinary
circumstances with regard to the debtor's financial
condition.
(4) A statement disclosing any reasonable anticipated
increase in income that the debtor expects to receive
over the next 12 months.
(5) A certificate by the debtor's attorney or
petition preparer stating that the debtor received the
notice describing alternatives to bankruptcy relief (if
the debtor is pro se, then the debtor must state that
he or she received and read this notice).
Should a creditor request a copy of the debtor's petition,
schedules, or statement of financial affairs, the debtor would
be required to supply such copy, together with any amendments
to the subject document, within ten days of the request. This
requirement also applies to requests for copies of a chapter 13
debtor's plan.
In addition to these requirements, an individual chapter 7
or 13 debtor must provide to the United States Trustee copies
of all federal tax returns (including any schedules and
attachments) filed by the debtor for the three most recent
years preceding the commencement of the bankruptcy case. This
requirement also applies to tax returns that the debtor files
while his or her bankruptcy case is pending as well as to any
amendments to his or her tax returns. In turn, the United
States Trustee is required to make these tax returns available
to any party in interest upon request for inspection and
copying.
Additional requirements apply to chapter 13 debtors. A
chapter 13 debtor is required to file a copy of his or her tax
return 45 days before each anniversary of the plan's
confirmation date until the case is closed. In addition, the
chapter 13 debtor must submit a statement under penalty of
perjury regarding the debtor's income, expenditures for the
preceding year, and monthly net income, including the way in
which it was calculated.113
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\113\ The statement must disclose the amount and sources of the
debtor's income as well as identify any persons who contributed to the
debtor's household and the amounts they contributed.
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Section 407. Dismissal for failure to file schedules timely or provide
required information
Should an individual chapter 7 or 13 debtor fail to provide
any of the information required by Section 406 within 45 days
after the petition filing date, section 407 requires the
debtor's bankruptcy case to be automatically dismissed,
effective on the 46th day. No court order is necessary to
effectuate this dismissal.
Likewise, should an individual chapter 7 or 13 debtor fail
to perform certain enumerated duties, any party in interest may
request that the bankruptcy court order the debtor to comply
within a period not to exceed 30 days. Should the debtor
thereafter fail to comply, the court may enter an order
dismissing the debtor's bankruptcy case upon submission of a
certification of noncompliance by a party in interest.
Section 408. Adequate time to prepare for hearing on confirmation of
the plan
Section 408 requires the confirmation hearing in a chapter
13 case to be held not earlier than 20 days following the first
date set for the meeting of creditors and not later than 45
days from this date.
Section 409. Chapter 13 plans to have a five-year duration in certain
cases
Under the present law, the duration of a chapter 13 plan is
three years, unless the court, for cause, extends it to a
maximum of five years.114 To ensure that creditors
receive the maximum in a chapter 13 case, section 409 extends
the permissible duration of a chapter 13 plan under certain
circumstances. If the debtor's total current monthly income is
at least the national family median income or more, then the
duration of the chapter 13 plan may not exceed five years,
unless the court extends it to a maximum of seven years. If,
however, the debtor's total current monthly income is less than
the national family income, then the plan's length may not
exceed three years, unless the court for cause extends it to a
maximum of five years.
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\114\ 11 U.S.C. Sec. 1322(d).
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Section 410. Sense of the Congress regarding expansion of Rule 9011 of
the Federal Rules of Bankruptcy Procedure
To reaffirm the need for accuracy, completeness and
truthfulness of documents filed by debtors and their counsel,
section 410 provides that it is the sense of the Congress that
all such documents be submitted only after the debtor or the
debtor's attorney has made reasonable inquiry to verify the
information they contain.115 This requirement
applies to signed as well as unsigned documents.116
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\115\ One would be required to verify that the information
contained in such documents is well- grounded in fact and warranted by
existing law or a good faith argument for the extension, modification,
or reversal of existing law.
\116\ Federal Rule of Bankruptcy Procedure 9011 presently only
applies to signed documents.
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Section 411. Jurisdiction of courts of appeals
Currently, appeals from decisions rendered by the
bankruptcy court are either heard by the district court or a
bankruptcy appellate panel. In addition to the time and cost
factors attendant to the present appellate system, decisions
rendered by a district court as an appellate court are not
binding and lack stare decisis value.
To address these problems, section 411 permits appeals from
final bankruptcy court decisions in core proceedings to be
heard directly by the circuit court of appeals.117
In addition, section 411 establishes parameters governing
appeals of interlocutory orders.
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\117\ The National Bankruptcy Review Commission made a similar
recommendation. See National Bankruptcy Review Commission Report, at
752-67 (1997).
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Section 412. Establishment of Official Forms
To ensure greater compliance and uniformity, section 412
directs the Judicial Conference of the United States to issue
official forms that would effectuate the needs-based
eligibility formula.
Section 413. Elimination of certain fees payable in chapter 11
bankruptcy cases
Section 1930(6) of title 28 of the United States Code
requires a chapter 11 debtor to pay a quarterly fee to the
United States Trustee based on the amount of the debtor's
disbursements made during the quarter. This requirement applies
until the case is converted or dismissed and applies even after
confirmation until the case is closed.118
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\118\ Pub. L. 104-91, Sec. 101 (1996), as amended, Pub. L. No.104-
99, title II, Sec. 211 (1996).
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Section 413 limits this requirement's applicability to
small business debtors. Specifically, debtors with
disbursements of less than $300,000 would be required to pay
this fee only until the case is converted or confirmation is
obtained, whichever occurs first. For debtors having
disbursements of $300,000 or more, the requirement to pay these
quarterly fees would remain the same as under current law.
Subtitle B. Data Provisions
Section 441. Improved bankruptcy statistics
Section 441 requires the Executive Office for United States
Trustees to compile various statistics regarding chapter 7, 11,
and 13 cases and to make these data available to the public. In
addition, the Executive Office is required to report annually
to the Congress. The statistics that must be compiled under
section 441 include the following:
(1) the total assets and liabilities as scheduled by
the debtor;
(2) the debtor's total current monthly income,
projected monthly net income, and average expenses;
(3) the aggregate amount of debt discharged during
the reporting period;
(4) the average time between the filing of the
bankruptcy case and the closing of the case;
(5) information regarding reaffirmation agreements;
(6) for chapter 13 cases, information on the number
of orders determining the amount of secured claims and
on the number of cases dismissed for failure to make
payments under the plan; and
(7) for chapter 7 cases, the number of cases in which
the debtor had previously sought bankruptcy relief
within the six years preceding the filing of the
present chapter 7 case.
Section 442. Bankruptcy data
To implement the data gathering provisions of section 441,
section 442 requires the Attorney General to issue rules
establishing uniform forms for final reports filed by
bankruptcy trustees and monthly operating reports filed by
chapter 11 debtors in possession. It also specifies the
information that should be contained in these reports.
Section 443. Sense of the Congress regarding the availability of
bankruptcy data
Section 443 expresses the sense of the Congress that the
data so collected should be made available to the public in
electronic form and that a single bankruptcy data system should
be established. The public records pertaining to bankruptcy
cases should be released in a useable form in bulk to the
public subject to appropriate privacy safeguards.
TITLE V. TAX PROVISIONS
Section 501. Treatment of certain liens
Section 501 makes several changes to section 724 to provide
greater protection for ad valorem tax liens on real or personal
property of the estate. Although their subordination is still
possible under section 724(b), the purposes are more limited.
Subordination is permissible only to pay for chapter 7
administrative expenses, priority wage claims and priority
claims for contributions to employee benefit plans. Section 501
does not permit subordination for the purpose of paying chapter
11 administrative expenses. Also, section 501 requires the
chapter 7 trustee to utilize all other estate assets before he
or she could resort to section 724 to subordinate liens on
personal and real property of the estate.
In addition, Section 501 prevents a bankruptcy court from
determining the amount or legality of ad valorem tax
obligations if the applicable period for contesting or
redetermining the amount of the claim has expired. This
amendment addresses those instances where debtors or trustees
use section 505 of the Bankruptcy Code as a means to have
bankruptcy courts set aside these types of taxes, to the
detriment of the local communities that depend on them for
revenue.
Section 502. Enforcement of child and spousal support
Under section 522(c)(1) of the Bankruptcy Code, property
that a debtor exempts under section 522 is nevertheless liable
to nondischargeable tax and support debts under section
523(a)(1) and (5). Section 502 extends the scope of 522(c)(1)
by making property that is exempt under any other Federal or
state law nevertheless subject to nondischargeable tax and
support claims under Section 523(a) of the Bankruptcy Code.
Section 503. Effective notice to government
To ensure that government entities receive effective
notice, section 503 requires the debtor to provide specific
mailing and claim identification information for all government
creditors. The categories of information that a debtor must
supply include the following: (1) identification of the
department or agency of the governmental unit; (2) the debtor's
taxpayer identification number, if applicable; (3) reference
information such as permit, loan, account or contract number;
and (4) the basis of the claim. If the debtor's liability to a
governmental unit arises from a debt or obligation owed or
incurred by another entity, the debtor must identify such
entity. In addition, section 503 requires the bankruptcy clerk
to maintain a current list, updated quarterly, of addresses
designated by government units as ``safe harbor'' addresses for
service of notices in that district.
Should the debtor fail to provide notice to governmental
entities pursuant to the requirements of section 503, then such
notice is deemed to be ineffective unless the debtor could
demonstrate by clear and convincing evidence that timely notice
was given in a manner reasonably calculated to provide adequate
notice. This provision also protects governmental creditors
from the imposition of sanctions if they act in a way that is
detrimental to the estate, having failed to receive adequate
notice.119
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\119\ Under current law, for instance, a creditor who willfully
violates the automatic stay may be required to pay actual as well as
punitive damages for injuries resulting from such violation. 11 U.S.C.
Sec. 362(h).
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Section 504. Notice of request for a determination of taxes
Section 504 amends section 505 of the Bankruptcy Code by
requiring that notice of a request for a determination of taxes
comply with the taxing authority's notice
requirements.120 This amendment comports with
section 503 of H.R. 3150 requiring adequate notice to
governmental entities.
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\120\ The National Bankruptcy Review Commission made a similar
recommendation. See Report of the National Bankruptcy Review
Commission, at 951 (1997).
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Section 505. Rate of interest on tax claims
Section 505 creates a new provision in the Bankruptcy Code
specifying the rate of interest for tax claims. For ad valorem
tax claims, secured or unsecured, other unsecured tax claims
for which interest must be paid under Section 726(a)(5) of the
Bankruptcy Code, and secured tax claims, the rate is determined
under applicable nonbankruptcy law.
For prepetition unsecured tax claims to be paid under a
plan of reorganization, Section 505 of H.R. 3150 specifies that
the minimum rate of interest must be the Federal short-term
rate rounded to the nearest full percent as determined under
section 1274(d) of the Internal Revenue Code of 1986 for the
calendar month in which the plan is confirmed, plus three
percentage points.
Section 506. Tolling of priority of tax claim time periods
Section 506 of H.R. 3150 suspends the applicable time
periods under section 507(a)(8) of the Bankruptcy Code by six
months and for other matters. It provides how installment
agreements affect the tolling of priority tax claim time
periods. Specifically, it tolls this period for 30 days plus
the time that an installment agreement was pending during the
240-day period prior to the filing of the bankruptcy case. The
length of the tolling period can be up to one year. The
amendment also tolls the period for six months with regard to
collection actions pending within the 240-day period.
Section 507. Assessment defined
Although the Bankruptcy Code references the term
``assessment date'' for tax claims, it does not define this
term.121 Section 507 addresses this problem with
regard to both state and local taxes, as well as federal taxes,
by providing a definition for each. For purposes of state and
local taxes, assessment is defined as that point in time
``which is sufficiently final so that thereafter a taxing
authority may commence an action to collect the tax.'' For
federal tax purposes, section 507 defines assessment by
reference to the Internal Revenue Code.
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\121\ See, e.g., 11 U.S.C. Sec. Sec. 507(a)(8)(A)(ii),
1129(a)(9)(c).
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Section 507, in addition, clarifies the automatic stay
exception for tax assessments in section 362(b)(9)(D) of the
Bankruptcy Code. For purposes of section 363(b)(9)(D),
assessment is defined by applicable nonbankruptcy law.
Section 508. Chapter 13 discharge of fraudulent and other taxes
Debtors who seek bankruptcy relief under chapter 7 of the
Bankruptcy Code are not able to discharge certain types of tax
claims.122 Chapter 13 debtors, on the other hand,
can discharge these same tax claims. Section 508 modifies
chapter 13 to prevent the discharge of these tax claims.
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\122\ See 11 U.S.C. Sec. 523(a)(1).
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Section 509. Chapter 11 discharge of fraudulent taxes
Section 509 amends the discharge provisions of chapter 11
to prevent the discharge of tax or customs duty claims
resulting from a corporate debtor's fraudulent tax returns. It
also prevents the discharge of any unpaid tax obligations that
resulted from a corporate chapter 11 debtor's willful evasion
of applicable tax laws.
Section 510. The stay of proceedings in tax court
Upon the filing of a bankruptcy case, a broad stay of most
creditor collection actions immediately and automatically goes
into effect.123 Section 510 modifies the scope of
the automatic stay to provide that it only prevents the
commencement or continuation of tax proceedings for tax
liabilities incurred for a tax period ending before the date on
which the order for relief is entered. Section 510 also carves
out a specific exception from the automatic stay for appeals of
tax determinations by courts or administrative tribunals. Under
this provision, the automatic stay does not apply to an appeal
of a decision by either a court or administrative tribunal that
determines a tax liability of a debtor, regardless of whether
such determination was made pre- or postpetition.
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\123\ See 11 U.S.C. Sec. 362(a).
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Section 511. Periodic payment of taxes in chapter 11 cases
Section 1129(a)(9)(C) of the Bankruptcy Code requires, as a
condition of confirmation, that a chapter 11 plan must provide
for payment of priority tax claims over a period that does not
exceed six years from the date of assessment of such claims.
Section 511 specifies that these payments must be made paid in
regular cash installments not longer than three months apart.
The payments must begin on the plan's effective date and be
substantial and not disproportionate to all payments made to
other creditors under the chapter 11 plan. Section 511
specifically prohibits balloon payments. The six-year payment
period commences, under the amendment, as of the assessment
date of the tax claim.
For secured claims entitled to priority under section
507(a)(8), but for their secured status, the holder of such
claims must receive cash payments in accordance with section
1129(a)(9)(C) of the Bankruptcy Code, as amended by section
511.
Section 512. The avoidance of statutory tax liens prohibited
Section 512 of H.R. 3150 prevents the avoidance of
unperfected liens against a bona fide purchaser, if the
purchaser qualifies as such under section 6323 of the Internal
Revenue Code 124 or similar provisions of either
state or local law.
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\124\ Section 6323 of the Internal Revenue Code defines
``purchaser'' as a person who, for adequate consideration, acquires an
interest (other than a lien or security interest) in property, which is
valid under local law against subsequent purchasers without notice.
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Section 513. Payment of taxes in the conduct of business
Section 513 provides four additional protections to ensure
the payment of tax obligations in bankruptcy cases. First, it
requires bankruptcy trustees and chapter 11 debtors in
possession topay tax obligations in the course of the debtors'
business,125 with only one limited exception.126
Section 513 does not, however, require the payment of taxes if excused
under any provision of the Bankruptcy Code. In addition, it permits a
chapter 7 trustee to defer payment of a course-of-business tax if the
tax was not incurred by the trustee or if the court has determined that
there are insufficient funds in the estate to pay administrative
expenses.
---------------------------------------------------------------------------
\125\ Section 960 of Title 28 of the United States Code presently
requires bankruptcy trustees and debtors in possession to pay tax
obligations, but does not state how or when such payments must be made.
\126\ The exception applies to property of the estate, subject to a
secured property tax lien, that is abandoned.
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Second, section 513 clarifies that certain secured and
postpetition unsecured taxes incurred by a bankruptcy estate,
including property taxes, are entitled to administrative
expense priority. The present provisions of the Bankruptcy Code
do not so specify.127
---------------------------------------------------------------------------
\127\ See 11 U.S.C. Sec. 503(b)(1)(B). The National Bankruptcy
Review Commission recommended that postpetition ad valorem real estate
taxes be entitled to administrative expense status. See Report of the
National Bankruptcy Review Commission, at 956 (1997).
---------------------------------------------------------------------------
Third, section 513 eliminates the need for a governmental
unit to formally request payment of an administrative expense
relating to a tax liability or tax penalty. Under current law,
all holders of administrative expense claims must submit a
request for payment of such claims.
Four, section 513 amends section 506(b) of the Bankruptcy
Code, which determines the entitlement of secured claimants to
interest, fees, and costs pursuant to the underlying agreement.
Section 513 adds a reference to ``state statute'' to extend
this entitlement to state tax claimants.
Fifth, section 513 allows a trustee to recover from
property securing a claim for the payment of all ad valorem
property taxes relating to such property.
Section 514. Tardily filed priority tax claims
To receive a payment in an asset chapter 7 case, a creditor
must file a proof of claim.128 Once the case is
fully administered, the chapter 7 trustee prepares a final
report and account,129 which then is noticed to all
creditors and other parties in interest. Thereafter, the
chapter 7 trustee can commence making distribution to creditors
who have filed proofs of claim. Under current law, creditors
holding priority claims in asset chapter 7 cases must file
their proofs of claim before the date on which the trustee
commences making distribution to creditors in the estate.
Certain types of tax claims are entitled to priority
status.130
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\128\ See 11 U.S.C. Sec. 502.
\129\ See 11 U.S.C. Sec. 704(9).
\130\ See, e.g., 11 U.S.C. Sec. 507(a).
---------------------------------------------------------------------------
Section 514 permits a priority tax claim to be filed either
before the trustee commences distribution or ten days following
the mailing to creditors of the summary of the trustee's final
report, whichever is earlier.
Section 515. Income tax returns prepared by tax authorities
Section 523(a)(1) of the Bankruptcy Code prevents the
discharge of certain types of tax claims. Section 515 of H.R.
3150 extends the nondischargeability provisions of section
523(a)(1) to obligations based on income tax returns prepared
by tax authorities as well as to certain reports and notices.
Section 516. The discharge of the estate's liability for unpaid taxes
Section 505(b) of the Bankruptcy Code provides for the
discharge of tax liability for bankruptcy trustees and debtors
after the passage of a stated period of time following a
request made to a government unit for a determination of such
liability. Section 516 of H.R. 3150 extends the applicability
of section 505(b) to bankruptcy estates.
Section 517. Requirement to file tax returns to confirm chapter 13
plans
Section 517 requires chapter 13 debtors to file tax returns
and institute enforcement mechanisms to ensure
compliance.131 First, section 517 creates an
additional requirement for plan confirmation. Namely, the
debtor must file all prepetition tax returns for the six-year
period ending prior to the filing of the chapter 13
case.132 Second, the returns must be filed within
120 days from the date set for the first meeting of creditors.
A chapter 13 debtor could apply for an extension of this time
period upon showing by clear and convincing evidence that the
failure to file the returns was due to circumstances beyond his
or her control. Third, the failure to comply with this
provision constitutes cause warranting dismissal or conversion
of the chapter 13 case. Fourth, section 517 extends the
applicable time periods pertaining to the allowance and
disallowance of tax claims that are the subject of tax returns.
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\131\ Report of the National Bankruptcy Review Commission, at 961-
65 (1997).
\132\ For purposes of this provision, a ``return'' includes one
prepared under section 6020(a) or (b) of the Internal Revenue Code or
similar state or local law. In addition, it also includes a judgment
entered by a nonbankruptcy tribunal.
---------------------------------------------------------------------------
Section 518. Standards for tax disclosure
A key component of the plan confirmation process in chapter
11 cases is the disclosure statement. The disclosure statement
is a document that must be sent to creditors and other parties
in interest who are affected by a chapter 11
plan.133 The purpose of the disclosure statement is
to provide adequate information about the plan so that those
who are affected by it can make an informed judgment about the
plan.134
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\133\ See 11 U.S.C. Sec. 1125(b).
\134\ See 11 U.S.C. Sec. 1125(a).
---------------------------------------------------------------------------
Section 518 of H.R. 3150 mandates that the disclosure
statement include a full discussion of the potential material
consequences of the plan with regard to Federal, state, and
local taxes to the debtor and a hypothetical investor typical
of creditors and interest holders in the case domiciled in the
state in which the debtor resides or has its principal place of
business.135
---------------------------------------------------------------------------
\135\ The National Bankruptcy Review Commission made a similar
recommendation. See Report of the National Bankruptcy Review
Commission, at 960 (1997).
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Section 519. Setoff of tax refunds
The automatic stay prevents the commencement and
continuation of various efforts by creditors to collect
prepetition obligations against either the debtor or the
debtor's property.136 At present, the Bankruptcy
Code enumerates nearly 20 exceptions to the automatic
stay.137
---------------------------------------------------------------------------
\136\ See 11 U.S.C. Sec. 362(a).
\137\ See 11 U.S.C. Sec. 362(b).
---------------------------------------------------------------------------
Section 519 of H.R. 3150 creates a further exception to the
automatic stay. It allows a governmental unit to set off an
income tax refund relating to a prepetition tax period against
a prepetition income tax liability for a prepetition tax
period.138
---------------------------------------------------------------------------
\138\ The National Bankruptcy Review Commission made a similar
recommendation. See Report of the National Bankruptcy Review
Commission, at 818-22 (1997).
---------------------------------------------------------------------------
TITLE VI--ANCILLARY AND OTHER CROSS-BORDER CASES
Title VI of H.R. 3150 adds a new chapter to the Bankruptcy
Code for transnational bankruptcy cases. This incorporates the
Model Law on Cross-Border Insolvency to encourage cooperation
between the United States and foreign countries with respect to
transnational insolvency cases. Title VI is intended to provide
greater legal certainty for trade and investment as well as to
provide for the fair and efficient administration of cross-
border insolvencies, which protects the interests of creditors
and other interested parties, including the debtor. In
addition, it serves to protect and maximize the value of
debtor's assets.
Section 601. Purpose and Scope of Application
The chapter introduces into the Bankruptcy Code the Model
Law on Cross-Border Insolvency (``Model Law''), which was
promulgated by the United Nations Commission on International
Trade Law (``UNCITRAL'') at its Thirtieth Session, May 12-30,
1997.139
---------------------------------------------------------------------------
\139\ The text of the Model Law and the Report of UNCITRAL on its
adoption are found at U.N. G.A., 52d Sess., Supp. No. 17 (A/52/17)
[``Report'']. That Report and the Guide to Enactment of the UNCITRAL
Model Law on Cross-Border Insolvency, U.N. Gen. Ass., UNCITRAL 30th
Sess. U.N. Doc. A/CN.9/442 (1997) [``Guide''], which was discussed in
the negotiations leading to the Model Law and published by UNCITRAL as
an aid to enacting countries, should be consulted for guidance as to
the meaning and purpose of its provisions. The development of the
provisions in the negotiations at UNCITRAL, in which the United States
was an active participant, is recounted in the interim reports of the
Working Group that are cited in the Report.
---------------------------------------------------------------------------
Cases brought under this chapter are intended to be
ancillary to cases brought in a debtor's home country, unless a
full United States bankruptcy case is brought under another
chapter. Even if a full case is brought, the court may decide
under section 305 to stay or dismiss the United States case
under the other chapter and limit the United States' role to an
ancillary case under this chapter.140 In any case, a
petition for recognition is required as a prerequisite to the
use of sections 301 and 303 by a foreign representative.
---------------------------------------------------------------------------
\140\ See section 629 and commentary.
---------------------------------------------------------------------------
Section 601 combines the Preamble to the Model Law
(subsection 1) with its article 1 (subsections 2 and
3).141 It largely follows the language of the Model
Law, except that it adds in subsection 3 an exclusion of
certain natural persons who may be considered ordinary
consumers. Although the consumer exclusion is not in the text
of the Model Law, the discussions at UNCITRAL recognized that
some such exclusion would be necessary in countries like the
United States where there are special provisions for consumer
debtors in the insolvency laws.142 The reference to
section 109(e) incorporates the debt limitations of that
section, but not its requirement of regular income. The
exclusion adds a requirement that the debtor or debtor couple
be citizens or long-term legal residents of the United States.
This ensures that residents of other countries will not be able
to manipulate this exclusion to avoid recognition of foreign
proceedings in there home countries or elsewhere.
---------------------------------------------------------------------------
\141\ Guide at 16-19.
\142\ See id. at 18 para. 60; 19 para. 66.
---------------------------------------------------------------------------
The first exclusion in subsection 3 constitutes for the
United States, the exclusion provided in article 1, subsection
2, of the Model Law.143 The reference to section
109(b) covers entities governed by different insolvency regimes
under United States law and therefore excluded from liquidation
proceedings under Title 11.
---------------------------------------------------------------------------
\143\ Id. at 17.
---------------------------------------------------------------------------
Section 602. Definitions
``Debtor'' is given a special definition for this chapter.
That definition does not come from the Model Law but is
necessary to eliminate the need to refer repeatedly to ``the
same debtor as in the foreign proceeding.'' With certain
exceptions, the term ``person'' in the Model Law has been
replaced with ``entity,'' which is defined broadly in section
101(15) to include natural persons and various legal entities,
thus matching the intended breadth of the term ``person'' in
the Model Law. The exceptions include contexts in which a
natural person is intended and those in which the Model Law
language already refers to both persons and entities other than
persons. The definition of ``trustee'' for this chapter ensures
that debtors in possession and debtors; as well as trustees,
are included in the term.144
---------------------------------------------------------------------------
\144\ See section 605.
---------------------------------------------------------------------------
The definition in subsection (g) is not taken from the
Model Law. It has been added because the United States, like
some other countries, asserts insolvency jurisdiction over
property outside its territorial limits under appropriate
circumstances. Thus a limiting phrase is useful where the Model
Law and this chapter intend to refer only to property within
the territory of the enacting state.
Two key definitions, of ``foreign proceeding'' and
``foreign representative,'' are found in subsections 101(24)-
(25), which have been amended consistent with Model Law Article
2.145
---------------------------------------------------------------------------
\145\ Guide at 19-21 paras. 67-68.
---------------------------------------------------------------------------
The definitions ``establishment,'' ``foreign court,''
``foreign main proceeding,'' and ``foreign non-main
proceeding'' have been taken from Model Law Article 2, which
varies in language only as necessary to comport with United
States law. Additionally, defined terms have been placed in
alphabetical order.146 In order to at least be
recognized as a foreign non-main proceeding, the debtor must at
least have an establishment in that foreign
country.147
---------------------------------------------------------------------------
\146\ See Guide at 19, (Model Law) 21 para 75 (concerning
establishment) 21 para. 74 (concerning foreign court) 21 paras. 72, 73
and 75 (concerning foreign main and non-main proceedings).
\147\ See id. at 21 para. 75.
---------------------------------------------------------------------------
Section 603. International obligations of the United States
This section is taken exactly from the Model
Law.148 Although this section makes an international
obligation prevail, the courts will attempt to read the Model
Law and the international obligation so as not to conflict,
especially if the international obligation addresses a subject
matter less directly related than the Model Law to a case
before the court.
---------------------------------------------------------------------------
\148\ See id. at 22 Art. 63.
---------------------------------------------------------------------------
Section 604. Commencement of Ancillary Case
This section paraphrases current section 304(a), which is
repealed. Article 4 of the Model Law is designed for
designation of the competent court, which in United States law
is done in subsection 1334(a) in title 28, which gives
exclusive jurisdiction to the district courts in a ``case''
under this title.149 Therefore, this section
provides that a petition for recognition opens a ``case,'' an
approach that also invokes a number of other useful procedural
provisions. In addition, a new subsection (P) to section 157 of
title 28 makes cases under this chapter part of the core
jurisdiction of bankruptcy courts when referred to them by the
district courts, thus completing the designation of the
competent court. Finally, the particular bankruptcy court that
will rule on the petition is determined pursuant to section
1410 of title 28 governing venue and transfer.
---------------------------------------------------------------------------
\149\ See id. at 23 (Article 4).
---------------------------------------------------------------------------
The title ``ancillary'' in this section and in the title of
this chapter emphasizes the United States policy in favor of a
general rule that countries other than the home country of the
debtor, where a main proceeding would be brought, should
usually act through ancillary proceedings in aid of the main
proceedings, in preference to a system of full bankruptcies
(often called ``secondary'' proceedings) in each state where
assets are found. Under the Model Law, full bankruptcy cases
are permitted in each country (see sections 628 and 629), but
in the United States, the court will have the power to suspend
or dismiss such cases where appropriate under section 305.
Additional assistance under the successor provision to
current section 304 is set forth in section 607.
Section 605. Authorization to act in a foreign country
The language in this section varies from the wording of
article 5 of the Model Law only as necessary to comport with
United States law. In addition, the slight alteration to the
language in the last sentence is meant to make it clear that
the identification of the entity entitled to act is under
United States law, while the scope of actions that may be taken
by an estate representative under foreign law is limited by
that foreign law.150 The related amendments to
chapters 7 and 13 make acting pursuant to authorization under
this section an additional power of a trustee or debtor in
possession.
---------------------------------------------------------------------------
\150\ Id. at 24.
---------------------------------------------------------------------------
This section requires all trustees and debtors to obtain
court approval before acting abroad. That requirement is a
change from the language of the Model Law, but one that is
purely internalto United States law.151 Its main
purpose is to ensure that the court has knowledge and control of
possibly expensive activities, but it will have the collateral benefit
of providing further assurance to foreign courts that the United States
debtor or representative is under judicial authority and supervision.
This requirement means that the first-day order in reorganization cases
should include authorization to act under this section where
appropriate.
---------------------------------------------------------------------------
\151\See id. at 24 (Article 5).
---------------------------------------------------------------------------
This section also contemplates the designation of an
examiner or other natural person to act for the estate in one
or more foreign countries where appropriate. One instance might
be a case in which the designated person had a special
expertise relevant to that assignment. Another might be where
the foreign court would be more comfortable with a designated
person than with an entity like a debtor in possession. Either
are to be recognized under the Model Law.152
---------------------------------------------------------------------------
\152\See id at 23-24 and para. 82.
---------------------------------------------------------------------------
Section 606. Public policy exception
This provision follows the Model Law Article 5 exactly and
is standard in UNCITRAL texts and has been narrowly interpreted
on a consistent basis in courts around the world. The word
``manifestly'' in international usage restricts the public
policy exception to the most fundamental policies of the United
States.153
---------------------------------------------------------------------------
\153\See id. at 25.
---------------------------------------------------------------------------
Section 607. Additional assistance
Subsection 1 follows the language of Model Law Article 7.
154 Subsection 2 makes the authority for additional
relief subject to existing United States law under section 304,
which is repealed. This section is intended to permit the
further development of international cooperation begun under
section 304, but is not to be the basis for denying or limiting
relief otherwise available under this chapter. The additional
assistance is made conditional upon the court's consideration
of the factors set forth in the current subsection 304(c) in a
context of a reasonable balancing of interests following
current case law. The references to ``estate'' in the current
subsection have been changed to refer to the debtor's property,
because many foreign systems do not create an estate in
insolvency proceedings of the sort recognized under this
chapter. Although the case law construing section 304 clearly
makes comity the central consideration, its physical placement
as one of six factors in subsection c of section 304 is
misleading. Therefore, in subsection 2 of this section, comity
is raised to the introductory language to make it clear that it
is the central concept to be addressed.
---------------------------------------------------------------------------
\154\Id. at 26
---------------------------------------------------------------------------
Section 608. Interpretation
This provision follows exactly Model Law Article 8 and is a
standard one in recent UNCITRAL treaties and model
laws.155 Interpretation of this chapter on a uniform
basis will be aided by reference to the Guide and the Reports
cited therein, which explain the reasons for the terms used and
often cite their origins as well. Uniform interpretation will
also be aided by reference to CLOUT, the UNCITRAL Case Law On
Uniform Texts, which is a service of UNCITRAL. CLOUT receives
reports from national reporters all over the world concerning
court decisions interpreting treaties, model laws, and other
text promulgated by UNCITRAL. Not only are these sources
persuasive, but they are important to the crucial goal of
uniformity of interpretation. To the extent that the United
States courts rely on these sources, their decisions will more
likely be regarded as persuasive elsewhere.
---------------------------------------------------------------------------
\155\Id. at 26 paras. 91-91.
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Section 609. Right of direct access
This section follows the intent of article 9 of the Model
Law, but varies the language to fit United States procedural
requirements.156 Subsections 2 and 3 give the
foreign representative full legal capacity under United States
law, but also make the representative's operations in the
United States subject to generally applicable United States
laws, just as 28 U.S.C. Sec. 959 does for domestic trustees in
bankruptcy.
---------------------------------------------------------------------------
\156\ Id. at 27 para. 93.
---------------------------------------------------------------------------
Subsections 4 and 5 make it clear that Chapter 6 is
intended to be the exclusive door to ancillary assistance to
foreign proceedings. The goal is to concentrate control of
these questions in one court. That goal is important in a
federal state like the United States with many different
courts, state and federal, that may have pending actions
involving the debtor or the debtor's property. This section,
therefore, completes for the United States the work of article
4 of the Model Law (``competent court'') as well as article 9.
157
---------------------------------------------------------------------------
\157\See id. 23, (Article 4, para. 79-83) 27 (Article 9, para. 93).
---------------------------------------------------------------------------
Although a petition under current section 304 is the proper
method for achieving deference by a United States court to a
foreign insolvency under present law, some cases in state and
federal courts under current law have granted suspension or
dismissal of cases involving foreign proceedings without
requiring a section 304 petition or even referring to the
requirements of that section. Even if the result is correct in
a particular case, the procedure is undesirable, because there
is room for abuse of comity. Parties would be free to avoid the
requirements of this chapter and the expert scrutiny of the
bankruptcy court by applying directly to a state or federal
court unfamiliar with the statutory requirements. Such an
application could be made after denial of a petition under this
chapter. This section concentrates the recognition and
deference process in one United States court, ensures against
abuse, and empowers a court that will be fully informed of the
current status of all foreign proceedings involving the
debtor.158
---------------------------------------------------------------------------
\158\See id. at 27 (Article 9), 34-35 (Article 15 and paras. 116-
119-35), 39-40 (Article 18, paras. 133-134); see also subsection 615(3)
and section 618.
---------------------------------------------------------------------------
Subsection 5 has been added to ensure that a foreign
representative cannot seek relief incourts in the United States
after being denied recognition by the court under this chapter.
Section 610. Limited jurisdiction
Section 610, article 10 of the Model Law, is modeled on
section 306 of the Code, which has been repealed.159
Although the language referring to conditional relief in
section 306 is not included, the court has the power under
section 622 to attach appropriate conditions to any relief it
may grant. Nevertheless, the authority in section 622 is not
intended to permit the imposition of jurisdiction over the
foreign representative beyond the boundaries of the case under
this chapter and any related actions the foreign representative
may take, such as commencing a case under another chapter of
this title.
---------------------------------------------------------------------------
\159\ Id. at 27, 28 paras. 94-96.
---------------------------------------------------------------------------
Section 611. Commencement of case under Section 301 or 303
This section follows the intent of article 11 of the Model
Law, but adds language that is necessary in the United States
given its many different courts and the importance of full
information and coordination among them.160 Article
11 does not distinguish between voluntary and involuntary
proceedings, but seems to have implicitly assumed an
involuntary proceeding.161
---------------------------------------------------------------------------
\160\ See id. at 28 (Article 11).
\161\ Id. at 38 paras. 97-99.
---------------------------------------------------------------------------
Subsection 1(b) goes farther and permits a voluntary
filing, with its much simpler requirements, if the foreign
proceeding is a main proceeding.
Section 612. Participation of a foreign representative in a case under
this title
This section follows article 12 of the Model Law with a
slight alteration to tie into United States procedural
terminology.162 The effect of this section is to
make the recognized foreign representative a party in interest
in any pending or later commenced United States bankruptcy
case.163 Throughout this chapter, the word ``case''
has been substituted for the word ``proceeding'' in the Model
Law when referring to cases under the United States Bankruptcy
Code, to conform to United States usage.
---------------------------------------------------------------------------
\162\ Id. at 29 (Article 12).
\163\ Id. at 29 paras. 10-102.
---------------------------------------------------------------------------
Section 613. Access of foreign creditors to a case under this title
This section mandates nondiscriminatory or ``national''
treatment for foreign creditors, except as provided in
subsection 2 and section 614. It follows the intent of Model
Law Article 13, but the language required alteration to fit
into the Bankruptcy Code.164
---------------------------------------------------------------------------
\164\ Id. at 30 para. 103.
---------------------------------------------------------------------------
The law as to priority for foreign claims that fit within a
class given priority treatment under section 507 (for example,
foreign employees or spouses) is unsettled. This section
permits the continued development of case law on that subject
and its general principle of national treatment should be an
important factor to be considered. At a minimum, under this
section, foreign claims must receive the treatment given to
general unsecured claims without priority, unless they are in a
class of claims in which domestic creditors would also be
subordinated.165
---------------------------------------------------------------------------
\165\ See id. at 30 para. 104.
---------------------------------------------------------------------------
The Model Law allows for an exception to nondiscrimination
as to foreign revenue and other public law
claims.166 Such claims (such as tax and social
security claims) have been denied enforcement in the United
States traditionally, inside and outside of bankruptcy. The
Code is silent on this point, so the rule is purely a matter of
traditional case law. It is not clear if this policy should be
maintained or modified, so this section leaves it to developing
case law. It also allows the Department of Treasury to
negotiate reciprocal arrangements with our tax treaty partners
in this regard, although it does not mandate any restriction of
the evolution of case law pending such negotiations.
---------------------------------------------------------------------------
\166\ See id. at 31 para. 105.
---------------------------------------------------------------------------
Section 614. Notification of foreign creditors concerning a case under
title 11
This section ensures that foreign creditors receive proper
notice of cases in the United States.167 As
``foreign creditor'' is not a defined term, foreign addresses
are used as the distinguishing factor. The Federal Rules of
Bankruptcy Procedure should be amended to conform to the
requirements of this section, including a special form for
notice to such creditors. In particular, the rules must provide
for additional time for such creditors to file proofs of claim
where appropriate and must provide for the court to make
specific orders in that regard in proper circumstances. Of
course, if a foreign creditor has made an appropriate request
for notice, it will receive notices in every instance where
notices would be sent to other creditors who have made such
requests. The notice must specify that secured claims must be
asserted, because in many countries such claims are not
affected by an insolvency proceeding and need not be
filed.168
---------------------------------------------------------------------------
\167\ See Model Law Article 14 and Guide at 31-32 paras. 106-109.
\168\ Guide at 33 para. 111.
---------------------------------------------------------------------------
Subsection 4 replaces the reference to ``a reasonable time
period'' in Model Law article 14(3)(a).169 It makes
clear that the Federal Rules of Bankruptcy Procedure, local
rules, and court orders must make appropriate adjustments in
time periods and bar dates so that foreign creditors have a
reasonable time within which to receive notice or take an
action.
---------------------------------------------------------------------------
\169\ Id. at 31 (Article 14(3)(a)).
---------------------------------------------------------------------------
Section 615. Application for recognition of a foreign proceeding
This section follows article 15 of the Model Law with minor
changes.170 The rules will require amendment to
provide forms for some or all of the documents mentioned in
this section, to make necessary additions to rules 1000 and
2002 of the Federal Rules of Bankruptcy Procedure to facilitate
appropriate notices of the hearing on the petition for
recognition, and to require filing of lists of creditors and
other interested persons who should receive notices. Throughout
the Model Law, the question of notice procedure is left to the
law of the enacting state.171
---------------------------------------------------------------------------
\170\ Id. at 33.
\171\ See id. at 36 para. 121.
---------------------------------------------------------------------------
Section 616. Presumptions concerning recognition
This section follows article 16 of the Model Law with minor
changes.172 Although sections 615 and 616 are
designed to make recognition as simple and expedient as
possible, the court may hear proof on any element stated. The
ultimate burden as to each element is on the foreign
representative, although the court is entitled to shift the
burden to the extent indicated in section 616. The word
``proof'' in subsection 3 has been changed to ``evidence'' to
make it clearer using United States terminology that the
ultimate burden is on the foreign representative.173
``Registered office'' is the term used in the Model Law to
refer to the place of incorporation or the equivalent for an
entity that is not a natural person.174 The
presumption that the place of the registered office is also the
center of the debtor's main interest is included for speed and
convenience of proof where there is no serious controversy.
---------------------------------------------------------------------------
\172\ Id. at 36.
\173\ Id. at 36 (Article 16(3)).
\174\ Id. at 36 (Article 16(3)).
---------------------------------------------------------------------------
Section 617. Order recognizing a foreign proceeding
This section closely follows article 17 of the Model Law,
with a few exceptions.175 The decision to grant
recognition is not dependent upon any findings about the nature
of the foreign proceedings of the sort previously mandated by
section 304(c). The requirements of this section, which
incorporates the definitions in section 602 and subsections
101(23)-(24), are all that must be fulfilled to attain
recognition.
---------------------------------------------------------------------------
\175\ Id. at 37.
---------------------------------------------------------------------------
The drafters of the Model Law understood that only a main
proceeding or a non-main proceeding meeting the standards of
section 602 (that is, one brought where the debtor has an
establishment) were entitled to recognition under this section.
The Model Law has been slightly modified to make this point
clear by referring to the section 602 definition of main and
non-main proceedings, as well as to the general definition of a
foreign proceeding in section 101(23). Naturally, a petition
under section 615 must show that proceeding is a main or a
qualifying non-main proceeding in order to win recognition
under this section.
Consistent with the position of various civil law
representatives in the drafting of the Model Law, recognition
creates a status with the effects set forth in section 620, so
those effects are not viewed as orders to be modified, as are
orders granting relief under sections 619 and 621. Subsection 4
states the grounds for modifying or terminating recognition. On
the other hand, the effects of recognition are subject to
modification under section 362(d), made applicable by section
620(2), which permits lifting the stay of section 620 for
cause.
Paragraph 1(d) of the Model Law has been omitted as an
unnecessary requirement for United States purposes, because a
petition submitted to the wrong court will be dismissed or
transferred under other provisions of United States
law.176 The reference to section 350 refers to the
routine closing of a case that has been completed and will
invoke requirements including a final report from the foreign
representative in such form as the rules or a court order may
provide.
---------------------------------------------------------------------------
\176\ Id. at 37 (Article 17(1)(d)).
---------------------------------------------------------------------------
Section 618. Subsequent information.
This section follows the Model Law, except to eliminate the
word ``same'' which is rendered unnecessary by the definition
of ``debtor'' in section 602 and to provide for a formal
document to be filed with the court.177 Judges in
several jurisdictions, including the United States, have
reported to need for a requirement of complete and candid
reports to the court of all proceedings, worldwide, involving
the debtor. This provision will ensure that such information is
provided to the court on a timely basis. Any failure to comply
with this section will be subject to the sanctions available to
the court for violations of the statute. The section leaves to
the Rules the form of the required notice and related questions
of notice to parties in interest, the time for filing, and the
like.
---------------------------------------------------------------------------
\177\ Id. at 39-40 paras. 133-134.
---------------------------------------------------------------------------
Section 619. Relief that may be granted upon petition for recognition
of a foreign proceeding
This section generally follows article 19 of the Model
Law.178 The bankruptcy court will have jurisdiction
to grant emergency relief under Rule 7065 pending a hearing on
the petition for recognition. This section does not expand or
reduce for cases under section 105 nor does it modify the sweep
of sections 555 to 560.
---------------------------------------------------------------------------
\178\ Id. at 40.
---------------------------------------------------------------------------
Section 620. Effects of recognition of a foreign main proceeding
In general, this chapter sets forth all the relief that is
available as a matter of right based upon recognition
hereunder, although additional assistance may be provided under
section 607 and this chapter has no effect on any relief
currently available under section 105.
Subsection (1)(a) combines subsection 1(a) and (b) of
article 20 of the Model Law, because section 362 imposes the
restrictions required by those two subsections and additional
restrictionsas well.179 Subsection (1)(b) applies
the Code sections that impose the restrictions called for by subsection
1(c) of the Model Law. In both cases, the provisions are broader and
more complete than those contemplated by the Model Law, but include all
the restraints the Model Law provisions would impose.180 As
the foreign proceeding may or may not create an ``estate'' similar to
that created in cases under this title, the restraints are applicable
to actions against the debtor under section 362(a) and with respect to
the property of the debtor under the remaining sections. The only
property covered by this section is property within the territorial
jurisdiction of the United States as defined in section 602. To achieve
effects on property of the debtor which is not within the territorial
jurisdiction of the United States, the foreign representative would
have to commence a case under another chapter of this title.
---------------------------------------------------------------------------
\179\ Id. at 42 (Article 20 1(a), (b)).
\180\ Id. at 42-45.
---------------------------------------------------------------------------
Subsection 2 makes applicable the United States exceptions
and limitations to the restraints imposed on creditors,
debtors, and other in a case under this title, as stated in
article 20(2) of the Model Law.181 These exceptions
and limitations include those set forth in subsections 362 (b),
(c) and (d). As one result, the court has the power to
terminate the stay pursuant to section 362(d), for cause.
---------------------------------------------------------------------------
\181\ Id. at 42 (Article 20(2)); 44, paras. 148-150.
---------------------------------------------------------------------------
Section 108 of the Bankruptcy Code provides the tolling
protection intended by Model Law article 20(3), so no exception
is necessary as to claims that might be extinguished under
United States law.182 Subsection 3 permits suits in
other countries to the extent such suits are required to
preserve the existence of a claim.
---------------------------------------------------------------------------
\182\ Id. at 42 (Article 20(3)) and 44-45 paras. 151-152.
---------------------------------------------------------------------------
Section 621. Relief that may be granted upon recognition of a foreign
proceeding
This section follows article 21 of the Model Law, with
detailed changes to fit United States law.183 The
exceptions in subsection (1)(g) relate to avoiding powers. The
foreign representative's status as to such powers is governed
by section 623 below. The avoiding power in section 549 and the
exceptions to that power are covered by section 620(1)(b).
---------------------------------------------------------------------------
\183\ Id. at 45-46 (Article 21).
---------------------------------------------------------------------------
The word ``adequately'' in the Model Law, articles 21(2)
and 22(1), has been changed to ``sufficiently'' in subsections
621(2) and 622(1) to avoid confusion with a very specialized
legal term in United States bankruptcy, ``adequate
protection.'' 184
---------------------------------------------------------------------------
\184\ Id. at 46 (Article 21(2), 47 (Article 22(1)).
---------------------------------------------------------------------------
Subsection (3) is designed to limit relief to assets having
some direct connection with a non-main proceeding, for example
where they were part of an operating division in the
jurisdiction of the non-main proceeding when they were
fraudulently conveyed and then brought to the United
States.185
---------------------------------------------------------------------------
\185\ See id. at 46-47, paras. 158-160.
---------------------------------------------------------------------------
This section does not expand or reduce the scope of relief
currently available in ancillary cases under sections 105 and
304 nor does it modify the sweep of sections 555 through 560.
Section 622. Protection of creditors and other interested persons
This section follows article 22 of the Model Law
exactly.186 It gives the bankruptcy court broad
latitude to mold relief to circumstances, including appropriate
responses if it is shown that the foreign proceeding is
seriously and unjustifiably injuring United States creditors.
For response to a showing that the conditions necessary to
recognition did not actually exist or have ceased to exist, see
section 617. Concerning the change of ``adequately'' in the
Model Law to ``sufficiently'' in this section, see section 621.
---------------------------------------------------------------------------
\186\ Id. at 47.
---------------------------------------------------------------------------
Section 623. Actions to avoid acts detrimental to creditors
This section follows article 23 of the Model Law, with
wording to fit it within procedure under this
title.187 It merely confers standing on a recognized
foreign representative to assert an avoiding action in a
pending case under another chapter of this title. It does not
create or establish any legal right of avoidance nor does it
create or imply any legal rules with respect to the choice of
applicable law as to the avoidance of any transfer or
obligation.188 The courts will determine the nature
and extent of any such action and what national law may be
applicable to such action.
---------------------------------------------------------------------------
\187\ Id. at 48-49.
\188\ See id. at 49, para. 166.
---------------------------------------------------------------------------
Section 624. Intervention by a foreign representative
The wording is the same as the Model Law, except for a few
clarifying words.189 This section gives the foreign
representative the right to intervene in United States cases,
state or federal, where the debtor is a party. Recognition
being an act under federal bankruptcy law, it must take effect
in state as well as federal courts. This section does not
require substituting the foreign representative for the debtor,
although that result may be appropriate in some circumstances.
---------------------------------------------------------------------------
\189\ Id. at 49.
---------------------------------------------------------------------------
Section 625. Cooperation and direct communication between the court and
foreign courts or foreign representatives
The wording is almost exactly that of the Model
Law.190 The right of courts to communicate with
other courts in worldwide insolvency cases is of central
importance. This section authorizes courts to do so. This right
must be exercised, however, with due regard to the rights of
the parties. Guidelines for such communications are left to the
rules.
---------------------------------------------------------------------------
\190\ Id. at 50.
---------------------------------------------------------------------------
Section 626. Cooperation and direct communication between the trustee
and foreign courts or foreign representatives
This section follows the Model Law almost
exactly.191 The language in Model Law Article 26
concerning the trustee's function was eliminated as unnecessary
because always implied under United States law. The section
authorizes the trustee, including a debtor in possession, to
cooperate with other proceedings.
---------------------------------------------------------------------------
\191\ Id. at 51.
---------------------------------------------------------------------------
Subsection (3) is not taken from the Model Law but is added
so that any examiner appointed under this chapter will be
designated by the United States Trustee and will be bonded.
Section 627. Forms of cooperation
This section follows the Model Law exactly. Guide at 51-53.
United States bankruptcy courts have already engaged in most of
the forms of cooperation mentioned here, but they now have
explicit statutory authorization for acts like the approval of
protocols of the sort used in cases.192
---------------------------------------------------------------------------
\192\ See e.g., In re Maxwell Communication Corp., 93 F.3d 1036 (2d
Cir. 1996).
---------------------------------------------------------------------------
Section 628. Commencement of a case under title 11 after recognition of
a foreign main proceeding
This section follows the Model Law, with specifics of
United States law replacing the general clause at the end to
cover assets normally included within the jurisdiction of the
United States courts in bankruptcy cases, except where assets
are subject to the jurisdiction of another recognized
proceeding.193 In a full bankruptcy case, the United
States bankruptcy court generally has jurisdiction over assets
outside the United States. Here that jurisdiction is limited
where those assets are controlled by another recognized
proceeding.
---------------------------------------------------------------------------
\193\ Guide at 54-55.
---------------------------------------------------------------------------
The court may use section 305 of this title to dismiss,
stay, or limit a case as necessary to promote cooperation and
coordination in a cross-border case. In addition, although the
jurisdictional limitation applies only United States bankruptcy
cases commenced after recognition of a foreign proceeding, the
court has ample authority under the next section and section
305 to exercise its discretion to dismiss, stay, or limit a
United States case filed after a petition for recognition of a
foreign main proceeding has been filed but before it has been
approved, if recognition is ultimately granted.
Section 629. Coordination of a case under title 11 and a foreign
proceeding
This section follows the Model Law almost exactly, but
subsection (d) adds a reference to section 305 to make it clear
the bankruptcy court may continue to use that section, as under
present law, to dismiss or suspend a United States case as part
of coordination and cooperation with foreign
proceedings.194 This provision is consistent with
United States policy to act ancillary to a foreign main
proceeding whenever possible.
---------------------------------------------------------------------------
\194\ Id. at 55-56.
---------------------------------------------------------------------------
Section 630. Coordination of more than one foreign proceeding
This section follows exactly article 30 of the Model
Law.195 It ensures that a foreign main proceeding
will be given primacy in the United States, consistent with the
overall approach of the United States favoring assistance to
foreign main proceedings.
---------------------------------------------------------------------------
\195\ Id. at 57.
---------------------------------------------------------------------------
Section 631. Presumption of insolvency based on recognition of a
foreign main proceeding
This section follows the Model Law exactly, inserting a
reference to the standard for an involuntary case under this
title.196 Where an insolvency proceeding has begun
in the home country of the debtor, and in the absence of
contrary evidence, the foreign representative should not have
to make a new showing that the debtor is in the sort of
financial distress requiring a collective judicial remedy. The
word ``proof'' here means ``presumption.'' The presumption does
not arise for any purpose outside this section.
---------------------------------------------------------------------------
\196\ Id. at 58.
---------------------------------------------------------------------------
Section 632. Rule of payment in concurrent proceeding
This section follows the Model Law exactly and is very
similar to prior section 508(a), which is repealed. The Model
Law language is somewhat clearer and broader than the
equivalent language of prior section 508(a).197
---------------------------------------------------------------------------
\197\ Id. at 59.
---------------------------------------------------------------------------
The first amendment provides that the bankruptcy court in
any district in which there has been a reference under
subsection 157(a) will have core jurisdiction over cases
commenced under chapter 6, ancillary cross-border cases.
Although the United States will continue to assert
worldwide jurisdiction over property of a domestic or foreign
debtor in a full bankruptcy case under chapters 7 and 13 of
this title, subject to deference to foreign proceedings under
chapter 6 and section 305, the situation is different in a case
commenced under chapter 6. There the United States is acting
solely in an ancillary position, so jurisdiction over property
is limited to that stated in chapter 6.
The third provision complements the automatic inclusion of
chapter 6 in the U.S. Trustee's language of prior section
508(a).\198\
---------------------------------------------------------------------------
\198\ Id. at 59.
---------------------------------------------------------------------------
The first amendment provides that the bankruptcy court in
any district in which there has been a reference under
subsection 157(a) will have core jurisdiction over cases
commenced under chapter 6, ancillary cross-border cases.
Although the United States will continue to assert
worldwide jurisdiction over property of a domestic or foreign
debtor in a full bankruptcy case under chapters 7 and 13 of
this title, subject to deference to foreign proceedings under
chapter 6 and section 305, the situation is different in a case
commenced under chapter 6. There the United States is acting
solely in an ancillary position, so jurisdiction over property
is limited to that stated in chapter 6.
The third provision complements the automatic inclusion of
chapter 6 in the U.S. Trustee's standing under section 307 and
provides authority for the Untied States Trustee to act as
necessary under section 626(3).
TITLE VII. MISCELLANEOUS
Section 701. Technical amendments
This provision of H.R. 3150 makes several conforming and
typographical corrections to the Bankruptcy Code.
Section 702. Applicability
Section 702 of H.R. 3150 provides that the amendments apply
to cases filed after the date of their enactment.
Agency Views
Department of Justice,
Office of Legislative Affairs,
Washington, DC, May 7, 1998.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: We understand the House Judiciary
Committee will mark up H.R. 3150, the Bankruptcy Reform Act of
1998, on May 13, 1998. This letter provides the
Administration's general views on the consumer bankruptcy
reform proposals currently under consideration in the Congress,
as well as the views of the Department of Justice on other
provisions in H.R. 3150.
Consumer provisions
Over the past two decades, consumer bankruptcy filings have
risen sharply. While there are many competing theories on the
cause of that increase, it is clear that there is no single
explanation. Nonetheless, the growing number of filings,
examples of abuse of Chapter 7 and state exemptions, and
evidence of imprudent extensions of credit suggest some changes
to the consumer bankruptcy laws are appropriate. The lack of
definitive evidence about the reasons for the rise in
bankruptcies means reforms. The Administration, therefore, has
developed the following set of principles to guide its review
of changes to the consumer bankruptcy laws.
1. Access to Chapter 7 should not be governed by an
arbitrary means test; the court must have discretion to account
fairly for the great variations in circumstances that bring
debtors into bankruptcy (including medical expenses,
unemployment, divorce, responsibility for the care of others,
etc.). to promote more uniform application of bankruptcy
standards, however, the determination whether a person is
eligible for a Chapter 7 filing should take place within
indicative or presumptive guidelines established by Congress
that take into account factors such as the debtor's current and
expected income and ability to repay a portion of the debt.
2. National bankruptcy policy can respect state variation
in exemption levels without allowing state exemptions to be
used to shield excessive assets from creditors.
3. It is appropriate to expect debtors who can afford to
repay a portion of their debts (taking into account all
relevant circumstances) to act responsibly; but the bankruptcy
and the credit reporting and granting system should reward
those who complete a Chapter 13 plan.
4. Child support and alimony payments should be carefully
protected. We must ensure that reforms have no unintended
adverse impact on debtors' ability to meet those, and other,
priority payments.
5. Bankruptcy reform should not create opportunities for
creditors to coerce debtors to forego bona fide rights in
bankruptcy.
6. Bankruptcy rules should discourage bad-faith repeat
filings and other attempts to abuse the privilege accorded by
access to bankruptcy.
7. Bankruptcy data collection and data accuracy must be
improved. Analysis and understanding of the forces affecting
bankruptcy filings are impeded by the lack of high-quality,
nationally uniform data. Better data collection and
verification procedures should be incorporated into any reform
proposals. Such data can be used to assess and monitor the
impact of reform legislation.
8. Scrutiny must also be given to credit industry practices
that have led some borrowers to overextend themselves. While
some of these issues may fall outside of the Judiciary
Committee's jurisdiction, the Congress and the Administration
should consider proposals dealing with such issues as deceptive
credit marketing and granting and enhancing disclosure of the
implications of consumer credit agreements.
The Administration is open to responsible consumer
bankruptcy reforms that meet these principles. The
Administration has reluctantly concluded that it cannot support
H.R. 3150 in its present form. The Administration looks forward
to working with the Congress toward consumer bankruptcy
legislation more similar to the approach embodied in S. 1301--
with important modifications necessary to meet the principles
articulated above.
The following are some additional comments regarding
specific provisions in H.R. 3150:
Section 111. Notice of alternatives
Section 111 of H.R. 3150 would, in part, amend section 342
of the Bankruptcy Code (``the Code'') to ensure that consumer
debtors receive information about debt counseling services and
their options before filing bankruptcy. The form of the notice
would be prescribed by the United States Trustee for the
district and would contain a brief description of the
bankruptcy chapters, the benefits and costs of each chapter and
services available from an independent nonprofit debt
counseling service. The notice would also provide the name,
address, and other identifying information of each nonprofit
debt counseling service in the district. We support the concept
of consumer education that underlies section 111, but question
whether the notice will be effective when it is likely provided
after the debtor has decided to file bankruptcy.
In addition, we oppose the requirement that the notice list
the nonprofit debt counseling services in the district. H.R.
3150 provides no other parameters on what types of services
should be listed, other than being nonprofit, and we are
concerned that the provision might put United States Trustees
in the position of publicizing unscrupulous debt counselors. We
recommend that this requirement be deleted from this provision,
or at a minimum, be amended to provide that no listed nonprofit
debt counseling service can charge the debtor a fee and to
provide the United States Trustee with the ability to petition
the bankruptcy court to remove a debt counseling service from
the notice list where there is evidence indicating that the
counseling service has engaged in unscrupulous behavior.
Section 112. Debtor financial management test program
Section 112 of H.R. 3150 would require the Executive Office
for United States Trustees, in consultation with standing
trustees, to develop a financial management training curriculum
for debtor education in three pilot districts for a one-year
period. The materials would also be made available to
individual debtors on request. The courts in the pilot
districts would be authorized to make attendance at the debtor
education program a condition of discharge. The Director of the
Executive Office would also be required to evaluate the
effectiveness of the pilots and existing debtor education
programs and to submit a report of his findings to Congress.
The Department supports this test program as the best way
to refine effective debtor education programs before they are
extended nationwide. Subsection (b), however, only gives the
Executive Office 60 days after enactment to develop the
training curriculum and materials. We recommend that this
period be extended to 180 days to give the Executive Office
adequate time to develop an effective curriculum.
Sections 113 to 116. Debt relief counseling agencies
Sections 113 through 116 H.R. 3150 deal with debt relief
counseling agencies (``counseling agencies''). Section 113
defines covered ``counseling agencies.'' Section 114 would
require such agencies to provide the person they are assisting
with written notice of the requirements that all bankruptcy
schedules must be accurate, that the information is subject to
audit, and that the failure to provide accurate information may
result in dismissal of the bankruptcy case, sanctions or
criminal prosecution. Counseling agencies would be required to
provide a separate notice advising the assisted person that the
counseling agency is required, inter alia, to enter a written
contract. Finally, counseling agencies would be required to
inform assisted individuals on matters such as ``how to
determine what property is exempt and how to value exempt
property at replacement value.''
The Department opposes section 114, as currently drafted,
because it would undercut the consumer protections currently
contained in section 110 of the Code and state law, which
impose penalties on person who negligently or fraudulently
prepare bankruptcy petitions. Because counseling agencies would
be defined to include petition preparers and other
nonattorneys, the advice required to be given by a counseling
agency could constitute the unauthorized practice of law. To
avoid this problem, section 114 of H.R. 3150 should be amended
to exclude nonattorneys from the provisions of new section
526(c), and to add to the form notice in section 526(b) a
notice that the debt relief counseling agency employee cannot
provide legal advice if he or she is not an attorney.
Section 115 of H.R. 3150 would provide the assisted person
certain substantive rights when using a debt relief counseling
agency, including the right to a written contract that fully
discloses all services and all charges. We do not oppose this
provision, but believe that the standard of liability in the
provisions should be changed. New section 115(b)(2) provides
that a debt relief counseling agency should not ``make any
statement * * * which is untrue or misleading or which upon the
exercise of reasonable care, should be known by the debt relief
counseling agency to be untrue or misleading'' (emphasis
added). The italicized disjunctive ``or'' would impose strict
liability upon a debt relief counseling agency by imposing
liability if the statement is untrue or misleading, even if the
agency had no reason to know of the untruth or misleading
nature of the statement. The Department suggests replacing the
italicized ``or'' with ``and'' to establish a more appropriate
standard of liability.
Finally, section 116 of H.R. 3150 would provide penalties
and other remedies for the failure of a counseling agency to
comply with the requirements of section 114 and 115; for
providing bankruptcy assistance in a case which is dismissed
(or converted to a chapter 13 in lieu of a dismissal) under
section 707(b) of the Code; or for a failure to file bankruptcy
papers. In such circumstances, counseling agencies would be
required to refund or waive fees and, if the case has not been
closed, a court could require the counseling agency to complete
the services in the case without charge. In addition, the state
Attorneys General could bring actions to enjoin such
violations, and recover for their affected residents actual
damages, including costs and attorney fees.
To provide additional protections against abusive
practices, the Department urges that section 116 be
strengthened to provide monetary penalties for intentional or
repeat violations and to empower the United States Trustees to
bring actions seeking such penalties and injunctions against
offending counseling agencies and their principals. Section 116
should also be clarified to allow a debtor to bring an action
for a violation. The experience of the United States Trustees
in enforcing violations by petition preparers under section 110
of the Code is that the penalties must be severe and be able to
address the enforcement problems posed by shell corporate
entities. Finally, section 116 should be amended to clarify
that the enforcement remedies of this section are in addition
to Chapter 9 of Title 18 and section 110 of the Code. We would
be happy to work with the Committee to draft appropriate
language.
Section 121. Repeat filings
In cases of refiling within a year, section 121 of H.R.
3150 would provide a 30-day limit on the application of the
automatic stay of section 362 of the Code, unless, prior to
termination and upon request of a party-in-interest, the court
provides notice and a hearing to affected parties regarding the
potential extension of the stay. Serial filings are a serious
problem in many jurisdictions and, accordingly, we endorse the
adoption of firm measures to address this issue. Repeat
filings--whether to obtain multiple discharges or to hold
creditors at bay temporarily--should not be encouraged. This
provision would provide a welcome limitation to abuse of the
automatic stay provision of the Code by serial filers who have
no hope or intention of ever being granted a discharge in
bankruptcy.
Section 125. Giving secured creditors fair treatment in chapter 13
Section 125 of H.R. 3150 would amend section 1325(a) (5)
(B) (i) of the Bankruptcy Code to protect the lien of a secured
creditor from release by a chapter 13 plan if the debtor fails
to complete the plans. This provision would resolve an issue on
which the bankruptcy courts are split. The issue arises when
the debtor confirms a chapter 13 plan that reduces a creditor's
lien to the current value of the collateral (so-called ``lien
stripping'') and then, after completing the payments due on the
secured portion of the claim, but before the plan is completed,
the debtor seeks to discharge the lien. Some courts hold that
the collateral does not vest in the debtor until the entire
plan is completed. See, e.g., In re Pruitt, 203 B.R. 134
(Bankr. N.D. Ind. 1996); In re Schieirl, 186 B.R. 498 (Bankr.
D. Minn. 1995). Other courts have held that, upon payment of
the secured portion of the creditor's claim, the collateral is
released. See, e.g., In re Lee, 156 B.R. 628 (Bankr. D. Minn.),
aff'd, 162 B.R. 217 (D. Minn. 1993); In re Nicewonger, 192 B.R.
886 (Bankr. N.D. Ohio 1996).
We support the limitations on lien stripping contained in
section 125. A key advantage that chapter 13 offers debtors
over chapter 7 is that a larger universe of property is subject
to lien ``strip down.'' Furthermore, in a chapter 13 plan, the
debtor can redeem collateral with payment over time from future
income. These advantages are often the debtor's chief reason
for undertaking a chapter 13 plan. Because debtors may allocate
their plan payments preferentially to pay secured indebtedness
sooner than unsecured debt, the result can be a disincentive
for debtors to finish their plans after paying enough to redeem
the collateral. Such ``front loading'' of payments for secured
debt accounts, in part, for the high percentage of chapter 13
plans that are uncompleted. Debtors should not be permitted to
obtain the benefits of chapter 13 without bearing its burdens.
Section 127. Stopping abuse conversions from chapter 13
Section 127 of H.R. 3150 would amend section 348(f)(1) of
the Code to reverse the bifurcation of a secured creditor's
claim into secured and unsecured portions accomplished through
a chapter 13 plan, if the case is converted to chapter 7. This
provision thus would limit the debtor's ability to release the
lien in a chapter 7 case under section 722 of the Code.
For the same reasons we support section 125 of H.R. 3150,
we also support this change. This provision addresses a
different aspect of the same problem dealt with in section 125
above. Both provisions concern a debtor who confirms a chapter
13 plan that reduces a creditor's lien to the value of the
collateral. Unlike section 125, however, section 127 deals with
the situation where, after paying part of the secured portion
of the claim, the debtor converts his unfinished 13 plan into
chapter 7 liquidation. In the chapter 7 case, the debtor then
redeems the collateral by tendering the balance due on the
``stripped down'' lien after taking credit for the payments
made under the chapter 13 plan. Unless this option is barred,
debtors will have an incentive totake the benefits conferred by
chapter 13, and then convert to a chapter 7 without finishing their
chapter 13 plans.
Section 201. Limitation relating to the use of free examiners
Section 201 of H.R. 3150 would prohibit a court's use of
third-party examiners to review professional fee applications.
We oppose this provision in its current form because it is
overly broad and may be detrimental in large reorganization
cases where fee applications are frequent, complex and
voluminous. The use of a fee examiner by a bankruptcy judge is
not an improper delegation of the court's duty to review and
award compensation; even with a fee examiner, a court must rule
on every professional fee application filed. The Department,
however, would not oppose amendments to correct perceived
abuses relating to compensating fee examiners based upon a
percentage of fees successfully challenged and to prohibit the
use of fee examiners in small business cases (where the expense
of such examiners is likely unwarranted). We would be happy to
work with the Committee to draft appropriate language.
Section 204. Meetings of creditors and equity security holders
Section 204 of H.R. 3150 would amend section 341 of the
Code to allow a court to direct the United States Trustee to
dispense with the meeting of creditors in a case with a so-
called ``prepackaged plan,'' i.e., a reorganization plan worked
out with creditors in advance of the filing of a Chapter 11
petition. We oppose this provision, which would significantly
hinder the ability to creditors and the Untied States Trustee
to examine a debtor's affairs under oath. Dispensing with the
meeting could also increase the possibility of fraud and
collusion by a debtor and its major creditors.
Section 205. Creditor and equity security holders committees
Section 205 of H.R. 3150 would amend section 1102 of the
Code to allow a court to order changes in the membership of
creditor and equity security holder committees. We strongly
oppose this provision. Under section 1102 of the Code, United
States Trustees are responsible for creating committees and
appointing their members, while courts are called upon to
resolve controversies arising from the committees. Section 205
of H.R. 3150 would upset this balance and improperly involve
the court in the administration cases. This could create and
appearance of favoritism if a court were called upon to resolve
a controversy involving a committee it had constituted. The
proposal could also result in increased cost and delay because
early litigation over committee membership would inevitably
decrease the ability of committees to participate at the early,
critical stages of cases.
Nevertheless, the Department recognizes the desirability of
revising section 1102 to ensure the effective and
representative committees are appointed. Accordingly, we would
suggest that this section be amended to require that any
request to create or alter the membership of a committee be
first directed to the United States Trustee and to permit the
court, upon a request of a party in interest after and adverse
decision by the United States Trustee, to make the requisite
findings and order the United States Trustee to alter a
committee. Such an amendment should also reaffirm the United
States Trustee's authority to alter a committee. We would be
happy to work with the Committee to draft language to
accomplish this objective.
Section 207. Preferences
Section 207 of H.R. 3150 would amend section 547(c) of the
Code, which deals with preferential transfers of property to
creditors after the filing of a bankruptcy petition. Section
207 would eliminate the ability of a trustee to avoid such a
transfer in a case filed by a debtor whose debts are no
primarily consumer debts, where all the property that
constitutes or is affected by the transfer is worth less than
$5,000.
We oppose this provision. Although this provision is
apparently designed to protect the interests of smaller
creditors, this section, without appropriate supervision, could
lead to abuse and manipulation by debtors wishing to pay
preferred creditors. For example, nothing in the provision
would prohibit a debtor from breaking a larger payment into
several smaller ones that each total less than $5,000. If such
preferential payments are not avoidable, the result could be a
substantial diminution of the property available to pay
priority claims.
Sections 232 and 233. Flexible rules for disclosure statement and plan;
standard form disclosure statements and plans
Section 232 of H.R. 3150 would add a new section 1125(f) to
the Code to allow the court to relax the plan confirmation
procedures in small business bankruptcies. Specifically, for a
small business case, the court would be empowered to: (i) waive
the disclosure statement; (ii) use a form disclosure statement;
(iii) allow plan solicitation based on a ``conditionally
approved'' disclosure statement; or (iv) combine the
confirmation and disclosure statement hearing. Section 233 of
H.R. 3150 would require the Judicial Conference to adopt
``standard form'' disclosure statements and plans of
reorganization that balance the need for ``reasonably complete
information'' with ``economy and simplicity.''
These provisions would remove procedural barriers to early
confirmation and, to the extent they encourage quicker
confirmations, are advantageous to debtors and creditors alike.
Care will be needed lest the execution of these provisions lead
to confirmations without adequate disclosure to creditors and
other affected parties. We believe, however, that this risk is
manageable.
Section 234. Uniform national reporting requirements
Section 234 of H.R. 3150 would add a new section 308 to the
Code requiring a small business debtor to file periodic reports
explaining: (i) its profitability; (ii) projected income and
expenses; (iii) how prior projections compare with actuality;
(iv) compliance with bankruptcy requirements; (v) whether taxes
returns are timely filed; (vi) what taxes and other
administrative claim are in default and when remedied; and
(vii) ``other matters'' needed in the creditors' and the
public's interest.
We support these disclosure requirements and the need for
consistent financial reporting standards. By helping to
identify faltering cases, financial reports prevent undue delay
in the administration of chapter 11 cases. We further urge
extending this section to all chapter 11 debtors, not just
small business debtors.
Section 235. Uniform reporting rules and forms
Section 235 of H.R. 3150 would require the Attorney General
to propose for adoption amended Federal Rules of Bankruptcy
Procedure and Official Bankruptcy Forms to be used by small
business debtors to comply with the provisions added by Section
234 of the bill. We support this provision, but suggest that it
be amended to indicate that the Attorney General would also
consult with the Small Business Administration in developing
the rule and form proposals.
Section 236 through 239. Other small business provisions
The Department is not taking a position on these provisions
at this time, which are still under review.
Section 240. Duties of the United States Trustee and Bankruptcy
Administrator
Section 240 of H.R. 3150 would amend 28 U.S.C. Sec. 586 to
expand the United States Trustee's oversight of small business
debtors. It would oblige the United States Trustee to interview
the debtor before the first meeting of creditors, visit the
debtor's premises, monitor the debtor's actions and, where
grounds are found to do so, move to convert the case to a
Chapter 7 or to dismiss the case altogether.
We support this provision, which would clarify and codify
the United States Trustee's obligation to move hopeless cases
out of chapter 11. This section reflects the current practice
of the United States Trustees, except for the duty to visit the
debtor's premises. We estimate that site visits would cost an
additional $9 million over 5 years.
Section 241. Scheduling conferences
Section 241 of H.R. 3150 would amend section 105(d) of the
Code to require the courts to hold status conferences, and
empower the courts to issue administrative orders to establish
deadlines and relax the disclosure statement requirements. This
provision would apply to all chapter 11 cases. To the extent it
empowers the court to override requirements of the Code and
Bankruptcy Rules, or to intrude into areas currently entrusted
to the United States trustee, it goes too far. While bankruptcy
procedures should be somewhat flexible, we believe that it is
important that bankruptcy judges not be permitted to vary,
essentially at will, from statutory and rule requirements,
potentially depriving creditors and other parties in interest
of key procedural protections. We believe that the standard
incorporated in section 241--allowing the court to vary from
the Code and the Bankruptcy Rules if ``necessary to further the
expeditious and economical resolution of the case''--does not
adequately preserve these procedural protections, and therefore
oppose the provision.
Section 242. Serial filer provisions
Section 242 of H.R. 3150 would amend section 362 of the
Bankruptcy Code to disable the automatic stay for a small
business filing, where: (i) the debtor is already in
bankruptcy; (ii) had a case dismissed or a plan confirmed
within two years prior to filing; or (iii) acquired the assets
of a debtor in a proceeding covered by (i) or (ii), unless the
debtor shows that its filing resulted from causes unforeseeable
during the prior case and that a non-liquidating plan may be
confirmed within a reasonable time.
Serial filings are a serious problem in many jurisdictions
and we endorse the adoption of firm measures to address this
issue. Repeat filings--whether to obtain multiple discharges or
to hold creditors at bay temporarily--should not be permitted.
Accordingly, we support section 242 of the bill. However, we
believe that applying this restriction only to small business
debtors is too limited and that this provision instead should
apply to all debtors in chapter 11.
Section 243. Expanded grounds for dismissal or conversion and
appointment of trustee
Section 243 of H.R. 3150 would amend section 1112 of the
Code to require the conversion to chapter 7 or dismissal of any
chapter 11 case where ``cause'' is shown. This requirement
would not apply if the debtor could show that a plan may be
confirmed within a reasonable time and, where the ``cause'' is
a default, that the default is justified and will be cured
promptly. ``Cause'' would be defined to include a variety of
situations, including ``gross mismanagement;'' misuse of cash
collateral; a violation of a court order; default of a filing
or reporting requirement; the nonpayment of taxes or nonfiling
a return; and not filing timely a disclosure statement or plan
or confirming a plan.
We support this provision. This provision is one of several
in the bill designed to move cases that cannot be confirmed out
of chapter 11. Defining ``cause'' using more objective
standards would foster uniformity and enhance efficiency.
Shifting the burden to the debtor to justify defaults and prove
satisfactory progress when cause is shown appropriately
conditions the debtor's enjoyment of the benefits of bankruptcy
on responsible actions.
Section 251. Single asset real estate defined
Section 251 of H.R. 3150 would amend section 101(51B) of
the Code to remove the $4 million debt cap from the current
definition of ``single asset real estate.'' Further, it would
clarify that unimproved real estate qualifies for this
designation. Finally, it would exclude from the definition
property owned by a debtor who is part of a commonly controlled
group consolidated in one bankruptcy if the group operates a
business larger than the single property.
Currently, the mortgagee of Single Asset Real Estate
(``SARE'') secures relief from the bankruptcy stay 90 days
after the debtor files unless, prior to the running of the 90
days, the debtor files a confirmable plan or commences
interests payments based on the property's fair market value.
11 U.S.C. Sec. 362(d)(3). Removing the cap under section 251 of
the bill would allow a larger set of mortgagees to benefit from
section 362(d)(3). Many bankruptcies considered abusive by
creditors have concerned SAREs. We strongly favor the proposed
changes, which would benefit federal lenders and insurers, most
notably the Department of Housing and Urban Development (HUD).
HUD, however, needs and deserves additional protection for
its unique bankruptcy problems. HUD borrowers are usually
limited partnerships that enjoy tax shelters for their
investors, favorable interest rates, and, frequently, subsidies
for their tenants. Projects without sufficient income to
service indebtedness also lack the income to manage and
maintain the insured property. Deteriorating property not only
diminishes property values but also can lead to unsafe and
unsanitary conditions for the tenants, many of whom have low to
moderate income. HUD's remedy for the owner's financial and
regulatory defaults--foreclosure--is easily and completely
frustrated by the filing of a bankruptcy and the attendant
invocation of the automatic stay of section 362 of the Code.
When owners file for bankruptcy, debt service is usually
reduced or withheld entirely. Some courts allow the rents to
accumulate as a dollar for dollar reduction in HUD's secured
claim; hence, in those courts, delay is rewarded because the
longer the delay, the more the secured debt is paid down.
Meanwhile, the owners continue to enjoy the tax advantages of
ownership, such as depreciation deductions. While bankruptcy
restrictions limit HUD's usual remedies and rights, HUD must
continue to pay rent and other subsidy payments which inure to
the benefit of the project owners. Although the owner/
partnership's only asset is the project that is wholly
encumbered by HUD's mortgage, the owner often can stave off a
motion by HUD seeking relief from the automatic stay by
promising new investments to enable a successful
reorganization. such scenarios can force HUD to accept plans
that reduce its mortgage and discharge unsecured debt, yet
allow the debtors to retain their ownership interests through
relatively small investments of new capital. Even where HUD is
allowed to proceed with foreclosure, the result can be further
deterioration of the mortgaged property, creating hazards for
tenants, and reduced--often sharply--sale values.
HUD did not suffer these consequences until 1978 when
Congress repealed a long-held exception to the automatic stay
for multifamily projects insured under the National Housing
Act. We recommend that exception be restored. Such a change
could be accomplished by amending section 362(b)(8) of the Code
to read:
(8) under subsection (a) of this section, of any act
to foreclose a lien insured or held by the Secretary of
Housing and Urban Development, or the Secretary of
Agriculture pursuant to title V of the Housing Act of
1949, on property that has more than four living units;
is a hospital or nursing home; or is a project for the
elderly or persons with disabilities.
Section 252. Payment of interest
Section 252 of H.R. 3150 would amend section 362(d)(3) of
the Bankruptcy Code to limit the automatic stay in case of a
SARE, where the debtor fails to file a plan or commence
interest payments within 90 days of filing, to: (i) allow the
payment to commence 30 days after the court determines that the
debtor is aSARE; (ii) allow the debtor to make the interests
payments from post-petition rents of the SARE; and (iii) specify the
non-default contract rate as the interest rate.
We oppose this change. Under current section 362(d)(3) of
the Code, creditors of a SARE debtor may have the automatic
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. Giving the
debtor 30 days to comply after the court rules that the debtor
is subject to section 362(d)(3) is unwise. The exception to the
automatic stay in section 362(d)(3) takes its force from the 90
days time limit. That force is substantially diminished by
relaxing that limit for debtors who claim, or who can find a
pretext for claiming, that it does not apply. It is also
unnecessary; the court currently can extend the 90 days for
``cause.''
Giving the debtor the ``sole discretion'' to override
section 363(c)(2) and make interest payments out of post-
petition rents is also ill-advised. First, the amendment does
not require that the creditor receiving the rents be the same
as the creditor whose rights are voided. Second, even if the
creditor receiving the rents is being paid its own collateral,
the amendment serves to limit that creditor's rights.
Currently, this section works largely as a predicate to allow
the secured creditor and the debtor to negotiate a consensual
payment schedule. Giving the debtor the discretion to override
the secured creditor's interests stands the purpose of the
section on its head.
Finally, allowing the debtor to pay at the contract rate is
inconsistent with paying a ``stripped down'' value in the case
of an undersecured creditor. If the payment's principal is a
function of market value, the interest rate should be
calculated the same way. We oppose this change as well.
Section 401. Adequate preparation time for creditors before the first
meeting of creditors in individual cases
Section 401 of H.R. 3150 would amend section 341 of the
Code to provide that the first meeting of creditors in
individual cases shall not be convened earlier than 60 days,
nor longer than 90 days, after the Order for Relief, absent a
court determination of unusual circumstances. This proposal is
contrary to the expeditious administration of bankruptcy cases.
Any delay in the meeting of creditors would impeded the ability
of trustees and the United States Trustee to intervene in
problem cases, and impair the ability of trustees to obtain
control of estate property and promptly investigate the
debtor's financial affairs.
The Department would not oppose amendments allowing
creditors additional time to protect their interests, such as
amendments extending the time periods for objecting to the
entry of the debtor's discharge, seeking a determination that a
particular debt is non-dischargeable, filing a motion to
dismiss for substantial abuse under section 707(b) of the Code,
and objecting the debtor's claimed exemptions. We would be
happy to work with the Committee to draft acceptable language.
Section 402. Creditor representation at the first meeting of creditors
Section 402 of H.R. 3150 would amend section 341 of the
Code to allow non-attorney consumer creditor representatives to
attend and participate in chapters 7 and 13 creditor's meetings
notwithstanding federal, state or local non-bankruptcy law to
the contrary. The Department supports this provision because it
promotes the participation of creditors in the bankruptcy
process. We strongly encourage further amendment to delete the
phrase ``holding a consumer debt'' from the section to ensure
the ability of all creditors, including non-lawyer
representatives of governmental creditors, to participate in
creditor meetings.
Section 404. Audit procedures
Section 404 of H.R. 3150 would amend 28 U.S.C. Sec. 586 to
require the Attorney General to establish procedures for
auditing of a debtor's petition, schedules, statement of
financial affairs and other similar information in all consumer
chapters 7 and 13 cases. At least one percent of the consumer
cases in each judicial district would be randomly chosen for
audit, in addition to those cases where the debtor's income and
expenses exceed the mean variance in the judicial district.
The Department supports the concept of debtor audits. The
bankruptcy system is dependent upon the full and voluntary
disclosure by debtors of accurate information regarding their
assets, liabilities and financial affairs. A systematic program
of random audits would serve to deter those who might otherwise
be tempted to conceal assets and information from their
creditors. We also believe assigning this responsibility to the
Department makes sense given the central role of United States
Trustees in ensuring the integrity of the bankruptcy system.
The Department, however, opposes section 404 in its current
form because of its feasibility and cost. The proposal requires
independent Certified Public Accountants (CPAs) to conduct
``audits'' in accordance with ``generally accepted auditing
standards,'' a term of art within the accounting profession. It
is questionable whether an audit conducted by an independent
CPA and in accordance with these principles is feasible or
desirable in most consumer cases given that a debtor's
financial records are often nonexistent or in disarray.
Assuming that the practical problems associated with
conducting an audit can be resolved, the provision as drafted
would be costly. The Department has estimated that implementing
the audit program contemplated by this section could cost from
$45 million to more than $174 million over five years. This
cost is in large part a function of the number audited and the
use of independent CPAs. The cost of the audits could easily
exceed the total sum appropriated to fund the entire United
States Trustee program in Fiscal Year 1998. Moreover, the bill
provides no funding mechanism to cover these costs.
The use of an audit report is left similarly vague. Copies
of the audit reports are to be filed with the Court, but it is
uncertain if this would be merely for the purpose of providing
a public repository for the report accessible to all parties in
interest, or if it is intended that the Court would, sua
sponte, initiate action based on the auditors' findings. The
report of each audit is also to be filed with the United States
Attorney, thereby burdening that office with storing and
indexing this information. However, absent notification from
the United States Trustee that a material misstatement has been
made in a case that warrants a criminal investigation, it is
unclear what if any additional role the United States Attorney
is to play in resolving audit deficiencies.
We recommend that the following changes be made to Section
404:
Require the Attorney General to establish a system to
audit consumer debtor cases on either a random or
targeted basis, but without a minimal prescribed
percentage;
Eliminate the mandatory use of independent CPAs and
generally accepted auditing standards, and grant the
Attorney General the authority to determine and define
the scope of the audits;
Eliminate the requirement of filing the audit reports
with the court and the United States Attorney;
Provide a civil sanction to ensure debtor's
compliance with the audit and defer a section 727
discharge until the U.S. Trustee reports a satisfactory
audit; and
Provide a source to fund the audits other than
assessments upon the affected debtors.
Given the size of the audit program and its cost, the
Department also urges the committee to consider a pilot program
for audits that would allow the costs and benefits of various
approaches to be considered. In addition, consideration should
be given to limiting random audits to chapter 7 debtors.
Section 405. Giving creditors fair notice in chapter 7 and 13 cases
Section 405 of H.R. 3150, which is similar to section 309
of S. 1301, would amend the notice provisions of section 342 of
the Bankruptcy Code to require, in an individual bankruptcy
case, that notices to creditors include any account number and
be sent to the address that a creditor has specified. It also
would require that a matrix of addresses prescribed by
creditors for notices in a district be established. Further,
unless actual notice is sent to the specified addresses and
received by a responsible person or department at the creditor,
notice would be ineffective, the creditor could not be
sanctioned for violating the automatic stay and turnover of
property could not be enforced.
While this section has some technical difficulties, we
strongly support its intent to ensure that debtors know how to
give effective notice and that the creditors, in fact, receive
such notice. Indeed, we urge that this provision for fair
notice apply to all bankruptcy chapters--there is no reason to
limit this provision only to chapters 7 and 13. We would be
happy to work with the Committee to draft acceptable language.
Section 406. Debtor to provide tax returns and other information
Section 406 to H.R. 3150 would, inter alia, require the
debtor to provide the United States Trustees with copies of all
Federal tax returns for the 3 most recent tax years, and copies
of all returns filed during the pendency of the bankruptcy
case. The United States Trustee would be required to maintain
these records and to make them available to any party in
interest for inspection and copying within 10 days of receiving
a request.
The Department supports the requirements that tax records
be provided by the debtor, but opposes the requirement that
these documents be filed with the United States Trustees.
Rather, we believe these records should be filed with the court
as a repository of the public record. In particular, we believe
that these tax documents should be public records, given the
consequences that would flow under section 407 of the bill,
which would lead to a case being automatically dismissed if the
tax returns are not filed within 45 days following the
petition. Alternatively, the records could be filed with the
chapter 7 and chapter 13 trustees, who, both under existing law
and the provisions of the bill, have an obligation to review
the debtor's financial conditions.
Section 411. Jurisdiction of courts of appeals
Section 411 of H.R. 3150 would amend 28 U.S.C. Sec. 1293 to
allow a court of appeals to review: (i) final orders in core
bankruptcy matters; (ii) all bankruptcy injunctions; and (iii)
orders appointing a trustee or extending the period within
which the debtor exclusively may file a plan. Further, it would
allow a court of appeals to review all interlocutory bankruptcy
orders in its discretion or upon certification by the issuing
court.
We strongly oppose this change. In the 1978 Bankruptcy
Reform Act, the Congress established bankruptcy courts that
were independent of the district courts, but declined to confer
Article III status on the bankruptcy judges. In Northern
Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50
(1982), the Supreme Court found this 1978 grant of jurisdiction
to bankruptcy judges unconstitutionally broad because it
conferred Article III authority on judges who lacked the life
tenure and salary security of Article III judges. Two years
later, Congress responded by passing the Bankruptcy Amendments
and Federal Judgeship Act of 1984 (BAFJA), Pub. L. No. 98-353,
98 Stat. 333. BAFJA sought to remedy the constitutional
deficiencies identified in Northern Pipeline by vesting
jurisdiction over the district courts to refer cases to the
bankruptcy courts, which were expressly made units of the
federal district courts. 28 U.S.C. Sec. Sec. 151, 157, 1334.
BAFJA specifies the so-called ``core'' matters as to which
bankruptcy judges may issue final orders and reserves ``non
core'' matters for final decision by the federal district
court.\1\ 28 U.S.C Sec. 157.
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\1\ ``Core'' matters are generally those matters arising directly
under the bankruptcy laws, such as the administration of the estate,
the allowance or disallowance of claims and the estimation of claims or
interest for the purposes of confirming a plan. ``Non core'' matters
are proceedings merely ``related to'' a bankrupcy, for example, a suit
not arising under the bankruptcy laws brought by a debtor against a
third party who has not voluntarily entered the bankruptcy proceeding.
In non core matters, a bankruptcy judge may enter only a recommended
decision; the final order is entered by a district judge following de
novo review of the bankruptcy judge's proposed findings.
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Currently, the district courts review most bankruptcy court
rulings before final appeal may be taken to the courts of
appeals. Section 412 would displace the district court from
bankruptcy matters, except where it withdraws the reference or
where it enters a final judgment in a non-core proceeding. This
would diminish substantially the district court's oversight of
bankruptcy judges. That oversight is a key element of the
constitutional cure enacted in BAFJA. The Supreme Court has yet
to rule upon the BAFJA structure, and its constitutionality has
been hotly debated. Until this constitutional question is
resolved, we urge the Congress not to lessen district court
review and remove this potentially significant basis for the
constitutionality of the bankruptcy court's exercise of
judicial power.
Sections 441 and 442. Data collection
Section 441 of H.R. 3150 would add 28 U.S.C. Sec. 159 to
require the Executive Office for United States Trustees to
compile statistics regarding consumer bankruptcy filings and
report annually to Congress. We support this provision as a
necessary aid to tracking the health of the consumer bankruptcy
system.
The Department opposes, however, provisions in section 441
that would require the collection of certain categories of data
for several reasons. First, the report would be based largely
on information derived from bankruptcy schedules filed by the
debtors, and this information is often subject to questions
about accuracy. Second, many of the requirements for data
required in Section 441 would call for information that would
not be routinely collected and analyzed by either the United
States Trustees or the courts. Working with information on a
day to day basis increases its integrity, and as errors are
identified they are corrected. Information that is gathered for
reporting purposes only, as is the case for many of the
elements of Section 441, lacks this essential safeguard of data
integrity.
Finally, the Department also opposes the provision
directing the Administrative Office of the United States Courts
(``Administrative Office'') to prescribe the form of the
statistics. We believe section 441 should be amended to provide
the Executive Office of the United States Trustees, after
consultation with the Administrative Office, with the
discretion on what statistics to compile within certain broad
categories. This approach would create a flexible tool in which
to provide Congress with crucial and timely information about
the bankruptcy system.
The Department supports the data collection provisions of
section 442, which would add a new 28 U.S.C. Sec. 589b. This
provision would build upon data that will be readily
ascertainable after amendment to the final and periodic report
forms. We do note two problems with this provision. It
conflicts with section 235, which requires the Administrative
Office to create an official form for periodic reports in small
business chapter 11 cases. Section 235 should be amended to
reflect the role of the Attorney General in promulgating the
form of these reports.We also question the provision in section
442 requiring the Attorney General to maintain final reports in one or
more central locations. Currently, all final reports are filed with the
courts, and section 442 provides for electronic access through the
Internet. We would be happy to work with the Committee to recommend
appropriate changes to these provisions.
Section 501. Treatment of certain liens
Section 501 of H.R. 3150 deals with subordination of tax
liens under section 724(b) of the Code, and is identical to
section 2 of S. 1149, the Investment in Education Act, a bill
passed by the Senate on October 30, 1997. Under the proposed
changes, ad valorem property taxes would generally be protected
from subordination. Reversing current law, expenses of a failed
chapter 11 proceeding would not be given preferential treatment
over tax liens, with a limited exception. Exhaustion of
unencumbered assets would be required before tax liens could be
subordinated, and expenses of preserving or disposing of
secured property must be recovered from the property (reducing
the expenses to which a tax lien would be subordinated).
We support this provision. The public fisc should not be
required to subsidize failed chapter 11 cases by having tax
liens subordinated in order to pay administrative expenses of
insolvent reorganization proceedings. Moreover, in chapter 7
cases, other unencumbered assets should be used to satisfy
administrative expenses and any expenses properly allocable to
secured claims should be recovered from the property.
Section 502. Effective notice to government
Section 502 of H.R. 3150 would amend section 342 of the
Code to improve notice to the entities most frequently
participating in the bankruptcy process--governmental units. It
would require identification of the agency through which the
debtor is indebted; disclosure of identifying information
concerning the claim (such as taxpayer identification numbers
and real estate parcel designations); and creation of a matrix
of addresses of governmental units. In addition, it would give
incentives to debtors to use the designated addresses.
We support these provisions. They are in accord with
Recommendation 4.2.1 of the National Bankruptcy Review
Commission, which recommended redressing the current
deficiencies in notifying governmental units. This provision
would ensure reasonable identification of both the affected
government agency and the debtor obligated on the debt. It
would also create a mechanism for giving debtors accurate
addresses to which notices should be sent. Finally, it would
promote compliance with the mechanism by providing exceptions
to bar dates and discharge-ability when a debtor fails to
comply with the prescribed mechanism. We suggest, however, that
the reference point in subsection (c) be corrected from notice
of the bankruptcy ``case'' to notice of ``the matter or
proceeding in respect to which the notice was provided.''
Section 503. Notice of request for a determination of taxes
Section 503 of H.R. 3150 would amend section 505(b) of the
Code to provide that a request for prompt audit of a tax return
should be sent to the office designated by the taxing
authority. Thus, for example, a notice sent to the Secretary of
the Treasury in Washington, rather than to the Special
Procedures unit of the IRS District Director where the
bankruptcy is pending, would not suffice. We support this
proposal. However, we do not believe it necessary to introduce
further complications by requiring that the designation must be
made on a local court registry.
Section 504. Rate of interest on tax claims
Section 505 of H.R. 3150, as introduced provided that when
a governmental unit is entitled to postpetition interest on a
tax claim, the rate of interest would be the rate determined
under section 6621(a)(2) of the Internal Revenue Code (26
U.S.C.). Under current law, the court must generally determine
the ``market rate'' for such interest. As reported by the
Subcommittee, Section 504 of H.R. 3150 provides that if the
holder of an unsecured prepetition tax claim is entitled to
interest on such claim, the minimum rate of interest will be
the Federal short-term rate rounded to the nearest full
percent, determined under section 1274(d) of the Internal
Revenue Code for the calendar month in which the plan is
confirmed, plus three percentage points.
We oppose this provision. We believe that the legislation
should simply fix the interest rate for deferred tax payments
at the applicable nonbankruptcy interest rate, i.e., the
section 6621(a)(2) rate. Moreover, the legislation should
address, as well, the interest rate for secured tax claims.
Section 505. Tolling of priority of tax claims time periods
Section 505 of H.R. 3150 would suspend the time periods
under the Code pertaining to the priority and discharge of tax
claims during the pendency of a prior bankruptcy for the period
in which the government was prohibited from collecting the
claim, plus six months. We support this proposal. The filing of
successive bankruptcies should not disadvantage governmental
units by reducing their opportunity to collect a tax, and
should not result in a more expansive discharge of tax claims
for debtors. Adding six months to the suspension period mirrors
section 6503(h) of the Internal Revenue Code (26 U.S.C.), and
is appropriate given the disruption to collection efforts
caused bythe filing of a bankruptcy petition. The additional
time is needed to get collection efforts back on track.
Section 507. Chapter 13 discharge of fraudulent and other taxes
Section 507 of H.R. 3150 would generally conform the
discharge of tax claims in chapter 13 cases to the discharge of
such claims available in chapter 7 cases. We support this
provision Under current law priority tax claims for which a
proof of claim is filed must be paid in full pursuant to the
plan, and if a proof of claim is not filed, such taxes may be
discharged. Taxes attributable to fraud or unfiled returns can
be discharged upon completion of all payments under the plan,
but many jurisdictions permit plans providing for ``zero
payment'' of taxes, or plans distributing payments covering
only small percentages of such claims. Permitting taxes
attributable to fraud, or for which returns have never been
filed, to be discharged on the basis of a tax evader's
commitment to make payments to his or her creditors for three
or five years makes bankruptcy a tax haven. In our view, a
debtor should be entitled to the same discharge in chapters 7
and 13, as proposed in section 507. Taxes attributable to fraud
should be not discharged in a chapter 13 proceeding, and
chapter 13 plans should not be confirmed unless prepetition tax
returns are filed as proposed in section 516 of the HR. 3150.
Section 508. Chapter 11 discharge of fraudulent taxes
Section 508 of H.R. 3150 would deny a discharge to a
chapter 11 corporate debtor for taxes that arose because of
fraudulent tax returns or an attempt to evade taxes. We support
this proposal. Corporations that engage in tax fraud or
otherwise attempt to evade taxes should not be entitled to a
discharge vis-a-vis those taxes.
Section 509. The stay of proceedings in Tax Court
Section 509 of H.R. 3150 would limit the automatic stay
applicable to Tax Court proceedings to proceedings regarding a
tax liability for a tax period ending before the order for
relief, and would clarify that the automatic stay does not
apply to an appeal of a decision determining a tax liability of
the debtor. We support these proposals. No purpose is served in
staying the commencement or continuation of a Tax Court
proceeding for taxes incurred postpetition. Moreover, a court
of appeals case regarding the liability of a taxpayer for a tax
should be allowed to continue to a decision.
Section 510. Periodic payment of taxes in chapter 11 cases
Section 510 of H.R. 3150 would require the payment of tax
claims in installments over the course of the plan with the
result that balloon payments would be proscribed. We support
this prohibition on balloon payments.
In addition, section 510 would modify the deferral period
for payment of prepetition tax claims in a chapter 11 plan by
allowing payments to be made within six years of the petition
date. Current law provides that payments are to be completed
within six years of the assessment date of the taxes. We oppose
the proposal to measure the deferral period from the date of
the petition, rather than from the assessment date. The
proposal would extend the payment of some prepetition taxes for
a period extending beyond the statute of limitations on tax
collection. This would not only raise questions as to the
legality of accepting payments for which collection would
otherwise be barred, but would also prevent the IRS from
seeking to enforce collection in the event of a default.
Finally, we note the version of H.R. 3150 approved by the
Subcommittee does not include a provision that was in the
original bill that would have treated secured tax claims as
priority claims for deferred payment purposes under section
1129(a)(9)(C) of the Code, where such claims would have had
priority absent their secured status. We urge you to restore
this provision to the bill. We believe that it is illogical for
the Bankruptcy Code to treat tax claims that would be entitled
to priority absent their secured status less favorably than
unsecured priority claims.
Section 511. The avoidance of statutory tax liens prohibited
Section 511 of H.R. 3150 would resolve litigation over the
interaction of section 545(2) of the Code, and the protection
accorded certain purchasers of property under 26 U.S.C.
Sec. 6323 even after a notice of tax lien has been filed. We
support the proposal. The purpose of the special treatment for
such purchasers is to facilitate the flow of these goods in
commerce. Debtors would receive a windfall if section 545(2) of
the Code applied to tax liens.
Section 514. Income tax returns by tax authorities
Section 514 of H.R. 3150 would concern the exception from
discharge for taxes relating to unfiled tax returns when
substitute tax returns are prepared by taxing authorities. For
tax purposes, a tax return prepared by the IRS is not
considered a tax return, unless it is signed by the taxpayer.
The proposal would confirm that a substitute return prepared by
the IRS is not a return for discharge purposes, unless it is
signed by thetaxpayer. This section further provides, however,
that a written stipulation to a judgment entered in a nonbankruptcy
court would be treated in the same manner and have the same effect as a
signed tax return. We are uneasy at the prospect of having different
definitions of ``tax returns'' for Internal Revenue Code and Bankruptcy
Code purposes. Furthermore, stipulation to a judgment represents a
level of cooperation much different in degree and kind than the signing
under penalty of perjury of a return prepared by a taxing authority.
Thus, we do not support the provision equating a stipulated judgment
with a signed return.
Section 515. The discharge of the estate's liability for unpaid taxes
Section 515 of H.R. 3150 would absolve the debtor's estate
of liability for administrative taxes after a request for a
prompt audit is made in accordance with section 505(b) of the
Code. Several courts have held that while a trustee, the
debtor, and a successor to the debtor are discharged from
liability for administrative period taxes after a prompt audit
request is made, the estate remains liable for any taxes
uncovered by a taxing authority in a subsequent audit. We
oppose the proposal to extinguish the liability of the estate.
Section 505(b) already protects the trustee, the debtor and the
debtor's successors from liability, and extinguishing the
liability of the estate for taxes that it should have reported
on its return will result in an unjust windfall for other
creditors.
Section 516. Requirement to file tax returns to confirm chapter 13
plans
Section 515 of H.R. 3150 would require chapter 13 debtors
to file all tax returns due for six years prior to the petition
date, and implements a proposal adopted by the National
Bankruptcy Review Commission. Tax authorities are placed at a
severe disadvantage in filing timely proofs of claim when a
chapter 13 debtor is delinquent in filing prepetition tax
returns. We support this proposal. It is ironic and troubling
that individuals who invoke the protections of government
against their creditors, defy their government in failing to
discharge their tax return filing responsibilities. We submit
that chapter 13 plans of debtors who continue to disregard
their tax return filing obligations should not be confirmed.
Section 518. Setoff of tax refunds
Section 518 of H.R. 3150 would create an exception to the
automatic stay allowing taxing authorities to set off
prepetition tax refunds against prepetition tax claims. We
support this proposal.
Even when consumer bankruptcy filings were a mere 300,000
cases a year, the cost to the government of filing lift stay
motions for relief from the automatic stay in order to effect a
setoff of tax refunds would have been significant. With
consumer filings now surpassing 1.3 million cases a year, the
cost of filing such lift stay motions would be prohibitive.
Given the number of cases in which refund offset arise, the
solution is to permit taxing authorities to use the
administrative processes that apply outside of bankruptcy
rather than dealing with the issue on a case-by-case basis
using a litigation model.
We look forward to working with the Committee as it
considers these and other issues raised by H.R. 3150. The
Office of Management and Budget advises that it has no
objection to the submission of this letter from the standpoint
of the Administration's program.
Sincerely,
Ann M. Harkins,
Acting Assistant Attorney General.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the
bill, as reported, are shown as follows (existing law proposed
to be omitted is enclosed in black brackets, new matter is
printed in italic, existing law in which no change is proposed
is shown in roman):
TITLE 11--UNITED STATES CODE
Chap. Sec.
General Provisions.............................................101
* * * * * * *
601 Ancillary and Other Cross-Border Cases...........................
* * * * * * *
CHAPTER 1--GENERAL PROVISIONS
* * * * * * *
Sec. 101. Definitions
In this title--
(1) * * *
* * * * * * *
(3) ``assessment''--
(A) for purposes of State and local taxes,
means that point in time when all actions
required have been taken so that thereafter a
taxing authority may commence an action to
collect the tax, and
(B) for Federal tax purposes has the meaning
given such term in the Internal Revenue Code of
1986;
and ``assessed'' and ``assessable'' shall be
interpreted in light of the definition of assessment in
this paragraph;
(3A) ``assisted person'' means any person whose debts
consist primarily of consumer debts and whose non-
exempt assets are less than $150,000;
(4) ``attorney'' means attorney, professional law
association, corporation, or partnership, authorized
under applicable law to practice law;
(4A) ``bankruptcy assistance'' means any goods or
services sold or otherwise provided to an assisted
person with the express or implied purpose of providing
information, advice, counsel, document preparation or
filing, or attendance at a creditors' meeting or
appearing in a proceeding on behalf of another or
providing legal representation with respect to a
proceeding under this title;
* * * * * * *
(10) ``creditor'' means--
(A) entity that has a claim against the
debtor that arose at the time of or before the
order for relief concerning the debtor;
(B) entity that has a claim against the
estate of a kind specified in section 348(d),
502(f), 502(g), 502(h) or 502(i) of this title;
or
(C) entity that has a community claim;
(10A) ``current monthly total income'' means the
average monthly income from all sources derived which
the debtor, or in a joint case, the debtor and the
debtor's spouse, receive without regard to whether it
is taxable income, in the six months preceding the date
of determination, and includes any amount paid by
anyone other than the debtor or, in a joint case, the
debtor and the debtor's spouse on a regular basis to
the household expenses of the debtor or the debtor's
dependents and, in a joint case, the debtor's spouse if
not otherwise a dependent;
* * * * * * *
(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;
(12B) ``debt relief counselling agency'' means any
person who provides any bankruptcy assistance to an
assisted person in return for the payment of money or
other valuable consideration, or who is a bankruptcy
petition preparer pursuant to section 110 of this
title, but does not include any person that is any of
the following or an officer, director, employee or
agent thereof--
(A) any nonprofit organization which is
exempt from taxation under section 501(c)(3) of
the Internal Revenue Code of 1986;
(B) any creditor of the person to the extent
the creditor is assisting the person to
restructure any debt owed by the person to the
creditor; or
(C) any depository institution (as defined in
section 3 of the Federal Deposit Insurance Act)
or any Federal credit union or State credit
union (as those terms are defined in section
101 of the Federal Credit Union Act), or any
affiliate or subsidiary of such a depository
institution or credit union;
(13) ``debtor'' means person or municipality
concerning which a case under this title has been
commenced;
(13A) ``debtor's principal residence'' means a
residential structure including incidental property
when the structure contains 1 to 4 units, whether or
not that structure is attached to real property, and
includes, without limitation, an individual condominium
or cooperative unit or mobile or manufactured home or
trailer;
(13B) ``incidental property'' means property
incidental to such residence including, without
limitation, property commonly conveyed with a principal
residence where the real estate is located, window
treatments, carpets, appliances and equipment located
in the residence, and easements, appurtenances,
fixtures, rents, royalties, mineral rights, oil and gas
rights, escrow funds and insurance proceeds;
[(14) ``disinterested person'' means person that--
[(A) is not a creditor, an equity security
holder, or an insider;
[(B) is not and was not an investment banker
for any outstanding security of the debtor;
[(C) has not been, within three years before
the date of the filing of the petition, an
investment banker for a security of the debtor,
or an attorney for such an investment banker in
connection with the offer, sale, or issuance of
a security of the debtor;
[(D) is not and was not, within two years
before the date of the filing of the petition,
a director, officer, or employee of the debtor
or of an investment banker specified in
subparagraph (B) or (C) of this paragraph; and
[(E) does not have an interest materially
adverse to the interest of the estate or of any
class of creditors or equity security holders,
by reason of any direct or indirect
relationship to, connection with, or interest
in, the debtor or an investment banker
specified in subparagraph (B) or (C) of this
paragraph, or for any other reason;]
(14) ``disinterested person'' means a person that--
(A) is not a creditor, an equity security
holder, or an insider;
(B) is not and was not, within 2 years before
the date of the filing of the petition, a
director, officer, or employee of the debtor;
and
(C) does not have an interest materially
adverse to the interest of the estate or of any
class of creditors or equity security holders,
by reason of any direct or indirect
relationship to, connection with, or interest
in, the debtor, or for any other reason;
* * * * * * *
[(23) ``foreign proceeding'' means proceeding,
whether judicial or administrative and whether or not
under bankruptcy law, in a foreign country in which the
debtor's domicile, residence, principal place of
business, or principal assets were located at the
commencement of such proceeding, for the purpose of
liquidating an estate, adjusting debts by composition,
extension, or discharge, or effecting a reorganization;
[(24) ''foreign representative'' means duly selected
trustee, administrator, or other representative of an
estate in a foreign proceeding;]
(23) ``foreign proceeding'' means a collective
judicial or administrative proceeding in a foreign
state, including an interim proceeding, pursuant to a
law relating to insolvency in which proceeding the
assets and affairs of the debtor are subject to control
or supervision by a foreign court, for the purpose of
reorganization or liquidation;
(24) ``foreign representative'' means a person or
body, including a person or body appointed on an
interim basis, authorized in a foreign proceeding to
administer the reorganization or the liquidation of the
debtor's assets or affairs or to act as a
representative of the foreign proceeding;
* * * * * * *
(27) ``governmental unit'' means United States;
State; Commonwealth; District; Territory; municipality;
foreign state; department, agency, or instrumentality
of the United States (but not a United States trustee
while serving as a trustee in a case under this title),
a State, a Commonwealth, a District, a Territory, a
municipality, or a foreign state; or other foreign or
domestic government;
(27A) ``household goods'' has the meaning given such
term in the Trade Regulation Rule on Credit Practices
promulgated by the Federal Trade Commission (16 C.F.R.
444.1(i)), as in effect on the effective date of this
paragraph;
* * * * * * *
(39A) ``monthly net income'' means the amount
determined by taking the current monthly total income
of the debtor less--
(A) the expense allowances under the
applicable National Standards, Local Standards
and Other Necessary Expenses allowance
(excluding payments for debts) for the debtor,
the debtor's dependents, and, in a joint case,
the debtor's spouse if not otherwise a
dependent, in the area in which the debtor
resides as determined under the Internal
Revenue Service financial analysis for expenses
in effect as of the date it is being
determined;
(B) the average monthly payment on account of
secured creditors, which shall be calculated as
of the date of determination as the total of
all amounts then remaining to be paid on
account of secured claims pursuant to the plan
less any of such amounts to be paid from
sources other than the debtor's income, divided
by the total months remaining of the plan; and
(C) the average monthly payment on account of
priority creditors, which shall be calculated
as the total of all amounts then remaining to
be paid on account of priority claims pursuant
to the plan less any of such amounts to be paid
from sources other than the debtor's income,
divided by the total months remaining of the
plan;
(40) ``municipality'' means political subdivision or
public agency or instrumentality of a State;
(40A) ``national median family income'' and
``national median household income for 1 earner'' shall
mean during any calendar year, the national median
family income and the national median household income
for 1 earner which the Bureau of the Census has
reported as of January 1 of such calendar year for the
most recent previous calendar year;
* * * * * * *
(48A) ``securities self regulatory organization''
means either a securities association registered with
the Securities and Exchange Commission pursuant to
section 15A of the Securities Exchange Act of 1934 or a
national securities exchange registered with the
Securities and Exchange Commission pursuant to section
6 of the Securities Exchange Act of 1934;
* * * * * * *
[(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;
[(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;]
(51B) ``single asset real estate'' means undeveloped
real property or other real property constituting a
single property or project, other than residential real
property with fewer than 4 residential units, on which
is located a single development or project which
property or project generates substantially all of the
gross income of a debtor and on which no substantial
business is being conducted by a debtor, or by a
commonly controlled group of entities all of which are
concurrently debtors in a case under chapter 11 of this
title, other than the business of operating the real
property and activities incidental thereto;
(51C) ``small business case'' means a case filed
under chapter 11 of this title in which the debtor is a
small business debtor;
(51D) ``small business debtor'' means--
(A) a person (including affiliates of such
person that are also debtors under this title)
that has aggregate noncontingent, liquidated
secured and unsecured debts as of the date of
the petition or the order for relief in an
amount not more than $5,000,000 (excluding
debts owed to 1 or more affiliates or
insiders); or
(B) a debtor of the kind described in
paragraph (51B) but without regard to the
amount of such debtor's debts;
except that if a group of affiliated debtors has
aggregate noncontingent liquidated secured and
unsecured debts greater than $5,000,000 (excluding debt
owed to 1 or more affiliates or insiders), then no
member of such group is a small business debtor;
* * * * * * *
Sec. 103. Applicability of chapters
(a) Except as provided in section 1161 of this title,
chapters 1, 3, and 5 of this title apply in a case under
chapter 7, 11, 12, or 13 of this title and this chapter,
sections 307, 555 through 557, 559, and 560 apply in a case
under chapter 6.
* * * * * * *
(j) Chapter 6 applies only in a case under that chapter,
except that section 605 applies to trustees and to any other
entity authorized by the court, including an examiner, under
chapters 7, 11, and 12, to debtors in possession under chapters
11 and 12, and to debtors or trustees under chapters 9 and 13
who are authorized to act under section 605.
Sec. 104. Adjustment of dollar amounts
(a) * * *
(b)(1) On April 1, 1998, and at each 3-year interval ending
on April 1 thereafter, each dollar amount in effect under
sections 101(3), [109(e)] subsections (b), (e), and (h) of
section 109, 303(b), 507(a), 522(d), [and 523(a)(2)(C)]
523(a)(2)(C), and 1325(b)(1) immediately before such April 1
shall be adjusted--
(A) * * *
* * * * * * *
Sec. 105. Power of court
(a) * * *
* * * * * * *
(d) The court, on its own motion or on the request of a party
in interest[, may]--
[(1) hold a status conference regarding any case or
proceeding under this title after notice to the parties
in interest; and]
(1) shall hold such status conferences as are
necessary to further the expeditious and economical
resolution of the case; and
(2) [unless inconsistent with another provision of
this title or with applicable Federal Rules of
Bankruptcy Procedure,] may 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) * * *
* * * * * * *
(vi) provides that the hearing on
approval of the disclosure statement
may be combined with the hearing on
confirmation of the plan[.]; and
(3) in a small business case, not extend the time
periods specified in sections 1121(e) and 1129(e) of
this title except as provided in section 1121(e)(3) of
this title.
* * * * * * *
Sec. 109. Who may be a debtor
(a) * * *
(b) A person may be a debtor under chapter 7 of this title
only if such person is not--
(1) a railroad;
(2) a domestic insurance company, bank, savings bank,
cooperative bank, savings and loan association,
building and loan association, homestead association, a
small business investment company licensed by the Small
Business Administration under [subsection (c) or (d)
of] section 301 of the Small Business Investment Act of
1958, credit union, or industrial bank or similar
institution which is an insured bank as defined in
section 3(h) of the Federal Deposit Insurance Act; [or]
(3) a foreign insurance company, bank, savings bank,
cooperative bank, savings and loan association,
building and loan association, homestead association,
or credit union, engaged in such business in the United
States[.]; or
(4) an individual or, in a joint case, an individual
and such individual's spouse, who have income available
to pay creditors as determined under subsection (h).
* * * * * * *
(h)(1) An individual or, in a joint case, an individual and
such individual's spouse, have income available to pay
creditors if the individual, or, in a joint case, the
individual and the individual's spouse combined, as of the date
of the order for relief, have--
(A) current monthly total income of not less than the
highest national median family income reported for a
family of equal or lesser size or, in the case of a
household of 1 person, of not less than the national
median household income for 1 earner, as of the date of
the order for relief;
(B) projected monthly net income greater than $50;
and
(C) projected monthly net income sufficient to repay
twenty percent or more of unsecured nonpriority claims
during a five-year repayment plan.
(2) Projected monthly net income shall be sufficient under
paragraph (1)(C) if, when multiplied by 60 months, it equals or
exceeds 20 percent of the total amount scheduled as payable to
unsecured nonpriority creditors.
(3) ``Projected monthly net income'' means current monthly
total income less--
(A) the expense allowances under the applicable
National Standards, Local Standards and Other Necessary
Expenses allowance (excluding payments for debts) for
the debtor, the debtor's dependents, and, in a joint
case, the debtor's spouse if not otherwise a dependent,
in the area in which the debtor resides as determined
under the Internal Revenue Service financial analysis
for expenses in effect as of the date of the order for
relief;
(B) the average monthly payment on account of secured
creditors, which shall be calculated as the total of
all amounts scheduled as contractually payable to
secured creditors in each month of the 60 months
following the date of the petition by the debtor, or,
in a joint case, by the debtor and the debtor's spouse
combined, and dividing that total by 60 months; and
(C) the average monthly payment on account of
priority creditors, which shall be calculated as the
total amount of debts entitled to priority, reasonably
estimated by the debtor as of the date of the petition,
and dividing that total by 60 months.
(4) In the event that the debtor establishes extraordinary
circumstances that require allowance for additional expenses or
adjustment of current monthly income, projected monthly net
income for purposes of this section shall be the amount
calculated under paragraph (3) less such additional expenses or
income adjustment as such extraordinary circumstances require.
(A) This paragraph shall not apply unless the debtor
files with the petition--
(i) a written statement that this paragraph
applies in determining the debtor's eligibility
for relief under chapter 7 of this title;
(ii) if adjustment of current monthly income
is claimed, an explanation of what income has
been lost in the 6 months preceding the date of
determination and any replacement income that
has been offered or secured, or is expected,
and an itemization of such lost and replacement
income;
(iii) if allowance for additional expenses is
claimed, a list itemizing each additional
expense which exceeds the expenses allowances
provided under paragraph (3)(A);
(iv) a detailed description of the
extraordinary circumstances that explain why
each loss of income described under clause (ii)
will not be replaced or each additional expense
itemized under clause (iii) requires allowance;
and
(v) a sworn statement signed by the debtor
and, if the debtor is represented by counsel,
by the debtor's attorney, that the information
required under this paragraph is true and
correct.
(B) Until the trustee or any party in interest
objects to the debtor's statement that this paragraph
applies and the court rejects or modifies the debtor's
statement, the projected monthly net income in the
debtor's statement shall be the projected monthly net
income for the purposes of this section. If an
objection is filed with the court within 60 days after
the debtor has provided all the information required
under subsections (a)(1) and (c)(1)(A) of section 521,
the court, after notice and hearing, shall determine
whether such extraordinary circumstances exist and
shall establish the amount of the additional expense
allowance, if any. The burden of proving such
extraordinary circumstances shall be on the debtor.
(i)(1) Subject to paragraph (2) and notwithstanding any other
provision of this section, an individual may not be a debtor
under this title unless such individual has, during the 90-day
period preceding the date of filing of the petition, made a
good-faith attempt to create a debt repayment plan outside the
judicial system for bankruptcy law (commonly referred to as the
``bankruptcy system''), through a credit counseling program
offered through credit counseling services described in section
342(b)(2) that has been approved by--
(A) the United States trustee; or
(B) the bankruptcy administrator for the district in
which the petition is filed.
(2) The United States trustee or bankruptcy administrator may
not approve a program for inclusion on the list under paragraph
(1) unless the counseling service offering the program offers
the program without charge, or at an appropriately reduced
charge, if payment of the regular charge would impose a
hardship on the debtor or the debtor's dependents.
(3) The United States trustee or bankruptcy administrator
shall designate any geographical areas in the United States
trustee region or judicial district, as the case may be, as to
which the United States trustee or bankruptcy administrator has
determined that credit counseling services needed to comply
with this subsection are not available or are too
geographically remote for debtors residing within the
designated geographical areas. The clerk of the bankruptcy
court for each judicial district shall maintain a list of the
designated areas within the district.
(4) The clerk shall exclude a particular counseling service
from the list maintained under section 342(b)(2) of this title
if the United States trustee or bankruptcy administrator orders
that the counseling service not be included in the list.
(5) The court may waive the requirement specified in
paragraph (1) if--
(A) no credit counseling services are available as
designated under paragraphs (2) and (3);
(B) the providers of credit counseling services
available in the district are unable or unwilling to
provide such services to the debtor in a timely manner;
or
(C) foreclosure, garnishment, attachment, eviction,
levy of execution, or similar claim enforcement
procedure that would have deprived the individual of
property had commenced before the debtor could complete
a good faith attempt to create such a repayment plan.
(6) A debtor who is subject to the exemption under paragraph
(5)(C) shall be required to make a good-faith attempt to create
a debt repayment plan outside the judicial system in the manner
prescribed in paragraph (1) during the 30-day period beginning
on the date of filing of the petition of that debtor.
(7) A debtor shall be exempted from the bad faith presumption
for repeat filing under section 362(c) of title 11 if the case
is dismissed due to the creation of a debt repayment plan.
(8) Only the United States trustee may make a motion for
dismissal on the ground that the debtor did not comply with
this subsection.
* * * * * * *
Sec. 111. Adjustment to monthly net income
(a) Monthly net income for purposes of a plan under chapter
13 of this title shall be adjusted under this section when the
debtor's extraordinary circumstances require adjustment as
determined herein. Under this section, monthly net income shall
be determined by subtracting therefrom such loss of income or
additional expenses as the debtor's extraordinary circumstances
require as determined under this section. This section shall
not apply unless--
(1) the debtor files with the court and, in a case in
which a trustee has been appointed, with the trustee at
the times required in subsection (b) a statement of
extraordinary circumstances as follows--
(A) a written statement that this section
applies in determining the debtor's monthly net
income;
(B) if applicable, an explanation of what
income has been lost in the six months
preceding the date of determination and any
replacement income which has been secured or is
expected, and an itemization of such lost and
replacement income;
(C) if applicable, a list itemizing each
additional expense which exceeds the expense
allowance provided in determining monthly net
income under section 101(39A);
(D) if applicable, a detailed description of
the extraordinary circumstances which explains
why each of the additional expenses itemized
under paragraph (C) requires allowance; and
(E) a sworn statement signed by the debtor
and, if the debtor is represented by counsel,
by the debtor's attorney, of the amount of
monthly net income that the debtor has pursuant
to this subsection and that the information
provided under this subsection is true and
correct; and
(2) until the trustee or any party in interest
objects to the debtor's request that this section be
applied and the court rejects or modifies the debtor's
statement, the monthly net income in the debtor's
statement shall be the monthly net income for the
purposes of the debtor's plan. If an objection is filed
with the court within the times provided in subsection
(b), the court, after notice and hearing, shall
determine whether such extraordinary circumstances
asserted by the debtor exist and establish the amount
of the loss of income and such additional expense
allowance, if any. The burden of proving such
extraordinary circumstances and the amount of the loss
of income and the additional expense allowance, if any,
shall be on the debtor. The court may award to the
party that prevails with respect to such objection a
reasonable attorney's fee and costs incurred by the
prevailing party in connection with such objection if
the court finds that the position of the nonprevailing
party was not substantially justified, but the court
shall not award such fee or such costs if special
circumstances make the award unjust.
(b) For the purposes of chapter 13 of this title, the
statement of extraordinary circumstances shall be filed with
the court and served on the trustee on or before 45 days before
each anniversary of the confirmation of the plan in order to be
applicable during the next year of the plan. Any objection
thereto shall be filed 30 days after the statement is filed
with the trustee. Whenever a statement is timely filed with the
trustee, the trustee shall give notice to creditors that such
statement has been filed and the amount of monthly net income
stated therein within 15 days of receipt of the statement.
(c) For purposes of subsection (a), charitable contributions
(that meet the definition of ``charitable contribution'' under
section 548(d)(3)) to any qualified religious or charitable
entity or organization (defined in section 548(d)(4)), but not
to exceed 15 percent of the debtor's gross income for the year
in which such contributions are made, shall be considered to be
additional expenses of the debtor required by extraordinary
circumstances.
* * * * * * *
CHAPTER 3--CASE ADMINISTRATION
SUBCHAPTER I--COMMENCEMENT OF A CASE
Sec.
301. Voluntary cases.
* * * * * * *
308. Debtor reporting requirements.
* * * * * * *
SUBCHAPTER I--COMMENCEMENT OF A CASE
Sec. 301. Voluntary cases
(a) A voluntary case under a chapter of this title is
commenced by the filing with the bankruptcy court of a petition
under such chapter by an entity that may be a debtor under such
chapter. [The commencement of a voluntary case under a chapter
of this title constitutes an order for relief under such
chapter.]
(b) The commencement of a voluntary case under a chapter of
this title constitutes an order for relief under such chapter.
* * * * * * *
Sec. 304. Cases ancillary to foreign proceedings
(a) * * *
(b) Subject to the [provisions of subsection (c)] subsections
(c) and (d) of this section, if a party in interest does not
timely controvert the petition, or after trial, the court may--
(1) * * *
* * * * * * *
(d) The court may not grant to a foreign representative of
the estate of an insurance company that is not organized under
the law of a State and that is engaged in the business of
insurance, or reinsurance, in the United States relief under
subsection (b) with respect to property that is--
(1) a deposit required by a State law relating to
insurance or reinsurance;
(2) a multibeneficiary trust required by a State law
relating to insurance or reinsurance to protect holders
of insurance policies issued in the United States or to
protect holders or claimants against such policies; or
(3) a multibeneficiary trust authorized by a State
law relating to insurance or reinsurance to allow a
person engaged in the business of insurance in the
United States--
(A) to cede reinsurance to such an insurance
company; and
(B) to treat so ceded reinsurance as an
asset, or deduction from liability, in
financial statements of such person.
Sec. 305. Abstention
(a) * * *
* * * * * * *
(c) An order under subsection (a) of this section dismissing
a case or suspending all proceedings in a case, or a decision
not so to dismiss or suspend, is not reviewable by appeal or
otherwise by the court of appeals under section [158(d), 1291,
or 1292] 1291, 1292, or 1293 of title 28 or by the Supreme
Court of the United States under section 1254 of title 28.
* * * * * * *
Sec. 308. Debtor reporting requirements
A small business debtor shall file periodic financial and
other reports containing information including--
(1) the debtor's profitability, that is,
approximately how much money the debtor has been
earning or losing during current and recent fiscal
periods;
(2) reasonable approximations of the debtor's
projected cash receipts and cash disbursements over a
reasonable period;
(3) comparisons of actual cash receipts and
disbursements with projections in prior reports;
(4) whether the debtor is--
(A) in compliance in all material respects
with postpetition requirements imposed by this
title and the Federal Rules of Bankruptcy
Procedure; and
(B) timely filing tax returns and paying
taxes and other administrative claims when due,
and, if not, what the failures are and how, at
what cost, and when the debtor intends to
remedy such failures; and
(5) such other matters as are in the best interests
of the debtor and creditors, and in the public interest
in fair and efficient procedures under chapter 11 of
this title.
* * * * * * *
SUBCHAPTER II--OFFICERS
* * * * * * *
Sec. 330. Compensation of officers
(a) * * *
* * * * * * *
(e) The court may not appoint any person to examine any
request for compensation or reimbursement payable under this
section.
* * * * * * *
SUBCHAPTER III--ADMINISTRATION
Sec. 341. Meetings of creditors and equity security holders
(a) Within a reasonable time after the order for relief in a
case under this title, the United States trustee shall convene
and preside at a meeting of creditors. If the debtor is an
individual in a voluntary case under chapter 7, 11, or 13, the
meeting of creditors shall not be convened earlier than 60 days
(or later than 90 days) after the date of the order for relief,
unless the court, after notice and hearing, determines unusual
circumstances justify an earlier meeting.
* * * * * * *
(c) The court may not preside at, and may not attend, any
meeting under this section including any final meeting of
creditors. Notwithstanding any local court rule, provision of a
State constitution, any other State or Federal nonbankruptcy
law, or other requirement that representation at the meeting of
creditors under subsection (a) be by an attorney, a creditor
holding a consumer debt or its representatives (which
representatives may include an entity or an employee of an
entity and may be a representative for more than 1 creditor)
shall be permitted to appear at and participate in the meeting
of creditors in a case under chapter 7 or 13 either alone or in
conjunction with an attorney for the creditor. Nothing in this
subsection shall be construed to require any creditor to be
represented by an attorney at any meeting of creditors.
* * * * * * *
(e) Notwithstanding subsections (a) and (b), the court, on
the request of a party in interest and after notice and a
hearing, for cause may order that the United States trustee not
convene a meeting of creditors or equity security holders if
the debtor has filed a plan as to which the debtor solicited
acceptances prior to the commencement of the case.
Sec. 342. Notice
(a) * * *
[(b) Prior to the commencement of a case under this title by
an individual whose debts are primarily consumer debts, the
clerk shall give written notice to such individual that
indicates each chapter of this title under which such
individual may proceed.]
(b)(1) Before the commencement of a case under this title by
an individual whose debts are primarily consumer debts, the
individual shall be given or obtain (as required to be
certified under section 521(a)(1)(B)(viii)) a written notice
that is prescribed by the United States trustee for the
district in which the petition is filed pursuant to section 586
of title 28 and that contains the following:
(A) A brief description of chapters 7, 11, 12 and 13
of this title and the general purpose, benefits, and
costs of proceeding under each of such chapters.
(B) A brief description of services that may be
available to the individual from an independent
nonprofit debt counselling service.
(C) The name, address, and telephone number of each
nonprofit debt counselling service (if any)--
(i) with an office located in the district in
which the petition is filed; or
(ii) that offers toll-free telephone
communication to debtors in such district.
(2) Any such nonprofit debt counselling service that
registers with the clerk of the bankruptcy court on or before
December 10 of the preceding year shall be included in such
list unless the chief bankruptcy judge of the district, after
notice to the debt counselling service and the United States
trustee and opportunity for a hearing, for good cause, orders
that such debt counselling service shall not be so listed.
(3) The clerk shall make such notice available to individuals
whose debts are primarily consumer debts.
(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]. If the credit
agreement between the debtor and the creditor or the last
communication before the filing of the petition in a voluntary
case from the creditor to a debtor who is an individual states
an account number of the debtor which is the current account
number of the debtor with respect to any debt held by the
creditor against the debtor, the debtor shall include such
account number in any notice to the creditor required to be
given under this title. If the creditor has specified to the
debtor an address at which the creditor wishes to receive
correspondence regarding the debtor's account, any notice to
the creditor required to be given by the debtor under this
title shall be given at such address. For the purposes of this
section, ``notice'' shall include, but shall not be limited to,
any correspondence from the debtor to the creditor after the
commencement of the case, any statement of the debtor's
intention under section 521(a)(2) of this title, notice of the
commencement of any proceeding in the case to which the
creditor is a party, and any notice of the hearing under
section 1324.
(d) At any time, a creditor in a case of an individual debtor
under chapter 7 or 13 may file with the court and serve on the
debtor a notice of the address to be used to notify the
creditor in that case. Five days after receipt of such notice,
if the court or the debtor is required to give the creditor
notice, such notice shall be given at that address.
(e) An entity may file with the court a notice stating its
address for notice in cases under chapters 7 and 13. After 30
days following the filing of such notice, any notice in any
case filed under chapter 7 or 13 given by the court shall be to
that address unless specific notice is given under subsection
(d) with respect to a particular case.
(f) Notice given to a creditor other than as provided in this
section shall not be effective notice until it has been brought
to the attention of the creditor. If the creditor has
designated a person or department to be responsible for
receiving notices concerning bankruptcy cases and has
established reasonable procedures so that bankruptcy notices
received by the creditor will be delivered to such department
or person, notice will not be brought to the attention of the
creditor until received by such person or department. No
sanction under section 362(h) of this title or any other
sanction which a court may impose on account of violations of
the stay under section 362(a) of this title or failure to
comply with section 542 or 543 of this title may be imposed on
any action of the creditor unless the action takes place after
the creditor has received notice of the commencement of the
case effective under this section.
(g) If a debtor lists a governmental unit as a creditor in a
list or schedule, any notice required to be given by the debtor
under this title, any rule, any applicable law, or any order of
the court, shall identify the department, agency, or
instrumentality through which the debtor is indebted. The
debtor shall identify (with information such as a taxpayer
identification number, loan, account or contract number, or
real estate parcel number, where applicable), and describe the
underlying basis for the governmental unit's claim. If the
debtor's liability to a governmental unit arises from a debt or
obligation owed or incurred by another individual, entity, or
organization, or under a different name, the debtor shall
identify such individual, entity, organization, or name.
(h) The clerk shall keep and update quarterly, in the form
and manner as the Director of the Administrative Office of the
United States Courts prescribes, and make available to debtors,
a register in which a governmental unit may designate a safe
harbor mailing address for service of notice in cases pending
in the district. A governmental unit may file a statement with
the clerk designating a safe harbor address to which notices
are to be sent, unless such governmental unit files a notice of
change of address.
(i)(1) A notice that does not comply with subsections (d) and
(e) shall have no effect unless the debtor demonstrates, by
clear and convincing evidence, that timely notice was given in
a manner reasonably calculated to satisfy the requirements of
this section was given, and that--
(A) either the notice was timely sent to the safe
harbor address provided in the register maintained by
the clerk of the district in which the case was pending
for such purposes; or
(B) no safe harbor address was provided in such list
for the governmental unit and that an officer of the
governmental unit who is responsible for the matter or
claim had actual knowledge of the case in sufficient
time to act.
(2) No sanction under section 362(h) of this title or any
other sanction which a court may impose on account of
violations of the stay under section 362(a) of this title or
failure to comply with section 542 or 543 of this title may be
imposed unless the action takes place after notice of the
commencement of the case as required by this section has been
received.
* * * * * * *
Sec. 348. Effect of conversion
(a) * * *
* * * * * * *
(f)(1) Except as provided in paragraph (2), when a case under
chapter 13 of this title is converted to a case under another
chapter under this title--
(A) property of the estate in the converted case
shall consist of property of the estate, as of the date
of filing of the petition, that remains in the
possession of or is under the control of the debtor on
the date of conversion; [and]
(B) valuations of property and of allowed secured
claims in the chapter 13 case shall apply [in the
converted case, with allowed secured claims] only in a
case converted to chapter 11 or 12 but not in one
converted to chapter 7, with allowed secured claims in
cases under chapters 11 and 12 reduced to the extent
that they have been paid in accordance with the chapter
13 plan[.]; and
(C) with respect to cases converted from chapter 13,
the claim of any creditor holding security as of the
date of the petition shall continue to be secured by
that security unless the full amount of that claim
determined under applicable nonbankruptcy law has been
paid in full as of the date of conversion,
notwithstanding any valuation or determination of the
amount of an allowed secured claim made for the
purposes of the case under chapter of this title.
Unless a prebankruptcy default has been fully cured
pursuant to the plan at the time of conversion, in any
proceeding under this title or otherwise, the default
shall have the effect given under applicable
nonbankruptcy law.
* * * * * * *
SUBCHAPTER IV--ADMINISTRATIVE POWERS
* * * * * * *
Sec. 362. Automatic stay
(a) Except as provided in subsection (b) of this section, a
petition filed under section 301, 302, or 303 of this title, or
an application filed under section 5(a)(3) of the Securities
Investor Protection Act of 1970, operates as a stay, applicable
to all entities, of--
(1) * * *
* * * * * * *
(8) the commencement or continuation of a proceeding
before the United States Tax Court concerning the
debtor[.], in respect of a tax liability for a taxable
period ending before the order for relief.
(b) The filing of a petition under section 301, 302, or 303
of this title, or of an application under section 5(a)(3) of
the Securities Investor Protection Act of 1970, does not
operate as a stay--
(1) * * *
* * * * * * *
(9) under subsection (a), of--
(A) * * *
* * * * * * *
(C) a demand for tax returns; [or]
(D) the making of an assessment as defined by
applicable nonbankruptcy law notwithstanding
the definition of an ``assessment'' elsewhere
in this title 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)[.]; or
(E) the appeal of a decision by a court or
administrative tribunal which determines a tax
liability of the debtor without regard to
whether such determination was made prepetition
or postpetition.
(10) under subsection (a) of this section, of any act
by a lessor to the debtor under a lease of
[nonresidential] real property that has terminated by
the expiration of the stated term of the lease before
the commencement of or during a case under this title
to obtain possession of such property;
* * * * * * *
(17) under subsection (a) of this section, of the
setoff by a swap participant, of any mutual debt and
claim under or in connection with any swap agreement
that constitutes the setoff of a claim against the
debtor for any payment due from the debtor under or in
connection with any swap agreement against any payment
due to the debtor from the swap participant under or in
connection with any swap agreement or against cash,
securities, or other property of the debtor held by or
due from such swap participant to guarantee, secure or
settle any swap agreement; [or]
(18) under subsection (a) of the creation or
perfection of a statutory lien for an ad valorem
property tax imposed by the District of Columbia, or a
political subdivision of a State, if such tax comes due
after the filing of the petition[.];
(19) under subsection (a), until a prepetition
default is cured fully in a case under chapter 13 of
this title case by actual payment of all arrears as
required by the plan, of the postponement, continuation
or other similar delay of a prepetition foreclosure
proceeding or sale in accordance with applicable
nonbankruptcy law, but nothing herein shall imply that
such postponement, continuation or other similar delay
is a violation of the stay under subsection (a);
(20) under subsection (a) with respect to the
withholding of income pursuant to an order as specified
in section 466(b) of the Social Security Act;
(21) under subsection (a) with respect to the
withholding, suspension, or restriction of drivers'
licenses, professional and occupational licenses, and
recreational licenses pursuant to State law as
specified in section 466(a)(15) of the Social Security
Act or with respect to the reporting of overdue support
owed by an absent parent to any consumer reporting
agency as specified in section 466(a)(7) of the Social
Security Act;
(22) under subsection (a) of this section, of the
commencement or continuation of an investigation or
action by a securities self regulatory organization to
enforce such organization's regulatory power; of the
enforcement of an order or decision, other than for
monetary sanctions, obtained in an action by the
securities self regulatory organization to enforce such
organization's regulatory power; or of any act taken by
the securities self regulatory organization to delist,
delete, or refuse to permit quotation of any stock that
does not meet applicable regulatory requirements; or
(23) under subsection (a) of the setoff of an income
tax refund, by a governmental unit, in respect of a
taxable period which ended before the order for relief
against an income tax liability for a taxable period
which also ended before the order for relief, unless--
(A) prior to such setoff, an action to
determine the amount or legality of such tax
liability under section 505(a) was commenced;
or
(B) where the setoff of an income tax refund
is not permitted because of a pending action to
determine the amount or legality of a tax
liability, the governmental unit may hold the
refund pending the resolution of the action.
The provisions of paragraphs (12) and (13) of this subsection
shall apply with respect to any such petition filed on or
before December 31, 1989.
(c) Except as provided in subsections (d), [(e), and (f)]
(e), (f), and (h) of this section--
(1) the stay of an act against property of the estate
under subsection (a) of this section continues until
such property is no longer property of the estate;
[and]
(2) the stay of any other act under subsection (a) of
this section continues until the earliest of--
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under chapter 7 of
this title concerning an individual or a case
under chapter 9, 11, 12, or 13 of this title,
the time a discharge is granted or denied[.];
and
(3) If a single or joint case is filed by or against
an individual debtor under chapter 7, 11, or 13, and if
a single or joint case of that debtor was pending
within the previous 1-year period but was dismissed,
other than a case refiled under a chapter other than
chapter 7 after dismissal under section 707(b) of this
title, the stay under subsection (a) with respect to
any action taken with respect to a debt or property
securing such debt or with respect to any lease will
terminate with respect to the debtor on the 30th day
after the filing of the later case. If a party in
interest requests, the court may extend the stay in
particular cases as to any or all creditors (subject to
such conditions or limitations as the court may then
impose) after notice and a hearing completed before the
expiration of the 30-day period only if the party in
interest demonstrates that the filing of the later case
is in good faith as to the creditors to be stayed. A
case is presumptively filed not in good faith (but such
presumption may be rebutted by clear and convincing
evidence to the contrary)--
(A) as to all creditors if--
(i) more than 1 previous case under
any of chapters 7, 11, or 13 in which
the individual was a debtor was pending
within such 1-year period;
(ii) a previous case under any of
chapters 7, 11, or 13 in which the
individual was a debtor was dismissed
within such 1-year period, after the
debtor failed to file or amend the
petition or other documents as required
by this title or the court without
substantial excuse (but mere
inadvertence or negligence shall not be
substantial excuse unless the dismissal
was caused by the negligence of the
debtor's attorney), failed to provide
adequate protection as ordered by the
court, or failed to perform the terms
of a plan confirmed by the court; or
(iii) there has not been a
substantial change in the financial or
personal affairs of the debtor since
the dismissal of the next most previous
case under any of chapters 7, 11, or 13
of this title, or any other reason to
conclude that the later case will be
concluded, if a case under chapter 7 of
this title, with a discharge, and if a
chapter 11 or 13 case, a confirmed plan
which will be fully performed;
(B) as to any creditor that commenced an
action under subsection (d) in a previous case
in which the individual was a debtor if, as of
the date of dismissal of that case, that action
was still pending or had been resolved by
terminating, conditioning, or limiting the stay
as to actions of that creditor.
(4) If a single or joint case is filed by or against
an individual debtor under this title, and if 2 or more
single or joint cases of that debtor were pending
within the previous year but were dismissed, other than
a case refiled under section 707(b) of this title, the
stay under subsection (a) will not go into effect upon
the filing of the later case. On request of a party in
interest, the court shall promptly enter an order
confirming that no stay is in effect. If a party in
interest requests within 30 days of the filing of the
later case, the court may order the stay to take effect
in the case as to any or all creditors (subject to such
conditions or limitations as the court may impose),
after notice and hearing, only if the party in interest
demonstrates that the filing of the later case is in
good faith as to the creditors to be stayed. A stay
imposed pursuant to the preceding sentence will be
effective on the date of entry of the order allowing
the stay to go into effect. A case is presumptively not
filed in good faith (but such presumption may be
rebutted by clear and convincing evidence to the
contrary)--
(A) as to all creditors if--
(i) 2 or more previous cases under
this title in which the individual was
a debtor were pending within the 1-year
period;
(ii) a previous case under this title
in which the individual was a debtor
was dismissed within the time period
stated in this paragraph after the
debtor failed to file or amend the
petition or other documents as required
by this title or the court without
substantial excuse (but mere
inadvertence or negligence shall not be
substantial excuse unless the dismissal
was caused by the negligence of the
debtor's attorney), failed to pay
adequate protection as ordered by the
court, or failed to perform the terms
of a plan confirmed by the court; or
(iii) there has not been a
substantial change in the financial or
personal affairs of the debtor since
the dismissal of the next most previous
case under this title, or any other
reason to conclude that the later case
will not be concluded, if a case under
chapter 7, with a discharge, and if a
case under chapter 11 or 13, with a
confirmed plan that will be fully
performed; or
(B) as to any creditor that commenced an
action under subsection (d) in a previous case
in which the individualwas a debtor if, as of
the date of dismissal of that case, that action was still pending or
had been resolved by terminating, conditioning, or limiting the stay as
to action of that creditor.
(5)(A) If a request is made for relief from the stay
under subsection (a) with respect to real or personal
property of any kind, and such request is granted in
whole or in part, the court may order in addition that
the relief so granted shall be in rem either for a
definite period not less than 1 year or indefinitely.
After the issuance of such an order, the stay under
subsection (a) shall not apply to any property subject
to such an in rem order in any case of the debtor under
this title. If such an order so provides, such stay
shall also not apply in any pending or later-filed case
of any entity under this title that claims or has an
interest in the subject property other than those
entities identified in the court's order.
(B) The court shall cause any order entered pursuant
to this paragraph with respect to real property to be
recorded in the applicable real property records, which
recording shall constitute notice to all parties having
or claiming an interest in such real property for
purpose of this section.
(6) For the purposes of this section, a case is
pending from the time of the order for relief until the
case is closed.
(d) On request of a party in interest and after notice and a
hearing, the court shall grant relief from the stay provided
under subsection (a) of this section, such as by terminating,
annulling, modifying, or conditioning such stay--
(1) * * *
(2) with respect to a stay of an act against property
under subsection (a) of this section, if--
(A) the debtor does not have an equity in
such property; and
(B) such property is not necessary to an
effective reorganization; [or]
(3) with respect to a stay of an act against single
asset real estate under subsection (a), by a creditor
whose claim is secured by an interest in such real
estate, unless, not later than the date that is 90 days
after the entry of the order for relief (or such later
date as the court may determine for cause by order
entered within that 90-day period) or 30 days after the
court determines that the debtor is subject to this
paragraph, whichever is later--
(A) the debtor has filed a plan of
reorganization that has a reasonable
possibility of being confirmed within a
reasonable time; or
[(B) the debtor has commenced monthly
payments to each creditor whose claim is
secured by such real estate (other than a claim
secured by a judgment lien or by an unmatured
statutory lien), which payments are in an
amount equal to interest at a current fair
market rate on the value of the creditor's
interest in the real estate.]
(B) the debtor has commenced monthly payments
(which payments may, in the debtor's sole
discretion, notwithstanding section 363(c)(2)
of this title, be made from rents or other
income generated before or after the
commencement of the case by or from the
property) to each creditor whose claim is
secured by such real estate (other than a claim
secured by a judgment lien or by an unmatured
statutory lien), which payments are in an
amount equal to interest at the then-applicable
nondefault contract rate of interest on the
value of the creditor's interest in the real
estate; or
(4) with respect to a stay of an act against property
under subsection (a) of a debtor in a case under
chapter 12, by a creditor whose claim is secured by an
interest in such property, unless the debtor has filed
a plan in accordance with section 1221.
(e) Thirty days after a request under subsection (d) of this
section for relief from the stay of any act against property of
the estate under subsection (a) of this section, such stay is
terminated with respect to the party in interest making such
request, unless the court, after notice and a hearing, orders
such stay continued in effect pending the conclusion of, or as
a result of, a final hearing and determination under subsection
(d) of this section. A hearing under this subsection may be a
preliminary hearing, or may be consolidated with the final
hearing under subsection (d) of this section. The court shall
order such stay continued in effect pending the conclusion of
the final hearing under subsection (d) of this section if there
is a reasonable likelihood that the party opposing relief from
such stay will prevail at the conclusion of such final hearing.
If the hearing under this subsection is a preliminary hearing,
then such final hearing shall be concluded not later than
thirty days after the conclusion of such preliminary hearing,
unless the 30-day period is extended with the consent of the
parties in interest or for a specific time which the court
finds is required by compelling circumstances. Notwithstanding
the foregoing, in the case of an individual filing under
chapter 7, 11, or 13, the stay under subsection (a) shall
terminate 60 days after a request under subsection (d) of this
section, unless--
(1) a final decision is rendered by the court within
such 60-day period; or
(2) such 60-day period is extended either by
agreement of all parties in interest or by the court
for a specific time which the court finds is required
by compelling circumstances.
* * * * * * *
(h) In an individual case pursuant to chapter 7, 11, or 13
the stay provided by subsection (a) is terminated with respect
to property of the estate securing in whole or in part a claim,
or subject to an unexpired lease, if the debtor fails within
the applicable time set by section 521(a)(2) of this title--
(1) to file timely any statement of intention
required under section 521(a)(2) of this title with
respect to that property or to indicate therein that
the debtor will either surrender the property or retain
it and, if retaining it, either redeem the property
pursuant to section 722 of this title, reaffirm the
debt it secures pursuant to section 524(c) of this
title, or assume the unexpired lease pursuant to
section 365(p) of this title if the trustee does not do
so, as applicable; or
(2) to take timely the action specified in that
statement of intention, as it may be amended before
expiration of the period for taking action, unless the
statement of intention specifies reaffirmation and the
creditor refuses to reaffirm on the original contract
terms;
unless the court determines on the motion of the trustee, and
after notice and a hearing, that such property is of
consequential value or benefit to the estate.
[(h) An] (i)(1) Except as provided in paragraph (2), an
individual injured by any willful violation of a stay provided
by this section shall recover actual damages, including costs
and attorneys' fees, and, in appropriate circumstances, may
recover punitive damages.
(2) If such violation is based on an action taken by an
entity in the good faith belief that subsection (h) applies to
the debtor, then recovery under paragraph (1) against such
entity shall be limited to actual damages.
(j) The filing of a petition under chapter 11 of this title
operates as a stay of the acts described in subsection (a) only
in an involuntary case involving no collusion by the debtor
with creditors and in which the debtor--
(1) is a debtor in a small business case pending at
the time the petition is filed;
(2) was a debtor in a small business case which was
dismissed for any reason by an order that became final
in the 2-year period ending on the date of the order
for relief entered with respect to the petition;
(3) was a debtor in a small business case in which a
plan was confirmed in the 2-year period ending on the
date of the order for relief entered with respect to
the petition; or
(4) is an entity that has succeeded to substantially
all of the assets or business of a small business
debtor described in subparagraph (A), (B), or (C)
unless the debtor proves, by a preponderance of the
evidence, that the filing of such petition resulted
from circumstances beyond the control of the debtor not
foreseeable at the time the case then pending was
filed; and that it is more likely than not that the
court will confirm a feasible plan, but not a
liquidating plan, within a reasonable time.
* * * * * * *
Sec. 365. Executory contracts and unexpired leases
(a) * * *
* * * * * * *
(d)(1) * * *
* * * * * * *
[(4) Notwithstanding paragraphs (1) and (2), in a case under
any chapter of this title, if the trustee does not assume or
reject an unexpired lease of nonresidential real property under
which the debtor is the lessee within 60 days after the date of
the order for relief, or within such additional time as the
court, for cause, within such 60-day period, fixes, then such
lease is deemed rejected, and the trustee shall immediately
surrender such nonresidential real property to the lessor.]
(4) In a case under any chapter of this title, if the trustee
does not assume or reject an unexpired lease of nonresidential
real property under which the debtor is the lessee before the
earlier of (A) 120 days after the date of the order for relief,
or (B) the entry of an order confirming a plan, then such lease
is deemed rejected, and the trustee shall immediately surrender
such nonresidential real property to the lessor but in no event
shall such time period exceed 120 days. Notwithstanding the
immediately preceding sentence, and provided no plan has been
confirmed, upon debtor's motion, and after notice and a
hearing, the court may within such 120-day period extend the
120-day period by a period not to exceed 150 days, contingent
upon written consent of the affected lessor or with the
approval of the court, and provided trustee has timely
performed all post-petition lease obligations, but in no
circumstance shall such period extend beyond the earlier of (i)
270 days from the date of the order for relief or (ii) the
entry of an order approving a disclosure statement, without the
consent of the lessor.
* * * * * * *
(n)(1) * * *
* * * * * * *
(5) The rejection by the trustee of an executory contract
affecting the intellectual property rights to recordings of
artistic performance shall not in any way diminish or impair
any applicable nonbankruptcy law rights to enforce
noncompetition provision or provisions regarding the rendering
of exclusive services as a performing artist that may be
contained in such contracts, except that such enforcement shall
be subject to the nondebtor party providing to the debtor
notice of an offer to perform the contract under all of its
original terms. The rights to enforce such noncompetition or
exclusivity provision shall not be treated as claims that can
be discharged under this title.
* * * * * * *
(p)(1) If a lease of personal property is rejected or not
timely assumed by the trustee under subsection (d), the leased
property is no longer property of the estate and the stay under
section 362(a) of this title is automatically terminated.
(2) In the case of an individual under chapter 7, the debtor
may notify the creditor in writing that the debtor desires to
assume the lease. Upon being so notified, the creditor may, at
its option, notify the debtor that it is willing to have the
lease assumed by the debtor and may condition such assumption
on cure of any outstanding default on terms set by the lessor.
If within 30 days of such notice the debtor notifies the lessor
in writing that the lease is assumed, the liability under the
lease will be assumed by the debtor and not by the estate. The
stay under section 362 of this title and the injunction under
section 524(a)(2) of this title shall not be violated by
notification of the debtor and negotiation of cure under this
subsection.
(3) In a case under chapter 11 of this title in which the
debtor is an individual and in a case under chapter 13 of this
title, if the debtor is the lessee with respect to personal
property and the lease is not assumed in the plan confirmed by
the court, the lease is deemed rejected as of the conclusion of
the hearing on confirmation. If the lease is rejected, the stay
under section 362 of this title and any stay under section 1301
is automatically terminated with respect to the property
subject to the lease.
(q) A debt of a kind described in section 523(a)(16) of this
title shall not be considered to be a debt arising from an
executory contract.
Sec. 366. Utility service
(a) * * *
* * * * * * *
(c) For the purposes of this section, the term ``utility''
includes any provider of gas, electric, telephone,
telecommunication, cable television, satellite communication,
water, or sewer service, whether or not such service is a
regulated monopoly.
* * * * * * *
CHAPTER 5--CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I--CREDITORS AND CLAIMS
Sec.
501. Filing of proofs of claims or interest.
* * * * * * *
SUBCHAPTER II--DEBTOR'S DUTIES AND BENEFITS
521. Debtor's duties.
* * * * * * *
526. Disclosures.
527. Debtor's bill of rights.
528. Debt relief counselling agency enforcement.
529. Protection of child support and alimony.
* * * * * * *
SUBCHAPTER I--CREDITORS AND CLAIMS
Sec. 501. Filing of proofs of claims or interests
(a) * * *
* * * * * * *
(e) In a case under chapter 7 or 13, a proof of claim or
interest is deemed filed under this section for any claim or
interest that appears in the schedules filed under section
521(a)(1) of this title, except a claim or interest that is
scheduled as disputed, contingent, or unliquidated.
Sec. 502. Allowance of claims or interests
(a) * * *
(b) Except as provided in subsections (e)(2), (f), (g), (h)
and (i) of this section, if such objection to a claim is made,
the court, after notice and a hearing, shall determine the
amount of such claim in lawful currency of the United States as
of the date of the filing of the petition, and shall allow such
claim in such amount, except to the extent that--
(1) * * *
* * * * * * *
(9) proof of such claim is not timely filed, except
to the extent tardily filed as permitted under
paragraph (1), (2), or (3) of section 726(a) of this
title or under the Federal Rules of Bankruptcy
Procedure, except that a claim of a governmental unit
shall be timely filed if it is filed before 180 days
after the date of the order for relief or such later
time as the Federal Rules of Bankruptcy Procedure may
provide[.], and except that in a case under chapter 13
of this title, a claim of a governmental unit for a tax
in respect of a return filed under section 1308 of this
title shall be timely if it is filed on or before 60
days after such return or returns were filed as
required.
* * * * * * *
Sec. 503. Allowance of administrative expenses
(a) * * *
(b) After notice and a hearing, there shall be allowed,
administrative expenses, other than claims allowed under
section 502(f) of this title, including--
(1)(A) * * *
(B) any tax--
(i) incurred by the estate, whether secured
or unsecured, including property taxes for
which liability is in rem only, in personam or
both, except a tax of a kind specified in
section 507(a)(8) of this title; or
* * * * * * *
(D) notwithstanding the requirements of subsection
(a) of this section, a governmental unit shall not be
required to file a request for the payment of a claim
described in subparagraph (B) or (C);
* * * * * * *
Sec. 504. Sharing of compensation
(a) * * *
* * * * * * *
(c) This section shall not apply with respect to sharing, or
agreeing to share, compensation with a bona fide public service
attorney referral program that operates in accordance with non-
Federal law regulating attorney referral services and with
rules of professional responsibility applicable to attorney
acceptance of referrals.
Sec. 505. Determination of tax liability
(a)(1) * * *
(2) The court may not so determine--
(A) the amount or legality of a tax, fine, penalty,
or addition to tax if such amount or legality was
contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction
before the commencement of the case under this title;
[or]
(B) any right of the estate to a tax refund, before
the earlier of--
(i) 120 days after the trustee properly
requests such refund from the governmental unit
from which such refund is claimed; or
(ii) a determination by such governmental
unit of such request[.]; or
(C) the amount or legality of any amount arising in
connection with an ad valorem tax on real or personal
property of the estate, if the applicable period for
contesting or redetermining that amount under any law
(other than a bankruptcy law) has expired.
(b) A trustee may request a determination of any unpaid
liability of the estate for any tax incurred during the
administration of the case by submitting a tax return for such
tax and a request for such a determination to the governmental
unit charged with responsibility for collection or
determination of such tax. [Unless] If the request is made in
the manner designated by the governmental unit and unless such
return is fraudulent, or contains a material misrepresentation,
the estate, the trustee, the debtor, and any successor to the
debtor are discharged from any liability for such tax--
(1) * * *
* * * * * * *
Sec. 506. Determination of secured status
(a) An allowed claim of a creditor secured by a lien on
property in which the estate has an interest, or that is
subject to setoff under section 553 of this title, is a secured
claim to the extent of the value of such creditor's interest in
the estate's interest in such property, or to the extent of the
amount subject to setoff, as the case may be, and is an
unsecured claim to the extent that the value of such creditor's
interest or the amount so subject to setoff is less than the
amount of such allowed claim. Such value shall be determined in
light of the purpose of the valuation and of the proposed
disposition or use of such property, and in conjunction with
any hearing on such disposition or use or on a plan affecting
such creditor's interest. In the case of an individual debtor
under chapters 7 and 13, such value with respect to personal
property securing an allowed claim shall be determined based on
the replacement value of such property as of the date of filing
the petition without deduction for costs of sale or marketing.
With respect to property acquired for personal, family, or
household purpose, replacement value shall mean the price a
retail merchant would charge for property of that kind
considering the age and condition of the property at the time
value is determined.
(b) To the extent that an allowed secured claim is secured by
property the value of which, after any recovery under
subsection (c) of this section, is greater than the amount of
such claim, there shall be allowed to the holder of such claim,
interest on such claim, and any reasonable fees, costs, or
charges provided for under the agreement or State statute under
which such claim arose.
(c) The trustee may recover from property securing an allowed
secured claim the reasonable, necessary costs and expenses of
preserving, or disposing of, such property to the extent of any
benefit to the holder of such claim, including the payment of
all ad valorem property taxes in respect of the property.
* * * * * * *
(e) In an individual case under chapter 7, 11, 12, or 13--
(1) subsection (a) shall not apply to an allowed
claim to the extent attributable in whole or in part to
the purchase price of personal property acquired by the
debtor within 180 days of the filing of the petition,
except for the purpose of applying paragraph (3) of
this subsection;
(2) if such allowed claim attributable to the
purchase price is secured only by the personal property
so acquired, the value of the personal property and the
amount of the allowed secured claim shall be the sum of
the unpaid principal balance of the purchase price and
accrued and unpaid interest and charges at the contract
rate;
(3) if such allowed claim attributable to the
purchase price is secured by the personal property so
acquired and other property, the value of the security
may be determined under subsection (a), but the value
of the security and the amount of the allowed secured
claim shall be not less than the unpaid principal
balance of the purchase price of the personal property
acquired and unpaid interest and charges at the
contract rate; and
(4) in any subsequent case under this title that is
filed by or against the debtor in the 2-year period
beginning on the date the petition is filed in the
original case, the value of the personal property and
the amount of the allowed secured claim shall be deemed
to be not less than the amount provided under
paragraphs (2) and (3).
Sec. 507. Priorities
(a) The following expenses and claims have priority in the
following order:
(1) * * *
* * * * * * *
(8) Eighth, allowed unsecured claims for debts that
are nondischargeable under section 523(a)(18).
[(8) Eighth] (9) Ninth, allowed unsecured claims of
governmental units, only to the extent that such claims
are for--
(A) a tax on or measured by income or gross
receipts--
(i) for a taxable year ending on or
before the date of the filing of the
petition for which a return, if
required, is last due, including
extensions, after three years before
the date of the filing of the petition,
plus any time, plus 6 months, during
which the stay of proceedings was in
effect in a prior case under this
title;
[(ii) assessed within 240 days, plus
any time plus 30 days during which an
offer in compromise with respect to
such tax that was made within 240 days
after such assessment was pending,
before the date of the filing of the
petition; or]
(ii) assessed within 240 days before
the date of the filing of the petition,
exclusive of--
(I) any time plus 30 days
during which an offer in
compromise with respect of such
tax, was pending or in effect
during such 240-day period;
(II) any time plus 30 days
during which an installment
agreement with respect of such
tax was pending or in effect
during such 240-day period, up
to 1 year; and
(III) any time plus 6 months
during which a stay of
proceedings against collections
was in effect in a prior case
under this title during such
240-day period.
* * * * * * *
[(9) Ninth] (10) Tenth, allowed unsecured claims
based upon any commitment by the debtor to a Federal
depository institutions regulatory agency (or
predecessor to such agency), to maintain the capital of
an insured depository institution.
(11) Eleventh, remaining allowed unsecured claims for
debts that are nondischargeable under section
523(a)(19), but which shall be payable under this
paragraph in the higher order of priority (if any) as
the respective claims paid by incurring such debts.
* * * * * * *
Sec. 511. Rate of interest on tax claims
Notwithstanding any provision of this title that requires the
payment of interest on a claim, if interest is required to be
paid on a tax claim, the rate of interest shall be as follows:
(1) In the case of ad valorem tax claims, whether
secured or unsecured, other unsecured tax claims where
interest is required to be paid under section 726(a)(5)
of this title and secured tax claims the rate shall be
determined under applicable nonbankruptcy law.
(2) In the case of unsecured claims for taxes arising
before the date of the order for relief and paid under
a plan of reorganization, the minimum rate of interest
to be applied during the period after the filing of the
petition shall be the Federal short-term rate rounded
to the nearest full percent, determined under section
1274(d) of the Internal Revenue Code of 1986, for the
calendar month in which the plan is confirmed, plus 3
percentage points.
SUBCHAPTER II--DEBTOR'S DUTIES AND BENEFITS
Sec. 521. Debtor's duties
(a) The debtor shall--
[(1) file a list of creditors, and unless the court
orders otherwise, a schedule of assets and liabilities,
a schedule of current income and current expenditures,
and a statement of the debtor's financial affairs;]
(1) file--
(A) a list of creditors, and
(B) unless the court orders otherwise--
(i) a schedule of assets and
liabilities;
(ii) a schedule of current income and
current expenditures;
(iii) a statement of the debtor's
financial affairs;
(iv) copies of all payment advices or
other evidence of payment, if any,
received by the debtor from any
employer of the debtor in the period 60
days prior to the filing of the
petition;
(v) a statement of the amount of
projected monthly net income, itemized
to show how calculated;
(vi) if applicable, any statement
under paragraphs (3) and (4) of section
109(h);
(vii) a statement disclosing any
reasonably anticipated increase in
income or expenditures over the next 12
months; and
(viii) a certificate, if applicable--
(I) of an attorney whose name
is on the petition as the
attorney for the debtor, or of
any bankruptcy petition
preparer who signed the
petition pursuant to section
110(b)(1) of this title,
indicating that such attorney
or bankruptcy petition preparer
delivered to the debtor any
notice required by section
342(b)(1) of this title; or
(II) if no attorney for the
debtor is indicated and no
bankruptcy petition preparer
signed the petition of the
debtor, that such notice was
obtained and read by the
debtor;
(2) if an individual debtor's schedule of assets and
liabilities includes [consumer] debts which are secured
by property of the estate--
(A) * * *
(B) within [forty-five days after the filing
of a notice of intent under this section] 30
days after the first date set for the meeting
of creditors under section 341(a), or within
such additional time as the court, for cause,
within such [forty-five day] 30-day period
fixes, the debtor shall perform his intention
with respect to such property, as specified by
subparagraph (A) of this paragraph; and
(C) nothing in subparagraphs (A) and (B) of
this paragraph shall alter the debtor's or the
trustee's rights with regard to such property
under this title except as provided in section
362(h);
* * * * * * *
(4) if a trustee is serving in the case, surrender to
the trustee all property of the estate and any recorded
information, including books, documents, records, and
papers, relating to property of the estate, whether or
not immunity is granted under section 344 of this
title; [and]
(5) appear at the hearing required under section
524(d) of this title[.]; and
(6) in an individual case under chapter 7 of this
title, not retain possession of personal property as to
which a creditor has an allowed claim for the purchase
price secured in whole or in part by an interest in
that personal property unless, in the case of an
individual debtor, the debtor takes 1 of the following
actions within 30 days after the first meeting of
creditors under section 341(a)--
(A) enters into a reaffirmation agreement
with the creditor pursuant to section 524(c) of
this title with respect to the claim secured by
such property; or
(B) redeems such property from the security
interest pursuant to section 722 of this title.
If the debtor fails to so act within the 30-day period,
the personal property affected shall no longer be
property of the estate, and the creditor may take
whatever action as to such property as is permitted by
applicable nonbankruptcy law, unless the court
determines on the motion of the trustee, and after
notice and a hearing, that such property is of
consequential value or benefit to the estate.
(b) At any time, a creditor in a case of an individual debtor
under chapter 7 or 13 may file with the court and serve on the
debtor notice that the creditor requests the petition,
schedules, and statement of financial affairs filed by the
debtor in the case. At any time, a creditor in a case under
chapter 13 of this title may file with the court and serve on
the debtor notice that the creditor requests the plan filed by
the debtor in the case. Within 10 days of the first such
request in a case under this subsection for the petition,
schedules, and statement of financial affairs and the first
such request for the plan under this subsection, the debtor
shall serve on that creditor a conformed copy of the requested
documents or plan and any amendments thereto as of that date,
and shall thereafter promptly serve on that creditor at the
time filed with the court--
(1) any requested document or plan which is not filed
with the court at the time requested; and
(2) any amendment to any requested document or plan.
(c)(1) An individual debtor in a case under chapter 7 or 13
shall provide to the United States trustee--
(A) copies of all Federal tax returns (including any
schedules and attachments) filed by the debtor for the
3 most recent tax years preceding the order for relief;
(B) at the time the debtor files them with the
Commissioner of Internal Revenue, all Federal tax
returns (including any schedules and attachments) for
the debtor's tax years ending while such case is
pending; and
(C) at the time the debtor files them with the
Commissioner of Internal Revenue, all amendments to the
tax returns (including schedules and attachments)
described in subparagraphs (A) and (B).
(2)(A) The United States trustee shall make such Federal tax
returns (including schedules, attachments, and amendments)
available to any party in interest for inspection and copying
not later than 10 days after receiving a request by such party.
(B) If the United States trustee does not comply with
subparagraph (A), on the motion of such party, the court shall
issue an order compelling the United States trustee to comply
with subparagraph (A).
(d) A debtor in a case under chapter 13 of this title shall
file, from a time which is the later of 90 days after the close
of the debtor's tax year or 1 year after the order for relief
unless a plan has then been confirmed, and thereafter on or
before 45 days before each anniversary of the confirmation of
the plan until the case is closed, a statement subject to the
penalties of perjury by the debtor of the debtor's income and
expenditures in the preceding tax year and monthly net income,
showing how calculated. Such statement shall disclose the
amount and sources of income of the debtor, the identity of any
persons responsible with the debtor for the support of any
dependents of the debtor, and any persons who contributed and
the amount contributed to the household in which the debtor
resides. Such tax returns, amendments and statement of income
and expenditures shall be available to the United States
trustee, any bankruptcy administrator, any trustee and any
party in interest for inspection and copying.
(e) Notwithstanding section 707(a) of this title, if an
individual debtor in a voluntary case under chapter 7 or 13
fails to provide all of the information required under
subsections (a)(1) and (c)(1)(A) within 45 days after the
filing of the petition, the case shall be automatically
dismissed effective on the 46th day after the filing of the
petition without the need for any order of court, but any party
in interest may request the court to enter an order dismissing
the case and the court shall, if so requested, enter an order
of dismissal within 5 days of such request. Upon request of the
debtor made within 45 days after the filing of the petition,
the court may allow the debtor up to an additional 15 days to
provide the information required under subsections (a)(1) and
(c)(1)(A) if the court finds compelling justification for doing
so.
(f) If an individual debtor in a case under chapter 7 or 13
fails to perform any of the duties imposed by subsections (b),
(c)(1)(B), (c)(1)(C), and (d), any party in interest may
request that the court order the debtor to comply. Within 10
days of such request the court shall order that the debtor do
so within a period of time set by the court no longer than 30
days. If the debtor does not comply with that order within the
period of time set by the court, the court shall, on request of
any party in interest certifying that the debtor has not so
complied, enter an order dismissing the case within 5 days of
such request.
(g)(1) In addition to the requirements under subsection (a),
an individual debtor shall file with the court--
(A) a certificate from the credit counseling services
that provided the debtor services under section 109(i),
or a verified statement as to why such attempt was not
required under section 109(i) or other substantial
evidence of a good-faith attempt to create a debt
repayment plan outside the bankruptcy system in the
manner prescribed in section 109(i); and
(B) a copy of the debt repayment plan, if any,
developed under section 109(i) through the credit
counseling service referred to in paragraph (1).
(2) Only the United States trustee may make a motion for
dismissal on the ground that the debtor did not comply with
this subsection.
(h) If the debtor fails timely to take the action specified
in subsection (a)(6) of this section, or in paragraphs (1) and
(2) of section 362(h) of this title, with respect to property
which a lessor or bailor owns and has leased, rented, or bailed
to the debtor or as to which a creditor holds a security
interest not otherwise voidable under section 522(f), 544, 545,
547, 548, or 549, nothing in this title shall prevent or limit
the operation of a provision in the underlying lease or
agreement which has the effect of placing the debtor in default
under such lease or agreement by reason of the occurrence,
pendency, or existence of a proceeding under this title or the
insolvency of the debtor. Nothing in this subsection shall be
deemed to justify limiting such a provision in any other
circumstance.
Sec. 522. Exemptions
(a) * * *
(b) Notwithstanding section 541 of this title, an individual
debtor may exempt from property of the estate the property
listed in either paragraph (1) or, in the alternative,
paragraph (2) of this subsection. In joint cases filed under
section 302 of this title and individual cases filed under
section 301 or 303 of this title by or against debtors who are
husband and wife, and whose estates are ordered to be jointly
administered under Rule 1015(b) of the Federal Rules of
Bankruptcy Procedure, one debtor may not elect to exempt
property listed in paragraph (1) and the other debtor elect to
exempt property listed in paragraph (2) of this subsection. If
the parties cannot agree on the alternative to be elected, they
shall be deemed to elect paragraph (1), where such election is
permitted under the law of the jurisdiction where the case is
filed. Such property is--
(1) * * *
(2)(A) subject to subsection (n), any property that
is exempt under Federal law, other than subsection (d)
of this section, or State or local law that is
applicable on the date of the filing of the petition at
the place in which the debtor's domicile has been
located for the [180] 365 days immediately preceding
the date of the filing of the petition[, or for a
longer portion of such 180-day period than in any other
place; and];
(B) any interest in property in which the debtor had,
immediately before the commencement of the case, an
interest as a tenant by the entirety or joint tenant to
the extent that such interest as a tenant by the
entirety or joint tenant is exempt from process under
applicable nonbankruptcy law[.]; and
(C) retirement funds to the extent exempt from
taxation under section 401, 403, 408, 414, 457, or
501(a) of the Internal Revenue Code of 1986.
(c) Unless the case is dismissed, property exempted under
this section is not liable during or after the case for any
debt of the debtor that arose, or that is determined under
section 502 of this title as if such debt had arisen, before
the commencement of the case, except--
(1) a debt of a kind specified in [section 523(a)(1)
or 523(a)(5)] paragraph (1), (5), or (18) of section
523(a) of this title, except that, notwithstanding any
other Federal law or State law relating to exempted
property, exempt property shall be liable for debts of
a kind specified in paragraph (1) or (5) of section
523(a) of this title;
* * * * * * *
(d) The following property may be exempted under subsection
(b)(1) of this section:
(1) * * *
* * * * * * *
(12) Retirement funds to the extent exempt from
taxation under 401, 403, 408, 414, 457, or 501(a) of
the Internal Revenue Code of 1986.
* * * * * * *
(n)(1) Except as provided in paragraph (2), as a result of
electing under subsection (b)(2)(A) to exempt property under
State or local law, a debtor may not exempt any interest to the
extent that such interests exceeds $100,000 in value, in the
aggregate, in--
(A) real or personal property that the debtor or a
dependent of the debtor uses as a residence;
(B) a cooperative that owns property that the debtor
or a dependent of the debtor uses as a residence; or
(C) a burial plot for the debtor or a dependent of
the debtor.
(2) The limitation under paragraph (1) shall not apply to an
exemption claimed under subsection (b)(2)(A) by a family farmer
for the principal residence of that farmer.
Sec. 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or
1328(b) of this title does not discharge an individual debtor
from any debt--
(1) for a tax or a customs duty--
(A) * * *
(B) with respect to which a return, or
equivalent report or notice, if required--
(i) was not filed or given; [or]
(ii) was filed or given after the
date on which such return, report, or
notice was last due, under applicable
law or under any extension, and after
two years before the date of the filing
of the petition; or
(iii) for purposes of this
subsection, a return--
(I) must satisfy the
requirements of applicable
nonbankruptcy law, and includes
a return prepared pursuant to
section 6020(a) of the Internal
Revenue Code of 1986, or
similar State or local law, or
a written stipulation to a
judgment entered by a
nonbankruptcy tribunal, but
does not include a return made
pursuant to section 6020(b) of
the Internal Revenue Code of
1986, or similar State or local
law, and
(II) must have been filed in
a manner permitted by
applicable nonbankruptcy law;
or
* * * * * * *
(2) for money, property, services, or an extension,
renewal, or refinancing of credit, to the extent
obtained by--
(A) false pretenses, a false representation,
[or actual fraud,] actual fraud, or use of a
credit or charge card or other device to access
a credit line without a reasonable expectation
or ability to repay, unless access to such
credit, credit or charge card or other device
to access the credit line was extended without
an application therefor and reasonable
evaluation of the debtor's ability to repay,
other than a statement respecting the debtor's
or an insider's financial condition;
(B) use of a statement in writing--
(i) * * *
* * * * * * *
(iv) that the debtor caused to be
made or published [with intent to
deceive] without taking reasonable
steps to ensure the accuracy of the
statement; or
[(C) for purposes of subparagraph (A) of this
paragraph, consumer debts owed to a single
creditor and aggregating more than $1,000 for
``luxury goods or services'' incurred by an
individual debtor on or within 60 days before
the order for relief under this title, or cash
advances aggregating more than $1,000 that are
extensions of consumer credit under an open end
credit plan obtained by an individual debtor on
or within 60 days before the order for relief
under this title, are presumed to be
nondischargeable; ``luxury goods or services''
do not include goods or services reasonably
acquired for the support or maintenance of the
debtor or a dependent of the debtor; an
extension of consumer credit under an open end
credit plan is to be defined for purposes of
this subparagraph as it is defined in the
Consumer Credit Protection Act;]
(C) for purposes of subparagraph (A),
consumer debts owed to a single creditor
incurred by an individual debtor on or within
90 days before the order for relief under this
title are presumed to be nondischargeable,
except that such presumption shall not apply to
consumer debts owed to a single creditor which
are incurred for necessaries and aggregate $250
or less.
* * * * * * *
[(5) to a spouse, former spouse, or child of the
debtor, for alimony to, maintenance for, or support of
such spouse or child, in connection with a separation
agreement, divorce decree or other order of a court of
record, determination made in accordance with State or
territorial law by a governmental unit, or property
settlement agreement, but not to the extent that--
[(A) such debt is assigned to another entity,
voluntarily, by operation of law, or otherwise
(other than debts assigned pursuant to section
408(a)(3) of the Social Security Act, or any
such debt which has been assigned to the
Federal Government or to a State or any
political subdivision of such State); or
[(B) such debt includes a liability
designated as alimony, maintenance, or support,
unless such liability is actually in the nature
of alimony, maintenance, or support;]
(5) to a spouse, former spouse, or child of the
debtor for alimony to, maintenance for, or support of
such spouse or child, or to a spouse, former spouse, or
child of the debtor, to the extent such debt is the
result of a property settlement agreement, a hold
harmless agreement, or any other type of debt that is
not in the nature of alimony, maintenance, or support
in connection with or incurred by the debtor in the
course of a separation agreement, divorce decree, any
modifications thereof, or other order of a court of
record, determination made in accordance with State or
territorial law by a governmental unit, but not to the
extent that such debt is assigned to another entity,
voluntarily, by operation of law, or otherwise (other
than debts assigned pursuant to section 408(a)(3) of
the Social Security Act, or such debt that has been
assigned to the Federal government, or to a State or
political subdivision of such State, or the creditor's
attorney);
* * * * * * *
(7) to the extent such debt is for a fine, penalty
(including property or funds required to be disgorged),
or forfeiture payable to and for the benefit of a
governmental unit, and is not compensation for actual
pecuniary loss, other than a tax penalty--
(A) * * *
* * * * * * *
[(15) not of the kind described in paragraph (5) that
is incurred by the debtor in the course of a divorce or
separation or in connection with a separation
agreement, divorce decree or other order of a court of
record, a determination made in accordance with State
or territorial law by a governmental unit unless--
[(A) the debtor does not have the ability to
pay such debt from income or property of the
debtor not reasonably necessary to be expended
for the maintenance or support of the debtor or
a dependent of the debtor and, if the debtor is
engaged in a business, for the payment of
expenditures necessary for the continuation,
preservation, and operation of such business;
or
[(B) discharging such debt would result in a
benefit to the debtor that outweighs the
detrimental consequences to a spouse, former
spouse, or child of the debtor;]
(16) for a fee or assessment that becomes due and
payable after the order for relief to a membership
association with respect to the debtor's interest in a
[dwelling] unit that has condominium [ownership or]
ownership, in a share of a cooperative [housing]
corporation, [but only if such fee or assessment is
payable for a period during which--
[(A) the debtor physically occupied a
dwelling unit in the condominium or cooperative
project; or
[(B) the debtor rented the dwelling unit to a
tenant and received payments from the tenant
for such period,] or a lot in a homeowners
association, for as long as the debtor or the
trustee has a legal, equitable, or possessory
ownership interest in such unit, such
corporation, or such lot,
but nothing in this paragraph shall except from
discharge the debt of a debtor for a membership
association fee or assessment for a period arising
before entry of the order for relief in a pending or
subsequent bankruptcy case;
(17) for a fee imposed [by a court] on a prisoner by
any court for the filing of a case, motion, complaint,
or appeal, or for other costs and expenses assessed
with respect to such filing, regardless of an assertion
of poverty by the debtor under section [1915(b) or (f)]
subsection (b) or (f)(2) of section 1915, of title 28
(or a similar non-Federal law), or the debtor's status
as a prisoner, as defined in section 1915(h) of title
28 (or a similar non-Federal law); [or]
(18) owed under State law (including interest) to a
State or municipality that is--
(A) in the nature of support, [and] or
(B) enforceable under part D of title IV of
the Social Security Act ( 42 U.S.C. 601 et
seq.)[.]; or
(19) incurred to pay a debt that is nondischargeable
under any other paragraph of this subsection.
* * * * * * *
(c)(1) Except as provided in subsection (a)(3)(B) of this
section, the debtor shall be discharged from a debt of a kind
specified in paragraph (2), (4), [(6), or (15)] or (6) of
subsection (a) of this section, unless, on request of the
creditor to whom such debt is owed, and after notice and a
hearing, the court determines such debt to be excepted from
discharge under paragraph (2), (4), (6), or (15), as the case
may be, of subsection (a) of this section.
* * * * * * *
Sec. 526. Disclosures
(a) A debt relief counselling agency providing bankruptcy
assistance to an assisted person shall provide the following
notices to the assisted person:
(1) the written notice required under section
342(b)(1) of this title; and
(2) to the extent not covered in the written notice
described in paragraph (1) of this section and no later
than three business days after the first date on which
a debt relief counselling agency first offers to
provide any bankruptcy assistance services to an
assisted person, a clear and conspicuous written notice
advising assisted persons of the following:
(A) all information the assisted person is
required to provide with a petition and
thereafter during a case under this title must
be complete, accurate and truthful;
(B) all assets and all liabilities must be
completely and accurately disclosed in the
documents filed to commence the case, and the
replacement value of each asset as defined in
section 506 of this title must be stated in
those documents where requested after
reasonable inquiry to establish such value;
(C) current monthly total income, projected
monthly net income and, in a chapter 13 case,
monthly net income must be stated after
reasonable inquiry;
(D) that information an assisted person
provides during their case may be audited
pursuant to this title and that failure to
provide such information may result in
dismissal of the proceeding under this title or
other sanction including, in some instances,
criminal sanctions.
(b) A debt relief counselling agency providing bankruptcy
assistance to an assisted person shall provide each assisted
person at the same time as the notices required under
subsection (a)(1) with the following statement, to the extent
applicable, or one substantially similar. The statement shall
be clear and conspicuous and shall be in a single document
separate from other documents or notices provided to the
assisted person:
``IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES
FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER
``If you decide to seek bankruptcy relief, you can represent
yourself, you can hire an attorney to represent you, or you can
get help in some localities from a bankruptcy petition preparer
who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR
BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT
SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER
WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the
contract before you hire anyone.
``The following information helps you understand what must be
done in a routine bankruptcy case to help you evaluate how much
service you need. Although bankruptcy can be complex, many
cases are routine.
``Before filing a bankruptcy case, either you or your
attorney should analyze your eligibility for different forms of
debt relief made available by the Bankruptcy Code and which
form of relief is most likely to be beneficial for you. Be sure
you understand the relief you can obtain and its limitations.
To file a bankruptcy case, documents called a Petition,
Schedules and Statement of Financial Affairs, as well as in
some cases a Statement of Intention need to be prepared
correctly and filed with the bankruptcy court. You will have to
pay a filing fee to the bankruptcy court. Once your case
starts, you will have to attend the required first meeting of
creditors where you may be questioned by a court official
called a `trustee' and by creditors.
``If you select a chapter 7 proceeding, you may be asked by a
creditor to reaffirm a debt. You may want help deciding whether
to do so.
``If you select a chapter 13 proceeding in which you repay
your creditors what you can afford over three to seven years,
you may also want help with preparing your chapter 13 plan and
with the confirmation hearing on your plan which will be before
a bankruptcy judge.''
``If you select another type of proceeding under the
Bankruptcy Code other than chapter 7 or chapter 13, you will
want to find out what needs to be done from someone familiar
with that type of proceeding.
``Your bankruptcy proceeding may also involve litigation. You
are generally permitted to represent yourself in litigation in
bankruptcy court, but only attorneys, not bankruptcy petition
preparers, can represent you in litigation.''.
(c) Except to the extent the debt relief counselling agency
provides the required information itself after reasonably
diligent inquiry of the assisted person or others so as to
obtain such information reasonably accurately for inclusion on
the petition, schedules or statement of financial affairs, a
debt relief counselling agency providing bankruptcy assistance
to an assisted person shall provide each assisted person at the
time required for the notice required under subsection (a)(1)
reasonably sufficient information (which may be provided orally
or in a clear and conspicuous writing) to the assisted person
on how to provide all the information the assisted person is
required to provide under this title pursuant to section 521,
including--
(1) how to value assets at replacement value,
determine current monthly total income, projected
monthly income and, in a chapter 13 case, net monthly
income, and related calculations;
(2) how to complete the list of creditors, including
how to determine what amount is owed and what address
for the creditor should be shown;
(3) how to determine what property is exempt and how
to value exempt property at replacement value as
defined in section 506 of this title.
(d) A debt relief counselling agency shall maintain a copy of
the notices required under subsection (a) of this section for
two years after the later of the date on which the notice is
given the assisted person.
Sec. 527. Debtor's bill of rights
(a) A debt relief counselling agency shall--
(1) no later than three business days after the first
date on which a debt relief counselling agency provides
any bankruptcy assistance services to an assisted
person, execute a written contract with the assisted
person specifying clearly and conspicuously the
services the agency will provide the assisted person
and the basis on which fees or charges will be made for
such services and the terms of payment, and give the
assisted person a copy of the fully executed and
completed contract in a form the person can keep.
(2) disclose in any advertisement of bankruptcy
assistance services or of the benefits of bankruptcy
directed to the general public (whether in general
media, seminars or specific mailings, telephonic or
electronic messages or otherwise) that the services or
benefits are with respect to proceedings under this
title, clearly and conspicuously using the following
statement: ``We are a debt relief counselling agency.
We help people file Bankruptcy petitions to obtain
relief under the Bankruptcy Code.'' or a substantially
similar statement. An advertisement shall be of
bankruptcy assistance services if it describes or
offers bankruptcy assistance with a chapter 13 plan,
regardless of whether chapter 13 is specifically
mentioned, including such statements as ``federally
supervised repayment plan'' or ``Federal debt
restructuring help'' or other similar statements which
would lead a reasonable consumer to believe that help
with debts was being offered when in fact in most cases
the help available is bankruptcy assistance with a
chapter 13 plan.
(3) if an advertisement directed to the general
public indicates that the debt relief counselling
agency provides assistance with respect to credit
defaults, mortgage foreclosures, lease eviction
proceedings, excessive debt, debt collection pressure,
or inability to pay any consumer debt, disclose
conspicuously in that advertisement that the assistance
is with respect to or may involve proceedings under
this title, using the following statement: ``We are a
debt relief counselling agency. We help people file
Bankruptcy petitions to obtain relief under the
Bankruptcy Code.'' or a substantially similar
statement.
(b) A debt relief counselling agency shall not--
(1) fail to perform any service which the debt relief
counseling agency has told the assisted person or
prospective assisted person the agency would provide
that person in connection with the preparation for or
activities during a proceeding under this title;
(2) make any statement, or counsel or advise any
assisted person to make any statement in any document
filed in a proceeding under this title, which is untrue
or misleading or which upon the exercise of reasonable
care, should be known by the debt relief counselling
agency to be untrue or misleading;
(3) misrepresent to any assisted person or
prospective assisted person, directly or indirectly,
affirmatively or by material omission, what services
the debt relief counselling agency can reasonably
expect to provide that person, or the benefits an
assisted person may obtain or the difficulties the
person may experience if the person seeks relief in a
proceeding pursuant to this title; and
(4) advise an assisted person or prospective assisted
person to incur more debt in contemplation of that
person filing a proceeding under this title or in order
to pay an attorney or bankruptcy petition preparer fee
or charge for services performed as part of preparing
for or representing a debtor in a proceeding under this
title.
Sec. 528. Debt relief counselling agency enforcement
(a) Assisted Person Waivers Invalid.--Any waiver by any
assisted person of any protection or right provided by or under
section 526 or 527 of this title shall be void and may not be
enforced by any Federal or State court or any other person.
(b) Noncompliance.--
(1) Any contract between a debt relief counselling
agency and an assisted person for bankruptcy assistance
which does not comply with the requirements of section
526 or 527 of this title shall be treated as void and
may not be enforced by any Federal or State court or by
any other person.
(2) Any debt relief counselling agency which has been
found, after notice and hearing, to have--
(A) failed to comply with any provision of
section 526 or 527 with respect to a bankruptcy
case or related proceeding of an assisted
person, or
(B) provided bankruptcy assistance to an
assisted person in a case or related proceeding
which is dismissed or converted in lieu of
dismissal under section 707 of this title or
because of a failure to file bankruptcy papers,
including papers specified in section 521 of
this title; or
(C) negligently or intentionally disregarded
the requirements of this title or the Federal
Rules of Bankruptcy Procedure applicable to
such debt relief counselling agency shall be
liable to the assisted person in the amount of
any fees and charges in connection with
providing bankruptcy assistance to such person
which the debt relief counselling agency has
already been paid on account of that proceeding
and if the case has not been closed, the court
may in addition require the debt relief
counselling agency to continue to provide
bankruptcy assistance services in the pending
case to the assisted person without further fee
or charge or upon such other terms as the court
may order.
(3) In addition to such other remedies as are
provided under State law, whenever the chief law
enforcement officer of a State, or an official or
agency designated by a State, has reason to believe
that any person has violated or is violating section
526 or 527 of this title, the State--
(A) may bring an action to enjoin such
violation;
(B) may bring an action on behalf of its
residents to recover the actual damages of
assisted persons arising from such violation,
including any liability under paragraph (2);
and
(C) in the case of any successful action
under subparagraph (A) or (B), shall be awarded
the costs of the action and reasonable attorney
fees as determined by the court.
(4) The United States District Court for any district
located in the State shall have concurrent jurisdiction
of any action under subparagraph (A) or (B) of
paragraph (3).
(c) Relation to State Law.--This section and sections 526 and
527 shall not annul, alter, affect or exempt any person subject
to those sections from complying with any law of any State
except to the extent that such law is inconsistent with those
sections, and then only to the extent of the inconsistency.
Sec. 529. Protection of child support and alimony payments after the
discharge
Notwithstanding the provisions of the constitution or law of
any State providing a different priority, any debts of the
individual who has received a discharge under this title to a
spouse, former spouse, or child 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--
(1) is assigned to another entity, voluntarily, by
operation of law, or otherwise; or
(2) includes a liability designated as alimony,
maintenance, or support, unless such liability is
actually in the nature of alimony, maintenance, or
support,
shall have priority in payment and collection over a creditor's
claim which in not discharged in the individual's case pursuant
to paragraph (2), (4), or (14) of section 523(a) of this title,
but such priority shall not affect the priority of any
consensual lien, mortgage, or security interest securing such
creditor's claim.
SUBCHAPTER III--THE ESTATE
Sec. 541. Property of the estate
(a) * * *
(b) Property of the estate does not include--
(1) * * *
* * * * * * *
(4) any interest of the debtor in liquid or gaseous
hydrocarbons to the extent that--
(A) * * *
(B)(i) * * *
(ii) but for the operation of this paragraph,
the estate could include the interest referred
to in clause (i) only by virtue of section 542
of this title; or
* * * * * * *
Sec. 544. Trustee as lien creditor and as successor to certain
creditors and purchasers
(a) * * *
[(b) The trustee] (b)(1) Except as provided in paragraph (2),
the trustee may avoid any transfer of an interest of the debtor
in property or any obligation incurred by the debtor that is
voidable under applicable law by a creditor holding an
unsecured claim that is allowable under section 502 of this
title or that is not allowable only under section 502(e) of
this title.
(2) Paragraph (1) shall not apply to a transfer of a
charitable contribution (as defined in section 548(d)(3) of
this title) that is not covered under section 548(a)(1)(B) of
this title by reason of section 548(a)(2) of this title. Any
claim by any person to recover a transferred contribution
described in the preceding sentence under Federal or State law
in a Federal or State court shall be preempted by the
commencement of the case.
Sec. 545. Statutory liens
The trustee may avoid the fixing of a statutory lien on
property of the debtor to the extent that such lien--
(1) * * *
(2) is not perfected or enforceable at the time of
the commencement of the case against a bona fide
purchaser that purchases such property at the time of
the commencement of the case, whether or not such a
purchaser exists[;], except where such purchaser is a
purchaser described in section 6323 of the Internal
Revenue Code of 1986 or similar provision of State or
local law;
* * * * * * *
Sec. 546. Limitations on avoiding powers
(a) * * *
* * * * * * *
(e) Notwithstanding sections 544, 545, 547, [548(a)(2)]
548(a)(1)(B), and 548(b) of this title, the trustee may not
avoid a transfer that is a margin payment, as defined in
section 101, 741, or 761 of this title, or settlement payment,
as defined in section 101 or 741 of this title, made by or to a
commodity broker, forward contract merchant, stockbroker,
financial institution, or securities clearing agency, that is
made before the commencement of the case, except under section
[548(a)(1)] 548(a)(1)(A) of this title.
(f) Notwithstanding sections 544, 545, 547, [548(a)(2)]
548(a)(1)(B), and 548(b) of this title, the trustee may not
avoid a transfer that is a margin payment, as defined in
section 741 or 761 of this title, or settlement payment, as
defined in section 741 of this title, made by or to a repo
participant, in connection with a repurchase agreement and that
is made before the commencement of the case, except under
section [548(a)(1)] 548(a)(1)(A) of this title.
(g) Notwithstanding sections 544, 545, 547, [548(a)(2)]
548(a)(1)(B) and 548(b) of this title, the trustee may not
avoid a transfer under a swap agreement, made by or to a swap
participant, in connection with a swap agreement and that is
made before the commencement of the case, except under section
[548(a)(1)] 548(a)(1)(A) of this title.
(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.
Sec. 547. Preferences
(a) In this section--
* * * * * * *
(c) The trustee may not avoid under this section a transfer--
(1) * * *
[(2) to the extent that such transfer was--
[(A) in payment of a debt incurred by the
debtor in the ordinary course of business or
financial affairs of the debtor and the
transferee;
[(B) made in the ordinary course of business
or financial affairs of the debtor and the
transferee; and
[(C) made according to ordinary business
terms;]
(2) to the extent that such transfer was in payment
of a debt incurred by the debtor in the ordinary course
of business or financial affairs of the debtor and the
transferee, and such transfer was--
(A) made in the ordinary course of business
or financial affairs of the debtor and the
transferee; or
(B) made according to ordinary business
terms;
* * * * * * *
(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) * * *
(B) includes a liability designated as
alimony, maintenance, or support, unless such
liability is actually in the nature of alimony,
maintenance or support; [or]
(8) if, in a case filed by an individual debtor whose
debts are primarily consumer debts, the aggregate value
of all property that constitutes or is affected by such
transfer is less than $600[.]; or
(9) if, in a case filed by a debtor whose debts are
not primarily consumer debts, the aggregate value of
all property that constitutes or is affected by such
transfer is less than $5000.
Sec. 548. Fraudulent transfers and obligations
(a)(1) The trustee may avoid any transfer of an interest of
the debtor in property, or any obligation incurred by the
debtor, that was made or incurred on or within one year before
the date of the filing of the petition, if the debtor
voluntarily or involuntarily--
[(1) made] (A) made such transfer or incurred such
obligation with actual intent to hinder, delay, or
defraud any entity to which the debtor was or became,
on or after the date that such transfer was made or
such obligation was incurred, indebted; or
[(2)(A)] (B)(i) received less than a reasonably
equivalent value in exchange for such transfer or
obligation; and
[(B)(i)] (ii)(I) was insolvent on the date that such
transfer was made or such obligation was incurred, or
became insolvent as a result of such transfer or
obligation;
[(ii) was] (II) was engaged in business or a
transaction, or was about to engage in business or a
transaction, for which any property remaining with the
debtor was an unreasonably small capital; or
[(iii)] (III) intended to incur, or believed that the
debtor would incur, debts that would be beyond the
debtor's ability to pay as such debts matured.
(2) A transfer of a charitable contribution to a qualified
religious or charitable entity or organization shall not be
considered to be a transfer covered under paragraph (1)(B) in
any case in which--
(A) the amount of such contribution does not exceed
15 percent of the gross annual income of the debtor for
the year in which the transfer of the contribution is
made; or
(B) the contribution made by a debtor exceeded the
percentage amount of gross annual income specified in
subparagraph (A), if the transfer was consistent with
the practices of the debtor in making charitable
contributions.
* * * * * * *
(d)(1) * * *
* * * * * * *
(3) In this section, the term ``charitable contribution''
means a charitable contribution as defined in section 170(c) of
the Internal Revenue Code of 1986, if such contribution--
(A) is made by a natural person; and
(B) consists of--
(i) a financial instrument (as defined in
section 731(c)(2)(C) of the Internal Revenue
Code of 1986); or
(ii) cash.
(4) In this section, the term ``qualified religious or
charitable entity or organization'' means--
(A) an entity described in section 170(c)(1) of the
Internal Revenue Code of 1986; or
(B) an entity or organization described in section
170(c)(2) of the Internal Revenue Code of 1986.
* * * * * * *
Sec. 552. Postpetition effect of security interest
(a) * * *
(b)(1) Except as provided in sections 363, 506(c), 522, 544,
545, 547, and 548 of this title, if the debtor and an entity
entered into a security agreement before the commencement of
the case and if the security interest created by such security
agreement extends to property of the debtor acquired before the
commencement of the case and to proceeds, [product] products,
offspring, or profits of such property, then such security
interest extends to such proceeds, [product] products,
offspring, or profits acquired by the estate after the
commencement of the case to the extent provided by such
security agreement and by applicable nonbankruptcy law, except
to any extent that the court, after notice and a hearing and
based on the equities of the case, orders otherwise.
* * * * * * *
CHAPTER 6--ANCILLARY AND OTHER CROSS-BORDER CASES
Sec.
601. Purpose and scope of application.
SUBCHAPTER I--GENERAL PROVISIONS
602. Definitions.
603. International obligations of the United States.
604. Commencement of ancillary case.
605. Authorization to act in a foreign country.
606. Public policy exception.
607. Additional assistance.
608. Interpretation.
SUBCHAPTER II--ACCESS OF FOREIGN REPRESENTATIVES AND CREDITORS TO THE
COURT
609. Right of direct access.
610. Limited jurisdiction.
611. Commencement of bankruptcy case under section 301 or 303.
612. Participation of a foreign representative in a case under this
title.
613. Access of foreign creditors to a case under this title.
614. Notification to foreign creditors concerning a case under this
title.
SUBCHAPTER III--RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF
615. Application for recognition of a foreign proceeding.
616. Presumptions concerning recognition.
617. Order recognizing a foreign proceeding.
618. Subsequent information.
619. Relief that may be granted upon petition for recognition of a
foreign proceeding.
620. Effects of recognition of a foreign main proceeding.
621. Relief that may be granted upon recognition of a foreign
proceeding.
622. Protection of creditors and other interested persons.
623. Actions to avoid acts detrimental to creditors.
624. Intervention by a foreign representative.
SUBCHAPTER IV--COOPERATION WITH FOREIGN COURTS AND FOREIGN
REPRESENTATIVES
625. Cooperation and direct communication between the court and foreign
courts or foreign representatives.
626. Cooperation and direct communication between the trustee and
foreign courts or foreign representatives.
627. Forms of cooperation.
SUBCHAPTER V--CONCURRENT PROCEEDINGS
628. Commencement of a case under this title after recognition of a
foreign main proceeding.
629. Coordination of a case under this title and a foreign proceeding.
630. Coordination of more than 1 foreign proceeding.
631. Presumption of insolvency based on recognition of a foreign main
proceeding.
632. Rule of payment in concurrent proceedings.
Sec. 601. Purpose and scope of application
(a) The purpose of this chapter is to incorporate the Model
Law on Cross-Border Insolvency so as to provide effective
mechanisms for dealing with cases of cross-border insolvency
with the objectives of--
(1) cooperation between--
(A) United States courts, United States
Trustees, trustees, examiners, debtors, and
debtors in possession; and
(B) the courts and other competent
authorities of foreign countries involved in
cross-border insolvency cases;
(2) greater legal certainty for trade and investment;
(3) fair and efficient administration of cross-border
insolvencies that protects the interests of all
creditors, and other interested entities, including the
debtor;
(4) protection and maximization of the value of the
debtor's assets; and
(5) facilitation of the rescue of financially
troubled businesses, thereby protecting investment and
preserving employment.
(b) This chapter applies where--
(1) assistance is sought in the United States by a
foreign court or a foreign representative in connection
with a foreign proceeding;
(2) assistance is sought in a foreign country in
connection with a case under this title;
(3) a foreign proceeding and a case under this title
with respect to the same debtor are taking place
concurrently; or
(4) creditors or other interested persons in a
foreign country have an interest in requesting the
commencement of, or participating in, a case or
proceeding under this title.
(c) This chapter does not apply to--
(1) a proceeding concerning an entity identified by
exclusion in subsection 109(b); or
(2) an individual, or to an individual and such
individual's spouse, who have debts within the limits
specified in under section 109(e) and who are citizens
of the United States or aliens lawfully admitted for
permanent residence in the United States.
SUBCHAPTER I--GENERAL PROVISIONS
Sec. 602. Definitions
For the purposes of this chapter, the term--
(1) ``debtor'' means an entity that is the subject of
a foreign proceeding;
(2) ``establishment'' means any place of operations
where the debtor carries out a nontransitory economic
activity;
(3) ``foreign court'' means a judicial or other
authority competent to control or supervise a foreign
proceeding;
(4) ``foreign main proceeding'' means a foreign
proceeding taking place in the country where the debtor
has the center of its main interests;
(5) ``foreign nonmain proceeding'' means a foreign
proceeding, other than a foreign main proceeding,
taking place in a country where the debtor has an
establishment;
(6) ``trustee'' includes a trustee, a debtor in
possession in a case under any chapter of this title,
or a debtor under chapters 9 or 13 of this title; and
(7) ``within the territorial jurisdiction of the
United States'' when used with reference to property of
a debtor refers to tangible property located within the
territory of the United States and intangible property
deemed under applicable nonbankruptcy law to be located
within that territory, including any property subject
to attachment or garnishment that may properly be
seized or garnished by an action in a Federal or State
court in the United States.
Sec. 603. International obligations of the United States
To the extent that this chapter conflicts with an obligation
of the United States arising out of any treaty or other form of
agreement to which it is a party with 1 or more other
countries, the requirements of the treaty or agreement prevail.
Sec. 604. Commencement of ancillary case
A case under this chapter is commenced by the filing of a
petition for recognition of a foreign proceeding under section
615.
Sec. 605. Authorization to act in a foreign country
A trustee or another entity (including an examiner)
authorized by the court may be authorized by the court to act
in a foreign country on behalf of an estate created under
section 541. An entity authorized to act under this section may
act in any way permitted by the applicable foreign law.
Sec. 606. Public policy exception
Nothing in this chapter prevents the court from refusing to
take an action governed by this chapter if the action would be
manifestly contrary to the public policy of the United States.
Sec. 607. Additional assistance
(a) Nothing in this chapter limits the power of the court,
upon recognition of a foreign proceeding, to provide additional
assistance to a foreign representative under this title or
under other laws of the United States.
(b) In determining whether to provide additional assistance
under this title or under other laws of the United States, the
court shall consider whether such additional assistance,
consistent with the principles of comity, will reasonably
assure--
(1) just treatment of all holders of claims against
or interests in the debtor's property;
(2) protection of claim holders in the United States
against prejudice and inconvenience in the processing
of claims in such foreign proceeding;
(3) prevention of preferential or fraudulent
dispositions of property of the debtor;
(4) distribution of proceeds of the debtor's property
substantially in accordance with the order prescribed
by this title; and
(5) if appropriate, the provision of an opportunity
for a fresh start for the individual that such foreign
proceeding concerns.
Sec. 608. Interpretation
In interpreting this chapter, the court shall consider its
international origin, and the need to promote an application of
this chapter that is consistent with the application of similar
statutes adopted by foreign jurisdictions.
SUBCHAPTER II--ACCESS OF FOREIGN REPRESENTATIVES AND CREDITORS TO THE
COURT
Sec. 609. Right of direct access
(a) A foreign representative is entitled to commence a case
under section 604 by filing a petition for recognition under
section 615, and upon recognition, to apply directly to other
Federal and State courts for appropriate relief in those
courts.
(b) Upon recognition, and subject to section 610, a foreign
representative has the capacity to sue and be sued, and shall
be subject to the laws of the United States of general
applicability.
(c) Recognition under this chapter is prerequisite to the
granting of comity or cooperation to a foreign proceeding in
any State or Federal court in the United States. Any request
for comity or cooperation in any court shall be accompanied by
a sworn statement setting forth whether recognition under
section 615 has been sought and the status of any such
petition.
(d) Upon denial of recognition under this chapter, the court
may issue appropriate orders necessary to prevent an attempt to
obtain comity or cooperation from courts in the United States
without such recognition.
Sec. 610. Limited jurisdiction
The sole fact that a foreign representative files a petition
under sections 615 does not subject the foreign representative
to the jurisdiction of any court in the United States for any
other purpose.
Sec. 611. Commencement of case under section 301 or 303
(a) Upon filing a petition for recognition, a foreign
representative may commence--
(1) an involuntary case under section 303; or
(2) a voluntary case under section 301 or 302, if the
foreign proceeding is a foreign main proceeding.
(b) The petition commencing a case under subsection (a) of
this section must be accompanied by a statement describing the
petition for recognition and its current status. The court
where the petition for recognition has been filed must be
advised of the foreign representative's intent to commence a
case under subsection (a) of this section prior to such
commencement.
(c) A case under subsection (a) shall be dismissed unless
recognition is granted.
Sec. 612. Participation of a foreign representative in a case under
this title
Upon recognition of a foreign proceeding, the foreign
representative in that proceeding is entitled to participate as
a party in interest in a case regarding the debtor under this
title.
Sec. 613. Access of foreign creditors to a case under this title
(a) Foreign creditors have the same rights regarding the
commencement of, and participation in, a case under this title
as domestic creditors.
(b)(1) Subsection (a) of this section does not change or
codify present law as to the priority of claims under section
507 or 726 of this title, except that the claim of a foreign
creditor under those sections shall not be given a lower
priority than that of general unsecured claims without priority
solely because the holder of such claim is a foreign creditor.
(2)(A) Subsection (a) of this section and paragraph (1) of
this subsection do not change or codify present law as to the
allowability of foreign revenue claims or other foreign public
law claims in a proceeding under this title.
(B) Allowance and priority as to a foreign tax claim or other
foreign public law claim shall be governed by any applicable
tax treaty of the United States, under the conditions and
circumstances specified therein.
Sec. 614. Notification to foreign creditors concerning a case under
this title
(a) Whenever in a case under this title notice is to be given
to creditors generally or to any class or category of
creditors, such notice shall also be given to the known
creditors generally, or to creditors in the notified class or
category, that do not have addresses in the United States. The
court may order that appropriate steps be taken with a view to
notifying any creditor whose address is not yet known.
(b) Such notification to creditors with foreign addresses
described in subsection (a) shall be given individually, unless
the court considers that, under the circumstances, some other
form of notification would be more appropriate. No letters
rogatory or other similar formality is required.
(c) When a notification of commencement of a case is to be
given to foreign creditors, the notification shall--
(1) indicate the time period for filing proofs of
claim and specify the place for their filing;
(2) indicate whether secured creditors need to file
their proofs of claim; and
(3) contain any other information required to be
included in such a notification to creditors pursuant
to this title and the orders of the court.
(d) Any rule of procedure or order of the court as to notice
or the filing of a claim shall provide such additional time to
creditors with foreign addresses as is reasonable under the
circumstances.
SUBCHAPTER III--RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF
Sec. 615. Application for recognition of a foreign proceeding
(a) A foreign representative applies to the court for
recognition of the foreign proceeding in which the foreign
representative has been appointed by filing a petition for
recognition.
(b) A petition for recognition shall be accompanied by--
(1) a certified copy of the decision commencing the
foreign proceeding and appointing the foreign
representative;
(2) a certificate from the foreign court affirming
the existence of the foreign proceeding and of the
appointment of the foreign representative; or
(3) in the absence of evidence referred to in
paragraphs (1) and (2), any other evidence acceptable
to the court of the existence of the foreign proceeding
and of the appointment of the foreign representative.
(c) A petition for recognition shall also be accompanied by a
statement identifying all foreign proceedings with respect to
the debtor that are known to the foreign representative.
(d) The documents referred to in paragraphs (1) and (2) of
subsection (b) must be translated into English. The court may
require a translation into English of additional documents.
Sec. 616. Presumptions concerning recognition
(a) If the decision or certificate referred to in section
615(b) indicates that the foreign proceeding is a foreign
proceeding within the meaning of section 101(23) and that the
person or body is a foreign representative within the meaning
of section 101(24), the court is entitled to so presume.
(b) The court is entitled to presume that documents submitted
in support of the petition for recognition are authentic,
whether or not they have been legalized.
(c) In the absence of evidence to the contrary, the debtor's
registered office, or habitual residence in the case of an
individual, is presumed to be the center of the debtor's main
interests.
Sec. 617. Order recognizing a foreign proceeding
(a) Subject to section 606, an order recognizing a foreign
proceeding shall be entered if--
(1) the foreign proceeding is a foreign main
proceeding or foreign nonmain proceeding within the
meaning of section 602;
(2) the foreign representative applying for
recognition is a person or body within the meaning of
section 101(24); and
(3) the petition meets the requirements of section
615.
(b) The foreign proceeding shall be recognized--
(1) as a foreign main proceeding if it is taking
place in the country where the debtor has the center of
its main interests; or
(2) as a foreign nonmain proceeding if the debtor has
an establishment within the meaning of section 602 in
the foreign country where the proceeding is pending.
(c) A petition for recognition of a foreign proceeding shall
be decided upon at the earliest possible time. Entry of an
order recognizing a foreign proceeding shall constitute
recognition under this chapter.
(d) The provisions of this subchapter do not prevent
modification or termination of recognition if it is shown that
the grounds for granting it were fully or partially lacking or
have ceased to exist, but in considering such action the court
shall give due weight to possible prejudice to parties that
have relied upon the granting of recognition. The case under
this chapter may be closed in the manner prescribed for a case
under section 350.
Sec. 618. Subsequent information
From the time of filing the petition for recognition of the
foreign proceeding, the foreign representative shall file with
the court promptly a notice of change of status concerning--
(1) any substantial change in the status of the
foreign proceeding or the status of the foreign
representative's appointment; and
(2) any other foreign proceeding regarding the debtor
that becomes known to the foreign representative.
Sec. 619. Relief that may be granted upon petition for recognition of a
foreign proceeding
(a) From the time of filing a petition for recognition until
the petition is decided upon, the court may, at the request of
the foreign representative, where relief is urgently needed to
protect the assets of the debtor or the interests of the
creditors, grant relief of a provisional nature, including--
(1) staying execution against the debtor's assets;
(2) entrusting the administration or realization of
all or part of the debtor's assets located in the
United States to the foreign representative or another
person authorized by the court, including an examiner,
in order to protect and preserve the value of assets
that, by their nature or because of other
circumstances, are perishable, susceptible to
devaluation or otherwise in jeopardy; and
(3) any relief referred to in paragraph (3), (4), or
(7) of section 621(a).
(b) Unless extended under section 621(a)(6), the relief
granted under this section terminates when the petition for
recognition is decided upon.
(c) It is a ground for denial of relief under this section
that such relief would interfere with the administration of a
foreign main proceeding.
(d) The court may not enjoin a police or regulatory act of a
governmental unit, including a criminal action or proceeding,
under this section.
(e) The standards, procedures, and limitations applicable to
an injunction shall apply to relief under this section.
Sec. 620. Effects of recognition of a foreign main proceeding
(a) Upon recognition of a foreign proceeding that is a
foreign main proceeding--
(1) section 362 applies with respect to the debtor
and that property of the debtor that is within the
territorial jurisdiction of the United States; and
(2) transfer, encumbrance, or any other disposition
of an interest of the debtor in property within the
territorial jurisdiction of the United States is
restrained as and to the extent that is provided for
property of an estate under sections 363, 549, and 552.
Unless the court orders otherwise, the foreign representative
may operate the debtor's business and may exercise the powers
of a trustee under section 549, subject to sections 363 and
552.
(b) The scope, and the modification or termination, of the
stay and restraints referred to in subsection (a) of this
section are subject to the exceptions and limitations provided
in subsections (b), (c), and (d) of section 362, subsections
(b) and (c) of section 363, and sections 552, 555 through 557,
559, and 560.
(c) Subsection (a) of this section does not affect the right
to commence individual actions or proceedings in a foreign
country to the extent necessary to preserve a claim against the
debtor.
(d) Subsection (a) of this section does not affect the right
of a foreign representative or an entity to file a petition
commencing a case under this title or the right of any party to
file claims or take other proper actions in such a case.
Sec. 621. Relief that may be granted upon recognition of a foreign
proceeding
(a) Upon recognition of a foreign proceeding, whether main or
nonmain, where necessary to effectuate the purpose of this
chapter and to protect the assets of the debtor or the
interests of the creditors, the court may, at the request of
the foreign representative, grant any appropriate relief,
including--
(1) staying the commencement or continuation of
individual actions or individual proceedings concerning
the debtor's assets, rights, obligations or liabilities
to the extent they have not been stayed under section
620(a);
(2) staying execution against the debtor's assets to
the extent it has not been stayed under section 620(a);
(3) suspending the right to transfer, encumber or
otherwise dispose of any assets of the debtor to the
extent this right has not been suspended under section
620(a);
(4) providing for the examination of witnesses, the
taking of evidence or the delivery of information
concerning the debtor's assets, affairs, rights,
obligations or liabilities;
(5) entrusting the administration or realization of
all or part of the debtor's assets within the
territorial jurisdiction of the United States to the
foreign representative or another person, including an
examiner, authorized by the court;
(6) extending relief granted under section 619(a);
and
(7) granting any additional relief that may be
available to a trustee, except for relief available
under sections 522, 544, 545, 547, 548, 550, and
724(a).
(b) Upon recognition of a foreign proceeding, whether main or
nonmain, the court may, at the request of the foreign
representative, entrust the distribution of all or part of the
debtor's assets located in the United States to the foreign
representative or another person, including an examiner,
authorized by the court, provided that the court is satisfied
that the interests of creditors in the United States are
sufficiently protected.
(c) In granting relief under this section to a representative
of a foreign nonmain proceeding, the court must be satisfied
that the relief relates to assets that, under the law of the
United States, should be administered in the foreign nonmain
proceeding or concerns information required in that proceeding.
(d) The court may not enjoin a police or regulatory act of a
governmental unit, including a criminal action or proceeding,
under this section.
(e) The standards, procedures, and limitations applicable to
an injunction shall apply to relief under paragraphs (1), (2),
(3), and (6) of subsection (a).
Sec. 622. Protection of creditors and other interested persons
(a) In granting or denying relief under section 619 or 621,
or in modifying or terminating relief under subsection (c) of
this section, the court must find that the interests of the
creditors and other interested persons or entities, including
the debtor, are sufficiently protected.
(b) The court may subject relief granted under section 619 or
621 to conditions it considers appropriate.
(c) The court may, at the request of the foreign
representative or an entity affected by relief granted under
section 619 or 621, or at its own motion, modify or terminate
such relief.
Sec. 623. Actions to avoid acts detrimental to creditors
(a) Upon recognition of a foreign proceeding, the foreign
representative has standing in a pending case under another
chapter of this title to initiate actions under sections 522,
544, 545, 547, 548, 550, and 724(a).
(b) When the foreign proceeding is a foreign nonmain
proceeding, the court must be satisfied that an action under
subsection (a) of this section relates to assets that, under
United States law, should be administered in the foreign
nonmain proceeding.
Sec. 624. Intervention by a foreign representative
Upon recognition of a foreign proceeding, the foreign
representative may intervene in any proceedings in a State or
Federal court in the United States in which the debtor is a
party.
SUBCHAPTER IV--COOPERATION WITH FOREIGN COURTS AND FOREIGN
REPRESENTATIVES
Sec. 625. Cooperation and direct communication between the court and
foreign courts or foreign representatives
(a) In all matters included within section 601, the court
shall cooperate to the maximum extent possible with foreign
courts or foreign representatives, either directly or through
the trustee.
(b) The court is entitled to communicate directly with, or to
request information or assistance directly from, foreign courts
or foreign representatives, subject to the rights of parties in
interest to notice and participation.
Sec. 626. Cooperation and direct communication between the trustee and
foreign courts or foreign representatives
(a) In all matters included in section 601, the trustee or
other person, including an examiner, authorized by the court,
shall, subject to the supervision of the court, cooperate to
the maximum extent possible with foreign courts or foreign
representatives.
(b) The trustee or other person, including an examiner,
designated by the court is entitled, subject to the supervision
of the court, to communicate directly with foreign courts or
foreign representatives.
(c) Section 1104(d) shall apply to the appointment of an
examiner under this chapter. Any examiner shall comply with the
qualification requirements imposed on a trustee by section 322.
Sec. 627. Forms of cooperation
Cooperation referred to in sections 625 and 626 may be
implemented by any appropriate means, including--
(1) appointment of a person or body, including an
examiner, to act at the direction of the court;
(2) communication of information by any means
considered appropriate by the court;
(3) coordination of the administration and
supervision of the debtor's assets and affairs;
(4) approval or implementation of agreements
concerning the coordination of proceedings; and
(5) coordination of concurrent proceedings regarding
the same debtor.
SUBCHAPTER V--CONCURRENT PROCEEDINGS
Sec. 628. Commencement of a case under this title after recognition of
a foreign main proceeding
After recognition of a foreign main proceeding, a case under
another chapter of this title may be commenced only if the
debtor has assets in the United States. The effects of that
case shall be restricted to the assets of the debtor that are
within the territorial jurisdiction of the United States and,
to the extent necessary to implement cooperation and
coordination under sections 625, 626, and 627, to other assets
of the debtor that are within the jurisdiction of the court
under sections 541(a) of this title, and 1334(e) of title 28,
to the extent that such other assets are not subject to the
jurisdiction and control of a foreign proceeding that has been
recognized under this chapter.
Sec. 629. Coordination of a case under this title and a foreign
proceeding
Where a foreign proceeding and a case under another chapter
of this title are taking place concurrently regarding the same
debtor, the court shall seek cooperation and coordination under
sections 625, 626, and 627, and the following shall apply:
(1) When the case in the United States is taking
place at the time the petition for recognition of the
foreign proceeding is filed--
(A) any relief granted under sections 619 or
621 must be consistent with the case in the
United States; and
(B) even if the foreign proceeding is
recognized as a foreign main proceeding,
section 620 does not apply.
(2) When a case in the United States under this title
commences after recognition, or after the filing of the
petition for recognition, of the foreign proceeding--
(A) any relief in effect under sections 619
or 621 shall be reviewed by the court and shall
be modified or terminated if inconsistent with
the case in the United States; and
(B) if the foreign proceeding is a foreign
main proceeding, the stay and suspension
referred to in section 620(a) shall be modified
or terminated if inconsistent with the case in
the United States.
(3) In granting, extending, or modifying relief
granted to a representative of a foreign nonmain
proceeding, the court must be satisfied that the relief
relates to assets that, under the law of the United
States, should be administered in the foreign nonmain
proceeding or concerns information required in that
proceeding.
(4) In achieving cooperation and coordination under
sections 628 and 629, the court may grant any of the
relief authorized under section 305.
Sec. 630. Coordination of more than 1 foreign proceeding
In matters referred to in section 601, with respect to more
than 1 foreign proceeding regarding the debtor, the court shall
seek cooperation and coordination under sections 625, 626, and
627, and the following shall apply:
(1) Any relief granted under section 619 or 621 to a
representative of a foreign nonmain proceeding after
recognition of a foreign main proceeding must be
consistent with the foreign main proceeding.
(2) If a foreign main proceeding is recognized after
recognition, or after the filing of a petition for
recognition, of a foreign nonmain proceeding, any
relief in effect under section 619 or 621 shall be
reviewed by the court and shall be modified or
terminated if inconsistent with the foreign main
proceeding.
(3) If, after recognition of a foreign nonmain
proceeding, another foreign nonmain proceeding is
recognized, the court shall grant, modify, or terminate
relief for the purpose of facilitating coordination of
the proceedings.
Sec. 631. Presumption of insolvency based on recognition of a foreign
main proceeding
In the absence of evidence to the contrary, recognition of a
foreign main proceeding is for the purpose of commencing a
proceeding under section 303, proof that the debtor is
generally not paying its debts.
Sec. 632. Rule of payment in concurrent proceedings
Without prejudice to secured claims or rights in rem, a
creditor who has received payment with respect to its claim in
a foreign proceeding pursuant to a law relating to insolvency
may not receive a payment for the same claim in a case under
any other chapter of this title regarding the debtor, so long
as the payment to other creditors of the same class is
proportionately less than the payment the creditor has already
received.
CHAPTER 7--LIQUIDATION
* * * * * * *
SUBCHAPTER I--OFFICERS AND ADMINISTRATION
* * * * * * *
Sec. 704. Duties of trustee
The trustee shall--
(1) * * *
* * * * * * *
(8) if the business of the debtor is authorized to be
operated, file with the court, with the United States
trustee, and with any governmental unit charged with
responsibility for collection or determination of any
tax arising out of such operation, periodic reports and
summaries of the operation of such business, including
a statement of receipts and disbursements, and such
other information as the United States trustee or the
court requires; [and]
(9) make a final report and file a final account of
the administration of the estate with the court and
with the United States trustee[.]; and
(10) with respect to an individual debtor, review all
materials provided by the debtor under subsections
(a)(1) and (c)(1) of section 521, investigate and
verify the debtor's projected monthly net income and
within 30 days after such materials are so provided--
(A) file a report with the court as to
whether the debtor qualifies for relief under
this chapter under section 109(b)(4); and
(B) if the trustee determines that the debtor
does not qualify for such relief, the trustee
shall provide a copy of such report to the
parties in interest.
* * * * * * *
Sec. 707. Dismissal
(a) * * *
[(b) After notice and a hearing, the court, on its own motion
or on a motion by the United States trustee, but not at the
request or suggestion of any party in interest, may dismiss a
case filed by an individual debtor under this chapter whose
debts are primarily consumer debts if it finds that the
granting of relief would be a substantial abuse of the
provisions of this chapter. There shall be a presumption in
favor of granting the relief requested by the debtor.]
(b)(1) After notice and a hearing, the court--
(A) on its own motion or on the motion of the United
States trustee or any party in interest, shall dismiss
a case filed by an individual debtor under this
chapter; or
(B) with the debtor's consent, convert the case to a
case under chapter 13 of this title;
if the court finds that the granting of relief would be an
inappropriate use of the provisions of this chapter.
(2) The court shall determine that inappropriate use of the
provisions of this chapter exists if--
(A) the debtor is excluded from this chapter pursuant
to section 109 of this title; or
(B) the totality of the circumstances of the debtor's
financial situation demonstrates such inappropriate
use.
(3) In the case of a motion filed by a party in interest
other than the trustee or United States trustee under paragraph
(1) that is denied by the court, the court shall award against
the moving party a reasonable attorney's fee and costs that the
debtor incurred in opposing the motion if the court finds that
the position of the moving party was not substantially
justified, but the court shall not award such fee and costs if
special circumstances would make the award unjust.
(4)(A) If a trustee appointed under this title or the United
States Trustee files a motion under this subsection and the
case is subsequently dismissed or converted to another chapter,
the court shall award to such party in interest a reasonable
attorney's fee and costs incurred in connection with such
motion, payable by the debtor, unless the court finds that
awarding such fee and costs would impose an unreasonable
hardship on the debtor, considering the debtor's conduct.
(B) The signature of the debtor's attorney on any petition,
pleading, motion, or other paper filed with the court in the
case of the debtor shall constitute a certificate that the
attorney has--
(i) performed a reasonable investigation into the
circumstances that gave rise to the petition and its
schedules and statement of financial affairs or the
pleading, as applicable; and
(ii) determined that the petition and its schedules
and statement of financial affairs or the pleading, as
applicable, including the choice of this chapter--
(I) is well grounded in fact; and
(II) is warranted by existing law or a good
faith argument for the extension, modification,
or reversal of existing law and does not
constitute an inappropriate use of the
provisions of this chapter.
(C) If the court finds that the attorney for the debtor
signed a paper in violation of subparagraph (B), at a minimum,
the court shall order--
(i) the assessment of an appropriate civil penalty
against the attorney for the debtor; and
(ii) the payment of the civil penalty to the trustee
or the United States Trustee.
(c) In making a determination whether to dismiss a case under
this section, the court may not take into consideration whether
a debtor has made, or continues to make, charitable
contributions (that meet the definition of ``charitable
contribution'' under section 548(d)(3)) to any qualified
religious or charitable entity or organization (as defined in
section 548(d)(4)).
SUBCHAPTER II--COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE ESTATE
* * * * * * *
Sec. 722. Redemption
An individual debtor may, whether or not the debtor has
waived the right to redeem under this section, redeem tangible
personal property intended primarily for personal, family, or
household use, from a lien securing a dischargeable consumer
debt, if such property is exempted under section 522 of this
title or has been abandoned under section 554 of this title, by
paying the holder of such lien the amount of the allowed
secured claim of such holder that is secured by such lien in
full at the time of redemption.
* * * * * * *
Sec. 724. Treatment of certain liens
(a) * * *
(b) Property in which the estate has an interest and that is
subject to a lien that is not avoidable under this title (other
than to the extent that there is a properly perfected
unavoidable tax lien arising in connection with an ad valorem
tax on real or personal property of the estate) and that
secures an allowed claim for a tax, or proceeds of such
property, shall be distributed--
(1) * * *
(2) second, to any holder of a claim of a kind
specified in section 507(a)(1) (except that such
expenses, other than claims for wages, salaries, or
commissions which arise after the filing of a petition,
shall be limited to expenses incurred under chapter 7
of this title and shall not include expenses incurred
under chapter 11 of this title), 507(a)(2), 507(a)(3),
507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this
title, to the extent of the amount of such allowed tax
claim that is secured by such tax lien;
* * * * * * *
(e) Before subordinating a tax lien on real or personal
property of the estate, the trustee shall--
(1) exhaust the unencumbered assets of the estate;
and
(2) in a manner consistent with section 506(c) of
this title, recover from property securing an allowed
secured claim the reasonable, necessary costs and
expenses of preserving or disposing of that property.
(f) Notwithstanding the exclusion of ad valorem tax liens set
forth in this section and subject to the requirements of
subsection (e)--
(1) claims for wages, salaries, and commissions that
are entitled to priority under section 507(a)(3) of
this title; or
(2) claims for contributions to an employee benefit
plan entitled to priority under section 507(a)(4) of
this title,
may be paid from property of the estate which secures a tax
lien, or the proceeds of such property.
* * * * * * *
Sec. 726. Distribution of property of the estate
(a) Except as provided in section 510 of this title, property
of the estate shall be distributed--
(1) first, in payment of claims of the kind specified
in, and in the order specified in, section 507 of this
title, proof of which is timely filed under section 501
of this title or tardily filed [before the date on
which the trustee commences distribution under this
section] on or before the earlier of 10 days after the
mailing to creditors of the summary of the trustee's
final report or the date on which the trustee commences
final distribution under this section;
* * * * * * *
Sec. 727. Discharge
(a) The court shall grant the debtor a discharge, unless--
(1) * * *
* * * * * * *
(8) the debtor has been granted a discharge under
this section, under section 1141 of this title, or
under section 14, 371, or 476 of the Bankruptcy Act, in
a case commenced within [six] 10 years before the date
of the filing of the petition;
* * * * * * *
CHAPTER 9--ADJUSTMENT OF DEBTS OF A MUNICIPALITY
* * * * * * *
SUBCHAPTER II--ADMINISTRATION
Sec. 921. Petition and proceedings relating to petition
(a) * * *
* * * * * * *
(d) If the petition is not dismissed under subsection (c) of
this section, the court shall order relief under this chapter
notwithstanding section 301(b).
* * * * * * *
CHAPTER 11--REORGANIZATION
SUBCHAPTER I--OFFICERS AND ADMINISTRATION
Sec.
1101. Definitions for this chapter.
* * * * * * *
1115. Duties of trustee or debtor in possession in small business
cases.
* * * * * * *
SUBCHAPTER I--OFFICERS AND ADMINISTRATION
* * * * * * *
Sec. 1102. Creditors' and equity security holders' committees
(a)(1) * * *
* * * * * * *
(3) On request of a party in interest in a case in which the
debtor is a small business debtor and for cause, the court may
order that a committee of creditors not be appointed.
(b)(1) * * *
* * * * * * *
(3) The court on its own motion or on request of a party in
interest, and after notice and a hearing, may order a change in
membership of a committee appointed under subsection (a) if
necessary to ensure adequate representation of creditors or of
equity security holders.
* * * * * * *
Sec. 1104. Appointment of trustee or examiner
(a) At any time after the commencement of the case but before
confirmation of a plan, on request of a party in interest or
the United States trustee, and after notice and a hearing, the
court shall order the appointment of a trustee--
(1) for cause, including fraud, dishonesty,
incompetence, or gross mismanagement of the affairs of
the debtor by current management, either before or
after the commencement of the case, or similar cause,
but not including the number of holders of securities
of the debtor or the amount of assets or liabilities of
the debtor; [or]
(2) if such appointment is in the interests of
creditors, any equity security holders, and other
interests of the estate, without regard to the number
of holders of securities of the debtor or the amount of
assets or liabilities of the debtor[.]; or
(3) if grounds exist to convert or dismiss the case
under section 1112 of this title, but the court
determines that the appointment of a trustee is in the
best interests of creditors and the estate.
* * * * * * *
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
and within such 60-day period is cured before
the later of--
(I) * * *
(II) the expiration of such 60-day
period[.]; and
(iii) that occurs after the date of the order
and such 60-day period is cured in accordance
with the terms of such security agreement,
lease, or conditional sale contract.
* * * * * * *
Sec. 1112. Conversion or dismissal
(a) * * *
[(b) Except as provided in subsection (c) of this section, on
request of a party in interest or the United States trustee or
bankruptcy administrator, and after notice and a hearing, the
court may convert a case under this chapter to a case under
chapter 7 of this title or may dismiss a case under this
chapter, whichever is in the best interest of creditors and the
estate, for cause, including--
[(1) continuing loss to or diminution of the estate
and absence of a reasonable likelihood of
rehabilitation;
[(2) inability to effectuate a plan;
[(3) unreasonable delay by the debtor that is
prejudicial to creditors;
[(4) failure to propose a plan under section 1121 of
this title within any time fixed by the court;
[(5) denial of confirmation of every proposed plan
and denial of a request made for additional time for
filing another plan or a modification of a plan;
[(6) revocation of an order of confirmation under
section 1144 of this title, and denial of confirmation
of another plan or a modified plan under section 1129
of this title;
[(7) inability to effectuate substantial consummation
of a confirmed plan;
[(8) material default by the debtor with respect to a
confirmed plan;
[(9) termination of a plan by reason of the
occurrence of a condition specified in the plan; or
[(10) nonpayment of any fees or charges required
under chapter 123 of title 28.]
(b)(1) Except as provided in paragraph (2), in subsection
(c), and in section 1104(a)(3) of this title, on request of a
party in interest, and after notice and a hearing, the court
shall convert a case under this chapter to a case under chapter
7 of this title or dismiss a case under this chapter, whichever
is in the best interest of creditors and the estate, if the
movant establishes cause.
(2) The relief provided in paragraph (1) shall not be granted
if the debtor or another party in interest objects and
establishes, by a preponderance of the evidence that--
(A) it is more likely than not that a plan will be
confirmed within a time as fixed by this title or by
order of the court entered pursuant to section
1121(e)(3), or within a reasonable time if no time has
been fixed; and
(B) if the reason is an act or omission of the debtor
that--
(i) there exists a reasonable justification
for the act or omission; and
(ii) the act or omission will be cured within
a reasonable time fixed by the court not to
exceed 30 days after the court decides the
motion, unless the movant expressly consents to
a continuance for a specific period of time, or
compelling circumstances beyond the control of
the debtor justify an extension.
(3) For purposes of this subsection, cause includes--
(A) substantial or continuing loss to or diminution
of the estate;
(B) gross mismanagement of the estate;
(C) failure to maintain appropriate insurance;
(D) unauthorized use of cash collateral harmful to 1
or more creditors;
(E) failure to comply with an order of the court;
(F) failure timely to satisfy any filing or reporting
requirement established by this title or by any rule
applicable to a case under this chapter;
(G) failure to attend the meeting of creditors
convened under section 341(a) of this title or an
examination ordered under rule 2004 of the Federal
Rules of Bankruptcy Procedure;
(H) failure timely to provide information or attend
meetings reasonably requested by the United States
trustee;
(I) failure timely to pay taxes due after the date of
the order for relief or to file tax returns due after
the order for relief;
(J) failure to file a disclosure statement, or to
file or confirm a plan, within the time fixed by this
title or by order of the court;
(K) failure to pay any fees or charges required under
chapter 123 of title 28;
(L) revocation of an order of confirmation under
section 1144 of this title, and denial of confirmation
of another plan or of a modified plan under section
1129 of this title;
(M) inability to effectuate substantial consummation
of a confirmed plan;
(N) material default by the debtor with respect to a
confirmed plan; and
(O) termination of a plan by reason of the occurrence
of a condition specified in the plan.
(4) The court shall commence the hearing on any motion under
this subsection not later than 30 days after filing of the
motion, and shall decide the motion within 15 days after
commencement of the hearing, unless the movant expressly
consents to a continuance for a specific period of time or
compelling circumstances prevent the court from meeting the
time limits established by this paragraph.
* * * * * * *
Sec. 1115. Duties of trustee or debtor in possession in small business
cases
In a small business case, a trustee or the debtor in
possession, in addition to the duties provided in this title
and as otherwise required by law, shall--
(1) append to the voluntary petition or, in an
involuntary case, file within 3 days after the date of
the order for relief--
(A) its most recent balance sheet, statement
of operations, cash-flow statement, Federal
income tax return; or
(B) a statement made under penalty of perjury
that no balance sheet, statement of operations,
or cash-flow statement has been prepared and no
Federal tax return has been filed;
(2) attend, through its senior management personnel
and counsel, meetings scheduled by the court or the
United States trustee, including initial debtor
interviews, scheduling conferences, and meetings of
creditors convened under section 341 of this title;
(3) timely file all schedules and statements of
financial affairs, unless the court, after notice and a
hearing, grants an extension, which shall not extend
such time period to a date later than 30 days after the
date of the order for relief, absent extraordinary and
compelling circumstances;
(4) file all postpetition financial and other reports
required by the Federal Rules of Bankruptcy Procedure
or by local rule of the district court;
(5) subject to section 363(c)(2), maintain insurance
customary and appropriate to the industry;
(6)(A) timely file tax returns;
(B) subject to section 363(c)(2), timely pay all
administrative expense tax claims, except those being
contested by appropriate proceedings being diligently
prosecuted; and
(C) subject to section 363(c)(2), establish 1 or more
separate deposit accounts not later than 10 business
days after the date of order for relief (or as soon
thereafter as possible if all banks contacted decline
the business) and deposit therein, not later than 1
business day after receipt thereof, all taxes payable
for periods beginning after the date the case is
commenced that are collected or withheld by the debtor
for governmental units; and
(7) allow the United States trustee or bankruptcy
administrator, or its designated representative, to
inspect the debtor's business premises, books, and
records at reasonable times, after reasonable prior
written notice, unless notice is waived by the debtor.
* * * * * * *
SUBCHAPTER II--THE PLAN
Sec. 1121. Who may file a plan
(a) * * *
* * * * * * *
(d) [On] (1) Subject to paragraph (1), on request of a party
in interest made within the respective periods specified in
subsections (b) and (c) of this section and after notice and a
hearing, the court may for cause reduce or increase the 120-day
period or the 180-day period referred to in this section.
(2)(A) Such 120-day period may not be extended beyond a date
that is 18 months after the date of the order for relief under
this chapter.
(B) Such 180-day period may not be extended beyond a date
that is 20 months after the date of the order for relief under
this chapter.
[(e) In a case in which the debtor is a small business and
elects to be considered a small business--
[(1) only the debtor may file a plan until after 100
days after the date of the order for relief under this
chapter;
[(2) all plans shall be filed within 160 days after
the date of the order for relief; and
[(3) on request of a party in interest made within
the respective periods specified in paragraphs (1) and
(2) and after notice and a hearing, the court may--
[(A) reduce the 100-day period or the 160-day
period specified in paragraph (1) or (2) for
cause; and
[(B) increase the 100-day period specified in
paragraph (1) if the debtor shows that the need
for an increase is caused by circumstances for
which the debtor should not be held
accountable.]
(e) In a small business case--
(1) only the debtor may file a plan until after 90
days after the date of the order for relief, unless
shortened on request of a party in interest made during
the 90-day period, or unless extended as provided by
this subsection, after notice and hearing the court,
for cause, orders otherwise;
(2) the plan, and any necessary disclosure statement,
shall be filed not later than 90 days after the date of
the order for relief; and
(3) the time periods specified in paragraphs (1) and
(2), and the time fixed in section 1129(e) of this
title, within which the plan shall be confirmed may be
extended only if--
(A) the debtor, after providing notice to
parties in interest (including the United
States trustee), demonstrates by a
preponderance of the evidence that it is more
likely than not that the court will confirm a
plan within a reasonable time;
(B) a new deadline is imposed at the time the
extension is granted; and
(C) the order extending time is signed before
the existing deadline has expired.
* * * * * * *
Sec. 1125. Postpetition disclosure and solicitation
(a) In this section--
(1) ``adequate information'' means information of a
kind, and in sufficient detail, as far as is reasonably
practicable in light of the nature and history of the
debtor and the condition of the debtor's books and
records, including a full discussion of the potential
material Federal, State, and local tax consequences of
the plan to the debtor, any successor to the debtor,
and a hypothetical investor domiciled in the State in
which the debtor resides or has its principal place of
business typical of the holders of claims or interests
in the case, that would enable such a hypothetical
[reasonable] investor [typical of holders of claims or
interests] of the relevant class to make an informed
judgment about the plan, but adequate information need
not include such information about any other possible
or proposed plan; and
* * * * * * *
[(f) Notwithstanding subsection (b), in a case in which the
debtor has elected under section 1121(e) to be considered a
small business--
[(1) the court may conditionally approve a disclosure
statement subject to final approval after notice and a
hearing;
[(2) acceptances and rejections of a plan may be
solicited based on a conditionally approved disclosure
statement as long as the debtor provides adequate
information to each holder of a claim or interest that
is solicited, but a conditionally approved disclosure
statement shall be mailed at least 10 days prior to the
date of the hearing on confirmation of the plan; and
[(3) a hearing on the disclosure statement may be
combined with a hearing on confirmation of a plan.]
(f) Notwithstanding subsection (b), in a small business
case--
(1) in determining whether a disclosure statement
provides adequate information, the court shall consider
the complexity of the case, the benefit of additional
information to creditors and other parties in interest,
and the cost of providing additional information;
(2) the court may determine that the plan itself
provides adequate information and that a separate
disclosure statement is not necessary;
(3) the court may approve a disclosure statement
submitted on standard forms approved by the court or
adopted pursuant to section 2075 of title 28; and
(4)(A) the court may conditionally approve a
disclosure statement subject to final approval after
notice and a hearing;
(B) acceptances and rejections of a plan may be
solicited based on a conditionally approved disclosure
statement if the debtor provides adequate information
to each holder of a claim or interest that is
solicited, but a conditionally approved disclosure
statement shall be mailed not less than 20 days before
the date of the hearing on confirmation of the plan;
and
(C) the hearing on the disclosure statement may be
combined with the hearing on confirmation of a plan.
(g) Notwithstanding subsection (b), an acceptance or
rejection of the plan may be solicited from a holder of a claim
or interest if such solicitation complies with applicable
nonbankruptcy law and if such holder was solicited before the
commencement of the case in a manner complying with applicable
nonbankruptcy law.
* * * * * * *
Sec. 1129. Confirmation of plan
(a) The court shall confirm a plan only if all of the
following requirements are met:
(1) * * *
* * * * * * *
(9) Except to the extent that the holder of a
particular claim has agreed to a different treatment of
such claim, the plan provides that--
(A) * * *
(B) with respect to a class of claims of a
kind specified in section 507(a)(3), 507(a)(4),
507(a)(5), 507(a)(6), or 507(a)(7) of this
title, each holder of a claim of such class
will receive--
(i) * * *
(ii) if such class has not accepted
the plan, cash on the effective date of
the plan equal to the allowed amount of
such claim; [and]
(C) with respect to a claim of a kind
specified in section 507(a)(8) of this title,
the holder of such claim will receive on
account of such claim [deferred cash payments,
over a period not exceeding six years after the
date of assessment of such claim,] regular
installment payments in cash, but in no case
with a balloon provision, and no more than
three months apart, beginning no later than the
effective date of the plan and ending on the
earlier of five years after the petition date
or the last date payments are to be made under
the plan to unsecured creditors, of a value, as
of the effective date of the plan, equal to the
allowed amount of such claim[.]; and
(D) with respect to a secured claim which
would be described in section 507(a)(8) of this
title but for its secured status, the holder of
such claim will receive on account of such
claim cash payments of not less than is
required in subparagraph (C) and over a period
no greater than is required in such
subparagraph.
* * * * * * *
(14) If the debtor is required by a judicial or
administrative order to pay alimony to, maintenance
for, or support of a spouse, former spouse, or child of
the debtor, the debtor has paid all amounts payable
under such order for alimony, maintenance, or support
that are due after the date the petition is filed.
* * * * * * *
(e) In a small business case, the plan shall be confirmed not
later than 150 days after the date of the order for relief
unless such 150-day period is extended as provided in section
1121(e)(3) of this title.
SUBCHAPTER III--POSTCONFIRMATION MATTERS
Sec. 1141. Effect of confirmation
(a) * * *
* * * * * * *
(d)(1) * * *
* * * * * * *
(5) The confirmation of a plan does not discharge a debtor
that is a corporation from any debt arising from a judicial,
administrative, or other action or proceeding that is--
(A) related to the consumption or consumer purchase
of a tobacco product; and
(B) based in whole or in part on false pretenses, a
false representation, or actual fraud.
(6) Notwithstanding the provisions of paragraph (1), the
confirmation of a plan does not discharge a debtor which is a
corporation from any debt for a tax or customs duty with
respect to which the debtor made a fraudulent return or
willfully attempted in any manner to evade or defeat such tax.
* * * * * * *
CHAPTER 12--ADJUSTMENT OF DEBTS OF A FAMILY FARMER WITH REGULAR ANNUAL
INCOME
* * * * * * *
SUBCHAPTER II--THE PLAN
1221. Filing of plan.
* * * * * * *
1232. Special treatment of secured claims.
* * * * * * *
SUBCHAPTER II--THE PLAN
Sec. 1221. Filing of plan
The debtor shall file a plan not later than 90 days after the
order for relief under this chapter, except that the court may
extend such period to any period not later than 150 days after
the order for relief if the need for an extension is
attributable to circumstances for which the debtor should not
justly be held accountable.
* * * * * * *
Sec. 1225. Confirmation of plan
(a) Except as provided in subsection (b), the court shall
confirm a plan if--
(1) * * *
* * * * * * *
(5) with respect to each allowed secured claim
provided for by the plan--
(A) * * *
* * * * * * *
(C) the debtor surrenders the property
securing such claim to such holder; [and]
(6) the debtor will be able to make all payments
under the plan and to comply with the plan[.]; and
(7) the debtor is required by a judicial or
administrative order to pay alimony to, maintenance
for, or support of a spouse, former spouse, or child of
the debtor, the debtor has paid all amounts payable
under such order for alimony, maintenance, or support
that are due after the date the petition is filed.
* * * * * * *
Sec. 1228. Discharge
(a) As soon as practicable after completion by the debtor of
all payments under the plan, other than payments to holders of
allowed claims provided for under section 1222(b)(5) or
1222(b)(10) of this title, and only after a debtor who is
required by a judicial or administrative order to pay alimony
to, maintenance for, or support of a spouse, former spouse, or
child of the debtor, certifies that all amounts payable under
such order for alimony, maintenance, or support that are due
after the date the petition is filed have been paid, unless the
court approves a written waiver of discharge executed by the
debtor after the order for relief under this chapter, the court
shall grant the debtor a discharge of all debts provided for by
the plan allowed under section 503 of this title or disallowed
under section 502 of this title, except any debt--
(1) * * *
* * * * * * *
Sec. 1232. Special treatment of secured claims
(a)(1) A claim secured by a lien on property of the estate
shall be allowed or disallowed under section 502 of this title
the same as if the holder of such claim had recourse against
the debtor on account of such claim, whether or not such holder
has such recourse, unless--
(A) subject to paragraph (2), the holder of such
claim elects to apply subsection (b); or
(B) such holder does not have such recourse, and such
property is sold under section 363 of this title or is
to be sold under the plan.
(2) A holder of a claim may not elect to apply subsection (b)
if--
(A) such claim is of inconsequential value; or
(B) the holder of a claim has recourse against the
debtor on account of such claim, and such property is
sold under section 363 of this title or is to be sold
under the plan.
(b) If such an election is made to apply this subsection,
then notwithstanding section 506(a) of this title, such claim
is a secured claim to the extent such claim is allowed.
CHAPTER 13--ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME
SUBCHAPTER I--OFFICERS, ADMINISTRATION, AND THE ESTATE
Sec.
1301. Stay of action against codebtor.
* * * * * * *
1308. Filing of prepetition tax returns.
* * * * * * *
SUBCHAPTER I--OFFICERS, ADMINISTRATION, AND THE ESTATE
Sec. 1301. Stay of action against codebtor
(a) * * *
(b)(1) A creditor may present a negotiable instrument, and
may give notice of dishonor of such an instrument.
(2) When the debtor did not receive the consideration for the
claim held by a creditor, the stay provided by subsection (a)
does not apply to such creditor, notwithstanding subsection
(c), to the extent the creditor proceeds against the individual
which received such consideration or against property not in
the possession of the debtor which secures such claim, but this
subsection shall not apply if the debtor is primarily obligated
to pay the creditor in whole or in part with respect to the
claim under a legally binding separation agreement, or divorce
or dissolution decree, with respect to such individual or the
person who has possession of such property.
(3) When the debtor's plan provides that the debtor's
interest in personal property subject to a lease as to which
the debtor is the lessee will be surrendered or abandoned or no
payments will be made under the plan on account of the debtor's
obligations under the lease, the stay provided by subsection
(a) shall terminate as of the date of confirmation of the plan
notwithstanding subsection (c).
* * * * * * *
Sec. 1302. Trustee
(a) * * *
(b) The trustee shall--
(1) * * *
* * * * * * *
(4) advise, other than on legal matters, and assist
the debtor in performance under the plan; [and]
(5) ensure that the debtor commences making timely
payments under section 1326 of this title[.];
(6) investigate and verify the debtor's monthly net
income and other information provided by the debtor
pursuant to sections 521 and 1322, and pursuant to
section 111, if applicable; and
(7) file annual reports with the court, with copies
to holders of claims under the plan, as to whether a
modification of the amount paid creditors under the
plan is appropriate because of changes in the debtor's
monthly net income.
* * * * * * *
Sec. 1307. Conversion or dismissal
(a) * * *
* * * * * * *
(e) Upon the failure of the debtor to file tax returns under
section 1308 of this title, on request of a party in interest
or the United States trustee and after notice and a hearing,
the court shall dismiss a case or convert a case under this
chapter to a case under chapter 7 of this title, whichever is
in the best interests of creditors and the estate.
[(e)] (f) The court may not convert a case under this chapter
to a case under chapter 7, 11, or 12 of this title if the
debtor is a farmer, unless the debtor requests such conversion.
[(f)] (g) Notwithstanding any other provision of this
section, a case may not be converted to a case under another
chapter of this title unless the debtor may be a debtor under
such chapter.
Sec. 1307A. Adequate protection in chapter 13 cases
(a)(1) On or before 30 days after the filing of a case under
this chapter, the debtor shall make cash payments in the amount
described below to any lessor of personal property and to any
creditor holding a claim secured by personal property to the
extent such claim is attributable to the purchase of such
property by the debtor.The debtor or the plan shall continue
such payments until the earlier of--
(A) the time at which the creditor begins to receive
actual payments under the plan; or
(B) the debtor relinquishes possession of such
property to the lessor or creditor, or to any third
party acting under claim of right, as applicable.
(2) Such cash payments shall be in the amount of any weekly,
biweekly, monthly or other periodic payment scheduled as
payable under the contract between the debtor and creditor;
shall be paid at the times at which such payments are scheduled
to be made; and shall not include any arrearages, penalties, or
default or delinquency charges. Such payments shall be deemed
to be adequate protection payments under section 362 of this
title.
(b) The court may, after notice and hearing, change the
amount and timing of the adequate protection payment under
subsection (a), but in no event shall it be payable less
frequently than monthly or in an amount less than the
reasonable depreciation of such property month to month.
(c) Notwithstanding section 1326(b) of this title, if a
confirmed plan provides for payments to a creditor or lessor
described in subsection (a) and provides that payments to such
creditor or lessor under the plan will be deferred until
payment of amounts described in section 1326(b) of this title,
the payments required hereunder shall nonetheless be continued
in addition to plan payments until actual payments to the
creditor begin under the plan.
(d) Notwithstanding sections 362, 542, and 543 of this title,
a lessor or creditor described in subsection (a) may retain
possession of property described in subsection (a) which was
obtained rightfully prior to the date of filing of the petition
until the first such adequate protection payment is received by
the lessor or creditor. Such retention of possession and any
acts reasonably related thereto shall not violate the stay
imposed under section 362(a) of this title, nor any obligations
imposed under section 542 or 543 of this title.
(e) On or before 60 days after the filing of a case under
this chapter, a debtor retaining possession of personal
property subject to a lease or securing a claim attributable in
whole or in part to the purchase price of that property shall
provide each creditor or lessor reasonable evidence of the
maintenance of any required insurance coverage with respect to
the use or ownership of such property and continue to do so for
so long as the debtor retains possession of such property.
Sec. 1308. Filing of prepetition tax returns
(a) On or before the day prior to the day on which the first
meeting of the creditors is convened under section 341(a) of
this title, the debtor shall have filed with appropriate tax
authorities all tax returns for all taxable periods ending in
the 6-year period ending on the date of filing of the petition.
(b) If the tax returns required by subsection (a) have not
been filed by the date on which the first meeting of creditors
is convened under section 341(a) of this title, the trustee may
continue such meeting for a reasonable period of time, to allow
the debtor additional time to file any unfiled returns, but
such additional time shall be no more than--
(1) for returns that are past due as of the date of
the filing of the petition, 120 days from such date,
(2) for returns which are not past due as of the date
of the filing of the petition, the later of 120 days
from such date or the due date for such returns under
the last automatic extension of time for filing such
returns to which the debtor is entitled, and for which
request has been timely made, according to applicable
nonbankruptcy law, and
(3) upon notice and hearing, and order entered before
the lapse of any deadline fixed according to this
subsection, where the debtor demonstrates, by clear and
convincing evidence, that the failure to file the
returns as required is because of circumstances beyond
the control of the debtor, the court may extend the
deadlines set by the trustee as provided in this
subsection for--
(A) a period of no more than 30 days for
returns described in paragraph (1) of this
subsection, and
(B) for no more than the period of time
ending on the applicable extended due date for
the returns described in paragraph (2).
(c) For purposes of this section only, a return includes a
return prepared pursuant to section 6020 (a) or (b) of the
Internal Revenue Code of 1986 or similar State or local law, or
a written stipulation to a judgment entered by a nonbankruptcy
tribunal.
SUBCHAPTER II--THE PLAN
* * * * * * *
Sec. 1322. Contents of plan
(a) The plan shall--
(1) * * *
(2) provide for the full payment, in deferred cash
payments, of all claims entitled to priority under
section 507 of this title, unless the holder of a
particular claim agrees to a different treatment of
such claim; [and]
(3) if the plan classifies claims, provide the same
treatment for each claim within a particular class[.];
and
(4) state, under penalties of perjury, the amount of
monthly net income, which may be as adjusted under
section 111, if applicable, of this title and the
amount of monthly net income which will be paid per
month to unsecured nonpriority creditors under the
plan.
(b) Subject to subsections (a) and (c) of this section, the
plan may--
(1) * * *
[(2) 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;]
(2) modify the rights of holders of secured claims,
other than a claim secured primarily by a security
interest in property used as the debtor's principal
residence at any time during 180 days prior to the
filing of the petition, or of holders of unsecured
claims, or leave unaffected the rights of holders of
any class of claims;
* * * * * * *
[(d) The plan may not provide for payments over a period that
is longer than three years, unless the court, for cause,
approves a longer period, but the court may not approve a
period that is longer than five years.]
(d) If the total current monthly income of the debtor and in
a joint case, the debtor and the debtor's spouse combined, is
not less than the highest national median family income
reported for a family of equal or lesser size or, in the case
of a household of 1 person, not less than the national median
household income for 1 earner, the plan may not provide for
payments over a period that is longer than 5 years, unless the
court, for cause, approves a longer period, but the court may
not approve a period that exceeds 7 years. If the total current
monthly income of the debtor or in a joint case, the debtor and
the debtor's spouse combined, is less than the highest national
median family income reported for a family of equal or lesser
size, or in the case of a household of 1 person less than the
national median household income for 1 earner, the plan may not
provide for payments over a period that is longer than 3 years,
unless the court, for cause, approves a longer period, but the
court may not approve a period that is longer than 5 years.
* * * * * * *
Sec. 1324. Confirmation hearing
[After] (a) Except as provided in subsection (b) and after
notice, the court shall hold a hearing on confirmation of the
plan. A party in interest may object to confirmation of the
plan.
(b) The hearing on confirmation of the plan may be held not
earlier than 20 days, and not later than 45 days, after the
meeting of creditors under section 341(a) of this title.
Sec. 1325. Confirmation of plan
(a) Except as provided in subsection (b), the court shall
confirm a plan if--
(1) * * *
* * * * * * *
(5) with respect to each allowed secured claim
provided for by the plan--
(A) the holder of such claim has accepted the
plan;
(B)[(i) the plan provides that the holder of
such claim retain the lien securing such claim;
and] (i) the plan provides that the holder of
such claim retain the lien securing such claim
until the earlier of payment of the underlying
debt determined under nonbankruptcy law or
discharge under section 1328, and that if the
case under this chapter is dismissed or
converted without completion of the plan, such
lien shall also be retained by such holder to
the extent recognized by applicable
nonbankruptcy law; and
(ii) the value, as of the effective date of
the plan, of property to be distributed under
the plan on account of such claim is not less
than the allowed amount of such claim; or
(C) the debtor surrenders the property
securing such claim to such holder; [and]
(6) the debtor will be able to make all payments
under the plan and to comply with the plan[.];
(7) if the debtor is required by a judicial or
administrative order to pay alimony to, maintenance
for, or support of a spouse, former spouse, or child of
the debtor, the debtor has paid all amounts payable
under such order for alimony, maintenance, or support
that are due after the date the petition is filed; and
(8) if the debtor has filed all Federal, State, and
local tax returns as required by section 1308 of this
title.
(b)(1) If the trustee or the holder of an allowed unsecured
claim objects to the confirmation of the plan, then the court
may not approve the plan unless, as of the effective date of
the plan--
(A) * * *
[(B) the plan provides that all of the debtor's
projected disposable income to be received in the
three-year period beginning on the date that the first
payment is due under the plan will be applied to make
payments under the plan.]
(B) the plan provides--
(i) that payments to unsecured nonpriority
creditors who are not insiders shall equal or
exceed $50 in each month of the plan;
(ii) that during the applicable commitment
period beginning on the date that the first
payment is due under the plan, the total amount
of monthly net income received by the debtor
shall be paid to unsecured nonpriority
creditors under the plan less only payments
pursuant to section 1326(b); the ``applicable
commitment period'' shall be not less than 5
years if the debtor's total current monthly
income is not less than the highest national
median family income reported for a family of
equal or lesser size or, in the case of a
household of 1 person, is not less than the
national median household income for1 earner,
as of the date of confirmation of the plan and shall be not less than 3
years if the debtor's total current monthly income is less than the
highest national median family income reported for a family of equal or
lesser size or, in the case of a household of 1 person, is less than
the national median household income for 1 earner, as of the date of
confirmation of the plan;
(iii) that the amount payable to each class
of unsecured nonpriority claims under the plan
shall be increased or decreased during the plan
proportionately to the extent the debtor's
monthly net income during the plan increases or
decreases as reasonably determined by the
trustee, subject to section 111 of this title,
no less frequently than as of each anniversary
of the confirmation of the plan based on
monthly net income as of 45 days before such
anniversary; and
(iv) nothing in subparagraph (i) or (ii)
shall prevent the payment of obligations
described in section 507(a)(7) at the times
provided for in the plan, and the plan shall
specify how payments to other creditors under
subparagraph (ii) will be accordingly adjusted.
[(2) the value, as of the effective date of the plan, of
property actually distributed under the plan on account of each
allowed unsecured claim is not less than the amount that would
have been paid on such claim if the estate of the debtor had
been liquidated under chapter 7 of this title on such date;
and]
* * * * * * *
Sec. 1328. Discharge
(a) As soon as practicable after completion by the debtor of
all payments under the plan, and only after a debtor who is
required by a judicial or administrative order to pay alimony
to, maintenance for, or support of a spouse, former spouse, or
child of the debtor, certifies that all amounts payable under
such order for alimony, maintenance, or support that are due
after the date the petition is filed have been paid, unless the
court approves a written waiver of discharge executed by the
debtor after the order for relief under this chapter, the court
shall grant the debtor a discharge of all debts provided for by
the plan or disallowed under section 502 of this title, except
any debt--
(1) * * *
(2) of the kind specified in paragraph (1), (2),
(3)(B), (4), (5), (6), (8), [or (9)] (9), or (18) of
section 523(a) of this title; or
* * * * * * *
(f) Notwithstanding subsections (a) and (b), the court shall
not grant a discharge of all debts provided for by the plan or
disallowed under section 502 of this title if the debtor has
received a discharge in any case filed under this title within
5 years of the order for relief under this chapter.
Sec. 1329. Modification of plan after confirmation
(a) * * *
* * * * * * *
(c) A plan modified under this section may not provide for
payments over a period that expires after [three years] the
applicable commitment period under section 1325(b)(1)(B)(ii)
after the time that the first payment under the original
confirmed plan was due, unless the court, for cause, approves a
longer period, but the court may not approve a period that
expires after [five years] maximum duration period after such
time. The maximum duration period shall be 5 years if the total
current monthly income of the debtor, and in a joint case, the
debtor and the debtor's spouse combined, is not less than the
highest national median family income reported for a family of
equal or lesser size or, in the case of a household of 1
person, not less than the national median household income for
1 earner, as of the date of the modification and shall be 3
years if the total current monthly income is less than the
highest national median family income reported for a family of
equal or lesser size or, in the case of a household of 1
person, less than the national median household income for 1
earner as of the date of the modification.
* * * * * * *
----------
TITLE 28, UNITED STATES CODE
PART I--ORGANIZATION OF COURTS
* * * * * * *
CHAPTER 6--BANKRUPTCY JUDGES
Sec.
151. Designation of bankruptcy courts.
* * * * * * *
[158. Appeals.]
159. Bankruptcy statistics.
* * * * * * *
Sec. 157. Procedures
(a) * * *
(b)(1) Bankruptcy judges may hear and determine all cases
under title 11 and all core proceedings arising under title 11,
or arising in a case under title 11, referred under subsection
(a) of this section, and may enter appropriate orders and
judgments, subject to review under [section 158] section 1293
of this title.
(2) Core proceedings include, but are not limited to--
(A) * * *
* * * * * * *
(N) orders approving the sale of property other than
property resulting from claims brought by the estate
against persons who have not filed claims against the
estate; [and]
(O) other proceedings affecting the liquidation of
the assets of the estate or the adjustment of the
debtor-creditor or the equity security holder
relationship, except personal injury tort or wrongful
death claims[.]; and
(P) recognition of foreign proceedings and other
matters under chapter 6.
* * * * * * *
(c)(1) * * *
(2) Notwithstanding the provisions of paragraph (1) of this
subsection, the district court, with the consent of all the
parties to the proceeding, may refer a proceeding related to a
case under title 11 to a bankruptcy judge to hear and determine
and to enter appropriate orders and judgments, subject to
review under [section 158] section 1293 of this title.
* * * * * * *
[Sec. 158. Appeals
[(a) The district courts of the United States shall have
jurisdiction to hear appeals--
[(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;
and, with leave of the court, from interlocutory orders and
decrees, of bankruptcy judges entered in cases and proceedings
referred to the bankruptcy judges under section 157 of this
title. An appeal under this subsection shall be taken only to
the district court for the judicial district in which the
bankruptcy judge is serving.
[(b)(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.
[(4) If authorized by the Judicial Conference of the United
States, the judicial councils of 2 or more circuits may
establish a joint bankruptcy appellate panel comprised of
bankruptcy judges from the districts within the circuits for
which such panel is established, to hear and determine, upon
the consent of all the parties, appeals under subsection (a) of
this section.
[(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.
[(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.
[(2) An appeal under subsections (a) and (b) of this section
shall be taken in the same manner as appeals in civil
proceedings generally are taken to the courts of appeals from
the district courts and in the time provided by Rule 8002 of
the Bankruptcy Rules.
[(d) The courts of appeals shall have jurisdiction of appeals
from all final decisions, judgments, orders, and decrees
entered under subsections (a) and (b) of this section.]
Sec. 159. Bankruptcy statistics
The Director of the Executive Office for United States
Trustees shall compile statistics regarding individual debtors
with primarily consumer debts seeking relief under chapters 7,
11, and 13 of title 11, United States Code. Such statistics
shall be in a form prescribed by the Administrative Office of
the United States Courts. The Office shall compile such
statistics, and make them public, and report annually to the
Congress on the information collected, and on its analysis
thereof, no later than October 31 of each year. Such
compilation shall be itemized by chapter of title 11 of the
United States Code, shall be presented in the aggregate and for
each district, and shall include the following:
(1) Total assets and total liabilities of such
debtors, and in each category of assets and
liabilities, as reported in the schedules prescribed
pursuant to section 2075 of this title and filed by
such debtors.
(2) The current total monthly income, projected
monthly net income, and average income and average
expenses of such debtors as reported on the schedules
and statements the debtor has filed under sections 111,
521, and 1322 of title 11.
(3) The aggregate amount of debt discharged in the
reporting period, determined as the difference between
the total amount of debt and obligations of a debtor
reported on theschedules and the amount of such debt
reported in categories which are predominantly nondischargeable.
(4) The average time between the filing of the
petition and the closing of the case.
(5) The number of cases in the reporting period in
which a reaffirmation was filed and the total number of
reaffirmations filed in that period, and of those cases
in which a reaffirmation was filed, the number in which
the debtor was not represented by an attorney, and of
those the number of cases in which the reaffirmation
was approved by the court.
(6) With respect to cases filed under chapter 13 of
title 11--
(A) the number of cases in which a final
order was entered determining the value of
property securing a claim less than the claim,
and the total number of such orders in the
reporting period; and
(B) the number of cases dismissed for failure
to make payments under the plan.
(7) The number of cases in which the debtor filed
another case within the 6 years previous to the filing.
* * * * * * *
PART II--DEPARTMENT OF JUSTICE
* * * * * * *
CHAPTER 39--UNITED STATES TRUSTEES
Sec.
581. United States trustees.
* * * * * * *
589b. Bankruptcy data.
* * * * * * *
Sec. 586. Duties; supervision by Attorney General
(a) Each United States trustee, within the region for which
such United States trustee is appointed, shall--
(1) * * *
* * * * * * *
(3) supervise the administration of cases and
trustees in cases under chapter 6, 7, 11, 12, or 13 of
title 11 by, whenever the United States trustee
considers it to be appropriate--
(A) * * *
* * * * * * *
(G) monitoring the progress of cases under
title 11 and taking such actions as the United
States trustee deems to be appropriate to
prevent undue delay in such progress; [and]
(H) in small business cases (as defined in
section 101 of title 11), performing the
additional duties specified in title 11
pertaining to such cases;
[(H)] (I) monitoring applications filed under
section 327 of title 11 and, whenever the
United States trustee deems it to be
appropriate, filing with the court comments
with respect to the approval of such
applications;
* * * * * * *
(5) perform the duties prescribed for the United
States trustee under title 11 and this title, and such
duties consistent with title 11 and this title as the
Attorney General may prescribe; [and]
(6) make such reports as the Attorney General
directs.
* * * * * * *
(f)(1) The Attorney General shall establish procedures for
the auditing of the accuracy and completeness of petitions,
schedules, and other information which the debtor is required
to provide under sections 521 and 1322, and, if applicable,
section 111, of title 11 in individual cases filed under
chapter 7 or 13 of such title. Such audits shall be in
accordance with generally accepted auditing standards and
performed by independent certified public accountants or
independent licensed public accountants. Such procedures
shall--
(A) establish a method of selecting appropriate
qualified persons to contract with the United States
trustee to perform such audits;
(B) establish a method of randomly selecting cases to
be audited according to generally accepted audit
standards, provided that no less than 1 out of every
100 cases in each Federal judicial district shall be
selected for audit;
(C) require audits for schedules of income and
expenses which reflect higher than average variances
from the statistical norm of the district in which the
schedules were filed;
(D) establish procedures for reporting the results of
such audits and any material misstatement of income,
expenditures or assets of a debtor to the Attorney
General, the United States Attorney and the court, as
appropriate, and for providing public information no
less than annually on the aggregate results of such
audits including the percentage of cases, by district,
in which a material misstatement of income or
expenditures is reported; and
(E) establish procedures for fully funding such
audits.
(2) The United States trustee for each district is authorized
to contract with auditors to perform audits in cases designated
by the United States trustee according to the procedures
established under paragraph (1) of this subsection.
(3) According to procedures established under paragraph (1),
upon request of a duly appointed auditor, the debtor shall
cause the accounts, papers, documents, financial records, files
and all other papers, things or property belonging to the
debtor as the auditor requests and which are reasonably
necessary to facilitate an audit to be made available for
inspection and copying.
(4) The report of each such audit shall be filed with the
court, the Attorney General, and the United States Attorney, as
required under procedures established by the Attorney General
under paragraph (1). If a material misstatement of income or
expenditures or of assets is reported, a statement specifying
such misstatement shall be filed with the court and the United
States trustee shall give notice thereof to the creditors in
the case and, in an appropriate case, in the opinion of the
United States trustee, requires investigation with respect to
possible criminal violations, the United States Attorney for
the district.
* * * * * * *
Sec. 589b. Bankruptcy data
(a) Rules.--The Attorney General shall, within a reasonable
time after the effective date of this section, issue rules
requiring uniform forms for (and from time to time thereafter
to appropriately modify and approve)--
(1) final reports by trustees in cases under chapters
7, 12, and 13 of title 11; and
(2) periodic reports by debtors in possession or
trustees, as the case may be, in cases under chapter 11
of title 11.
(b) Reports.--All reports referred to in subsection (a) shall
be designed (and the requirements as to place and manner of
filing shall be established) so as to facilitate compilation of
data and maximum possible access of the public, both by
physical inspection at 1 or more central filing locations, and
by electronic access through the Internet or other appropriate
media.
(c) Required Information.--The information required to be
filed in the reports referred to in subsection (b) shall be
that which is in the best interests of debtors and creditors,
and in the public interest in reasonable and adequate
information to evaluate the efficiency and practicality of the
Federal bankruptcy system. In issuing rules proposing the forms
referred to in subsection (a), the Attorney General shall
strike the best achievable practical balance between--
(1) the reasonable needs of the public for
information about the operational results of the
Federal bankruptcy system; and
(2) economy, simplicity, and lack of undue burden on
persons with a duty to file reports.
(d) Final Reports.--Final reports proposed for adoption by
trustees under chapters 7, 12, and 13 of title 11 shall, in
addition to such other matters as are required by law oras the
Attorney General in the discretion of the Attorney General, shall
propose, include with respect to a case under such title--
(1) information about the length of time the case was
pending;
(2) assets abandoned;
(3) assets exempted;
(4) receipts and disbursements of the estate;
(5) expenses of administration;
(6) claims asserted;
(7) claims allowed;
(8) distributions to claimants and claims discharged
without payment;
in each case by appropriate category and, in cases under
chapters 12 and 13 of title 11, date of confirmation of the
plan, each modification thereto, and defaults by the debtor in
performance under the plan.
(e) Periodic Reports.--Periodic reports proposed for adoption
by trustees or debtors in possession under chapter 11 of title
11 shall, in addition to such other matters as are required by
law or as the Attorney General, in the discretion of the
Attorney General, shall propose, include--
(1) information about the standard industry
classification, published by the Department of
Commerce, for the businesses conducted by the debtor;
(2) length of time the case has been pending;
(3) number of full-time employees as at the date of
the order for relief and at end of each reporting
period since the case was filed;
(4) cash receipts, cash disbursements and
profitability of the debtor for the most recent period
and cumulatively since the date of the order for
relief;
(5) compliance with title 11, whether or not tax
returns and tax payments since the date of the order
for relief have been timely filed and made;
(6) all professional fees approved by the court in
the case for the most recent period and cumulatively
since the date of the order for relief (separately
reported, in for the professional fees incurred by or
on behalf of the debtor, between those that would have
been incurred absent a bankruptcy case and those not);
and
(7) plans of reorganization filed and confirmed and,
with respect thereto, by class, the recoveries of the
holders, expressed in aggregate dollar values and, in
the case of claims, as a percentage of total claims of
the class allowed.
* * * * * * *
PART III--COURT OFFICERS AND EMPLOYEES
* * * * * * *
CHAPTER 57--GENERAL PROVISIONS APPLICABLE TO COURT OFFICERS AND
EMPLOYEES
* * * * * * *
Sec. 960. Tax liability
(a) Any officers and agents conducting any business under
authority of a United States court shall be subject to all
Federal, State and local taxes applicable to such business to
the same extent as if it were conducted by an individual or
corporation.
(b) Such taxes shall be paid when due in the conduct of such
business unless--
(1) the tax is a property tax secured by a lien
against property that is abandoned within a reasonable
time after the lien attaches, by the trustee of a
bankruptcy estate, pursuant to section 554 of title 11;
or
(2) payment of the tax is excused under a specific
provision of title 11.
(c) In a case pending under chapter 7 of title 11, payment of
a tax may be deferred until final distribution is made under
section 726 of title 11 if--
(1) the tax was not incurred by a trustee duly
appointed under chapter 7 of title 11; or
(2) before the due date of the tax, the court has
made a finding of probable insufficiency of funds of
the estate to pay in full the administrative expenses
allowed under section 503(b) of title 11 that have the
same priority in distribution under section 726(b) of
title 11 as such tax.
* * * * * * *
PART IV--JURISDICTION AND VENUE
* * * * * * *
CHAPTER 83--COURTS OF APPEALS
Sec.
1291. Final decisions of district courts.
* * * * * * *
1293. Bankruptcy appeals.
* * * * * * *
Sec. 1293. Bankruptcy appeals
The courts of appeals (other than the United States Court of
Appeals for the Federal Circuit) shall have jurisdiction of
appeals from the following:
(1) Final orders and judgments of bankruptcy courts
entered under--
(A) section 157(b) of this title in core
proceedings arising under title 11, or arising
in or related to a case under title 11; or
(B) section 157(c)(2) of this title in
proceedings referred to such courts.
(2) Final orders and judgments of district courts
entered under section 157 of this title in--
(A) core proceedings arising under title 11,
or arising in or related to a case under title
11; or
(B) proceedings that are not core
proceedings, but that are otherwise related to
a case under title 11.
(3) Orders and judgments of bankruptcy courts or
district courts entered under section 105 of title 11,
or the refusal to enter an order or judgment under such
section.
(4) Orders of bankruptcy courts or district courts
entered under section 1104(a) or 1121(d) of title 11,
or the refusal to enter an order under such section.
(5) An interlocutory order of a bankruptcy court or
district court entered in a case under title 11, in a
proceeding arising under title 11, or in a proceeding
arising in or related to a case under title 11, if--
(A) such court is of the opinion that--
(i) such order involves a controlling
question of law as to which there is
substantial ground for difference of
opinion; and
(ii) an immediate appeal from such
order may materially advance the
ultimate termination of such case or
such proceeding; or
(B) the court of appeals that would have
jurisdiction of an appeal of a final order
entered in such case or such proceeding
permits, in its discretion, appeal to be taken
from such interlocutory order.
* * * * * * *
CHAPTER 85--DISTRICT COURTS; JURISDICTION
* * * * * * *
Sec. 1334. Bankruptcy cases and proceedings
(a) * * *
* * * * * * *
(c)(1) [Nothing in] Except with respect to a case under
chapter 6 of title 11, nothing in this section prevents a
district court in the interest of justice, or in the interest
of comity with State courts or respect for State law, from
abstaining from hearing a particular proceeding arising under
title 11 or arising in or related to a case under title 11.
(2) * * *
(d) Any decision to abstain or not to abstain made under this
subsection (other than a decision not to abstain in a
proceeding described in subsection (c)(2)) is not reviewable by
appeal or otherwise by the court of appeals under section
[158(d), 1291, or 1292] 1291, 1292, or 1293 of this title or by
the Supreme Court of the United States under section 1254 of
this title. This subsection shall not be construed to limit the
applicability of the stay provided for by section 362 of title
11, United States Code, as such section applies to an action
affecting the property of the estate in bankruptcy.
* * * * * * *
CHAPTER 87--DISTRICT COURTS; VENUE
* * * * * * *
Sec. 1409. Venue of proceedings arising under title 11 or arising in or
related to cases under title 11
(a) * * *
(b) Except as provided in subsection (d) of this section, a
trustee in a case under title 11 may commence a proceeding
arising in or related to such case to recover a money judgment
of or property worth less than $1,000 or a consumer debt of
less than $5,000, or a nonconsumer debt against a noninsider of
less than $10,000, only in the district court for the district
in which the defendant resides.
* * * * * * *
CHAPTER 89--DISTRICT COURTS; REMOVAL OF CASES FROM STATE COURTS
* * * * * * *
Sec. 1452. Removal of claims related to bankruptcy cases
(a) * * *
(b) The court to which such claim or cause of action is
removed may remand such claim or cause of action on any
equitable ground. An order entered under this subsection
remanding a claim or cause of action, or a decision to not
remand, is not reviewable by appeal or otherwise by the court
of appeals undersection [158(d), 1291, or 1292] 1291, 1292, or
1293 of this title or by the Supreme Court of the United States
under section 1254 of this title.
* * * * * * *
PART V--PROCEDURE
CHAPTER 123--FEES AND COSTS
Sec. 1930. Bankruptcy fees
(a) Notwithstanding section 1915 of this title, the parties
commencing a case under title 11 shall pay to the clerk of the
district court or the clerk of the bankruptcy court, if one has
been certified pursuant to section 156(b) of this title, the
following filing fees:
(1) * * *
* * * * * * *
(6) In addition to the filing fee paid to the clerk,
a quarterly fee shall be paid to the United States
trustee, for deposit in the Treasury, in each case
under chapter 11 of title 11 for each quarter
(including any fraction thereof) [until the case is
converted or dismissed, whichever occurs first]. [The]
Until the plan is confirmed or the case is converted
(whichever occurs first) the fee shall be $250 for each
quarter in which disbursements total less than $15,000;
$500 for each quarter in which disbursements total
$15,000 or more but less than $75,000; $750 for each
quarter in which disbursements total $75,000 or more
but less than $150,000; $1,250 for each quarter in
which disbursements total $150,000 or more but less
than $225,000; $1,500 for each quarter in which
disbursements total $225,000 or more but [less than
$300,000;] less than $300,000. Until the case is
converted or dismissed (whichever occurs first and
without regard to confirmation of the plan) the fee
shall be $3,750 for each quarter in which disbursements
total $300,000 or more but less than $1,000,000; $5,000
for each quarter in which disbursements total
$1,000,000 or more but less than $2,000,000; $7,500 for
each quarter in which disbursements total $2,000,000 or
more but less than $3,000,000; $8,000 for each quarter
in which disbursements total $3,000,000 or more but
less than $5,000,000; $10,000 for each quarter in which
disbursements total $5,000,000 or more. The fee shall
be payable on the last day of the calendar month
following the calendar quarter for which the fee is
owed.
* * * * * * *
----------
SECTION 456 OF THE SOCIAL SECURITY ACT
SUPPORT OBLIGATIONS
Sec. 456. (a) * * *
(b) Nondischargeability.--A debt (as defined in section 101
of title 11 of the United States Code), including interest
accrued on such debt under State law, owed under State law to a
State (as defined in such section) or municipality (as defined
in such section) that is in the nature of support [and] or that
is enforceable under this part is not [released by a discharge]
dischargeable in bankruptcy under title 11 of the United States
Code.
----------
SECTION 302 OF THE BANKRUPTCY JUDGES, UNITED STATES TRUSTEES, AND
FAMILY FARMER BANKRUPTCY ACT OF 1986
SEC. 302. EFFECTIVE DATES; APPLICATION OF AMENDMENTS.
(a) * * *
* * * * * * *
[(f) Repeal of Chapter 12 of Title 11.--Chapter 12 of title
11 of the United States Code is repealed on October 1, 1998.
All cases commenced or pending under chapter 12 of title 11,
United States Code, and all matters and proceedings in or
relating to such cases, shall be conducted and determined under
such chapter as if such chapter had not been repealed. The
substantive rights of parties in connection with such cases,
matters, and proceedings shall continue to be governed under
the laws applicable to such cases, matters, and proceedings as
if such chapter had not been repealed.]
DISSENTING VIEWS
Although we could support a responsible and balanced
bankruptcy reform effort, which remedies debtor abuses while
responding to the legitimate needs and concerns of hardworking
debtors and small businesses, we believe the legislation
reported by the Committee is too extreme. The case has not been
made to support the adoption of a bureaucratic, costly and
untested one-size fits all ``means test'' approach to consumer
bankruptcy. The means test, along with other consumer changes
vastly enhancing the rights of unsecured creditors, will have a
severe impact on the most vulnerable members of society,
including women and children reliant on alimony and child
support payments. At the same time, the small business, real
estate, and tax provisions of H.R. 3150 unduly elevate the
rights of creditors at the expense of hundreds of thousands of
businesses and the many jobs they support.
The legislation and its rapid pace have been opposed by a
number of important groups, including:
(A) groups concerned about the impact of bankruptcy
on hardworking Americans and consumers, such as the
AFL-CIO, UAW, UNITE, the Consumer Federation of
America, Consumers' Union, and Public Citizen;
(B) groups concerned about the integrity and fairness
of the bankruptcy process, such as the National
Conference of Bankruptcy Judges, the National
Bankruptcy Conference, the American College of
Bankruptcy, the National Association of Consumer
Bankruptcy Attorneys, the National Association of
Bankruptcy Trustees, the National Association of
Chapter 13 Trustees, and the Alliance for Justice; and
(C) groups concerned about the bankruptcy rights of
women and children and victims of crimes and torts,
such as the National Organization of Women, Mothers
Against Drunk Driving, the National Organization for
Victim Assistance, the National Victim Center, the
Association for Children of Enforcement Support, and
the Governing Counsel of the Family Law Section of the
American Bar Association.
The Justice Department also has taken a position in opposition
to many of H.R. 3150's provisions, including the controversial
consumer portions of the bill, and the Small Business
Administration is opposed to the small business provisions of
the bill.
Many of us support various sections in the bill, such as
those providing for streamlined bankruptcy administration
(section 411), enhanced protections for retirement plans in
bankruptcy (section 118), making chapter 12 concerning family
farm reorganizations permanent (section 203), protection of
tithing in bankruptcy (section 118), clarifying the law
relating to international insolvencies (Title VI), eliminating
the dishchargeability of smoking claims involving fraud or
deceipt (section 119A), and capping state homestead exemptions
(section 182). However, any merit in these sections is in our
view outweighed by the problems inherent in the consumer, and
business provisions of H.R. 3150. For these and the following
reasons, we dissent from H.R. 3150.
I. The Process Has Been Unnecessarily Hurried and Partisan
Unlike previous efforts to enact bankruptcy reform, the
process concerning H.R. 3150 has been unnecessarily hurried and
partisan. The legislation is being brought to the House floor a
mere five months and five hearings after receipt of the report
of the congressionally-created National Bankruptcy Review
Commission. Unfortunately, we cannot say that the final bill
reported by the Committee reflects any substantive negotiations
or give and take with the Democratic Members of the Committee.
Democrats received a 177-page Chairman's substitute
effectuating substantial revisions from the original bill less
than 24 hours before the Subcommittee markup, which took place
at the same time when the Committee had major legislation on
the floor. The Committee markup took three contentious days,
and the final bill is being reported a mere two business days
after the markup--the bare minimum permitted under House
Rules--which hardly affords time to complete the reviews, cost
estimates and examinations needed for a bill of this magnitude.
By contrast, the last major overhaul of the bankruptcy
laws--the 1978 Bankruptcy Code--was enacted a full five years
and sixty days of hearings after the 1973 Bankruptcy Commission
issued its report. In addition, all of the recent bankruptcy
law changes (enacted in 1978, 1984, and 1994) were developed in
close bipartisan cooperation and were approved by the House on
a consensus basis, typically by voice vote. Such careful and
bipartisan deliberation is important given the wide-ranging
impact of the bankruptcy laws, the intricate and technical
nature of the laws, and the fact that more Americans come into
contact with the bankruptcy courts than all other federal
courts combined.
It is for these reasons, among others, that a wide range of
mainstream bankruptcy groups have asked Congress to delay
consideration of omnibus bankruptcy legislation until it can be
considered deliberately and in depth. The National Conference
of Bankruptcy Judges (which includes 319 of the nation's 326
bankruptcy judges) has written to the Speaker that ``[t]he
fast-paced approach to [bankruptcy legislation] concerns
[us].'' 1 Separately, 110 bankruptcy judges have
written a joint letter complaining that the pending bankruptcy
bills ``are too important and their proposed changes too
sweeping to be acted on without thorough consideration. We are
alarmed by how little study appears to have been given to the
bills.'' 2
---------------------------------------------------------------------------
\1\ Letter from Robert F. Hershner, Jr., President, The National
Conference of Bankruptcy Judges, to Rep. Gingrich (Apr. 2, 1998).
\2\ Letter from 110 United States bankruptcy judges to All Members
of the United States Congress (Apr. 2, 1998).
---------------------------------------------------------------------------
Bankruptcy academics are also alarmed by the hurried pace
of the legislative process, with fifty-seven leading law
professors writing in March that ``the pace related to the
examination of [the bankruptcy] legislation has been fast, and
the study of its consequences was superficial.'' 3
Leading bankruptcy practitioners, represented by the American
College of Bankruptcy, have testified also that ``there are
dangers lurking in a rush to judgment without further study.
Wrong answers could cause more problems than they solve.''
4
---------------------------------------------------------------------------
\3\ Letter from Professor Bruce A. Markell to All Members of the
House and Senate Judiciary Committees (Mar. 31, 1998).
\4\ [cite to hearing testimony] The Alliance for Justice, an
umbrella organization of more than 40 public interest organizations,
has also written that ``the Bankruptcy Code is an extremely technical
area of law, relied upon by Americans in times of great need. In the
past, substantive revisions to the Code were carefully analyzed and
only made after a thorough examination of the record. The 1978
revisions to the Code have worked well, largely because these changes
were the product of careful deliberation.'' [cite]
---------------------------------------------------------------------------
The Majority is also acting in the complete absence of any
objective study establishing any need or basis for the radical
revisions being proposed by H.R. 3150. The only evidence, other
than anecdotal evidence, cited by the proponents of this
legislation has been from studies commissioned and funded by
the credit card industry, which has a direct financial interest
in the outcome of this legislation. 5 The reports
purport to demonstrate that a significant number of debtors
have the ability to discharge large amounts of debt under
current law which they are otherwise able to repay. The reports
also argue that this ability to discharge such debt imposes a
net cost on other consumers of credit and of goods and
services.
---------------------------------------------------------------------------
\5\ John M. Barron, Ph.D., and Michael E. Staten, Ph.D., Personal
Bankruptcy: A Report on Petitioners' Ability to Pay (October 6, 1997);
Ernst & Young, LLP, Chapter 7 Bankruptcy Petitioners' Ability to Repay:
Additional Evidence from Bankruptcy Petition Files (February 1998);
WEFA Group, The Financial Costs of Personal Bankruptcy (February 1998).
The Subcommittee requested the underlying data but all three groups
completing these studies refused to make it available.
---------------------------------------------------------------------------
These studies have been reviewed by the General Accounting
Office on numerous occasions.6 In each case, the GAO
found these industry-sponsored studies to be based on anecdotal
evidence, questionable assumptions and methodologies, and non-
public data. Thus, the GAO concluded, ``[a] number of these
data sources and assumptions were discussed only in general
terms. Without more detailed explanation, it is difficult to
assess the reliability of the data used; the reasonableness of
the reports assumptions; and, thus, the accuracy of the
report's estimates of creditor losses and bankruptcy system
costs in 1997.'' 7 Similarly, discussing the works
of the Credit Research Center and Ernst & Young on debtors'
ability to pay, the GAO concluded:
\6\ General Accounting Office, Personal Bankruptcy: The Credit
Research Center Report on Debtors' Ability to Pay (GAO/GGD98-47,
February 1998); Hearing on Pending Bankruptcy Legislation Before the
Subcommittee on Commercial and Administrative Law of the House
Judiciary Committee, 105th Congress (March 12, 1998) (Statement of
Richard M. Stana); Letter from Richard M. Stana, Associate Director,
Administration of Justice Issues, General Accounting Office, to The
Honorable Martin T. Meehan (April 23, 1998). The reviews were competed
at the request of the Committee Minority on two occasions following
numerous requests from Subcommittee Ranking Member Jerrold Nadler that
the request be made on a bipartisan basis, and on one occasion at the
request of the Chair and Ranking Minority Member of the Senate
Subcommittee on Administrative Oversight and the Courts.
\7\ In addition, GAO noted that ``both studies assume that 100
percent of debtors' net income after allowable expenses for a 5-year
period would be used for debt repayment, which does not reflect actual
bankruptcy practice. In fiscal year 1996, 14 percent of chapter 13
debtor payments were used for administrative costs, such as statutory
trustee fees. Also, each report's estimate of potential debt repayment
assumes that all repayment plans will be successfully completed. Data
from the Administrative Office of the U.S. Courts shows that only about
one-third of the 953,180 chapter 13 repayment plans terminated between
1981 and 1993 were successfully completed. . . . The samples were not
designed to be representative of the nation as a whole or of each city
for the year in which they were drawn. Therefore, the data on which the
reports were based may not reflect all bankruptcy filings nationwide or
in each of the 15 locations for the years from which the petitions were
drawn.''
---------------------------------------------------------------------------
* * * both of these studies share two fundamental
assumptions that have not been validated: (1) that the
information found on debtors' initial schedules of
estimated income, estimated expenses, and debts is
accurate; and (2) that this information can be used to
satisfactorily forecast debtors' income and expenses
for a 5-year period.8
---------------------------------------------------------------------------
\8\ Id. Statement of Richard M. Stana, supra note , at (i).
Moreover, other analyses conducted by independent academics
and governmental agencies have drawn very different
---------------------------------------------------------------------------
conclusions. For example, Prof. Lawrence M. Ausubel testified:
* * * [a]ll available statistical evidence points to
the record level of household debt as the immediate
cause [of the increase in individual bankruptcies] * *
* In 1984, aggregate American Household debt (consumer
credit outstanding +mortgage debt) equaled 58.0% of
aggregate American disposal personal income. By the
third quarter of 1997, the household debt had
mushroomed to 83.5% of disposal personal income. Along
the way, changes in the rate of personal bankruptcy
filings fairly closely tracked changes in the household
debt burden, with changes in the debt burden leading
changes in bankruptcy filings by several quarters.\9\
---------------------------------------------------------------------------
\9\ Hearing on Pending Bankruptcy Legislation Before the
Subcommittee on Commercial and Administrative Law of the House
Judiciary Committee, 105th Congress 4 (March 10, 1998) (Statement of
Prof. Lawrence M. Ausubel).
Similarly, a study published by the Federal Deposit
Insurance Corporation reviewed the impact of interest rate
deregulation and concluded that ``the pricing and underwriting
decisions of lenders and the rational borrowing decisions of
consumers * * * suggests that an increase in both credit
availability and bankruptcies was a perhaps inevitable result
of interest rate deregulation.''\10\
---------------------------------------------------------------------------
\10\ Diane Ellis, Senior Financial Analyst, Economic Analysis
Section, Division of Insurance, Federal Deposit Insurance Corporation,
The Effect of Interest Rate Deregulation on Credit Card Volumes,
Charge-Offs, and the Personal Bankruptcy Rate, Bank Trends, 2 (March
1998). Similarly, comparing bankruptcy and indebtedness trends in the
United States and Canada, FDIC noted that ``From 1966 to 1976, the
personal bankruptcy rate in Canada grew by 340 percent. Over the same
period, the personal bankruptcy rate in the United States grew by only
8 percent * * * after interest rate deregulation in the United States,
the personal bankruptcy rates in both countries a remarkably similar
pattern * * * Canada's personal bankruptcy rate has taken a very
similar path to the U.S. personal bankruptcy rate since 1978, although
there have been no significant recent changes to Canada's bankruptcy
laws,'' Id. 8-9.
---------------------------------------------------------------------------
Moreover, other analyses indicate that the rise in
bankruptcies is more properly attributable to a number of
changes unrelated to the bankruptcy laws, such as unexpected
medical costs, increasing divorce, loss of high paying full
time jobs, and the deregulation of credit card interest rates
and the increase in credit card solicitations and overall
consumer debt.11 It also has been shown that the
average income of persons filing for bankruptcy has declined
from the 1980's, further contradicting assertions of increasing
bankruptcy abuse by high income individuals.12
---------------------------------------------------------------------------
\11\ Professor Elizabeth Warren, et. al., have found that
unreimbursed medical costs, divorce, and unemployment contribute
significantly to individual bankruptcies. Nearly 40% of older Americans
surveyed reported being unable to pay outstanding medical debts as a
primary reason for filing for bankruptcy. Two-thirds of the debtors
aged 50-65 cite either a medical reason or a job reason for their
bankruptcy filings. Similarly, the economic stress following divorce
plays a significant role in bankruptcy filings. Prof. Warren's sample
contained 300% more divorced people than the general population. More
than half of the sample reported a significant period of unemployment
preceding their filings. See Elizabeth Warren, Consumer Bankruptcy:
Issues Summary, 2 (April 2, 1998)(Summarizing Elizabeth Warren, The
Bankruptcy Crisis, 73 Indiana L.J. 1079 (forthcoming, April 1998)).
\12\ Most significantly, the drop in the median family income of
chapter 7 individual debtors has fallen in constant 1997 dollars from
$23,254 in 1981 to $17,652 in 1997. By comparison, the national median
family income of all families in 1997 was $42,769. See Hearing on
Pending Bankruptcy Legislation Before the Subcommittee on Commercial
and Administrative Law of the House Judiciary Committee, 105th
Congress, 3 (March 26, 1998) (statement of the American Federation of
Labor--Congress of Industrial Organizations).
---------------------------------------------------------------------------
II. The Consumer Provisions Are Arbitrary and Unfair, and Will Harm
Women and Children and Other Vulnerable Segments of Society
Current Law and Proposed Changes
Under current law, individuals facing financial difficulty
may seek a variety of forms of relief under the bankruptcy
laws, with chapter 7 (liquidation) being by far the most common
form of relief sought. Under this chapter debtors are required
to forfeit all of their property that is ``exempt'' (i.e.,
deemed necessary for the debtor's maintenance, as determined
under federal or state law, at the state's option) in exchange
for receiving a discharge of their unsecured debts. Creditors
are entitled to receive any net proceeds from the sale of the
debtor's property, subject to the statutory priority
schedule.13 The Bankruptcy Code does not permit the
discharge of certain debts whose payments are considered to be
important to society. Some of this debt is of the same nature
as priority debt (e.g., family support obligations and taxes),
but the law also excepts from discharge debts incurred through
the debtor's misconduct, such as debts arising from fraud and
intentional injuries.
---------------------------------------------------------------------------
\13\ For example, the costs of administering the estate are
entitled to the first priority, and payments of alimony, child support,
and taxes are entitled to later priorities, with general unsecured debt
entitled to any residual assets left over. Secured creditors, such as
mortgage holders are entitled to be paid at least the value of their
collateral.
---------------------------------------------------------------------------
While there are no strict financial criteria for seeking
chapter 7 relief, section 707(b) of the Bankruptcy Code grants
the court the discretion to deny relief where the filing is
found to be a ``substantial abuse.'' 14 This stems
in part from the costs and potential hardships associated with
developing specific criteria for chapter 7 eligibility, the
belief that all honest, hard-working individuals are entitled
to a ``fresh start,'' and the importance of encouraging risk-
taking and entrepreneurship and avoiding situations akin to
``debtors prisons'' where it is impossible for individuals to
escape aggressive creditor collection tactics.15
---------------------------------------------------------------------------
\14\ The Fourth Circuit has held that the court should apply the
following factors in determining whether a chapter 7 case should be
dismissed for ``substantial abuse'': (1) whether the petition was filed
because of sudden illness, calamity, disability, or unemployment; (2)
whether the debtor incurred cash advances and made consumer purchases
far in excess of his ability to pay; (3) whether the debtor's proposed
family budget is unreasonable or excessive; (4) whether the debtor's
schedules and statement of current income and expenses reasonably and
accurately reflect his financial condition; and (5) whether the
petition was filed in good faith. See In re Green, 934 F. 2d 568, 572-
73 (4th Cir. 1991).
\15\ There are a number of disincentives to filing for bankruptcy,
such as the fact that a person filed for a chapter 7 bankruptcy will be
disclosed on a debtor's credit report, and the law's prohibitions on
repeat chapter 7 filings for six years.
---------------------------------------------------------------------------
A separate bankruptcy alternative available to individual
debtors is chapter 13 (wage earners plan). Under chapter 13, a
debtor is permitted to retain his or her property, but is
required to pay to creditors over a 3-5 year period out of
future wages at least as much as the creditors would have
received under a chapter 7 liquidation, and is also required to
pay all priority debts in full. To accomplish this, the debtor
must propose a plan, administered by a trustee, that pays
creditors in full or that devotes the debtor's ``disposable
income'' after accounting for necessary support of the debtor
and his or her family. In order to encourage the use of chapter
13 plans, which are currently voluntary to the debtor, Congress
determined that persons who meet their chapter 13 obligations
are entitled to a broader discharge of their unpaid debts than
is available under chapter 7. This ``superdischarge'' results
in the discharge of several types of debt (such as those for
fraud) that are not discharged by chapter 7. In addition,
debtors are permitted to retain property whether or not the
property is encumbered by liens and the debtor is in default,
so long as the chapter 13 plan cures any arrearages. In this
manner, debtors can use chapter 13 to save their homes from
foreclosure.16 Also, Chapter 13 debtors can also
propose that they pay off their priority debts, such as taxes
and family support obligations, before they commence payment on
their regular unsecured debts.
---------------------------------------------------------------------------
\16\ In addition, except for certain home mortgages, a debtor in
chapter 13 may be able to pay to a secured creditor the value of the
collateral, even if it is less than the full amount of the loan. This
is known as a ``cramdown.''
---------------------------------------------------------------------------
H.R. 3150 would institute a number of major changes to
consumer bankruptcy in general and chapters 7 and 13 in
particular that will reduce the number of bankruptcy filings
(but not the number of cases of financial hardship) and
increase pay-outs to nonpriority unsecured creditors,
particularly credit card companies. The most far-reaching
change, set forth in sections 101-103, would institute a so-
called ``means testing'' approach to consumer bankruptcy. This
new standard would deny chapter 7 relief to debtors with income
above the national median (based on the most recent six months
of income) who can pay at least $50 to unsecured creditors per
month and 20% of their unsecured debts within 5-7 years, after
allowing for deductions for pro-rated portions of their secured
and priority debts and their projected living expenses, based
on Internal Revenue Service collection standards.17
Debtors fitting this profile would be forced to utilize chapter
13 of the Bankruptcy Code if they wished to obtain bankruptcy
relief. As chapter 13 is reconstituted by H.R. 3150, debtors
would generally be required to dedicate all of their available
income to unsecured debt, again after allowing deductions for
secured and priority debts and living expenses per the IRS
collection standards. Although H.R. 3150 allows for adjustments
for ``extraordinary circumstances,'' this requires the debtor
to file a motion with the court, which may be challenged by
trustee or any creditor, with the burden of proof lying with
the debtor.
---------------------------------------------------------------------------
\17\ The consumer provisions were considered so one-sided, that the
principal sponsor of a predecessor version setting forth these changes
(H.R. 2500) received a ``Golden Leash'' special interest ``award'' from
Public Campaign.
---------------------------------------------------------------------------
Even if a debtor is not barred from chapter 7 by virtue of
having income below the national median, or having sufficient
debts or expenses such that he or she cannot meet the means
testing payment requirements, H.R. 3150 provides another,
independent grounds for dismissal. Under section 103 of the
bill, a case may be dismissed under section 707(b) if the
filing is found to be an ``inappropriate use'' of bankruptcy
based on ``the totality of the circumstances.'' Rather than
being discretionary to the court, as under current law, such
dismissal is mandatory. Also, under H.R. 3150, dismissal
motions may be brought by creditors, rather than only the court
or the U.S. Trustee (as under current law).
H.R. 3150 would also make significant new additions to
additions to the types of debts that may not be discharged
under chapters 7 and 13 of the Bankruptcy Code. Section 141
would grant any debt incurred to pay a non-dischargeable debt
priority and non-dischargeable status under chapter 7. This
means, for example, that if a debtor writes a credit card cash
advance to pay a child support debt, that debt would no longer
be dischargeable in bankruptcy. Section 142 presumes that any
person incurring debt within 90 days before bankruptcy is
committing fraud, even if the debt is used to pay for
necessities (such as food and clothing), rather than luxury
goods or items (as is the case under current law). Section 145
presumes that a debtor is committing fraud by using a credit
card when he or she ``did not have a reasonable ability to
repay,'' unless the debtor can prove that he did not apply for
the credit or that the lender did not reasonably evaluate the
debtor's repayment ability. Section 143 then goes on to extend
the exceptions to the superdischarge in chapter 13 to apply to
these newly-defined cases of credit card ``fraud.''
Principal Problems with Proposed Changes
1. the means testing approach is arbitrary and unworkable in practice
The rigid one-size fits all test taken by H.R. 3150 will
often operate in an arbitrary fashion. For example, the
principal safety valve in the operation of the means test--the
ability to deduct secured and priority debts and other living
expenses--will be highly problematic inpractice. First, H.R.
3150 appears to only permit debtors to pay back a prorated amount which
may be owed on these items (e.g., 1/60 each month over five years).
Unlike current law,18 the debtor may no longer be able to
use chapter 13 as a means of quickly catching up on any arrearages
which may be owed on home mortgage arrearages or past due family
obligations. Secured lenders and support recipients may have to wait 5
years to get paid what they are owed. The result will be a far greater
likelihood of losing one's home or defaulting in alimony and child
support.
---------------------------------------------------------------------------
\18\ 11 U.S.C. Sec. 1322(a)(2).
---------------------------------------------------------------------------
Secondly, the bill lays out no comprehensive or specific
standards for the deduction of living expenses. Unless it is
clear which of these expenses can be deducted from monthly
income, it will be very difficult to determine if the
individuals that are being denied access to chapter 7 actually
could be able to meet their payment obligations in chapter 13.
This problem was highlighted by Judge Newsome when he explained
the results of his efforts to apply the means test to a batch
of chapter 7 cases: ``I encountered significant problems in
[applying the proposed means testing formula to a sample of
cases and] a few unpleasant surprises in the results. * * * I
believe the [bill's standards] are fatally flawed an
demonstrably unfair.'' 19
---------------------------------------------------------------------------
\19\ Hearing on Business Bankruptcy Issues before the Subcommittee
on Commercial and Administrative Law of the House Judiciary Committee
105th Congress (Mar. 10, 1998) (statement of Judge Randall J. Newsome).
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Part of the problem arises from the fact that the IRS
standards referenced by the bill are not automatic in many
cases.20 Although the IRS does set forth national
standards for some expenses, such as food and
clothing,21 and local standards for expenses such as
housing and transportation,22 it leaves the
determination of ``other necessary expenses'' to the discretion
of the relevant IRS employee.23 This means that H.R.
3150 provides no specific guidance concerning the
appropriateness of deducting all or any of the funds a debtor
may expend for items such as health care (both medical expenses
and health insurance), taxes, and accounting and legal fees,
among other items. Even more dangerously, the IRS collection
standards specify that it is generally inappropriate to allow
expense allowances for such important items as school tuition
and charitable contributions 24, and generally
discourage payment for expenses relating to care for the
elderly, invalid, or handicapped.25 As a result,
H.R. 3150 may have the effect of requiring the payment of
unsecured debt before allowing for payment of health needs and
childrens' education. (Efforts to add these items to the
statutory list of permitted expenses were summarily rejected by
the Republicans at the markup.26)
---------------------------------------------------------------------------
\20\ A number of these problems are noted by Judge Wedoff in his
testimony before the Subcommittee as a Member of the American
Bankruptcy Institute. [cite]
\21\ IRS Manual Sec. 5323.432.
\22\ IRS Manual Sec. 5323.433.
\23\ IRS Manual Sec. 5323.12.
\24\ See IRS Manual page 5300-14.3, section 5323.434(4)(a)
requiring a taxpayer's charitable contributions to provide for the
taxpayer's or his family's health and welfare or to be a condition of
employment; and (b) requiring education expenses to be a condition of
employment or for a physically or mentally handicapped dependent where
the education is not otherwise provided by public schools.
\25\ IRS Manual, Exhibit 5300-46.
\26\ See Amendments offered by Ms. Jackson-Lee, Mr. Scott and Mr.
Nadler.
---------------------------------------------------------------------------
Moreover, where the IRS has specific local expense
standards--such as for housing and transportation--the
standards allow for wide variations between debtors, leading to
inequitable results. For example, the current IRS local
standard for the District of Columbia allows monthly housing
expenses for a family of four in the amount of $1,397, while a
household of two in rural Illinois is allowed less than
$500.27 The permitted automobile expense in the San
Francisco Bay area for two cars is only $373/month, even
though, as Judge Newsome points out, most families could barely
cover the cost of automobile insurance, let alone car payments,
gasoline, tolls, and insurance under this amount.28
---------------------------------------------------------------------------
\27\ See website listings at http://www.irs.ustreas.go/prod/
ind__info/coll__stds/cfs-dc.html and il.html.
\28\ Newsome testimony, supra note 19.
---------------------------------------------------------------------------
The seemingly arbitrary allowances for transportation and
housing expenses points to another problem with the means test
under H.R. 3150--its bias against debtors without secured
debts. This is because the bill allows all secured debt
payments to be deducted from monthly income, but limits rental
and lease payments to the amount permitted by the IRS
standards. This means that persons renting apartments and
leasing cars may not be able to deduct the full amount of their
housing and transportation costs in bankruptcy, while persons
with mortgages and automobile debt will be able to do so. There
is no legitimate policy rationale for this discrepancy.
It is no answer to assert, as the legislation's proponents
have done, that these ``glitches'' can be resolved through the
bill's allowance for ``extraordinary circumstances.''
Establishing that a particular expense is ``extraordinary'' is
not simple or cost or risk-free. Extraordinary circumstances
may be established only on motion to the court prepared by
legal counsel. Themotion must be heavily detailed and
documented, and is subject to creditor challenge. Any statement of
extraordinary circumstances must also be refiled, no less than annually
during the duration of the bankruptcy plan. Moreover, the burden of
proof lies with the debtor in establishing extraordinary circumstances,
and, if the debtor's motion fails, he or she is subject to paying the
creditor's fees and costs. And all of this is to say nothing of the
legal costs the debtor himself is required to pay to bring the motion
(which must be sworn to by his lawyer) and the fact that H.R. 3150 does
not specifically provide for the deduction of these legal expenses.
It is also somewhat unrealistic to expect many chapter 13
cases to reach a successful conclusion as this chapter will be
reconstituted by H.R. 3150. The current completion rate is less
than one-third,29 and this is at a time when chapter
13 is voluntary and the disposable income tests are far less
strict. Making chapter 13 mandatory and imposing bill's strict
income and expense tests will undoubtedly result in an even
smaller proportion of successful chapter 13 plans. A majority
of the bipartisan National Bankruptcy Review Commission focused
on this concern, among others, in rejecting the sort of
inflexible ``means testing'' approach taken by H.R. 3150:
``with a completion rate of only 32% for voluntary chapter 13
plans today, forcing unwilling debtors into chapter 13 would
only burden the system, decreasing both the overall repayment
to creditors and the successful rehabilitation of debtors.''
30
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\29\ Bankruptcy: The Next Twenty Years, National Bankruptcy Review
Commission Final Report, 90-91 (U.S. Government Printing Office, Oct.
20, 1997).
\30\ Id.
---------------------------------------------------------------------------
2. Means Testing Will be Costly and Bureaucratic
The bill's attempt to impose rigid financial criteria on
debtors' eligibility for chapter 7 and the operation of chapter
13 will impose substantial new costs on the bankruptcy system--
both the portions paid for by the federal government (through
the bankruptcy courts and the U.S. Trustees Program) and the
debtors (through payment for private chapter 7 and chapter 13
trustees and higher attorneys' fees).
Some of these costs would be borne by debtors through
increased opportunities for litigation, by allowing creditors
to bring motions for dismissal for ``inappropriate use'' under
an expanded section 707(b), as well as new opportunity for
creditors to challenge the dischargeability of certain consumer
debts, and the right to challenge a debtor's petition to have
assertion that extraordinary circumstances require an allowance
for additional expenses or adjustment of current monthly income
or monthly net income for the purposes of the means test or for
calculating the amount to be dedicated to repayment of
unsecured nonpriority debts in chapter 13.31 Other
costs to the debtor would include increased paperwork and
filing requirements.32 As Bankruptcy Judge Eugene R.
Wedoff testified on behalf of the American Bankruptcy
Institute, ``the proposal requires debtors' counsel to swear to
the accuracy of any extraordinary expenses claimed by a chapter
7 debtor * * * this requirement would impose on debtors'
counsel the obligation of independently verifying all of the
extraordinary expenses claimed by the debtor, thus increasing
the cost of the bankruptcy and the time required for the
case.'' 33
---------------------------------------------------------------------------
\31\ H.R. 3150, sections 103, 141, 142, 145, 101 and 102.
\32\ H.R. 3150, section 405 and 406.
\33\ Hearing on Pending Bankruptcy Legislation Before the
Subcommittee on Commercial and Administrative Law of the House
Judiciary Committee, 105th Congress 9 (March 18, 1998)(Statement of
Hon. Eugene R. Wedoff for the American Bankruptcy Institute).
---------------------------------------------------------------------------
Increased administration duties imposed on panel and
standing trustees would also raise the overall cost of this
legislation. Judge Wedoff, in his testimony, observed that,
The proposal requires chapter 7 trustees to
investigate and report on the debtor's net income in
each chapter 7 case. The vast majority of chapter 7
cases involve no assets for distribution to creditors,
and hence only a nominal fee for the trustee. The new
investigation and report will substantially add to the
work required of trustees in no-asset cases, with no
provision for additional compensation. (The
investigation and reporting requirements for chapter 13
would increase the costs of the chapter 13 trustee,
reducing the portion of plan contributions available to
creditors.) 34
---------------------------------------------------------------------------
\34\ Id.
Henry E. Hildebrand, Chair of the Legislative Committee of
the National Association of Chapter Thirteen Trustees estimates
---------------------------------------------------------------------------
that:
* * * [i]f the investigation by a [chapter 7] trustee
required about an hour and the preparation of the
report required on half hour, then the time required
would total about 1.5 million hours of time (assuming a
bankruptcy filing rate of one million petitions filed
in a year which would be a reduction of about 25%). If
the value of that time were calculated at $150 per
hour, the costs would be $225 million in time. * * *
Assuming that one out of nine cases filing for chapter
7 relief would be contested and further assuming that
the contest would require about two hours of pretrial
preparation and one hour of court time, the litigation
would require 276,000 additional hours, about 90,000 of
which would occupy the court.35
---------------------------------------------------------------------------
\35\ Henry E. Hildebrand, The Hidden Costs of Bankruptcy Reform 2
(1998)(unpublished manuscript on file with the Committee on the
Judiciary, minority staff).
Another chapter 13 trustee, Devin Deham-Burk, attempted to
calculate the cost of performing duties imposed on a standing
trustee by H.R. 3150, based on her own case-load. In that
study, she estimated that the costs to administer the San Jose
trusteeship would increase by nearly $1.5 million, an almost
50% increase. As a result of the increased costs and
concomitant increased fees, she estimated a net annual amount
lost to creditors of $1,525,200.00.36
---------------------------------------------------------------------------
\36\ Devin Derham-Burk, Report on Cost to Administer Chapter 13
Cases Under H.R. 3150 at 34 (March 5, 1998) (unpublished manuscript on
file with the Committee on the Judiciary).
---------------------------------------------------------------------------
Other costs would be charged to the taxpayers. For example,
the requirement in section 404 that ``audits shall be in
accordance with generally accepted auditing standards and
performed by independent certified public accountants or
independent licensed public accountants at a rate of ``no less
than 1 out of every 100 cases in each Federal judicial
district'' will likely be prohibitive. In 1997, individual
bankruptcies exceeded 1.3 million cases, which, under this
section would have required in excess of 26,000 audits.
According to the Department of Justice, which would have to
administer this mandate, ``implementing the audit program
contemplated by this section could cost from $45 million to
more than $174 million over five years. This cost is in large
part a function of the number audited and the use of
independent CPAs. The cost of the audits could easily exceed
the total sum appropriated to fund the entire United States
Trustee program in Fiscal Year 1998. Moreover, the bill
provides no funding mechanism to cover these costs.''
37
---------------------------------------------------------------------------
\37\ Letter from Ann M. Harkins, Acting Assistant Attorney General,
to Honorable Henry J. Hyde, Chairman, House Committee on the Judiciary
15 (May 7, 1998) (emphasis added).
---------------------------------------------------------------------------
In a preliminary estimate of the costs to the government of
H.R. 3150, the Congressional Budget Office estimated that
``between 20-30 additional bankruptcy judges would be required
to meet the increased workload requirements that would be
imposed on the courts under H.R. 3150. Costs for the salaries
and benefits of judges would be between $4 million and $5
million annually, and costs for support personnel and other
administrative expenses would be between $9 million and $12
million annually.'' 38 An additional $5 million
annually would be required by the U.S. Trustees for increased
litigation.39 Overall, CBO estimates that to
implement the means testing provisions alone ``would most
likely cost $16 million to $20 million annually.''
40
---------------------------------------------------------------------------
\38\ Congressional Budget Office, Comparison of the Means-Testing
Provisions in S. 1301, as reported by the Senate Judiciary Committee's
Subcommittee on Administrative Oversight and the Courts on April 2,
1998, and in H.R. 3150, as introduced on February 3, 1998 5 (May 8,
1998).
\39\ Id. at 4.
\40\ Id. a 1.
---------------------------------------------------------------------------
Significantly, it is our understanding that the Majority
plans to file the report and take H.R. 3150 to the floor
without a final CBO estimate. This is significant because of
the potentially major costs of the legislation, which were
compounded by amendments offered at Committee whose cost and
scope has never been assessed.41
---------------------------------------------------------------------------
\41\ For example, and amendment was approved that was offered by
Mr. Goodlate that reduces chapter 11 fees.
---------------------------------------------------------------------------
In many cases, the cost of administering the chapter 13
case will not even approach the payoff to unsecured creditors.
Consider the fact that under H.R. 3150, families with a mere
$50 in projected net monthly income could be subjected to a
mandatory repayment plan under chapter 13 to obtain any
bankruptcy relief. The estimated supervisory costs would be
approximately $1,000 in administrative costs and trustees
fees,42 but the collections would be only $600 per
year in credit card and other general unsecured debt--a loss of
$400 per year. And this calculation does not even take into
account the cost of additional judicial and trustee time and
resources and private legal fees to implement the new
proposals.
---------------------------------------------------------------------------
\42\ Letter from Ralph R. Mabey to Hon. Orrin G. Hatch (Apr. 28,
1998).
---------------------------------------------------------------------------
3. means testing and the other consumer provisions will unfairly harm
poor and middle income people
It is incorrect to assume that the effect of H.R. 3150's
harmful provisions would be limited to individuals seeking
bankruptcy relief who earn more than the median income. First,
there are numerous, significant flaws in the manner in which
median income is calculated. For example, the median income
figure required under H.R. 3150 will inevitably be outdated and
understated. This is because the bill states that household
income is to be based on the most recent Census Bureau figures
available as of January 1. But as of January 1, the Census has
information available for only the second year prior to the
date. Accordingly, during this year, 1998, census figures are
only available for 1996. At times of inflation, this two-year
lag could result in a significant increase in the number of
individuals denied chapter 7 because they may earn more than
the median income figure being used. In addition, the starting
point for the calculation of income may be overstated.
Averaging one's income during the six month period prior to the
bankruptcy filing may not accurately reflect the debtor's
ability to pay debts due to recent drop-offs or declines in
income stemming from job loss, or new job status.43
---------------------------------------------------------------------------
\43\ A useful and comprehensive critique of the problems involved
in the determination of income is also set forth in Judge Wedoff's
testimony before the Subcommittee.
---------------------------------------------------------------------------
Another serious flaw in H.R. 3150 is that the means test is
not the only ground for exclusion from chapter 7. Under the
revised section 707(b), debtors must be denied chapter 7 relief
based on the ``totality of the circumstances.'' This means that
individuals who earn far less than national median income will
be subject to exclusion--in essence providing a second ``bite
atthe apple'' for creditors wanting to deny individuals
bankruptcy relief. And the bill provides no safe harbor whatsoever, so
the totality of the circumstances test can apply to even the most
impoverished and hard-pressed debtors.
The problems caused by the ``totality of the
circumstances'' test is aggravated by the fact that H.R. 3150
will permit creditors and other parties in interest to bring
section 707b motions unlike current law that permits only the
court and U.S. Trustees to do so. This means that aggressive
creditors will have extremely wide latitude to use such motions
as a tool for making bankruptcy an expensive, protracted and
contentious process for honest debtors. Such creditor motions
could easily be used as leverage by creditors to obtain
reaffirmation agreements so that their unsecured debts survive
bankruptcy.
The fact that H.R. 3150 seeks to introduce such an open
ended and subjective test on top of the statutory means test
belies claims by the bill's supporters that they are attempting
to develop a ``bright line'' test for chapter 7 eligibility.
And the fact that the totality of the circumstances test can
only operate to the debtor's disadvantage further highlights
the one-sided nature of the bill.
Several other consumer provisions will exact significant
hardships on all debtors, regardless of their income level or
degree of culpability. As noted above, sections 141, 142, 143,
and 145 would create broad new classes of nondischargeability
for debt (1) used to pay other non-dischargeable debt; and
presumptions of nondischargeabililty for debt (2) incurred
within 90 days of filing for bankruptcy, and (3) credit card
debt incurred without a ``reasonable ability to repay.'' These
new exceptions from discharge obviate many of the benefits that
debtors may realize from filing for bankruptcy, under chapter 7
or 13. The proposed new fraud presumptions will also increase
the opportunity for creditor abuse. Consumer bankruptcy expert
Henry Sommer has explained that these provisions:
* * * increase the opportunity for creditors to file
the types of abusive fraud complaints which have been
found by many courts to be baseless and unjustified
attempts to coerce reaffirmations by debtors who cannot
afford to defend them. The new presumptions of
nondischargeability will fall mainly on low income
debtors who are unsophisticated, do not have the time,
budget flexibility, or attorney advice to plan their
bankruptcy cases carefully, have to file on short
notice to prevent utility shutoffs or other impending
creditor actions and will not have the funds to defend
dischargeability complaints.44
---------------------------------------------------------------------------
\44\ Hearing on Business Bankruptcy Issues before the Subcommittee
on Commercial and Administrative Law of the House Judiciary Committee,
105th Congress, (Mar. 10, 1998) (statement of Henry J. Sommer).
---------------------------------------------------------------------------
4. The Consumer Provisions Will Have a Significant, Adverse Impact on
Women and Children as well as Victims of Crimes and Severe Torts
In addition to the overall impact of H.R. 3150 on women
struggling to raise families and make ends meet,45
the bill will have a particularly adverse impact on the payment
of alimony and child support. The basic problem arises from the
fact that bankruptcy and insolvency are by definition a zero-
sum game. There is only so much money available to be divided
among the creditors. By design, H.R. 3150 will increase the
amount of funds being paid to unsecured creditors, and it
therefore should come as no surprise that such payments will
often come at the expense of other, less-aggressive creditors,
such as women and children owed alimony and child support. This
problem is by no means insignificant given that an estimated
243,000-325,000 bankruptcy cases involved child support and
alimony orders during the most recent years.46
---------------------------------------------------------------------------
\45\ See Elizabeth Warren, Bankruptcy and Single Parents, (Apr. 27,
1998) (Summarizing Elizabeth Warren, Teresa Sullivan, and Jay
Westbrook, The Bankruptcy Crisis, 73 Indiana L.J. 1079 (forthcoming,
Apr. 1998).
\46\ The reported data are from the Consumer Bankruptcy Project,
Phase II. Principal researchers are Dr. Teresa Sullivan, Vice-President
of the University of Texas, Professor Jay Westbrook, Benno Schmidt
Chair in Business Law, University of Texas, and Elizabeth Warren, Leo
Gottlieb Professor of Law, Harvard Law School. These estimates are
based on data collected in 1991 in sixteen judicial districts around
the country. For more details about the study, see Sullivan, Warren and
Westbrook, Consumer Debtors Ten Years Later: A Financial Comparison of
Consumer Bankruptcy 1981-91, 68 AMERICAN BANKRUPTCY LAW JOURNAL 121
(1994).
---------------------------------------------------------------------------
Under current law, alimony and child support are treated as
priority debt that is not subject to discharge.47
This preferential treatment dates from as early as
1903,48 and is based on Congress' determination that
the payment of these debts is so important to society that it
should come ahead of more general creditors. Although H.R. 3150
does not revoke this special treatment, it will have the effect
of diminishing the likelihood of full payment of alimony and
child support. This arises as a result of several features of
the bill--its creation of significant new categories of non-
dischargeable debt; the likely stretch out of payments of
priority debt in chapter 13 and the extension of the length of
chapter 13 plans, and the bill's limitations on the
availability of chapter 7 relief.
---------------------------------------------------------------------------
\47\ 11 U.S.C. Sec. Sec. 507(a)(7) & 523(a)(5).
\48\ Dodd Statement on Bankruptcy Reform and Child Support (May 5,
1998) (Statement of Sen. Dodd).
---------------------------------------------------------------------------
Each one of these changes will make it less likely that a
former spouse will be able to make his required alimony and
child support payments. First, by making significant amounts of
credit card debt non-dischargeable, more of these debts will
survive bankruptcy. Since most chapter 7 and 13 debtors do not
have the ability to repay most of their unsecured debts,
financialpressure on the debtor will continue after bankruptcy,
decreasing his ability to handle important support obligations.
Second, by extending chapter 13 priority payment schedules
and the length of plans, the legislation will make support
recipients wait longer to receive their past due payments.
Under the bill, it will be far more difficult for the debtor to
provide for accelerated payment of alimony and child support
arrearages, since the bill still provides that priority debts
are required to be paid on a pro-rated basis over sixty or more
months. Also, by extending the length of the plans by at least
two years--from at least three to five or even seven years--the
bill further delays the period over which child care and
alimony arrearages are to be paid.
The third factor at work against women and children is the
bill's limitation on bankruptcy as a remedy. Clearly,
application of the proposed means test and the totality of the
circumstances test will have the effect of making chapter 7
less available to the average debtor. The proportion of
successful chapter 13 cases can be expected to decline also
under the bill's chapter 13 formula. Financially-troubled
individuals will be less likely to reorder their financial
affairs to ensure they can meet their support obligations.
Collectively considered, these changes will help foster an
environment where unsecured and credit card debt is far more
likely to compete against alimony and child support obligations
in the state law collection process. As a recent Congressional
Research Service Memorandum analyzing H.R. 3150 concluded,
under the bill ``child support and credit card obligations
could be `pitted against' one another.* * * Both the domestic
creditor and the commercial credit card creditor could pursue
the debtor and attempt to collect from postpetition assets, but
not in the bankruptcy court.'' 49
---------------------------------------------------------------------------
\49\ Memorandum from the Congressional Research Service on Impact
of consumer bankruptcy reform proposals on child support obligations
(May 13, 1998).
---------------------------------------------------------------------------
Of course, outside of the bankruptcy court is precisely the
arena where sophisticated credit card companies have the
greatest advantages. While federal bankruptcy court provides a
strict set of priority and payment rule, State law collection
is far more akin to ``survival of the fittest.'' Whichever
creditor engages in the most aggressive tactic--be it through
repeated collection demands and letters, the ability to cut off
access to future credit, garnish wages or foreclose on assets--
is most likely to be repaid. As Marshall Wolf has written on
behalf of the Governing Counsel of the Family Law Section of
the American Bar Association, ``if credit card debt is added to
the current list of items that are now not dischargeable after
a bankruptcy of a support payer, the alimony and child support
recipient will be forced to compete with the well organized,
well financed, and obscenely profitable credit card companies
to receive payments from the limited income of the poor guy who
just went through a bankruptcy. It is not a fair fight and it
is one that women and children who rely on support will lose.''
50
---------------------------------------------------------------------------
\50\ Statement of Marshall J. Wolf (May 13, 1998) (on file with the
House Committee on The Judiciary).
---------------------------------------------------------------------------
It is for these reasons that groups concerned about the
payment of alimony and child support have expressed their
strong opposition to the bill. The California Women's Law
Center has written that, ``our own analysis and that of experts
in bankruptcy law indicates that women who are both creditors
and debtors in bankruptcy will be particularly harmed if [H.R.
3150 is] allowed to become law.'' 51 Similarly, the
Association for Children and Enforcement of Support has
observed, ``placing credit card debt in the same category as
child support would cause single parents to have to compete
with credit card companies for the debtor's available cash.''
52 And the National Organization of Women has
written that ``an analysis of the proposed legislation shows
that * * * many women will be seriously disadvantaged by [the
bill]. The central problem is that H.R. 3150 would place credit
card debt on an equal footing with child support and alimony
obligations in bankruptcy.'' 53 The First Lady has
also highlighted H.R. 3150's impact on women and children,
writing, ``I do quarrel with aspects of the bill that would
force single parents to compete for their child support
payments with bank banks trying to collect credit card debt.''
54
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\51\ Letter from Abby J. Leiberman, Executive Director, California
Women's Law Center, to Hon. Dianne Feinstein (Apr. 27, 1998).
\52\ Letter from Geraldine Jensen, President, Association for
Children for Enforcement of Support, Inc., to Rep. Nadler (May 7,
1998).
\53\ Letter from Kim Gandy, Executive Vice President, National
Organization for Women, Inc., to Rep. Nadler (May 6, 1998).
\54\ Hillary Rodham Clinton, Bankruptcy shouldn't let parents off
the hook, Washington Times, May 7, 1998.
---------------------------------------------------------------------------
Assertions by the legislation's supporters that any
disadvantages to women and children under H.R. 3150 are offset
by amendments approved at the Subcommittee and Full Committee
are not persuasive. First off, the bill's proponents adamantly
denied that the bill created any problems with regard to
alimony and child support.55 When proponents finally
acknowledged there was a problem, the amendments offered did
not respond to the provisions in the bill causing the problem--
namely the provisions providing for non-dischargeability of
credit card debt, delaying and stretching out chapter 13
payments, and denying access to bankruptcy generally.
---------------------------------------------------------------------------
\55\ Letter from Rep. Gekas, Rep. Boucher, Rep. McCollum, and Rep.
Moran to their Congressional Colleagues (Apr. 29, 1998).
---------------------------------------------------------------------------
Sections added at Subcommittee creating a new exception for
discharge for debts owed to the states (Sec. 146) would
increase the ability of the government to compete for debt
repayment with innocent spouses and children. And making
property settlement obligations non-dischargeable (Sec. 147)
could have the unintended consequence of forcing an ex-spouse
who is owed alimony and child support to compete against
another ex-spouse who may be owed significant assets from a
rich property settlement which has nothing to do with basic
living expenses. Again, the net result is the needy spouse and
child could be placed at a relative disadvantage by these
changes.
With regard to the Full Committee amendments, new section
150 purports to preserve the priority of support obligations
after the debtor has emerged from bankruptcy. Putting aside the
very questionable constitutional foundation for this provision,
this amendment is not likely to provide any substantial
benefits to support recipients. Collection activities often
proceed informally. The fact that one unsecured debt has legal
``priority'' over another debt is irrelevant if no legal
process is ever invoked. Thus, if one creditor has greater
resources to exercise more leverage than another, the well-
financed aggressive creditor may get paid first without ever
having to resort to judicial process and is perfectly entitled
to do so in the state law collection system. In addition,
unless two creditors actively are seeking to attach, garnish,
or execute on the same property, it is unclear how state courts
will be able to ensure that a priority debt gets paid ahead of
another debt unless a complex noticing system for unsecured
claims is developed, which would be ineffective if support
recipients did not know that they had to record their claims.
Another amendment appended language to the end of section
102 stating that nothing shall prevent the payment of
obligations with priority under 11 U.S.C. Sec. 507 and that the
plan shall specify how payments to other creditors will be
accordingly adjusted. However, this admonition does not seem to
alter the other requirements of this subsection dictating the
calculation of all plan payments, each of which is dependent
partially on the others and the proration of secured and
priority debt over the length of the chapter 13 plan.
Corresponding adjustments to the plan will likely make the plan
unconfirmable, or, at the very least, infeasible. In addition,
this provision does not resolve the exclusion of current
support obligations in the Chapter 13 budget, notwithstanding
the precatory language in section 146 of the bill.
A third amendment, offered by Chairman Hyde to section 141
and 146, purported to fix the problem caused by provisions in
H.R. 3150 which would require custodial parents seeking to
recover child support arrears to compete with credit card
companies both in bankruptcy and post discharge. Although the
amendment purports to give a higher ``priority'' in the
distribution of the debtor's funds to child support, the
amendment continues to allows a credit card debt to receive a
higher priority if the credit card was used to pay certain
other debts. Moreover, since credit card debts continue to be
added to the list of ``priority debts,'' the bill still
requires that these debts must be paid in full as part of a
chapter 13 payment plan. If the debtor cannot pay both, he
cannot move forward with a payment plan to repay past due child
support and other priority debts.
These reasons also explain why victim groups are so
strongly opposed to H.R. 3150. Current law does not discharge
debts from willful or malicious injury, death or personal
injury caused by the operation of a motor vehicle, or criminal
restitution payments.56 Making more credit card debt
nondischargeable and forcing more financially-troubled
individuals outside of bankruptcy will place these individuals
at a relative disadvantage as well.
---------------------------------------------------------------------------
\56\ 11 U.S.C. Sec. Sec. 523(a)(6), (9), & (13).
---------------------------------------------------------------------------
As the National Organization for Victim Assistance has
written, ``more exempted creditors with rights to the same
finite amount of resources means lower payments to all.
Inevitably, for vicitim-creditors, that means either a smaller
return on the restitution owed, or a longer period of
repayment, or both.'' 57 The National Victim Center
has similarly observed, ``to equate contractual losses of a
commercial creditor with personal obligations [for victim
claims as H.R. 3150 does] is to belittle their importance and
to reduce directly the likelihood that crime victims will ever
be financially restored despite obtaining an order of
restitution or a civil judgment from a court.'' 58
The Mothers Against Drunk Driving (MADD) has also complained
that if ``individuals whose lives have been shattered
financially and emotionally by the death or serious injury of
their family members * * * have to compete with credit card
companies for the limited post-discharge income of debtors
available [as H.R. 3150 requires], they may themselves end up
in bankruptcy.'' 59 MADD also noted that in contrast
to crash victims, ``lending institutions have the ability to
provide some degree of protection to themselves when they issue
credit cards to individuals and they are in a better financial
position to absorb losses, which to them is a cost of doing
business.'' 60
---------------------------------------------------------------------------
\57\ Letter from Marlene A. Young, Executive Director, National
Organization for Victim Assistance, to Rep. Hyde (May 15, 1998).
\58\ Letter from David Beatty, Director of Public Policy, National
Victim Center, to Rep. Nadler (May 11, 1998).
\59\ Letter from Robert C. Shearouse, Director of Public Policy,
Mothers Against Drunk Driving, to Rep. Gekas (May 11, 1998).
\60\ Id.
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III. The Small Business and Real Estate Provisions of the Bill Will
Lead to Premature Liquidation and Cost Jobs
Businesses may use chapter 11 of the Bankruptcy Code in an
effort to obtain relief from the creditors while they seek to
develop a plan to reorder their affairs and pay as much of
theirdebts as their operations will allow. Under this chapter,
businesses obtain an ``automatic stay,'' which forestalls creditor
collection efforts. During this time period, debtors have an
opportunity to examine their contracts and leases and determine which
ones to assume and which ones to reject (with rejection leading to a
claim for damages). Debtors are subject to a number of requirements
during this period, such as the formation of creditor committees and
various ongoing financial disclosures. Presently, only 69% of all
bankruptcy filings are business related reorganizations under chapter
11. Business-related bankruptcies declined by more than one-third
between 1987 and 1997.61
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\61\ Letter from Jere W. Glover, Chief Counsel for Advocacy, U.S.
Small Business Administration, to Rep. Nadler (Apr. 22, 1998).
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The goal of chapter 11 is to determine whether there is any
ongoing business value that can be preserved to pay off
creditors while maintaining as many jobs and contractual
relationships as possible. To this end, the debtor is given an
exclusive 120-day period (unless lengthened or shortened for
cause) in which to develop a reorganization plan and convince a
majority of the creditors that the plan is in their best
interests and is preferable to a liquidation ``fire sale.'' As
with chapter 7, any reorganization plan must provide for
payments in order of statutory priority.
In 1994, Congress enacted two modest exceptions to the
general rules of chapter 11. The first related to ``small
businesses,'' defined as entities engaged in commercial or
business activities whose aggregate debts do not exceed $2
million. Such designated small businesses are permitted (but
not required) to dispense with creditor committees, receive
only a 100-day plan exclusivity period, and are entitled to
more liberal provisions for disclosure and solicitation for
acceptances of their proposed reorganization plan. In 1994,
Congress also developed a special set of rules applicable to
``single asset real estate,'' generally defined as cases in
which the principal asset is a single piece of real estate
subject to debt of no more than $4 million. In such cases,
secured creditors are permitted to foreclose on their
collateral unless the debtor files a reorganization plan which
is likely to be confirmed or commences payment on the secured
loan within a 90-day period. This exception to chapter 11
procedures was justified on the grounds that single asset real
estate cases were seen as essentially private two-party loan
disputes, which did not implicate ongoing businesses or jobs.
The business provisions of the bill would effectuate a
number of changes in the manner in which corporations,
partnerships and other business entities are permitted to
reorganize their financial affairs. With respect to small
business, H.R. 3150 would expand the definition of eligible
small business to those companies having debts of less than $5
million and would include all single asset real estate cases
regardless of the amount of debt outstanding. It would also
make the small business requirements mandatory (rather than
optional) and mandate the operation of numerous additional
requirements on debtors. For example, under H.R. 3150, small
business debtors would be required to provide balance sheets,
statements of operations, cash-flow statements, and income tax
returns within three days after filing a bankruptcy petition,
the time period the debtor has the exclusive right to file a
plan of reorganization would be further shortened (to 90 days),
and the standards for being able to seek an extension of this
time period would be substantially narrowed. In addition, by
striking section 1325(b)(2)(B) from chapter 13 of the
Bankruptcy Code, section 102(6) of H.R. 3150 prevents sole
proprietors and other small businesses from being able to use
chapter 13 to reorganize their businesses.
It is for these reasons that both the AFL-CIO and the Small
Business Administration are opposed to the small business
provisions of the bill. The AFL-CIO has warned, ``the
potentially broad reach of [the small business provisions] and
the manner in which they restrict the workings of a bankruptcy
case for these businesses will likely place numerous jobs at
risk.'' 62 Similarly, the Small Business
Administration has written that under H.R. 3150, ``for small
business debtors, the proposed changes would require such
substantial additional costs for the reorganization process
that many small businesses may forego reorganization and
immediately file for liquidation proceedings under chapter 7 of
the U.S. Bankruptcy Code, or in the alternative, just close
their doors leaving all creditors without recourse.''
63
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\62\ Hearing on Business Bankruptcy Issues before the Subcommittee
on Commercial and Administrative Law of the House Judiciary Committee
105th Congress, (Mar. 26, 1998) (statement of American Federation of
Labor and Congress of Industrial Organizations).
\63\ Small Business Administration testimony, supra note 60.
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This new bankruptcy mandate would impose substantial new
costs on small businesses, both in terms of document production
and legal fees, and limit the time frame that the business has
to develop a reasonable reorganization plan. In turn, these
changes will lead to the premature liquidation of small
businesses with the attendant loss of jobs. The potential costs
are significant, since it is estimated that the new provisions
would apply to 85% of all business reorganizations, including
virtually all the business cases in most districts outside of
the major money center areas.64
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\64\ Bankruptcy: The Next Twenty Years, National Bankruptcy Review
Commission Final Report, supra note 28.
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A similar concern relates to single asset real estate
cases. H.R. 3150 would significantly expand the definition of
single asset real estate by eliminating the $4 million debt
cap.65 It would also apply the restrictive small
business provisions of the bill to single asset real estate
(thereby incorporating the many new restrictions imposed under
these provisions), and require that adequate protection
payments measured by interest commence within 90 days of the
bankruptcy filing. As a result of these changes, real estate
operations would face significantly higher obstacles when they
seek to reorganize. These barriers could apply to large
operating entities such as Rockefeller Center as well as hotels
and nursing homes. It would create also new incentives for
lenders to require that all of their real estate borrowers
place their holdings in the single asset form in order to avoid
ordinary bankruptcy rules in the future.
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\65\ H.R. 764, a bipartisan bankruptcy technical corrections bill
approved by the Committee and the House last session would have
increased the debt cap to only $15 million.
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By design, the single asset real estate changes will
result in an increase in premature foreclosures and
liquidations of businesses associated with real estate. This,
in turn, would likely lead to significant job losses. Even if a
hotel or nursing home remains in existence, the new owner would
not necessarily be required to honor any previously negotiated
collective bargaining agreements applicable to employees at the
facility. In the case of a large real estate operation,
premature foreclosure could also allow the new owner to
terminate many leases, leading to further job losses to the
extent the business is relying on these leases.
The AFL-CIO is very concerned about the potential that the
single asset real estate changes would lead to increased job
losses in bankruptcy. They have written that ``the job
preservation goals of chapter 11 require greater certainty
about the kinds of entities that are subject to the current
SARE [single asset real estate] rules before Congress considers
expanding their scope. No urgent need to expand the SARE rules
has been identified. Expanding the application of the SARE
provisions without a more thorough review of the employment
issues, and absent better rules for protecting jobs, is certain
to undermine one of the most basic goals of chapter 11.''
66
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\66\ AFL-CIO testimony, supra note 61.
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IV. The Tax Provisions Raise Numerous Policy Issues
The current bankruptcy code seeks to effectuate a delicate
balance between the rights of the Internal Revenue Service and
State tax agencies to the repayment of any taxes, interest and
penalties owed them, and the rights of other creditors and the
ability of individuals and corporations to obtain a fresh start
without being subject to burdensome debts. We are concerned
that Title V, in seeking to make a number of supposedly
technical changes may also effectuate a number of substantive
changes to the Bankruptcy Code which favor the IRS and state
taxing authorities and disadvantage other participants in the
bankruptcy system. Concerns have been expressed that not only
does H.R. 3150 generally enhance the rights and position of the
IRS and state authorities in bankruptcy, but the bill grants
the IRS certain rights in bankruptcy cases that it does not
enjoy outside of bankruptcy, and vests the IRS with new
enforcement powers thatordinary creditors do not
posses.67 We are particularly concerned that the Majority
chose to vary in many significant respects from the nonpartisan
recommendations of the Bankruptcy Commission and its Tax Advisory
Committee.
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\67\ Hearing on Business Bankruptcy Issues before the Subcommittee
on Commercial and Administrative Law of the House Judiciary Committee,
105th Congress, (Mar. 18, 1998) (statement of Paul H. Asofsky).
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For example, section 506 would result in increased periods
during which an IRS claim is ``tolled'' (i.e., placed on hold)
in bankruptcy, effectively extending the statute of limitations
to which many Americans are subject to for tax enforcement
actions. And notwithstanding the fact that the Bankruptcy Code
prevents ordinary creditors from offsetting amounts they may
owe to debtors with debts owed by the debtors, section 519
grants tax agencies the rights to abrogate the automatic stay
and ``set off'' taxes owed to them against any income tax
refunds that may be owing to the debtor.
Another provision of H.R. 3150 raising concerns (section
508) grants the IRS the same rights to non-dischargeability in
chapter 13 as persons owed payments for alimony, child support,
criminal restitution, and payments for death or injury caused
by the debtor's operation of a motor vehicle. Like other
provisions in the bill extending the rights and entitlements of
credit card companies, this would have the effect of placing
former spouses and other similarly protected creditors at a
significant disadvantage as compared to their current position
under bankruptcy law.
Another tax provision in H.R. 3150 that gives rise to
concern is one that would allow the IRS to seize all of the
debtor's exempt property, even property that is otherwise
immune from seizure under the Internal Revenue Code. At full
committee markup, Mr. Gekas proposed an amendment to section
502 entitled ``Enforcement of Child and Spousal Support.'' The
amendment was adopted and will provide for the enforcement of
nondischargeable debts for alimony and spousal support. But the
amendment appears to go much farther and grants State and
Federal taxing agencies the right to collect nondischargeable
tax debts from exempt property notwithstanding any other State
or Federal law. This amendment nullifies exemptions in section
6334 of the Internal Revenue Code and comparable state laws
that limit what taxing agencies can seize to satisfy a tax
debt. Although the Internal Revenue Code would exempt wearing
apparel and school books from levy to satisfy a tax debt, Mr.
Gekas' amendment could allow the IRS to take the school books
and sell them. Wage exemptions and federal wage garnishment
laws would also be overridden. This amendment was also adopted
without any hearing or meaningful debate.
V. Other Provisions and Concerns
In addition to the major problems we have outlined above,
many of us have a number of additional concerns that are
important to highlight. For example the legislation fails to
provide any provision allowing for the waiver of bankruptcy
fees by indigent individuals, even though debtors involved in
complex reorganizations and force unnecessary liquidations and
job losses.
Concerns have also been raised regarding section 163, which
provides an exception to the automatic stay for residential
landlords in cases where the lease had expired. This grants
residential landlords a benefit other creditors are not
entitled to under the Code. By extending the period permitted
between chapter 7 filings from the current 6 years to 10 years,
section 171 could prove a substantial hardship to families with
unstable economic situations who might, through no fault of
their own, find themselves in need of bankruptcy relief in less
than a decade.
An amendment by Rep. Bryant to section 213 would require a
landlord's consent to extend the time in which a debtor could
assume or reject a nonresidential lease beyond 120 days, with
an absolute cap of 270 days. This could result in the premature
eviction of many businesses before they have the opportunity to
reorganize, costing jobs, and compromising the ability of other
creditors to receive payment on their debts. Concerns have also
been raised about section 212, which provides that a no-compete
clause or an exclusivity clause in an contract with a
performing artist would always survive bankruptcy.
VI. Conclusion
For nearly 100 years, Congress has carefully considered the
bankruptcy laws and legislated on a deliberate and bipartisan
basis. In the past, Congress has elected also to carefully
preserve an insolvency system that provides for a fresh start
for honest, hard-working debtors, protects ongoing businesses
and jobs, and balances the rights of and between debtors and
creditors. Because H.R. 3150 departs from these principles, we
respectfully dissent.
John Conyers, Jr.
Howard L. Berman.
Jerrold Nadler.
Bobby C. Scott.
Sheila Jackson Lee.
Martin T. Meehan.
William D. Delahunt.