I-SEARCH (tm) V1.89P Retrieved Documents Listing on 10/13/93 at 20:13:44. Database: USCODE Search: (11:CITE) ------DocID 14670 Document 1 of 646------ -CITE- 11 USC TITLE 11 -EXPCITE- TITLE 11 -HEAD- TITLE 11 - BANKRUPTCY -MISC1- THIS TITLE WAS ENACTED BY PUB. L. 95-598, TITLE I, SEC. 101, NOV. 6, 1978, 92 STAT. 2549 Chap. Sec. 1. General Provisions 101 3. Case Administration 301 5. Creditors, the Debtor, and the Estate 501 7. Liquidation 701 9. Adjustment of Debts of a Municipality 901 11. Reorganization 1101 12. Adjustment of Debts of Family Farmers with Regular Annual Income 1201 13. Adjustment of Debts of an Individual With Regular Income 1301 15. (FOOTNOTE 1) United States Trustees 1501 (FOOTNOTE 1) Chapter repealed by Pub. L. 99-554 without corresponding amendment of chapter analysis. AMENDMENTS 1986 - Pub. L. 99-554, title II, Sec. 257(a), Oct. 27, 1986, 100 Stat. 3114, added item for chapter 12. Table I This Table lists the sections of former Title 11, Bankruptcy, and hich cover similar and related subject matter. --------------------------------------------------------------------- Title 11 Former Sections Title 11 New Sections --------------------------------------------------------------------- 1(1)-(3) Rep. 1(4) 101(12) 1(5)-(7) Rep. 1(8) 101(8) 1(9), (10) Rep. 1(11) 101(9) 1(12), (13) Rep. 1(14) 101(11) 1(15), (16) Rep. 1(17) 101(17), (18) 1(18) Rep. 1(19) 101(26) 1(20)-(22) Rep. 1(23) 101(30) 1(24) 101(31) 1(25), (26) Rep. 1(27) 101(34) 1(28), (29) Rep. 1(29a) 101(38) 1(30) 101(40) 1(31) Rep. 1(32) 101(24) 1(33), (34) Rep. 1(35) 102(7) 11(a)(1) 109(a) 11(a)(2) 502(j) 11(a)(2A) 505(a), (b) 11(a)(3), (4) Rep. 11(a)(5) 721 11(a)(6) Rep. 11(a)(7) 363 11(a)(8) 350 11(a)(9)-(14) Rep. 11(a)(15) 105 11(a)(16) Rep. 11(a)(17) 324 11(a)(18) 303(i) 11(a)(19), (20) Rep. 11(a)(21) 543(b), (c) 11(a)(22) 305(a)(2) 11(b) Rep. 21 303(h) 22 109(b) 22(a) 301 22(b) 303(a) 23(a) Rep. 23(b) 303(b) 23(c)-(f) Rep. 23(g) 723 23(h)-(k) Rep. 24 522 25(a)(1) 343, 521(4) 25(a)(2) Rep. 25(a)(3) 521(2) 25(a)(4) 521(3) 25(a)(5) 521(3) 25(a)(6) 521(2) 25(a)(7) 521(2) 25(a)(8), (9) 521(1) 25(a)(10) 343, 344 25(a)(11) 521(3) 25(b) Rep. 26 541(a) 27, 28 Rep. 29(a) 362 29(b)-(d) Rep. 29(e) 108(a), (b) 29(f) 108(c) 30, 31 (See former 501-1103) 32(a) 727(a)(10), 1141(d)(4) 32(b) 727(c) 32(c)(1) 727(a)(2), (4) 32(c)(2) 727(a)(3) 32(c)(3) 727(a)(4) 32(c)(4) 727(a)(2) 32(c)(5) 727(a)(8), (9) 32(c)(6) 727(a)(6) 32(c)(7) 727(a)(5) 32(c)(8) Rep. 32(d), (e) Rep. 32(f) 524(a) 32(g), (h) Rep. 33 727(d), (e), 1328(e) 34 524(e) 35(a)(1) 523(a)(1) 35(a)(2) 523(a)(2) 35(a)(3) 523(a)(3) 35(a)(4) 523(a)(4) 35(a)(5), (6) Rep. 35(a)(7) 523(a)(5) 35(a)(8) 523(a)(6) 35(b) 523(b), 349(a) 35(c) 523(c) 35(c)(4) 362 41(a) Rep. 41(b) 303(d) 41(c)-(e) Rep. 41(f) 301 42 T. 28 Sec. 1480 43 Rep. 44(a) 343 44(b)-(f) Rep. 44(g) 549(c) 44(h)-(l) Rep. 45-51 Rep. 52, 53 Rep. 54 Rep. 55 T. 28 Sec. 1475 61-71 Rep. 72(a) 702 72(b) 705 72(c) 327(c) 73 321 74 325, 703(a) 75(a)(1) 704(1) 75(a)(2) 345 75(a)(3) 704(2) 75(a)(4) Rep. 75(a)(5) 704(2) 75(a)(6) Rep. 75(a)(7) 704(3) 75(a)(8) 704(4) 75(a)(9) 704(5) 75(a)(10) 704(6) 75(a)(11), (12) Rep. 75(a)(13) 704(8) 75(a)(14) Rep. 75(b), (c) Rep. 76(a), (b) Rep. 76(c) 326(a), 330 76(d) Rep. 76(e) 326(d) 76(f), (g) Rep. 76a 330 77 107 78(a) Rep. 78(b) 322(a) 78(c) 322(b)(1) 78(d) 322(b)(2) 78(e) Rep. 78(f), (g) 322(b)(2) 78(h) Rep. 78(i) 322(c) 78(j)-(l) Rep. 78(m) 322(d) 78(n) Rep. 79-82 Rep. 91, 92 341 93(a)-(c) Rep. 93(d) 502(a), (c) 93(e) Rep. 93(f) 502(b) 93(g) 502(d) 93(h) 506(a), (b) 93(i) 501(b), 509 93(j) 724(a) 93(k) 502(j) 93(l), (m) Rep. 93(n) 501(a), 726(a)(3) 93a Rep. 94 342 95(a) 301 95(b) 303(b) 95(c), (d) Rep. 95(e) 303(b) 95(f) 303(c) 95(g) 303(j), 707 95(h) Rep. 96 547 96(a)(4) 547(e)(1)(B) 96(b) 550, 551 96(c) 547(c)(4), 553 96(d) 329 96(e)(1) 741 96(e)(2) 745, 751, 752 96(e)(3) 753 96(e)(5) 749 101 345 101a Rep. 102(a)(1) 503(b)(2) 102(a)(2)-(4) Rep. 102(b) Rep. 102(c) 504 102(d) Rep. 103 101(4) 103(a)(9) 502(b)(7) 103(c) 365 103a Rep. 104(a) 507 104(a)(1) 503(b) 104(a)(2) 507(a)(3) 104(a)(4) 502(b)(4), 505(a), (b) 104(b) Rep. 105(a)-(c) Rep. 105(d) 508 105(e) Rep. 106(a) 347(a) 106(b) Rep. 107(a) 349(b), 547(b), (d), 551 107(b), (c) 545 107(c)(1)(A) 545(1) 107(c)(1)(B) 545(2), 546(b) 107(c)(1)(C) 545(3), (4) 107(c)(2) 551 107(c)(3) 724(b) 107(d)(1)(a)-(c) Rep. 107(d)(1)(d) 101(26) 107(d)(1)(e) Rep. 107(d)(2) 548(a) 107(d)(3) 550 107(d)(4) 548(b) 107(d)(5) 548(d)(1) 107(d)(6) 548(c), 550, 551 107(d)(7) Rep. 107(e), (f) Rep. 108 502(b)(3), 553 109(a) 303(e) 109(b) 303(i) 109(c) Rep. 109(d) 303(g), 543(b), (c) 110(a) 541(a) 110(a)(3) 541(b) 110(a)(5) 522(d)(7), (8) 110(b) 365 110(c) 541(e), 544(a) 110(d)(1) 549(a) 110(d)(2), (3) 542(c) 110(d)(4), (5) Rep. 110(e) 544(b) 110(f) 363 110(g)-(i) Rep. 111, 112 Rep. 201, 202 (See former 501-1103) 202a-204 Rep. 205(a) Rep. 205(b) 1171(b), 1172 205(c)(1) 1163 205(c)(2) 1166 205(c)(3)-(5) Rep. 205(c)(6) 1169 205(c)(7)-(13) Rep. 205(d) Rep. 205(e) 1173 205(f)-(i) Rep. 205(j) 1168 205(k), (l) Rep. 205(m) 101(33) 205(n) 1167, 1171(a) 205(o) 1170 205(p)-(s) Rep. 205a Rep. 206, 207 (See former 501-1103) 208 Rep. 301-303 Rep. 401(1) 101(4) 401(2) Rep. 401(3) 101(9) 401(4) Rep. 401(5) 101(11) 401(6) 101(28) 401(7) 101(30) 401(8) 101(12) 401(9) Rep. 401(10) 902(2) 401(11) 903(3) 402(a) Rep. 402(b)(1), (2) 901 402(b)(3) Rep. 402(c) 904 402(d) 921(b) 403 903 404 101(29), 109(c) 405(a) 921(a), (c)-(f) 405(b) 901, 924 405(c) Rep. 405(d) 923 405(e) 901 405(e)(1) 922(a) 405(f), (g) Rep. 405(h) 901, 926 406, 407 Rep. 408(a) 925 408(b) 901 408(c) Rep. 409 901 410(a) 941, 942 410(b) 942 411, 412 901 413 901, 943(a) 414(a) 901 414(b)(1) 943(b)(5), (6) 414(b)(2) 943(b)(2) 414(b)(3) Rep. 414(b)(4) 943(b)(3) 414(b)(5) Rep. 414(b)(6) 943(b)(4) 415(a) 944(a) 415(b)(1) 944(b) 415(b)(2) 944(c) 416(a) Rep. 416(b) 901 416(c) Rep. 416(d) 347(b), 901 416(e) 945(a) 416(f) Rep. 417 946 418 927 501, 502 Rep. 506(1) 101(4) 506(2), (3) Rep. 506(4) 101(9) 506(5) 101(12) 506(6) 101(11) 506(7) Rep. 506(8) 101(23) 506(9) 101(31) 506(10) Rep. 506(11) 101(35) 506(12), (13) Rep. 507 1124 511, 512 Rep. 513 362 514, 515 Rep. 516(1) 365 516(2) 364 516(3) 363 516(4) 362 516(5), (6) 1110 517-521 Rep. 526 303(b) 527 Rep. 528 T. 28 Sec. 1472 529-533 Rep. 536, 537 303(d) 541-549 Rep. 556 1104(a) 557 327 558 101(13) 559 1105 560 324, 1104(c) 561, 562 Rep. 563 1107(a) 564 1106(a)(2) 565 Rep. 566 107 567(1) 1106(a)(3) 567(2) Rep. 567(3) 1106(a)(4)(A) 567(4) Rep. 567(5) 1106(a)(4) 567(6) Rep. 568 1104(b), 1106(b) 569 1106(a)(5) 570 1121 571-574 Rep. 575 1125(d) 576 1125(b) 577, 578 Rep. 579 1126, 1128(a) 580 1128(b) 586 541(a) 587 1106 588 1107(a) 589 1108 590 Rep. 591 327 596 501(a), 1111 597 1122 598 501(a) 599 1126(a) 600, 601 Rep. 602 502(b)(7) 603 1126(e) 604 1143 605 347(b) 606 1109(b) 607 1109 608 1109(a) 609-613 Rep. 616(1) 1123(b)(1) 616(2) 1123(a)(5), (b)(4) 616(3) Rep. 616(4) 1123(b)(2) 616(5) 1123(a)(3) 616(6) 1123(a)(2) 616(7)-(9) Rep. 616(10) 1123(a)(5) 616(11) 1123(a)(7) 616(12)(a) 1123(a)(6) 616(12)(b) Rep. 616(13) 1123(b)(3) 616(14) 1123(b)(5) 621(1) 1129(a)(1) 621(2) 1129(a)(7), (11) 621(3) 1129(a)(3) 621(4) 1129(a)(4) 621(5) 1129(a)(5) 622 1127 623 1127(d) 624(1) 1141(a) 624(2) 1129(a)(6), 1142(a) 624(3), (4) Rep. 625 Rep. 626 1141(c) 627 1142(b) 628(1) 1141(d)(1)-(3) 628(2)-(4) Rep. 629(a) 1101(2) 629(b) Rep. 629(c) 1127(b) 636 1112(b) 637 Rep. 638 348 641(1), (2) Rep. 641(3), (4) 330 641(5) 503(b)(4) 642(1) 503(b)(3), (5) 642(2) Rep. 642(3) 503(b)(4) 643 503(b)(3), (4) 644(1) 330 644(2) 503(b)(4) 644(3) 330 644(4) 503(b)(3), (4) 645-650 Rep. 656-659 Rep. 661 108(c) 662 Rep. 663 362 664(a) 1145(a) 664(b) 1145(b) 665, 666 Rep. 667 1146(c) 668 346(j)(1) 669 1129(d) 670 346(j)(5) 671, 672 Rep. 676 Rep. 701, 702 Rep. 706(1), (2) Rep. 706(3) 101(12), 109(d) 706(4) Rep. 706(5) 101(31) 707(1) 101(9) 707(2) 101(4), (11) 708 1124 711, 712 Rep. 713(1) 365 713(2) 363 713(3) Rep. 714 362 715, 716 Rep. 721-728 Rep. 731-733 Rep. 734 341 735 341 735(3) 1128(a) 736 341 736(2) 501(a) 736(3) 343 737(1) Rep. 737(2) 1129(a)(9) 737(3) 1128(a) 738 1102 739(1)(a) 1103(c)(2) 739(1)(b)-(e) 1103(c)(3) 739(1)(f) 1104(c)(5) 739(2) 503(b)(4), 1103(a) 741 Rep. 742 1107(a) 743 1108 744 364 751 1122 752 Rep. 753 502(b)(7) 754, 755 Rep. 755a 501(a) 756 Rep. 757(1) Rep. 757(2) 1123(b)(2) 757(3)-(7) Rep. 757(8) 1123(b)(5) 761 1129(a)(3) 762 Rep. 763 1127 764 1127(d) 765 1127(c) 766(1) 1129(a)(1) 766(2) 1129(a)(7), (11) 766(3) 1129(a)(2) 766(4) 1129(a)(3) 767(1) 1141(a) 767(2)-(4) Rep. 768-770 Rep. 771 1141(d)(1)-(3) 772 Rep. 776, 777 1112(b) 778 348 779-781 Rep. 786 1144 787(1) 1127(b) 787(2) 1127(c) 787(3) 1127(d) 787(4) Rep. 791 108(c) 792 Rep. 793(a) 1145(a) 793(b) 1145(b) 794 Rep. 795 346(j)(1) 796 346(j)(5) 797 Rep. 799 Rep. 801, 802 Rep. 806(1) Rep. 806(2) 101(4) 806(3), (4) Rep. 806(5) 101(9) 806(6) 101(12), 109(d) 806(7) 101(11) 806(8) 101(23) 806(9) 101(31) 807 1124 811, 812 Rep. 813(1) 365 813(2) 363 813(3) Rep. 814 362 815, 816 Rep. 821-827 Rep. 828 362 831 Rep. 832 1104(a) 833 Rep. 834 341 835 341, 1128(a) 836 341 836(2) 501(a) 836(3) 343 837(1) 1104(a) 837(2) Rep. 837(3) 1128(a) 841 Rep. 842 1106 843 348 844 1107(a) 845 1108 846 364 851 501(a), 1111 852 1122 853 Rep. 854 501(a) 855-857 Rep. 858 502(b)(7) 859 Rep. 861(1)-(3) Rep. 861(4) 1123(b)(2) 861(5), (6) Rep. 861(7) 1123(b)(4) 861(8) Rep. 861(9) 1123(a)(3) 861(10) 1123(a)(2) 861(11) Rep. 861(12) 1123(a)(5) 861(13) 1123(b)(5) 866 Rep. 867 1129(a)(3) 868 Rep. 869 1127(a), (b) 870 1127(d) 871 1127(c) 872(1) 1129(a)(1) 872(2) 1129(a)(7), (11) 872(3) 1129(a)(2) 872(4) 1129(a)(3) 872(5) 1129(a)(4) 873(1) 1141(a) 873(2) 1142(a) 873(3) Rep. 874 1141(c) 875 1142(b) 876 1141(d)(1)-(3) 877 Rep. 881, 882 1112(b) 883 348 884-886 Rep. 891(1) Rep. 891(2), (3) 330 892(1) 503(b)(3) 892(2) Rep. 892(3) 503(b)(4) 893(1) Rep. 893(2) 503(b)(4) 893(3) 330 893(4) 503(b)(4) 894-898 Rep. 906-909 Rep. 911 1144 916 108(c) 917 362 918(a) 1145(a) 918(b) 1145(b) 919 Rep. 920 346(j)(1) 921 1129(d) 922 346(j)(5) 923 Rep. 926 Rep. 1001, 1002 Rep. 1006(1) 101(4) 1006(2) 101(9) 1006(3) 101(12), 109(e) 1006(4) 101(11) 1006(5) Rep. 1006(6) 101(31) 1006(7) Rep. 1006(8) 101(24), 109(e) 1007 Rep. 1011, 1012 Rep. 1013(1) 365 1013(2) Rep. 1014 362 1015, 1016 Rep. 1021-1026 Rep. 1031 Rep. 1032, 1033 341 1033(1) 343, 501(a) 1033(2) 1321 1033(5) 1324 1036 1303 1037 Rep. 1041-1044 Rep. 1046(1) 1322(b)(1) 1046(2) 1322(b)(2) 1046(3) 1322(a)(2) 1046(4) 1322(a)(1) 1046(5) 1329(a) 1046(6) 1322(b)(7) 1046(7) 1322(b)(10) 1051 1325(a)(3) 1052 Rep. 1053 1323(a) 1054 1323(c) 1055 Rep. 1056(a)(1) 1325(a)(1) 1056(a)(2) 1325(a)(6) 1056(a)(3) Rep. 1056(a)(4) 1325(a)(3) 1056(b) 502(b) 1057 1327(a) 1058 Rep. 1059 1326(a) 1060 1328(a), (c), (d) 1061 1328(b) 1062 Rep. 1066 348, 1307 1067 348 1068, 1069 Rep. 1071 1330 1076 108(c) 1077-1079 Rep. 1080 1305(a)(1) 1086 Rep. 1101-1103 Rep. 1200-1255 Rep. ------------------------------- Table II This Table lists the sections of revised Title 11, Bankruptcy, and d related subject matter. --------------------------------------------------------------------- Title 11 New Sections Title 11 Former Sections --------------------------------------------------------------------- 101(1)-(3) 101(4) 103, 401(1), 506(1), 707(2), 806(2), 1006(1) 101(5)-(7) 101(8) 1(8) 101(9) 1(11), 401(3), 506(4), 707(1), 806(5), 1062(2) 101(10) 101(11) 1(14), 401(5), 506(6), 707(2), 806(7), 1006(4) 101(12) 1(4), 401(8), 506(5), 706(3), 806(6), 1006(3) 101(13) 558 101(14)-(16) 101(17), (18) 1(17) 101(19)-(21) 101(22) T. 15 Sec. 77ccc(7) 101(23) 506(8), 806(8) 101(24) 1(32), 1006(8) 101(25) 101(26) 1(19), 107(d)(1)(d) 101(27) 101(28) 401(6) 101(29) 404 101(30) 1(23), 401(7) 101(31) 1(24), 506(9), 706(5), 806(9), 1006(6) 101(32) 101(33) 205(m) 101(34) 1(27) 101(35) 506(11) 101(36), (37) 101(38) 1(29a) 101(39) T. 15 Sec. 78c(a)(4), (5) 101(40) 1(30) 102(1)-(6) 102(7) 1(35) 102(8) 103, 104 105 11(a)(15) 106 107 77, 566 108(a), (b) 29(e) 108(c) 29(f), 661, 791, 1076 109(a) 11(a)(1) 109(b) 22 109(c) 404 109(d) 706(3), 806(6) 109(e) 1006(3), (8) 301 22(a), 41(f), 95(a) 302 303(a) 22(b) 303(b) 23(b), 95(b), (e), 526 303(c) 95(f) 303(d) 41(b), 536, 537 303(e) 109(a) 303(f) 303(g) 109(d) 303(h) 21 303(i) 11(a)(18), 19(b) 303(j) 95(g) 303(k) 304 305(a)(1) 305(a)(2) 11(a)(22) 305(b), (c) 306 321 73 322(a) 78(b) 322(b)(1) 78(c) 322(b)(2) 78(d), (f), (g) 322(c) 78(i) 322(d) 78(m) 323 324 11(a)(17), 560 325 74 326(a) 76(c) 326(b), (c) 326(d) 76(e) 327 557, 591 327(c) 72(c) 328 329 96(d) 330 76(c), 76a, 641(3), (4), 644(1), (3), 891(2), (3), 893(3) 331 341 91, 92, 734-736, 834-836, 1032, 1033 342 94 343 44(a), 25(a)(1), (10), 736(3), 836(3), 1033(1) 344 25(a)(10) 345 101, 75(a)(2) 346(a)-(i) 346(j)(1) 668, 795, 920 346(j)(2)-(4) 346(j)(5) 670, 796, 922 346(j)(6), (7) 347(a) 106(a) 347(b) 416(d), 605 348 638, 778, 843, 1066, 1067 349(a) 35(b) 349(b) 107(a) 350 11(a)(8) 361 362 29(a), 35(c)(4), 513, 516(4), 663, 714, 814, 828, 917, 1014 363 11(a)(7), 110(f), 516(3), 713(2), 813(2) 364 516(2), 744, 846 365 103(c), 110(b), 516(1), 713(1), 813(1), 1013(1) 366 501(a) 93(n), 596, 598, 736(2), 755a, 836(2), 851, 854, 1033(1) 501(b) 93(i) 501(c), (d) 502(a) 93(d) 502(b) 93(f), 1056(b) 502(b)(3) 108 502(b)(4) 104(a)(4) 502(b)(7) 103(a)(9), 602, 753, 858 502(c) 93(d) 502(d) 93(g) 502(e)-(i) 502(j) 93(k), 11(a)(2) 503(a) 503(b) 104(a)(1) 503(b)(2) 102(a)(1) 503(b)(3) 642(1), 643, 644(4), 892(1) 503(b)(4) 641(5), 642(3), 643, 644(2), (4), 739(2), 892(3), 893(2), (4) 503(b)(5) 642(1) 504 102(c) 505(a), (b) 11(a)(2A), 104(a)(4) 505(c) 506(a), (b) 93(h) 506(c), (d) 507 104(a) 507(a)(3) 104(a)(2) 508 105(d) 509 93(i) 510 521(1) 25(a)(8), (9) 521(2) 25(a)(3), (6), (7) 521(3) 25(a)(4), (5), (11) 521(4) 25(a)(1) 522 24 523(a)(1) 35(a)(1) 523(a)(2) 35(a)(2) 523(a)(3) 35(a)(3) 523(a)(4) 35(a)(4) 523(a)(5) 35(a)(7) 523(a)(6) 35(a)(8) 523(a)(7)-(9) 523(b) 35(b) 523(c) 35(c) 523(d) 524(a) 32(f) 524(b)-(d) 524(e) 34 525 541(a) 26, 110(a), 586 541(b) 110(a)(3) 541(c), (d) 541(e) 110(c) 542(a), (b) 542(c) 110(d)(2), (3) 542(d), (e) 543(a) 543(b), (c) 11(a)(21), 109(d) 543(d) 544(a) 110(c) 544(b) 110(e) 545 107(b), (c) 545(1) 107(c)(1)(A) 545(2) 107(c)(1)(B) 545(3), (4) 107(c)(1)(C) 546(a) 546(b) 107(c)(1)(B) 546(c) 547 96 547(b) 107(a) 547(c)(4) 96(c) 547(d) 107(a) 547(e)(1)(B) 96(a)(4) 548(a) 107(d)(2) 548(b) 107(d)(4) 548(c) 107(d)(6) 548(d)(1) 107(d)(5) 548(d)(2) 549(a) 110(d)(1) 549(b) 549(c) 44(g) 549(d) 550 96(b), 107(d)(3), (6) 551 96(b), 107(a)(3), (c)(2), (d)(6), 110(e)(2) 552 553 96(c), 108 554 701 702 72(a) 703(a) 74 703(b), (c) 704(1) 75(a)(1) 704(2) 75(a)(3), (5) 704(3) 75(a)(7) 704(4) 75(a)(8) 704(5) 75(a)(9) 704(6) 75(a)(10) 704(7) 704(8) 75(a)(13) 705 72(b) 706 707 95(g) 721 11(a)(5) 722 723 23(g) 724(a) 93(j) 724(b) 107(c)(3) 724(c), (d) 725 726(a)(1), (2) 726(a)(3) 93(n) 726(a)(4)-(6), (b), (c) 727(a)(1) 727(a)(2) 32(c)(1), (4) 727(a)(3) 32(c)(2) 727(a)(4) 32(c)(1), (3) 727(a)(5) 32(c)(7) 727(a)(6) 32(c)(6) 727(a)(7) 727(a)(8), (9) 32(c)(5) 727(a)(10) 32(a) 727(b) 727(c) 32(b) 727(d), (e) 33 728 741 96(e)(1) 742-744 745 96(e)(2) 746-748 749 96(e)(5) 750 751 96(e)(2) 752 96(e)(2), (3) 761-766 901 402(b)(1), (2), 405(b), (e), (h), 408(b), 409, 411, 412, 413, 414(a), 416(b), (d) 902(1) 902(2) 401(10) 902(3) 401(11) 902(4) 903 403 904 402(c) 921(a) 405(a) 921(b) 402(d) 921(c)-(f) 405(a) 922(a) 405(e)(1) 922(b) 923 405(d) 924 405(b) 925 408(a) 926 405(h) 927 418 941 410(a) 942 410(a), (b) 943(a) 413 943(b)(1) 943(b)(2) 414(b)(2) 943(b)(3) 414(b)(4) 943(b)(4) 414(b)(6) 943(b)(5), (6) 414(b)(1) 944(a) 415(a) 944(b) 415(b)(1) 944(c) 415(b)(2) 945(a) 416(e) 945(b) 946 417 1101(1) 1101(2) 629(a) 1102 738 1103(a) 739(2) 1103(b), (c)(1) 1103(c)(2) 739(1)(a) 1103(c)(3) 739(1)(b)-(e) 1103(c)(4) 1103(c)(5) 739(1)(f) 1103(d) 1104(a) 556, 832, 837(1) 1104(b) 568 1104(c) 560 1105 559 1106 587, 842 1106(a)(2) 564 1106(a)(3) 567(1) 1106(a)(4) 567(5) 1106(a)(4)(A) 567(3) 1106(a)(5) 569 1106(b) 568 1107(a) 563, 588, 742, 844 1107(b) 1108 589, 743, 845 1109 607 1109(a) 608 1109(b) 606 1110 516(5), (6) 1111 596, 851 1112(a) 1112(b) 636, 776, 777, 881, 882 1112(c)-(e) 1121 570 1122 597, 751, 852 1123(a)(1) 1123(a)(2) 616(6), 861(10) 1123(a)(3) 616(5), 861(9) 1123(a)(4) 1123(a)(5) 616(2), (10), 861(12) 1123(a)(6) 616(12)(a) 1123(a)(7) 616(11) 1123(b)(1) 616(1) 1123(b)(2) 616(4), 757(2), 861(4) 1123(b)(3) 616(13) 1123(b)(4) 616(2), 861(7) 1123(b)(5) 616(14), 757(8), 861(13) 1123(c) 1124 507, 708, 807 1125(a) 1125(b) 576 1125(c) 1125(d) 575 1125(e) 1126 579 1126(a) 599 1126(e) 603 1127 622, 763 1127(a) 869 1127(b) 629(c), 787(1), 869 1127(c) 765, 787(2), (3), 871 1127(d) 623, 764, 870 1128(a) 579, 735(3), 737(3), 835, 837(3) 1128(b) 580 1129(a)(1) 621(1), 766(1), 872(1) 1129(a)(2) 766(3), 872(3) 1129(a)(3) 621(3), 761, 766(4), 867, 872(4) 1129(a)(4) 621(4), 872(5) 1129(a)(5) 621(5) 1129(a)(6) 624(2) 1129(a)(7) 621(2), 766(2), 872(2) 1129(a)(8) 1129(a)(9) 737(2) 1129(a)(10) 1129(a)(11) 621(2), 766(2), 872(2) 1129(b), (c) 1129(d) 669, 921 1141(a) 624(1), 767(1), 873(1) 1141(b) 1141(c) 626, 874 1141(d)(1)-(3) 628(1), 771, 876 1141(d)(4) 32(a) 1142(a) 624(2), 873(2) 1142(b) 627, 875 1143 604 1144 786, 911 1145(a) 664(a), 793(a), 918(a) 1145(b) 664(b), 793(b), 918(b) 1145(c), (d) 1146(a), (b) 1146(c) 667 1146(d) 1161, 1162 1163 205(c)(1) 1164, 1165 1166 205(c)(2) 1167 205(n) 1168 205(j) 1169 205(c)(6) 1170 205(o) 1171(a) 205(n) 1171(b) 205(b) 1172 205(b) 1173 205(e) 1174 1301, 1302 1303 1036 1304 1305(a)(1) 1080 1305(a)(2), (b), (c) 1306 1307 1066 1321 1033(2) 1322(a)(1) 1046(4) 1322(a)(2) 1046(3) 1322(a)(3) 1322(b)(1) 1046(1) 1322(b)(2) 1046(2) 1322(b)(3)-(6) 1322(b)(7) 1046(6) 1322(b)(8), (9) 1322(b)(10) 1046(7) 1322(c) 1323(a) 1053 1323(b) 1323(c) 1054 1324 1033(5) 1325(a)(1) 1056(a)(1) 1325(a)(2) 1325(a)(3) 1051, 1056(a)(4) 1325(a)(4), (5) 1325(a)(6) 1056(a)(2) 1325(b) 1326(a) 1059 1326(b) 1327(a) 1057 1327(b), (c) 1328(a) 1060 1328(b) 1061 1328(c), (d) 1060 1328(e) 33 1329(a) 1046(5) 1329(b), (c) 1330 1071 1501-151326 ------------------------------- ENACTING CLAUSE Pub. L. 95-598, title I, Sec. 101, Nov. 6, 1978, 92 Stat. 2549, provided in part: 'The law relating to bankruptcy is codified and enacted as title 11 of the United States Code, entitled 'Bankruptcy', and may be cited as 11 U.S.C. Sec. - .' REPEALS Pub. L. 95-598, title IV, Sec. 401(a), Nov. 6, 1978, 92 Stat. 2682, provided that: 'The Bankruptcy Act (act July 1, 1898, ch. 541, 30 Stat. 544, as amended) is repealed.' EFFECTIVE DATE Pub. L. 95-598, title IV, Sec. 402, Nov. 6, 1978, 92 Stat. 2682, as amended by Pub. L. 98-249, Sec. 1(a), Mar. 31, 1984, 98 Stat. 116; Pub. L. 98-271, Sec. 1(a), Apr. 30, 1984, 98 Stat. 163; Pub. L. 98-299, Sec. 1(a), May 25, 1984, 98 Stat. 214; Pub. L. 98-325, Sec. 1(a), June 20, 1984, 98 Stat. 268; Pub. L. 98-353, title I, Sec. 113, 121(a), July 10, 1984, 98 Stat. 343, 345; Pub. L. 98-454, title X, Sec. 1001, Oct. 5, 1984, 98 Stat. 1745, provided that: '(a) Except as otherwise provided in this title (sections 401 to 411), this Act (for classification to the Code, see Tables) shall take effect on October 1, 1979. '(b) Except as provided in subsections (c) and (d) of this section, the amendments made by title II (sections 201 to 252) of this Act shall not be effective. '(c) The amendments made by sections 210, 214, 219, 220, 222, 224, 225, 228, 229, 235, 244, 245, 246, 249, and 251 of this Act shall take effect on October 1, 1979. '(d) The amendments made by sections 217, 218, 230, 247, 302, 314(j), 317, 327, 328, 338, and 411 of this Act shall take effect on the date of enactment of this Act (Nov. 6, 1978). '(e) (Repealed. Pub. L. 98-454, title X, Sec. 1001, Oct. 5, 1984, 98 Stat. 1745).' (Amendment of section 402(b) of Pub. L. 95-598, set out above, by section 113 of Pub. L. 98-353 effective June 27, 1984, see section 122(c) of Pub. L. 98-353, set out as an Effective Date note under section 151 of Title 28, Judiciary and Judicial Procedure.) SAVINGS PROVISION Pub. L. 95-598, title IV, Sec. 403, Nov. 6, 1978, 92 Stat. 2683, as amended by Pub. L. 98-353, title III, Sec. 382, July 10, 1984, 98 Stat. 364, provided that: '(a) A case commenced under the Bankruptcy Act, (act July 1, 1898, ch. 541, 30 Stat. 544, as amended), and all matters and proceedings in or relating to any such case, shall be conducted and determined under such Act as if this Act had not been enacted, and the substantive rights of parties in connection with any such bankruptcy case, matter, or proceeding shall continue to be governed by the law applicable to such case, matter, or proceeding as if the (this) Act had not been enacted. '(b) Notwithstanding subsection (a) of this section, sections 1165, 1167, 1168, 1169, and 1171 of title 11 of the United States Code, as enacted by section 101 of this Act, apply to cases pending under section 77 of the Bankruptcy Act ((former) 11 U.S.C. 205) on the date of enactment of this Act (Nov. 6, 1978) in which the trustee has not filed a plan of reorganization. '(c) The repeal (of the Bankruptcy Act) made by section 401(a) of this Act does not affect any right of a referee in bankruptcy, United States bankruptcy judge, or survivor of a referee in bankruptcy or United States bankruptcy judge to receive any annuity or other payment under the civil service retirement laws. '(d) The amendments made by section 314 of this Act (for classification to the Code, see Tables) do not affect the application of chapter 9, chapter 96, section 2516, section 3057, or section 3284 of title 18 of the United States Code to any act of any person - '(1) committed before October 1, 1979; or '(2) committed after October 1, 1979, in connection with a case commenced before such date. '(e) Notwithstanding subsection (a) of this section - '(1) a fee may not be charged under section 40c(2)(a) of the Bankruptcy Act (former 11 U.S.C. 68(c)(2)(a)) in a case pending under such Act after September 30, 1979, to the extent that such fee exceeds $200,000; '(2) a fee may not be charged under section 40c(2)(b) of the Bankruptcy Act in a case in which the plan is confirmed after September 30, 1978, or in which the final determination as to the amount of such fee is made after September 30, 1979, notwithstanding an earlier confirmation date, to the extent that such fee exceeds $100,000; '(3) after September 30, 1979, all moneys collected for payment into the referees' salary and expense fund in cases filed under the Bankruptcy Act shall be collected and paid into the general fund of the Treasury; and '(4) any balance in the referees' salary and expense fund in the Treasury on October 1, 1979, shall be transferred to the general fund of the Treasury and the referees' salary and expense fund account shall be closed.' Pub. L. 98-353, title III, Sec. 381, July 10, 1984, 98 Stat. 364, provided that: 'This subtitle ((Sec. 381, 382) amending section 403(e) of Pub. L. 95-598, set out above) may be cited as the 'Referees Salary and Expense Fund Act of 1984'.' HISTORY OF BANKRUPTCY ACTS The bankruptcy laws were revised generally and enacted as Title 11, Bankruptcy, by Pub. L. 96-598, Nov. 6, 1978, 92 Stat. 2549. Earlier bankruptcy laws included the following acts: Apr. 4, 1800, ch. 19, 2 Stat. 19, repealed Dec. 19, 1803, ch. 6, 2 Stat. 248. Aug. 19, 1841, ch. 9, 5 Stat. 440, repealed Mar. 3, 1843, ch. 82, 5 Stat. 614. Mar. 2, 1867, ch. 176, 14 Stat. 517, the provisions of which were incorporated in Rev. Stat. Title LXI, Sec. 4972 to 5132, were materially amended June 22, 1874, ch. 390, 18 Stat. 178, and were repealed June 7, 1878, ch. 160, 20 Stat. 99. The Bankruptcy Act of July 1, 1898, ch. 541, 30 Stat. 544, as amended, sometimes called the Nelson Act, repealed by Pub. L. 95-598. The Chandler Act of July 22, 1938, ch. 575, 52 Stat. 883, which revised the Bankruptcy Act generally and materially amended the provisions covering corporate reorganizations, repealed by Pub. L. 95-598. COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES Pub. L. 91-354, Sec. 1-6, July 24, 1970, 84 Stat. 468, as amended by Pub. L. 92-251, Mar. 17, 1972, 86 Stat. 63; Pub. L. 93-56, Sec. 1, July 1, 1973, 87 Stat. 140, established the Commission on the Bankruptcy Laws of the United States, to study and recommend changes to this title, which ceased to exist 30 days after the date of submission of its final report which was required prior to July 31, 1973. -SECREF- TITLE REFERRED TO IN OTHER SECTIONS This title is referred to in title 7 sections 12, 24; title 8 section 1154; title 10 sections 2005, 2130a; title 12 sections 1150, 1467a, 1787, 1821; title 15 sections 77c, 77ccc, 78eee, 78fff, 78fff-1, 78fff-2, 78fff-4, 78lll, 79k, 80a-2, 80a-25, 80b-2, 1681c, 1870; title 17 section 201; title 18 sections 151, 152, 154, 155, 1961, 2516, 3284; title 19 section 1485; title 25 section 1616a; title 26 sections 56, 108, 351, 368, 382, 422, 422A, 542, 1017, 1361, 1398, 1399, 3302, 4980B, 6012, 6036, 6103, 6161, 6212, 6213, 6327, 6503, 6512, 6532, 6658, 6871, 6872, 7434, 7464, 7508; title 28 sections 156, 157, 526, 586, 1334, 1408, 1409, 1411, 1412, 1930, 2075, 3003; title 29 sections 152, 402, 1163, 1341, 1362, 1368, 1391, 1402, 1405, 1413; title 30 section 934; title 31 section 3713; title 33 section 511; title 37 sections 301b, 301d, 302, 302b, 302d, 302e, 308e, 308f, 308g, 308h, 308i, 315, 317; title 38 sections 1832, 4334; title 40 section 316; title 41 section 41; title 42 sections 254o, 294f, 300ff-76, 656, 1473, 2000e, 3602, 6924, 6991b, 6991c, 9602, 9608; title 43 sections 617p, 1606, 1636; title 45 sections 701, 791, 912, 1007; title 48 sections 1424-4, 1614, 1694; title 49 section 11304; title 49 App. section 1602. ------DocID 14821 Document 2 of 646------ -CITE- 11 USC CHAPTER 11 -EXPCITE- TITLE 11 CHAPTER 11 -HEAD- CHAPTER 11 - REORGANIZATION -MISC1- SUBCHAPTER I - OFFICERS AND ADMINISTRATION Sec. 1101. Definitions for this chapter. 1102. Creditors' and equity security holders' committees. 1103. Powers and duties of committees. 1104. Appointment of trustee or examiner. 1105. Termination of trustee's appointment. 1106. Duties of trustee and examiner. 1107. Rights, powers, and duties of debtor in possession. 1108. Authorization to operate business. 1109. Right to be heard. 1110. Aircraft equipment and vessels. 1111. Claims and interests. 1112. Conversion or dismissal. 1113. Rejection of collective bargaining agreements. 1114. Payment of insurance benefits to retired employees. SUBCHAPTER II - THE PLAN 1121. Who may file a plan. 1122. Classification of claims or interests. 1123. Contents of plan. 1124. Impairment of claims or interests. 1125. Postpetition disclosure and solicitation. 1126. Acceptance of plan. 1127. Modification of plan. 1128. Confirmation hearing. 1129. Confirmation of plan. SUBCHAPTER III - POSTCONFIRMATION MATTERS 1141. Effect of confirmation. 1142. Implementation of plan. 1143. Distribution. 1144. Revocation of an order of confirmation. 1145. Exemption from securities laws. 1146. Special tax provisions. SUBCHAPTER IV - RAILROAD REORGANIZATION 1161. Inapplicability of other sections. 1162. Definition. 1163. Appointment of trustee. 1164. Right to be heard. 1165. Protection of the public interest. 1166. Effect of subtitle IV of title 49 and of Federal, State, or local regulations. 1167. Collective bargaining agreements. 1168. Rolling stock equipment. 1169. Effect of rejection of lease of railroad line. 1170. Abandonment of railroad line. 1171. Priority claims. 1172. Contents of plan. 1173. Confirmation of plan. 1174. Liquidation. HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Chapter 11 of the House amendment is derived in large part from chapter 11 as contained in the House bill. Unlike chapter 11 of the Senate amendment, chapter 11 of the House amendment does not represent an extension of chapter X of current law (chapter 10 of former title 11) or any other chapter of the Bankruptcy Act (former title 11). Rather chapter 11 of the House amendment takes a new approach consolidating subjects dealt with under chapters VIII, X, XI, and XII of the Bankruptcy Act (chapters 8, 10, 11, and 12 of former title 11). The new consolidated chapter 11 contains no special procedure for companies with public debt or equity security holders. Instead, factors such as the standard to be applied to solicitation of acceptances of a plan of reorganization are left to be determined by the court on a case-by-case basis. In order to insure that adequate investigation of the debtor is conducted to determine fraud or wrongdoing on the part of present management, an examiner is required to be appointed in all cases in which the debtor's fixed, liquidated, and unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5 million. This should adequately represent the needs of public security holders in most cases. However, in addition, section 1109 of the House amendment enables both the Securities and Exchange Commission and any party in interest who is creditor, equity security holder, indenture trustee, or any committee representing creditors or equity security holders to raise and appear and be heard on any issue in a case under chapter 11. This will enable the bankruptcy court to evaluate all sides of a position and to determine the public interest. This approach is sharply contrasted to that under chapter X of present law in which the public interest is often determined only in terms of the interest of public security holders. The advisory role of the Securities and Exchange Commission will enable the court to balance the needs of public security holders against equally important public needs relating to the economy, such as employment and production, and other factors such as the public health and safety of the people or protection of the national interest. In this context, the new chapter 11 deletes archaic rules contained in certain chapters of present law such as the requirement of an approval hearing and the prohibition of prepetition solicitation. Such requirements were written in an age before the enactment of the Trust Indenture Act (15 U.S.C. 77aaa et seq.) and the development of securities laws had occurred. The benefits of these provisions have long been outlived but the detriment of the provisions served to frustrate and delay effective reorganization in those chapters of the Bankruptcy Act in which such provisions applied. Chapter 11 thus represents a much needed revision of reorganization laws. A brief discussion of the history of this important achievement is useful to an appreciation of the monumental reform embraced in chapter 11. Under the existing Bankruptcy Act (former title 11) debtors seeking reorganization may choose among three reorganization chapters, chapter X, chapter XI, and chapter XII (chapters 10, 11, and 12 of former title 11). Individuals and partnerships may file under chapter XI or, if they own property encumbered by mortgage liens, they may file under chapter XII. A corporation may file under either chapter X or chapter XI, but is ineligible to file under chapter XII. Chapter X was designed to facilitate the pervasive reorganization of corporations whose creditors include holders of publicly issued debt securities. Chapter XI, on the other hand, was designed to permit smaller enterprises to negotiate composition or extension plans with their unsecured creditors. The essential differences between chapters X and XI are as follows. Chapter X mandates that, first, an independent trustee be appointed and assume management control from the officers and directors of the debtor corporation; second, the Securities and Exchange Commission must be afforded an opportunity to participate both as an adviser to the court and as a representative of the interests of public security holders; third, the court must approve any proposed plan of reorganization, and prior to such approval, acceptances of creditors and shareholders may not be solicited; fourth, the court must apply the absolute priority rule; and fifth, the court has the power to affect, and grant the debtor a discharge in respect of, all types of claims, whether secured or unsecured and whether arising by reason of fraud or breach of contract. The Senate amendment consolidates chapters X, XI, and XII (chapters 10, 11, and 12 of former title 11), but establishes a separate and distinct reorganization procedure for 'public companies.' The special provisions applicable to 'public companies' are tantamount to the codification of chapter X of the existing Bankruptcy Act and thus result in the creation of a 'two-track system.' The narrow definition of the term 'public company' would require many businesses which could have been rehabilitated under chapter XI to instead use the more cumbersome procedures of chapter X, whether needed or not. The special provisions of the Senate amendment applicable to a 'public company' are as follows: (a) Section 1101(3) defines a 'public company' as a debtor who, within 12 months prior to the filing of the petition, had outstanding $5 million or more in debt and had not less than 1000 security holders; (b) Section 1104(a) requires the appointment of a disinterested trustee irrespective of whether creditors support such appointment and whether there is cause for such appointment; (c) Section 1125(f) prohibits the solicitation of acceptances of a plan of reorganization prior to court approval of such plan even though the solicitation complies with all applicable securities laws; (d) Section 1128(a) requires the court to conduct a hearing on any plan of reorganization proposed by the trustee or any other party; (e) Section 1128(b) requires the court to refer any plans 'worthy of consideration' to the Securities and Exchange Commission for their examination and report, prior to court approval of a plan; and (f) Section 1128(c) and section 1130(a)(7) requires the court to approve a plan or plans which are 'fair and equitable' and comply with the other provisions of chapter 11. The record of the Senate hearings on S. 2266 and the House hearings on H.R. 8200 is replete with evidence of the failure of the reorganization provisions of the existing Bankruptcy Act (former title 11) to meet the needs of insolvent corporations in today's business environment. Chapter X (chapter 10 of former title 11) was designed to impose rigid and formalized procedures upon the reorganization of corporations and, although designed to protect public creditors, has often worked to the detriment of such creditors. As the House report has noted: The negative results under chapter X (chapter 10 of former title 11) have resulted from the stilted procedures, under which management is always ousted and replaced by an independent trustee, the courts and the Securities and Exchange Commission examine the plan of reorganization in great detail, no matter how long that takes, and the court values the business, a time consuming and inherently uncertain procedure. The House amendment deletes the 'public company' exception, because it would codify the well recognized infirmities of chapter X (chapter 10 of former title 11), because it would extend the chapter X approach to a large number of new cases without regard to whether the rigid and formalized procedures of chapter X are needed, and because it is predicated upon the myth that provisions similar to those contained in chapter X are necessary for the protection of public investors. Bankruptcy practice in large reorganization cases has also changed substantially in the 40 years since the Chandler Act (June 22, 1938, ch. 575, 52 Stat. 883, amending former title 11) was enacted. This change is, in large part, attributable to the pervasive effect of the Federal securities laws and the extraordinary success of the Securities and Exchange Commission in sensitizing both management and members of the bar to the need for full disclosure and fair dealing in transactions involving publicly held securities. It is important to note that Congress passed the Chandler Act (June 22, 1938, ch. 575, 52 Stat. 883, amending former title 11) prior to enactment of the Trust Indenture Act of 1939 (15 U.S.C. section 77aaa et seq.) and prior to the definition and enforcement of the disclosure requirements of the Securities Act of 1933 (15 U.S.C. 77a et seq.) and the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). The judgments made by the 75th Congress in enacting the Chandler Act are not equally applicable to the financial markets of 1978. First of all, most public debenture holders are neither weak nor unsophisticated investors. In most cases, a significant portion of the holders of publicly issued debentures are sophisticated institutions, acting for their own account or as trustees for investment funds, pension funds, or private trusts. In addition, debenture holders, sophisticated, and unsophisticated alike, are represented by indenture trustees, qualified under section 77ggg of the Trust Indenture Act (probably should be 'section 307' which is 15 U.S.C. 77ggg). Given the high standard of care to which indenture trustees are bound, they are invariably active and sophisticated participants in efforts to rehabilitate corporate debtors in distress. It is also important to note that in 1938 when the Chandler Act (June 22, 1938, ch. 575, 52 Stat. 883, amending former title 11) was enacted, public investors commonly held senior, not subordinated, debentures and corporations were very often privately owned. In this environment, the absolute priority rule protected debenture holders from an erosion of their position in favor of equity holders. Today, however, if there are public security holders in a case, they are likely to be holders of subordinated debentures and equity and thus the application of the absolute priority rule under chapter X (chapter 10 of former title 11) leads to the exclusion, rather than the protection, of the public. The primary problem posed by chapter X (chapter 10 of former title 11) is delay. The modern corporation is a complex and multifaceted entity. Most corporations do not have a significant market share of the lines of business in which they compete. The success, and even the survival, of a corporation in contemporary markets depends on three elements: First, the ability to attract and hold skilled management; second, the ability to obtain credit; and third, the corporation's ability to project to the public an image of vitality. Over and over again, it is demonstrated that corporations which must avail themselves of the provisions of the Bankruptcy Act (former title 11) suffer appreciable deterioration if they are caught in a chapter X proceeding for any substantial period of time. There are exceptions to this rule. For example, King Resources filed a chapter X (chapter 10 of former title 11) petition in the District of Colorado and it emerged from such proceeding as a solvent corporation. The debtor's new found solvency was not, however, so much attributable to a brilliant rehabilitation program conceived by a trustee, but rather to a substantial appreciation in the value of the debtor's oil and uranium properties during the pendency of the proceedings. Likewise, Equity Funding is always cited as an example of a successful chapter X (chapter 10 of former title 11) case. But it should be noted that in Equity Funding there was no question about retaining existing management. Rather, Equity Funding involved fraud on a grand scale. Under the House amendment with the deletion of the mandatory appointment of a trustee in cases involving 'public companies,' a bankruptcy judge, in a case like Equity Funding, would presumably have little difficulty in concluding that a trustee should be appointed under section 1104(6). While I will not undertake to list the chapter X (chapter 10 of former title 11) failures, it is important to note a number of cases involving corporations which would be 'public companies' under the Senate amendment which have successfully skirted the shoals of chapter X and confirmed plans of arrangement in chapter XI (chapter 11 of former title 11). Among these are Daylin, Inc. ('Daylin') and Colwell Mortgage Investors ('Colwell'). Daylin filed a chapter XI (chapter 11 of former title 11) petition on February 26, 1975, and confirmed its plan of arrangement on October 20, 1976. The success of its turnaround is best evidenced by the fact that it had consolidated net income of $6,473,000 for the first three quarters of the 1978 fiscal year. Perhaps the best example of the contrast between chapter XI and chapter X (chapters 11 and 10 of former title 11) is the recent case of In re Colwell Mortgage Investors. Colwell negotiated a recapitalization plan with its institutional creditors, filed a proxy statement with the Securities and Exchange Commission, and solicited consents of its creditors and shareholders prior to filing its chapter XI petition. Thereafter, Colwell confirmed its plan of arrangement 41 days after filing its chapter XI petition. This result would have been impossible under the Senate amendment since Colwell would have been a 'public company.' There are a number of other corporations with publicly held debt which have successfully reorganized under chapter XI (chapter 11 of former title 11). Among these are National Mortgage Fund (NMF), which filed a chapter XI petition in the northern district of Ohio on June 30, 1976. Prior to commencement of the chapter XI proceeding, NMF filed a proxy statement with the Securities and Exchange Commission and solicited acceptances to a proposed plan of arrangement. The NMF plan was subsequently confirmed on December 14, 1976. The Securities and Exchange Commission did not file a motion under section 328 of the Bankruptcy Act (section 728 of former title 11) to transfer the case to chapter X (chapter 10 of former title 11) and a transfer motion which was filed by private parties was denied by the court. While there are other examples of large publicly held companies which have successfully reorganized in chapter XI (chapter 11 of former title 11), including Esgrow, Inc. (C.D.Cal. 73-02510), Sherwood Diversified Services Inc. (S.D.N.Y. 73-B-213), and United Merchants and Manufacturers, Inc. (S.D.N.Y. 77-B-1513), the numerous successful chapter XI cases demonstrate two points: first, the complicated and time-consuming provisions of chapter X (chapter 10 of former title 11) are not always necessary for the successful reorganization of a company with publicly held debt, and second, the more flexible provisions in chapter XI permit a debtor to obtain relief under the Bankruptcy Act (former title 11) in significantly less time than is required to confirm a plan of reorganization under chapter X of the Bankruptcy Act. One cannot overemphasize the advantages of speed and simplicity to both creditors and debtors. Chapter XI (chapter 11 of former title 11) allows a debtor to negotiate a plan outside of court and, having reached a settlement with a majority in number and amount of each class of creditors, permits the debtor to bind all unsecured creditors to the terms of the arrangement. From the perspective of creditors, early confirmation of a plan of arrangement: first, generally reduces administrative expenses which have priority over the claims of unsecured creditors; second, permits creditors to receive prompt distributions on their claims with respect to which interest does not accrue after the filing date; and third, increases the ultimate recovery on creditor claims by minimizing the adverse effect on the business which often accompanies efforts to operate an enterprise under the protection of the Bankruptcy Act (former title 11). Although chapter XI (chapter 11 of former title 11) offers the corporate debtor flexibility and continuity of management, successful rehabilitation under chapter XI is often impossible for a number of reasons. First, chapter XI does not permit a debtor to 'affect' secured creditors or shareholders, in the absence of their consent. Second, whereas a debtor corporation in chapter X (chapter 10 of former title 11), upon the consummation of the plan or reorganization, is discharged from all its debts and liabilities, a corporation in chapter XI may not be able to get a discharge in respect of certain kinds of claims including fraud claims, even in cases where the debtor is being operated under new management. The language of chapter 11 in the House amendment solves these problems and thus increases the utility and flexibility of the new chapter 11, as compared to chapter XI of the existing Bankruptcy Act (chapter 11 of former title 11). Those who would urge the adoption of a two-track system have two major obstacles to meet. First, the practical experience of those involved in business rehabilitation cases, practitioners, debtors, and bankruptcy judges, has been that the more simple and expeditious procedures of chapter XI (chapter 11 of former title 11) are appropriate in the great majority of cases. While attempts have been made to convince the courts that a chapter X (chapter 10 of former title 11) proceeding is required in every case where public debt is present, the courts have categorically rejected such arguments. Second, chapter X has been far from a success. Of the 991 chapter X cases filed during the period of January 1, 1967, through December 31, 1977, only 664 have been terminated. Of those cases recorded as 'terminated,' only 140 resulted in consummated plans. This 21 percent success rate suggests one of the reasons for the unpopularity of chapter X. In summary, it has been the experience of the great majority of those who have testified before the Senate and House subcommittees that a consolidated approach to business rehabilitation is warranted. Such approach is adopted in the House amendment. Having discussed the general reasons why chapter 11 of the House amendment is sorely needed, a brief discussion of the differences between the House bill, Senate amendment, and the House amendment, is in order. Since chapter 11 of the House amendment rejects the concept of separate treatment for a public company, sections 1101(3), 1104(a), 1125(f), 1128, and 1130(a)(7) of the Senate amendment have been deleted. AMENDMENTS 1988 - Pub. L. 100-334, Sec. 2(c), June 16, 1988, 102 Stat. 613, added item 1114. 1984 - Pub. L. 98-353, title III, Sec. 514(b), 541(b), July 10, 1984, 98 Stat. 387, 391, added item 1113 and substituted 'Implementation' for 'Execution' in item 1142. 1983 - Pub. L. 97-449, Sec. 5(a)(1), Jan. 12, 1983, 96 Stat. 2442, substituted 'subtitle IV of title 49' for 'Interstate Commerce Act' in item 1166. -SECREF- CHAPTER REFERRED TO IN OTHER SECTIONS This chapter is referred to in sections 103, 109, 303, 326, 327, 329, 346, 347, 362, 363, 365, 502, 503, 706, 1102, 1203, 1301, 1306, 1307 of this title; title 26 sections 108, 1398, 6012; title 28 sections 157, 586, 1930; title 29 sections 1341, 1342. ------DocID 15143 Document 3 of 646------ -CITE- 11 USC APPENDIX - BANKRUPTCY RULES Form 11 -EXPCITE- TITLE 11 APPENDIX BANKRUPTCY RULES AND OFFICIAL FORMS OFFICIAL FORMS -HEAD- Form 11. - Involuntary Case: Creditors' Petition -STATUTE- (CAPTION AS IN FORM NO. 1) INVOLUNTARY CASE: CREDITORS' PETITION 1. Petitioners, XXXXXXX XXXXX, of *XXXXXXXX, and XXXXXXXX XXX, of *XXXXXXXX, and XXXXXXX XXXXX, of *XXXXXXXXXXXXXX, are creditors of XXXXXXXXXX, of *XXXXXXXXXX XXXXXXXX (include county), holding claims against the debtor, not contingent as to liability and not subject to bona fide dispute, amounting in the aggregate, in excess of the value of any lien held by them on the debtor's property securing such claims, to at least $5000. The nature and amount of petitioners' claims are as follows: XXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXX 2. The debtor's principal place of business (or principal assets or domicile or residence) has been within this district for the 180 days preceding the filing of this petition (or for a longer portion of the 180 days preceding the filing of this petition than in any other district). 3. The debtor is a person against whom an order for relief may be entered under title 11, United States Code. 4. (The debtor is generally not paying its debts which are not subject to bona fide dispute as they become due as indicated by the f XXXXXXXXXXXXXXXXXXXXXXXXX.) or (Within 120 days preceding the filing of this petition, a custodian was appointed for or has taken possession of substantially all of the property of the debtor, as follows: XXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXX.) WHEREFORE petitioners pray that an order of relief be entered againstXXXXXXXX under chapter 7 (or 11) of title 11, United States Code. Signed: XXXXXXXXXXXXXX, Attorney for Petitioners. Address:XXXXXXXXXXXXXX XXXXXXXXXXXXXX (Petitioners sign if not represented by attorney) XXXXXXXXXXXXXX, XXXXXXXXXXXXXX, XXXXXXXXXXXXXX, Petitioners. I, XXXXXXXX, one of the petitioners named in the foregoing petition, declare under penalty of perjury that the foregoing is true and correct according to the best of my knowledge, information, and belief. Executed on XXXXXXXX Signature: XXXXXXXX, Petitioner. * State mailing address. -SOURCE- (As amended Sept. 19, 1986, eff. Sept. 19, 1986.) -MISC1- NOTES OF ADVISORY COMMITTEE ON RULES The requisites for an involuntary petition are specified in Sec. 303 of the Code. 28 U.S.C. Sec. 1746 permits the unsworn declaration in lieu of a verification. See Advisory Committee Note to Form No. 1. NOTES OF ADVISORY COMMITTEE ON RULES - 1986 AMENDMENT The inclusion in paragraphs 1 and 4 of the allegations that the debts are not subject to bona fide dispute reflects the requirements added to Sec. 303(b)(i) and 303(h)(i) of the Code by the 1984 amendments. ------DocID 7947 Document 4 of 646------ -CITE- 5 USC CHAPTER 11 -EXPCITE- TITLE 5 PART II CHAPTER 11 -HEAD- CHAPTER 11 - OFFICE OF PERSONNEL MANAGEMENT -MISC1- Sec. 1101. Office of Personnel Management. 1102. Director; Deputy Director; Associate Directors. 1103. Functions of the Director. 1104. Delegation of authority for personnel management. 1105. Administrative procedure. AMENDMENTS 1978 - Pub. L. 95-454, title II, Sec. 201(a), Oct. 13, 1978, 92 Stat. 1119, substituted in chapter heading 'OFFICE OF PERSONNEL MANAGEMENT' for 'ORGANIZATION', in item 1101 'Office of Personnel Management' for 'Appointment of Commissioners', in item 1102 'Director; Deputy Director; Associate Directors' for 'Term of office; filling vacancies; removal', in item 1103 'Functions of the Director' for 'Chairman; Vice Chairman; Executive Director', in item 1104 'Delegation of authority for personnel management' for 'Functions of Chairman', and in item 1105 'Administrative procedure' for 'Boards of examiners'. ------DocID 8879 Document 5 of 646------ -CITE- 5 USC APPENDIX - FEDERAL ADVISORY COMMITTEE ACT Sec. 11 -EXPCITE- TITLE 5 APPENDIX FEDERAL ADVISORY COMMITTEE ACT -HEAD- Sec. 11. Availability of transcripts; 'agency proceeding' -STATUTE- (a) Except where prohibited by contractual agreements entered into prior to the effective date of this Act, agencies and advisory committees shall make available to any person, at actual cost of duplication, copies of transcripts of agency proceedings or advisory committee meetings. (b) As used in this section 'agency proceeding' means any proceeding as defined in section 551(12) of title 5, United States Code. -SOURCE- (Pub. L. 92-463, Sec. 11, Oct. 6, 1972, 86 Stat. 775.) -REFTEXT- REFERENCES IN TEXT Effective date of this Act, referred to in subsec. (a), as meaning effective upon expiration of ninety days following enactment of Pub. L. 92-463 on Oct. 6, 1972, see section 15 of Pub. L. 92-463. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in title 15 section 4806; title 19 sections 2155, 2605; title 42 section 6273; title 50 App. section 2158a. ------DocID 8901 Document 6 of 646------ -CITE- 5 USC APPENDIX - INSPECTOR GENERAL ACT OF 1978 Sec. 11 -EXPCITE- TITLE 5 APPENDIX INSPECTOR GENERAL ACT OF 1978 -HEAD- Sec. 11. Definitions -STATUTE- As used in this Act - (1) the term 'head of the establishment' means the Secretary of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Housing and Urban Development, the Interior, Labor, State, Transportation, or the Treasury; the Attorney General; the Administrator of the Agency for International Development, Environmental Protection, General Services, National Aeronautics and Space, Small Business, or Veterans' Affairs; the Director of the Federal Emergency Management Agency, the Office of Personnel Management or the United States Information Agency; the Chairman of the Nuclear Regulatory Commission or the Railroad Retirement Board (FOOTNOTE 1) the Oversight Board and the Board of Directors of the Resolution Trust Corporation; as the case may be; (FOOTNOTE 1) So in original. Probably should be followed by a semicolon. (2) the term 'establishment' means the Department of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Housing and Urban Development, the Interior, Justice, Labor, State, Transportation, or the Treasury; the Agency for International Development, the Environmental Protection Agency, the Federal Emergency Management Agency, the General Services Administration, the National Aeronautics and Space Administration, the Nuclear Regulatory Commission, the Office of Personnel Management, the Railroad Retirement Board, the Resolution Trust Corporation, the Small Business Administration, the United States Information Agency, or the Veterans' Administration; as the case may be; (3) the term 'Inspector General' means the Inspector General of an establishment; (4) the term 'Office' means the Office of Inspector General of an establishment; and (5) the term 'Federal agency' means an agency as defined in section 552(e) of title 5 (including an establishment as defined in paragraph (2)), United States Code, but shall not be construed to include the General Accounting Office. -SOURCE- (Pub. L. 95-452, Sec. 11, Oct. 12, 1978, 92 Stat. 1109; Pub. L. 96-88, title V, Sec. 509(n)(3), (4), Oct. 17, 1979, 93 Stat. 695; Pub. L. 97-113, title VII, Sec. 705(a)(2), Dec. 29, 1981, 95 Stat. 1544; Pub. L. 97-252, title XI, Sec. 1117(a)(4), (5), Sept. 8, 1982, 96 Stat. 750; Pub. L. 99-93, title I, Sec. 150(a)(2), Aug. 16, 1985, 99 Stat. 427; Pub. L. 99-399, title IV, Sec. 412(a)(2), Aug. 27, 1986, 100 Stat. 867; Pub. L. 100-504, title I, Sec. 102(c), Oct. 18, 1988, 102 Stat. 2515; Pub. L. 100-527, Sec. 13(h)(2), (3), Oct. 5, 1988, 102 Stat. 2643; Pub. L. 101-73, title V, Sec. 501(b)(1), Aug. 9, 1989, 103 Stat. 393.) -MISC1- AMENDMENTS 1989 - Par. (1). Pub. L. 101-73, Sec. 501(b)(1)(A), which directed the amendment of par. (1) by inserting 'the Oversight Board and the Board of Directors of the Resolution Trust Corporation' before '; as the case may be,', was executed by making the insertion before '; as the case may be;' as the probable intent of Congress. Par. (2). Pub. L. 101-73, Sec. 501(b)(1)(B), inserted 'the Resolution Trust Corporation,' after 'the Railroad Retirement Board,'. 1988 - Pars. (1), (2). Pub. L. 100-527, Sec. 13(h)(2), (3), substituted 'Transportation, or Veterans' Affairs,' for 'or Transportation' and 'or Small Business' for 'Small Business, or Veterans' Affairs' in par. (1), and substituted 'Transportation, or Veterans Affairs,' for 'or Transportation' and 'or the United States Information Agency' for 'the United States Information Agency or the Veterans' Administration' in par. (2). Pub. L. 100-504 added pars. (1) and (2) and struck out former pars. (1) and (2) which read as follows: '(1) the term 'head of the establishment' means the Secretary of Agriculture, Commerce, Defense, Education, Housing and Urban Development, the Interior, Labor, State, Transportation, or Veterans' Affairs, or the Administrator of the Agency for International Development, Community Services, Environmental Protection, General Services, National Aeronautics and Space, or Small Business, or the Director of the United States Information Agency as the case may be; '(2) the term 'establishment' means the Department of Agriculture, Commerce, Defense, Education, Housing and Urban Development, the Interior, Labor, State, Transportation, or Veterans Affairs, or the Agency for International Development, the Community Services Administration, the Environmental Protection Agency, the General Services Administration, the National Aeronautics and Space Administration, the Small Business Administration, or the United States Information Agency, as the case may be;'. 1986 - Pars. (1), (2). Pub. L. 99-399 inserted 'or the Director of the United States Information Agency' in par. (1) and 'the United States Information Agency' in par. (2). 1985 - Pars. (1), (2). Pub. L. 99-93 inserted 'State,' after 'Labor,'. 1982 - Pars. (1), (2). Pub. L. 97-252 inserted 'Defense,' after 'Commerce,'. 1981 - Pars. (1), (2). Pub. L. 97-113 inserted 'the Agency for International Development,' after 'Administrator of' in par. (1), and inserted 'the Agency for International Development,' after 'Transportation or' in par. (2). 1979 - Pars. (1), (2). Pub. L. 96-88 inserted 'Education,' after 'Commerce,'. -CHANGE- CHANGE OF NAME References to Administrator of Veterans' Affairs and to Veterans' Administration deemed to refer to Secretary of Veterans Affairs and to Department of Veterans Affairs, respectively, pursuant to section 10 of Pub. L. 100-527, set out as a Department of Veterans Affairs Act note under section 201 of Title 38, Veterans' Benefits. -MISC4- EFFECTIVE DATE OF 1988 AMENDMENTS Amendment by Pub. L. 100-527 effective Mar. 15, 1989, see section 18(a) of Pub. L. 100-527, set out as a Department of Veterans Affairs Act note under section 201 of Title 38, Veterans' Benefits. Amendment by Pub. L. 100-504 effective 180 days after Oct. 18, 1988, see section 113 of Pub. L. 100-504, set out as a note under section 5 of Pub. L. 95-452 in this Appendix. EFFECTIVE DATE OF 1979 AMENDMENT Amendment by Pub. L. 96-88 effective May 4, 1980, with specified exceptions, see section 601 of Pub. L. 96-88, set out as an Effective Date note under section 3401 of Title 20, Education. -TRANS- COMMUNITY SERVICES ADMINISTRATION The Community Services Administration, which was established by section 601 of the Economic Opportunity Act of 1964, as amended (42 U.S.C. 2941), was terminated when the Economic Opportunity Act of 1964, Pub. L. 88-452, Aug. 20, 1964, 78 Stat. 508, as amended, was repealed, except for titles VIII and X, effective Oct. 1, 1981, by section 683(a) of Pub. L. 97-35, title VI, Aug. 13, 1981, 95 Stat. 519, which is classified to 42 U.S.C. 9912(a). An Office of Community Services, headed by a Director, was established in the Department of Health and Human Services by section 676 of Pub. L. 97-35, which is classified to 42 U.S.C. 9905. -MISC5- OFFICE OF INSPECTOR GENERAL OF RESOLUTION TRUST CORPORATION; AUTHORIZATION OF APPROPRIATIONS Section 501(b)(2)(B) of Pub. L. 101-73 provided that: 'There is hereby authorized to be appropriated such sums as may be necessary for the operation of the Office of Inspector General established by the amendment made by paragraph (1) of this subsection (amending this section).' -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in title 22 sections 3929, 4861; title 31 sections 1105, 3801. ------DocID 8964 Document 7 of 646------ -CITE- 5 USC APPENDIX - REORGANIZATION PLAN NO. 11 OF 1950 -EXPCITE- TITLE 5 APPENDIX REORGANIZATION PLANS REORGANIZATION PLAN NO -HEAD- REORGANIZATION PLAN NO. 11 OF 1950 -MISC1- Reorganization Plan No. 11 of 1950, which proposed reorganizations in the Federal Communications Commission, was submitted to Congress on Mar. 13, 1950, and was disapproved by the Senate on May 17, 1950. ------DocID 9081 Document 8 of 646------ -CITE- 7 USC Sec. 11 -EXPCITE- TITLE 7 CHAPTER 1 -HEAD- Sec. 11. Vacation on request of designation as 'contract market'; redesignation -STATUTE- Any board of trade that has been designated a contract market in the manner provided in this chapter may have such designation vacated and set aside by giving notice in writing to the Commission requesting that its designation as a contract market be vacated, which notice shall be served at least ninety days prior to the date named therein as the date when the vacation of designation shall take effect. Upon receipt of such notice the Commission shall forthwith order the vacation of the designation of such board of trade as a contract market, effective upon the day named in the notice, and shall forthwith send a copy of the notice and its order to all other contract markets. From and after the date upon which the vacation became effective the said board of trade can thereafter be designated again a contract market by making application to the Commission in the manner in this chapter provided for an original application. -SOURCE- (Sept. 21, 1922, ch. 369, Sec. 7, 42 Stat. 1002; Oct. 23, 1974, Pub. L. 93-463, title I, Sec. 103(a), (e), 88 Stat. 1392.) -MISC1- AMENDMENTS 1974 - Pub. L. 93-463 substituted 'Commission' for 'Secretary of Agriculture' and 'its order' for 'his order'. EFFECTIVE DATE OF 1974 AMENDMENT For effective date of amendment by Pub. L. 93-463, see section 418 of Pub. L. 93-463, set out as a note under section 2 of this title. ------DocID 9394 Document 9 of 646------ -CITE- 7 USC CHAPTER 11 -EXPCITE- TITLE 7 CHAPTER 11 -HEAD- CHAPTER 11 - HONEYBEES -MISC1- Sec. 281. Importation of honeybees and honeybee semen restricted. (a) Honeybees. (b) Honeybee semen. (c) Rules and regulations. (d) Destruction or immediate exportation of nonexcepted honeybees or honeybee semen offered for import or intercepted. (e) 'Honeybee' defined. 282. Punishment for unlawful importation. 283. Propagation of stock and release of germ plasm. 284. Eradication and control of undesirable species and subspecies. (a) Operations in United States. (b) Cooperation with certain foreign governments; measure and character; consultation with Secretary of State. (c) Responsibility for authority to carry out operations. 285. Uses of funds. 286. Authorization of appropriations. ------DocID 11538 Document 10 of 646------ -CITE- 8 USC CHAPTER 11 -EXPCITE- TITLE 8 CHAPTER 11 -HEAD- CHAPTER 11 - NATIONALITY ------DocID 11774 Document 11 of 646------ -CITE- 9 USC Sec. 11 -EXPCITE- TITLE 9 CHAPTER 1 -HEAD- Sec. 11. Same; modification or correction; grounds; order -STATUTE- In either of the following cases the United States court in and for the district wherein the award was made may make an order modifying or correcting the award upon the application of any party to the arbitration - (a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award. (b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted. (c) Where the award is imperfect in matter of form not affecting the merits of the controversy. The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties. -SOURCE- (July 30, 1947, ch. 392, 61 Stat. 673.) -MISC1- DERIVATION Act Feb. 12, 1925, ch. 213, Sec. 11, 43 Stat. 885. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 9 of this title; title 5 sections 590, 591; title 41 section 607. ------DocID 11883 Document 12 of 646------ -CITE- 10 USC CHAPTER 11 -EXPCITE- TITLE 10 Subtitle A PART I CHAPTER 11 -HEAD- CHAPTER 11 - RESERVE COMPONENTS -MISC1- Sec. 261. Reserve components named. 262. Purpose. 263. Basic policy for order into Federal service. 264. Reserve affairs: designation of general or flag officer of each armed force; personnel and logistic support for Reserves. 265. Policies and regulations: participation of reserve officers in preparation and administration. 266. Boards for appointment, promotion, and certain other purposes: composition. 267. Ready Reserve; Standby Reserve; Retired Reserve: placement and status of members. 268. Ready Reserve. 269. Ready Reserve: placement in; transfer from. 270. Ready Reserve: training requirements. 271. Ready Reserve: continuous screening. 272. Ready Reserve: transfer back from Standby Reserve. 273. Standby Reserve: composition; inactive status list. 274. Retired Reserve. 275. Personnel records. 276. Mobilization forces: maintenance. 277. Regular and reserve components: discrimination prohibited. 278. Dissemination of information. (279. Repealed.) 280. Regulations. 281. Adjutants general and assistant adjutants general: reference to other officers of National Guard. AMENDMENTS 1984 - Pub. L. 98-525, title XIV, Sec. 1405(7)(C), Oct. 19, 1984, 98 Stat. 2622, in item 264 substituted 'armed force' for 'military department' and 'Reserves' for 'reserves' and struck out '; reports to Congress' at end. 1978 - Pub. L. 95-485, title IV, Sec. 406(b)(2), Oct. 20, 1978, 92 Stat. 1616, struck out item 279 'Training reports'. 1967 - Pub. L. 90-168, Sec. 2(7), Dec. 1, 1967, 81 Stat. 522, substituted 'designation of general or flag officers of each military department; personnel and logistic support for reserves; reports to Congress' for 'responsibility for' in item 264. 1960 - Pub. L. 86-559, Sec. 1(2)(D), June 30, 1960, 74 Stat. 264, added item 281. 1958 - Pub. L. 85-861, Sec. 1(6), Sept. 2, 1958, 72 Stat. 1439, added items 270, 271, 272 and 279. -SECREF- CHAPTER REFERRED TO IN OTHER SECTIONS This chapter is referred to in section 280 of this title. ------DocID 14593 Document 13 of 646------ -CITE- 10 USC APPENDIX - RULES OF COURT OF MILITARY APPEALS Rule 11 -EXPCITE- TITLE 10 APPENDIX UNITED STATES COURT OF MILITARY APPEALS CLERK'S OFFICE -HEAD- Rule 11. Calendar -STATUTE- (a) The Clerk shall prepare a calendar, consisting of the cases that have become or will be available for hearing, which shall be arranged in the first instance in the chronological order in which petitions for grant of review have been granted or certified questions and mandatory appeals have been filed with the Court. The arrangement of cases on the calendar shall be subject to modification in light of the availability of pleadings, extensions of time to file briefs, and orders to advance or specially set cases for hearing. (b) The Clerk shall periodically publish hearing lists in advance of each Court session for the convenience of counsel and the information of the public. (c) The Clerk shall advise counsel when they are required to be present in Court. See Rule 40(b)(1). (d) Cases may be advanced or postponed by order of the Court, upon motion duly made showing good cause therefor, or on the Court's own motion. See Rule 40(b). (e) Two or more cases involving the same question may, on the Court's own order or by special permission, be heard together as one case or on such terms as may be prescribed. ------DocID 14651 Document 14 of 646------ -CITE- 10 USC APPENDIX - RULES OF COURTS OF MILITARY REVIEW Rule 11 -EXPCITE- TITLE 10 APPENDIX COURTS OF MILITARY REVIEW -HEAD- Rule 11. Assignment of counsel -STATUTE- (a) When a record of trial is referred to the Court - (1) if the accused has requested representation by appellate defense counsel, pursuant to Article 70(c)(1), counsel detailed pursuant to Article 70(a) will be assigned to represent the accused; (2) if the accused gives notice that he or she has retained or has taken action to retain civilian counsel, appellate defense counsel shall be assigned to represent the interests of the accused pending appearance of civilian counsel. Assigned defense counsel will continue to assist after appearance by civilian counsel unless excused by the accused; (3) if the accused has neither requested appellate counsel nor given notice of action to retain civilian counsel, but has not waived representation by counsel, apellate defense counsel will be assigned to represent the accused, subject to excusal by the accused or by direction of the Court. (b) In any case - (1) the Court may request counsel when counsel have not been assigned; (2) pursuant to Article 70(c)(2), appellate defense counsel will represent the accused when the United States is represented by counsel before the Court. ------DocID 7098 Document 15 of 646------ -CITE- 2 USC Sec. 61a-11 -EXPCITE- TITLE 2 CHAPTER 4 -HEAD- Sec. 61a-11. Abolition of statutory positions in Office of Secretary of Senate; Secretary's authority to establish and fix compensation for positions -STATUTE- Effective October 1, 1981, all statutory positions in the Office of the Secretary (other than the positions of the Secretary of the Senate, Assistant Secretary of the Senate, Parliamentarian, Financial Clerk, and Director of the Office of Classified National Security Information) are abolished, and in lieu of the positions hereby abolished the Secretary of the Senate is authorized to establish such number of positions as he deems appropriate and appoint and fix the compensation of employees to fill the positions so established; except that the annual rate of compensation payable to any employee appointed to fill any position established by the Secretary of the Senate shall not, for any period of time, be in excess of $1,000 less than the annual rate of compensation of the Secretary of the Senate for that period of time; and except that nothing in this section shall be construed to affect any position authorized by statute, if the compensation for such position is to be paid from the contingent fund of the Senate. -SOURCE- (Pub. L. 97-51, Sec. 114, Oct. 1, 1981, 95 Stat. 963.) -MISC1- INCREASES IN COMPENSATION Increases in compensation for Senate officers and employees under authority of Federal Pay Comparability Act of 1970 (Pub. L. 91-656), see Salary Directives of President pro tempore of the Senate, set out as notes under section 60a-1 of this title. ------DocID 14671 Document 16 of 646------ -CITE- 11 USC CHAPTER 1 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- CHAPTER 1 - GENERAL PROVISIONS -MISC1- Sec. 101. Definitions. 102. Rules of construction. 103. Applicability of chapters. 104. Adjustment of dollar amounts. 105. Power of court. 106. Waiver of sovereign immunity. 107. Public access to papers. 108. Extension of time. 109. Who may be a debtor. -SECREF- CHAPTER REFERRED TO IN OTHER SECTIONS This chapter is referred to in section 103 of this title; title 15 section 78fff. ------DocID 14672 Document 17 of 646------ -CITE- 11 USC Sec. 101 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 101. Definitions -STATUTE- In this title - (1) 'accountant' means accountant authorized under applicable law to practice public accounting, and includes professional accounting association, corporation, or partnership, if so authorized; (2) 'affiliate' means - (A) entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor, other than an entity that holds such securities - (i) in a fiduciary or agency capacity without sole discretionary power to vote such securities; or (ii) solely to secure a debt, if such entity has not in fact exercised such power to vote; (B) corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor, or by an entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor, other than an entity that holds such securities - (i) in a fiduciary or agency capacity without sole discretionary power to vote such securities; or (ii) solely to secure a debt, if such entity has not in fact exercised such power to vote; (C) person whose business is operated under a lease or operating agreement by a debtor, or person substantially all of whose property is operated under an operating agreement with the debtor; or (D) entity that operates the business or substantially all of the property of the debtor under a lease or operating agreement; (3) 'Federal depository institutions regulatory agency' means - (A) with respect to an insured depository institution (as defined in section 3(c)(2) of the Federal Deposit Insurance Act) for which no conservator or receiver has been appointed, the appropriate Federal banking agency (as defined in section 3(q) of such Act); (B) with respect to an insured credit union (including an insured credit union for which the National Credit Union Administration has been appointed conservator or liquidating agent), the National Credit Union Administration; (C) with respect to any insured depository institution for which the Resolution Trust Corporation has been appointed conservator or receiver, the Resolution Trust Corporation; and (D) with respect to any insured depository institution for which the Federal Deposit Insurance Corporation has been appointed conservator or receiver, the Federal Deposit Insurance Corporation; (4) 'attorney' means attorney, professional law association, corporation, or partnership, authorized under applicable law to practice law; (5) 'claim' means - (A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured; (6) 'commodity broker' means futures commission merchant, foreign futures commission merchant, clearing organization, leverage transaction merchant, or commodity options dealer, as defined in section 761 of this title, with respect to which there is a customer, as defined in section 761(9) of this title; (7) 'community claim' means claim that arose before the commencement of the case concerning the debtor for which property of the kind specified in section 541(a)(2) of this title is liable, whether or not there is any such property at the time of the commencement of the case; (8) 'consumer debt' means debt incurred by an individual primarily for a personal, family, or household purpose; (9) 'corporation' - (A) includes - (i) association having a power or privilege that a private corporation, but not an individual or a partnership, possesses; (ii) partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association; (iii) joint-stock company; (iv) unincorporated company or association; or (v) business trust; but (B) does not include limited partnership; (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; (11) 'custodian' means - (A) receiver or trustee of any of the property of the debtor, appointed in a case or proceeding not under this title; (B) assignee under a general assignment for the benefit of the debtor's creditors; or (C) trustee, receiver, or agent under applicable law, or under a contract, that is appointed or authorized to take charge of property of the debtor for the purpose of enforcing a lien against such property, or for the purpose of general administration of such property for the benefit of the debtor's creditors; (12) 'debt' means liability on a claim; (13) 'debtor' means person or municipality concerning which a case under this title has been commenced; (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; (15) 'entity' includes person, estate, trust, governmental unit, and United States trustee; (16) 'equity security' means - (A) share in a corporation, whether or not transferable or denominated 'stock', or similar security; (B) interest of a limited partner in a limited partnership; or (C) warrant or right, other than a right to convert, to purchase, sell, or subscribe to a share, security, or interest of a kind specified in subparagraph (A) or (B) of this paragraph; (17) 'equity security holder' means holder of an equity security of the debtor; (18) 'family farmer' means - (A) individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $1,500,000 and not less than 80 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt arises out of a farming operation), on the date the case is filed, arise out of a farming operation owned or operated by such individual or such individual and spouse, and such individual or such individual and spouse receive from such farming operation more than 50 percent of such individual's or such individual and spouse's gross income for the taxable year preceding the taxable year in which the case concerning such individual or such individual and spouse was filed; or (B) corporation or partnership in which more than 50 percent of the outstanding stock or equity is held by one family, or by one family and the relatives of the members of such family, and such family or such relatives conduct the farming operation, and (i) more than 80 percent of the value of its assets consists of assets related to the farming operation; (ii) its aggregate debts do not exceed $1,500,000 and not less than 80 percent of its aggregate noncontingent, liquidated debts (excluding a debt for one dwelling which is owned by such corporation or partnership and which a shareholder or partner maintains as a principal residence, unless such debt arises out of a farming operation), on the date the case is filed, arise out of the farming operation owned or operated by such corporation or such partnership; and (iii) if such corporation issues stock, such stock is not publicly traded; (19) 'family farmer with regular annual income' means family farmer whose annual income is sufficiently stable and regular to enable such family farmer to make payments under a plan under chapter 12 of this title; (20) 'farmer' means (except when such term appears in the term 'family farmer') person that received more than 80 percent of such person's gross income during the taxable year of such person immediately preceding the taxable year of such person during which the case under this title concerning such person was commenced from a farming operation owned or operated by such person; (21) 'farming operation' includes farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, or livestock, and production of poultry or livestock products in an unmanufactured state; (22) 'financial institution' means a person that is a commercial or savings bank, industrial savings bank, savings and loan association, or trust company and, when any such person is acting as agent or custodian for a customer in connection with a securities contract, as defined in section 741(7) of this title, such customer; (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; (25) 'forward contract' means a contract (other than a commodity contract) for the purchase, sale, or transfer of a commodity, as defined in section 761(8) of this title, or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with a maturity date more than two days after the date the contract is entered into, including, but not limited to, a repurchase transaction, reverse repurchase transaction, consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction, or any combination thereof or option thereon; (26) 'forward contract merchant' means a person whose business consists in whole or in part of entering into forward contracts as or with merchants in a commodity, as defined in section 761(8) of this title, or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade; (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; (28) 'indenture' means mortgage, deed of trust, or indenture, under which there is outstanding a security, other than a voting-trust certificate, constituting a claim against the debtor, a claim secured by a lien on any of the debtor's property, or an equity security of the debtor; (29) 'indenture trustee' means trustee under an indenture; (30) 'individual with regular income' means individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13 of this title, other than a stockbroker or a commodity broker; (31) 'insider' includes - (A) if the debtor is an individual - (i) relative of the debtor or of a general partner of the debtor; (ii) partnership in which the debtor is a general partner; (iii) general partner of the debtor; or (iv) corporation of which the debtor is a director, officer, or person in control; (B) if the debtor is a corporation - (i) director of the debtor; (ii) officer of the debtor; (iii) person in control of the debtor; (iv) partnership in which the debtor is a general partner; (v) general partner of the debtor; or (vi) relative of a general partner, director, officer, or person in control of the debtor; (C) if the debtor is a partnership - (i) general partner in the debtor; (ii) relative of a general partner in, general partner of, or person in control of the debtor; (iii) partnership in which the debtor is a general partner; (iv) general partner of the debtor; or (v) person in control of the debtor; (D) if the debtor is a municipality, elected official of the debtor or relative of an elected official of the debtor; (E) affiliate, or insider of an affiliate as if such affiliate were the debtor; and (F) managing agent of the debtor; (32) 'insolvent' means - (A) with reference to an entity other than a partnership and a municipality, financial condition such that the sum of such entity's debts is greater than all of such entity's property, at a fair valuation, exclusive of - (i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity's creditors; and (ii) property that may be exempted from property of the estate under section 522 of this title; (B) with reference to a partnership, financial condition such that the sum of such partnership's debts is greater than the aggregate of, at a fair valuation - (i) all of such partnership's property, exclusive of property of the kind specified in subparagraph (A)(i) of this paragraph; and (ii) the sum of the excess of the value of each general partner's nonpartnership property, exclusive of property of the kind specified in subparagraph (A) of this paragraph, over such partner's nonpartnership debts; and (C) with reference to a municipality, financial condition such that the municipality is - (i) generally not paying its debts as they become due unless such debts are the subject of a bona fide dispute; or (ii) unable to pay its debts as they become due; (33) 'institution-affiliated party' - (A) with respect to an insured depository institution (as defined in section 3(c)(2) of the Federal Deposit Insurance Act), has the meaning given it in section 3(u) of the Federal Deposit Insurance Act (12 U.S.C. 1813(u)); and (B) with respect to an insured credit union, has the meaning given it in section 206(r) of the Federal Credit Union Act (12 U.S.C. 1786(r)); (34) 'insured credit union' has the meaning given it in section 101(7) of the Federal Credit Union Act (12 U.S.C. 1752(7)); (35) 'insured depository institution' - (A) has the meaning given it in section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)); and (B) includes an insured credit union (except in the case of paragraphs (3) and (33)(A) of this subsection); (36) 'judicial lien' means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding; (37) 'lien' means charge against or interest in property to secure payment of a debt or performance of an obligation; (38) 'margin payment' means, for purposes of the forward contract provisions of this title, payment or deposit of cash, a security or other property, that is commonly known in the forward contract trade as original margin, initial margin, maintenance margin, or variation margin, including mark-to-market payments, or variation payments; and (FOOTNOTE 1) (FOOTNOTE 1) So in original. The word 'and' probably should not appear. (39) 'settlement payment' means, for purposes of the forward contract provisions of this title, a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, a net settlement payment, or any other similar payment commonly used in the forward contract trade; (40) 'municipality' means political subdivision or public agency or instrumentality of a State; (41) 'person' includes individual, partnership, and corporation, but does not include governmental unit, Provided, however, That any governmental unit that acquires an asset from a person as a result of operation of a loan guarantee agreement, or as receiver or liquidating agent of a person, will be considered a person for purposes of section 1102 of this title. (FOOTNOTE 2) (FOOTNOTE 2) So in original. The period probably should be a semicolon. (42) 'petition' means petition filed under section 301, 302, 303, or 304 of this title, as the case may be, commencing a case under this title; (43) 'purchaser' means transferee of a voluntary transfer, and includes immediate or mediate transferee of such a transferee; (44) 'railroad' means common carrier by railroad engaged in the transportation of individuals or property or owner of trackage facilities leased by such a common carrier; (45) 'relative' means individual related by affinity or consanguinity within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree; (46) 'repo participant' means an entity that, on any day during the period beginning 90 days before the date of the filing of the petition, has an outstanding repurchase agreement with the debtor; (47) 'repurchase agreement' (which definition also applies to a reverse repurchase agreement) means an agreement, including related terms, which provides for the transfer of certificates of deposit, eligible bankers' acceptances, or securities that are direct obligations of, or that are fully guaranteed as to principal and interest by, the United States or any agency of the United States against the transfer of funds by the transferee of such certificates of deposit, eligible bankers' acceptances, or securities with a simultaneous agreement by such transferee to transfer to the transferor thereof certificates of deposit, eligible bankers' acceptances, or securities as described above, at a date certain not later than one year after such transfers or on demand, against the transfer of funds; (48) 'securities clearing agency' means person that is registered as a clearing agency under section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1) or whose business is confined to the performance of functions of a clearing agency with respect to exempted securities, as defined in section 3(a)(12) of such Act (15 U.S.C. 78c(12)) for the purposes of such section 17A; (49) 'security' - (A) includes - (i) note; (ii) stock; (iii) treasury stock; (iv) bond; (v) debenture; (vi) collateral trust certificate; (vii) pre-organization certificate or subscription; (viii) transferable share; (ix) voting-trust certificate; (x) certificate of deposit; (xi) certificate of deposit for security; (xii) investment contract or certificate of interest or participation in a profit-sharing agreement or in an oil, gas, or mineral royalty or lease, if such contract or interest is required to be the subject of a registration statement filed with the Securities and Exchange Commission under the provisions of the Securities Act of 1933 (15 U.S.C. 77a et seq.), or is exempt under section 3(b) of such Act (15 U.S.C. 77c(b)) from the requirement to file such a statement; (xiii) interest of a limited partner in a limited partnership; (xiv) other claim or interest commonly known as 'security'; and (xv) certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase or sell, a security; but (B) does not include - (i) currency, check, draft, bill of exchange, or bank letter of credit; (ii) leverage transaction, as defined in section 761(13) of this title; (iii) commodity futures contract or forward contract; (iv) option, warrant, or right to subscribe to or purchase or sell a commodity futures contract; (v) option to purchase or sell a commodity; (vi) contract or certificate of a kind specified in subparagraph (A)(xii) of this paragraph that is not required to be the subject of a registration statement filed with the Securities and Exchange Commission and is not exempt under section 3(b) of the Securities Act of 1933 (15 U.S.C. 77c(b)) from the requirement to file such a statement; or (vii) debt or evidence of indebtedness for goods sold and delivered or services rendered; (50) 'security agreement' means agreement that creates or provides for a security interest; (51) 'security interest' means lien created by an agreement; (52) 'State' includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title; (53) 'statutory lien' means lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute; (54) (FOOTNOTE 3) 'stockbroker' means person - (FOOTNOTE 3) Another par. (54) follows first par. (57). (A) with respect to which there is a customer, as defined in section 741(2) of this title; and (B) that is engaged in the business of effecting transactions in securities - (i) for the account of others; or (ii) with members of the general public, from or for such person's own account; (55) (FOOTNOTE 4) 'swap agreement' means - (FOOTNOTE 4) Another par. (55) follows second par. (54). (A) an agreement (including terms and conditions incorporated by reference therein) which is a rate swap agreement, basis swap, forward rate agreement, commodity swap, interest rate option, forward foreign exchange agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement, currency option, any other similar agreement (including any option to enter into any of the foregoing); (B) any combination of the foregoing; or (C) a master agreement for any of the foregoing together with all supplements; (56) (FOOTNOTE 5) 'swap participant' means an entity that, at any time before the filing of the petition, has an outstanding swap agreement with the debtor; (FOOTNOTE 5) Another par. (56) follows second par. (55). (57) (FOOTNOTE 6) 'timeshare plan' means and shall include that interest purchased in any arrangement, plan, scheme, or similar device, but not including exchange programs, whether by membership, agreement, tenancy in common, sale, lease, deed, rental agreement, license, right to use agreement, or by any other means, whereby a purchaser, in exchange for consideration, receives a right to use accommodations, facilities, or recreational sites, whether improved or unimproved, for a specific period of time less than a full year during any given year, but not necessarily for consecutive years, and which extends for a period of more than three years. A 'timeshare interest' is that interest purchased in a timeshare plan which grants the purchaser the right to use and occupy accommodations, facilities, or recreational sites, whether improved or unimproved, pursuant to a timeshare plan. (FOOTNOTE 7) (FOOTNOTE 6) Another par. (57) follows second par. (56). (FOOTNOTE 7) So in original. The period probably should be a semicolon. (54) (FOOTNOTE 8) 'transfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor's equity of redemption; (FOOTNOTE 8) So in original. Probably should be '(58)'. (55) (FOOTNOTE 9) 'United States', when used in a geographical sense, includes all locations where the judicial jurisdiction of the United States extends, including territories and possessions of the United States; (FOOTNOTE 9) So in original. Probably should be '(59)'. (56) (FOOTNOTE 01) 'intellectual property' means - (FOOTNOTE 01) So in original. Probably should be '(60)'. (A) trade secret; (B) invention, process, design, or plant protected under title 35; (C) patent application; (D) plant variety; (E) work of authorship protected under title 17; or (F) mask work protected under chapter 9 of title 17; to the extent protected by applicable nonbankruptcy law; and (57) (FOOTNOTE 11) 'mask work' has the meaning given it in section 901(a)(2) of title 17. (FOOTNOTE 11) So in original. Probably should be '(61)'. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2549; Pub. L. 97-222, Sec. 1, July 27, 1982, 96 Stat. 235; Pub. L. 98-353, title III, Sec. 391, 401, 421, July 10, 1984, 98 Stat. 364, 366, 367; Pub. L. 99-554, title II, Sec. 201, 251, 283(a), Oct. 27, 1986, 100 Stat. 3097, 3104, 3116; Pub. L. 100-506, Sec. 1(a), Oct. 18, 1988, 102 Stat. 2538; Pub. L. 100-597, Sec. 1, Nov. 3, 1988, 102 Stat. 3028; Pub. L. 101-311, title I, Sec. 101, title II, Sec. 201, June 25, 1990, 104 Stat. 267, 268; Pub. L. 101-647, title XXV, Sec. 2522(e), Nov. 29, 1990, 104 Stat. 4867.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 101(2) defines 'affiliate.' The House amendment contains a provision that is a compromise between the definition in the House-passed version of H.R. 8200 and the Senate amendment in the nature of a substitute to H.R. 8200. Subparagraphs (A) and (B) are derived from the Senate amendment and subparagraph (D) is taken from the House bill, while subparagraph (C) represents a compromise, taking the House position with respect to a person whose business is operated under a lease or an operating agreement by the debtor and with respect to a person substantially all of whose property is operated under an operating agreement by the debtor and with respect to a person substantially all of whose property is operated under an operating agreement by the debtor and the Senate position on leased property. Thus, the definition of 'affiliate' excludes persons substantially all of whose property is operated under a lease agreement by a debtor, such as a small company which owns equipment all of which is leased to a larger nonrelated company. Section 101(4)(B) represents a modification of the House-passed bill to include the definition of 'claim' a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment. This is intended to cause the liquidation or estimation of contingent rights of payment for which there may be an alternative equitable remedy with the result that the equitable remedy will be susceptible to being discharged in bankruptcy. For example, in some States, a judgment for specific performance may be satisfied by an alternative right to payment, in the event performance is refused; in that event, the creditor entitled to specific performance would have a 'claim' for purposes of a proceeding under title 11. On the other hand, rights to an equitable remedy for a breach of performance with respect to which such breach does not give rise to a right to payment are not 'claims' and would therefore not be susceptible to discharge in bankruptcy. In a case under chapter 9 to title 11, 'claim' does not include a right to payment under an industrial development bond issued by a municipality as a matter of convenience for a third party. Municipalities are authorized, under section 103(c) of the Internal Revenue Code of 1954, as amended (title 26), to issue tax-exempt industrial development revenue bonds to provide for the financing of certain projects for privately owned companies. The bonds are sold on the basis of the credit of the company on whose behalf they are issued, and the principal, interest, and premium, if any, are payable solely from payments made by the company to the trustee under the bond indenture and do not constitute claims on the tax revenues or other funds of the issuing municipalities. The municipality merely acts as the vehicle to enable the bonds to be issued on a tax-exempt basis. Claims that arise by virtue of these bonds are not among the claims defined by this paragraph and amounts owed by private companies to the holders of industrial development revenue bonds are not to be included among the assets of the municipality that would be affected by the plan. Section 101(6) defines 'community claim' as provided by the Senate amendment in order to indicate that a community claim exists whether or not there is community property in the estate as of the commencement of the case. Section 101(7) of the House amendment contains a definition of consumer debt identical to the definition in the House bill and Senate amendment. A consumer debt does not include a debt to any extent the debt is secured by real property. Section 101(9) of the Senate amendment contained a definition of 'court.' The House amendment deletes the provision as unnecessary in light of the pervasive jurisdiction of a bankruptcy court under all chapters of title 11 as indicated in title II of the House amendment to H.R. 8200. Section 101(11) defines 'debt' to mean liability on a claim, as was contained in the House-passed version of H.R. 8200. The Senate amendment contained language indicating that 'debt' does not include a policy loan made by a life insurance company to the debtor. That language is deleted in the House amendment as unnecessary since a life insurance company clearly has no right to have a policy loan repaid by the debtor, although such company does have a right of offset with respect to such policy loan. Clearly, then, a 'debt' does not include a policy loan made by a life insurance company. Inclusion of the language contained in the Senate amendment would have required elaboration of other legal relationships not arising by a liability on a claim. Further the language would have required clarification that interest on a policy loan made by a life insurance company is a debt, and that the insurance company does have right to payment to that interest. Section 101(14) adopts the definition of 'entity' contained in the Senate-passed version of H.R. 8200. Since the Senate amendment to H.R. 8200 deleted the U.S. trustee, a corresponding definitional change is made in chapter 15 of the House amendment for U.S. trustees under the pilot program. Adoption by the House amendment of a pilot program for U.S. trustees under chapter 15 requires insertion of 'United States trustee' in many sections. Several provisions in chapter 15 of the House amendment that relate to the U.S. trustee were not contained in the Senate amendment in the nature of a substitute. Section 101(17) defines 'farmer,' as in the Senate amendment with an income limitation percentage of 80 percent instead of 75 percent. Section 101(18) contains a new definition of 'farming operation' derived from present law and the definition of 'farmer' in the Senate amendment. This definition gives a broad construction to the term 'farming operation'. Section 101(20) contains a definition of 'foreign representative'. It clarifies the House bill and Senate amendment by indicating that a foreign representative must be duly selected in a foreign proceeding. Section 101(35) defines 'security' as contained in the Senate amendment. H.R. 8200 as adopted by the House excluded certain commercial notes from the definition of 'security', and that exclusion is deleted. Section 101(40) defines 'transfer' as in the Senate amendment. The definition contained in H.R. 8200 as passed by the House included 'setoff' in the definition of 'transfer'. Inclusion of 'setoff' is deleted. The effect is that a 'setoff' is not subject to being set aside as a preferential 'transfer' but will be subject to special rules. SENATE REPORT NO. 95-989 Section 101 of title 11 contains 40 definitions: Paragraph (1) defines 'accountant' as an accountant authorized under applicable law to practice accounting. The term includes a professional accounting association, corporation, or partnership if applicable law authorizes such a unit to practice accounting. Paragraph (2) defines 'affiliate.' An affiliate is an entity with a close relationship to the debtor. It includes a 20 percent parent or subsidiary of the debtor, whether a corporate, partnership, individual, or estate parent. The use of 'directly or indirectly' in subparagraphs (A) and (B) is intended to cover situations in which there is an opportunity to control, and where the existence of that opportunity operates as indirect control. 'Affiliate' is defined primarily for use in the definition of insider, infra, and for use in the chapter 11 reorganization cases. The definition of 'affiliate' does not include an entity acting in a fiduciary or agency capacity if the entity does not have the sole discretionary power to vote 20 percent of the voting securities but hold them solely as security and have not exercised the power to vote. This restriction applies to a corporate affiliate under subparagraph (B) of paragraph (2). Subsections (C) and (D) of paragraph (2) define affiliate also as those persons and entities whose business or substantially all of whose property is operated under a lease or operating agreement by a debtor and whose business or property is more than 50 percent under the control of the debtor. The definition of 'attorney' in paragraph (3) is similar to the definition of accountant. Paragraph (4) defines 'claim.' The effect of the definition is a significant departure from present law. Under present law, 'claim' is not defined in straight bankruptcy. Instead it is simply used, along with the concept of provability in section 63 of the Bankruptcy Act (section 103 of former title 11), to limit the kinds of obligations that are payable in a bankruptcy case. The term is defined in the debtor rehabilitation chapters of present law far more broadly. The definition in paragraph (4) adopts an even broader definition of claim than is found in the present debtor rehabilitation chapters. The definition is any right to payment, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. The definition also includes as a claim an equitable right to performance that does not give rise to a right to payment. By this broadest possible definition and by the use of the term throughout the title 11, especially in subchapter I of chapter 5, the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case. It permits the broadest possible relief in the bankruptcy court. Paragraph (5) defines 'commodity broker' by reference to various terms used and defined in subchapter IV of chapter 7, Commodity Broker Liquidation. The terms are described in connection with section 761, infra. Paragraph (6) defines 'community claim' for those eight States that have community property laws. The definition is keyed to the liability of the debtor's property for a claim against either the debtor or the debtor's spouse. If the debtor's property is liable for a claim against either, that claim is a community claim. Paragraph (7) defines 'consumer debt'. The definition is adapted from the definition used in various consumer protection laws. It encompasses only a debt incurred by an individual primarily for a personal, family, or household purpose. The definition of 'corporation' in paragraph (8) is similar to the definition in current law, section 1(8) (section 1(8) of former title 11). The term encompasses any association having the power or privilege that a private corporation, but not an individual or partnership, has; partnership associations organized under a law that makes only the capital subscribed responsible for the debts of the partnership; joint-stock company; unincorporated company or association; and business trust. 'Unincorporated association' is intended specifically to include a labor union, as well as other bodies that come under that phrase as used under current law. The exclusion of limited partnerships is explicit, and not left to the case law. Paragraph (9) defines 'court' as the bankruptcy judge in the district in which the case is pending except in municipal adjustment and railroad reorganization cases, where 'court' means the Federal district judge. Paragraph (10) (now (9)) defines 'creditor' to include holders of prepetition claims against the debtor. However, it also encompasses certain holders of claims that are deemed to arise before the date of the filing of the petition, such as those injured by the rejection of an executory contract or unexpired lease, certain investment tax credit recapture claim holders, 'involuntary gap' creditors, and certain holders of the right of setoff. The term also includes the holder of a prepetition community claim. A guarantor of or surety for a claim against the debtor is also a creditor, because he holds a contingent claim against the debtor that becomes fixed when he pays the creditor whose claim he has guaranteed or insured. Paragraph (11) (now (10)) defines 'custodian.' There is no similar definition in current law. It is defined to facilitate drafting, and means a prepetition liquidator of the debtor's property, such as an assignee for the benefit of creditors, a receiver of the debtor's property, or administrator of the debtor's property. The definition of custodian to include a receiver or trustee is descriptive, and not meant to be limited to court officers with those titles. The definition is intended to include other officers of the court if their functions are substantially similar to those of a receiver or trustee. 'Debt' is defined in paragraph (12) (now (11)) as a liability on a claim. The terms 'debt' and 'claim' are coextensive: a creditor has a 'claim' against the debtor; the debtor owes a 'debt' to the creditor. This definition of 'debt' and the definition of 'claim' on which it is based, proposed 11 U.S.C. 101(4), does not include a transaction such as a policy loan on an insurance policy. Under that kind of transaction, the debtor is not liable to the insurance company for repayment; the amount owed is merely available to the company for setoff against any benefits that become payable under the policy. As such, the loan is not a claim (it is not a right to payment) that the company can assert against the estate; nor is the debtor's obligation a debt (a liability on a claim) that will be discharged under proposed 11 U.S.C. 523 or 524. Paragraph (13) (now (12)) defines 'debtor.' Debtor means person or municipality concerning which a case under title II has been commenced. This is a change in terminology from present law, which identifies the person by or against whom a petition is filed in a straight bankruptcy liquidation case as the 'bankrupt', and a person or municipality that is proceeding under a debtor rehabilitation chapter (chapters VIII through XIII of the Bankruptcy Act) (chapters 8 through 13 of former title 11) as a 'debtor.' The term 'debtor' is used for both kinds of cases in this bill, for ease of reference in chapters 1, 3, and 5 (which apply to straight bankruptcy and reorganization cases). Paragraph (14) (now (13)) defines 'disinterested person.' The definition is adapted from section 158 of chapter X of current law (section 558 of former title 11), though it is expanded and modified in some respects. A person is a disinterested person if the person is not a creditor, equity security holder, or insider; is not and was not an investment banker of the debtor for any outstanding security of the debtor (the change from underwriter in current law to investment banker is to make the term more descriptive and to avoid conflict with the definition of underwriter in section 2(11) of the Securities Act of 1933 (15 U.S.C. 77b(11)); has not been an investment banker for a security of the debtor within 3 years before the date of the filing of the petition (the change from five years to three years here conforms the definition with the statute of limitations in the Securities Act of 1933) (15 U.S.C. 77m), or an attorney for such an investment banker; is not an insider of the debtor or of such an investment banker; and does not have an interest materially adverse to the estate. 'Entity' is defined, for convenience, in paragraph (15) (now (14)), to include person, estate, trust, and governmental unit. It is the most inclusive of the various defined terms relating to bodies or units. Paragraph (16) defines 'equity security.' The term includes a share or stock in a corporation, a limited partner's interest in a limited partnership, and a warrant or right to subscribe to an equity security. The term does not include a security, such as a convertible debenture, that is convertible into equity security, but has not been converted. Paragraph (17) (now (15)) defines 'equity security holder' for convenience as the holder of an equity securing of the debtor. Paragraph (18) (now (17)) defines 'farmer'. It encompasses only those persons for whom farming operations contribute 75 percent or more of their total income. Paragraphs (19) and (20) define 'foreign proceeding' and 'foreign representative'. A foreign proceeding is a proceeding in another country in which the debtor has some substantial connection for the purpose of liquidating the estate of the debtor or the purpose of financial rehabilitation of the debtor. A foreign representative is the representative of the estate in a foreign proceeding, such as a trustee or administrator. Paragraph (21) defines 'governmental unit' in the broadest sense. The definition encompasses the United States, a State, Commonwealth, District, Territory, municipality, or foreign state, and a department, agency, or instrumentality of any of those entities. 'Department, agency, or instrumentality' does not include an entity that owes its existence to State action, such as the granting of a charter or a license but that has no other connection with a State or local government or the Federal Government. The relationship must be an active one in which the department, agency, or instrumentality is actually carrying out some governmental function. Paragraph (22) defines 'indenture.' It is similar to the definition of indenture in the Trust Indenture Act of 1939 (15 U.S.C. 77ccc(7)). An indenture is the instrument under which securities, either debt or equity, of the debtor are outstanding. Paragraph (23) defines 'indenture trustee' as the trustee under an indenture. Paragraph (24) defines 'individual with regular income.' The effect of this definition, and of its use in section 109(e), is to expand substantially the kinds of individuals that are eligible for relief under chapter 13, Adjustment of Debts of an Individual with Regular Income. Chapter XIII (chapter 13 of former title 11) is now available only for wage earners. The definition encompasses all individuals with incomes that are sufficiently stable and regular to enable them to make payments under a chapter 13 plan. Thus, individuals on welfare, social security, fixed pension incomes, or who live on investment incomes, will be able to work out repayment plans with their creditors rather than being forced into straight bankruptcy. Also, self-employed individuals will be eligible to use chapter 13 if they have regular incomes. However, the definition excludes certain stockbrokers and commodity brokers, in order to prohibit them from proceeding under chapter 13 and avoiding the customer protection provisions of chapter 7. 'Insider', defined in paragraph (25), is a new term. An insider is one who has a sufficiently close relationship with the debtor that his conduct is made subject to closer scrutiny than those dealing at arms length with the debtor. If the debtor is an individual, then a relative of the debtor, a partnership in which the debtor is a general partner, a general partner of the debtor, and a corporation controlled by the debtor are all insiders. If the debtor is a corporation, then a controlling person, a relative of a controlling person, a partnership in which the debtor is a general partner, and a general partner of the debtor are all insiders. If the debtor is a partnership, then a general partner of or in the debtor, a relative of a general partner in the debtor, and a person in control are all insiders. If the debtor is a municipality, then an elected official of the debtor is an insider. In addition, affiliates of the debtor and managing agents are insiders. The definition of 'insolvent' in paragraph (26) is adopted from section 1(19) of current law (section 1(19) of former title 11). An entity is insolvent if its debts are greater than its assets, at a fair valuation, exclusive of property exempted or fraudulently transferred. It is the traditional bankruptcy balance sheet test of insolvency. For a partnership, the definition is modified to account for the liability of a general partner for the partnership's debts. The difference in this definition from that in current law is in the exclusion of exempt property for all purposes in the definition of insolvent. Paragraph (27) defines 'judicial lien.' It is one of three kinds of liens defined in this section. A judicial lien is a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding. Paragraph (28) defines 'lien.' The definition is new and is very broad. A lien is defined as a charge against or interest in property to secure payment of a debt or performance of an obligation. It includes inchoate liens. In general, the concept of lien is divided into three kinds of liens: judicial liens, security interests, and statutory liens. Those three categories are mutually exclusive and are exhaustive except for certain common law liens. Paragraph (29) defines 'municipality.' The definition is adapted from the terms used in the chapter IX (municipal bankruptcy) (chapter 9 of former title 11) amendment to the Bankruptcy Act enacted in 1976 (Pub. L. 94-260). That amendment spoke in terms of 'political subdivision or public agency or instrumentality of a State'. Bankruptcy Act Sec. 84 (section 404 of former title 11). The term municipality is defined by those three terms for convenience. It does not include the District of Columbia or any territories of the United States. 'Person' is defined in paragraph (30). The definition is a change in wording, but not in substance, from the definition in section 1(23) of the Bankruptcy Act (section 1(23) of former title 11). The definition is also similar to the one contained in 1 U.S.C. sec. 1, but is repeated here for convenience and ease of reference. Person includes individual partnership, and corporation. The exclusion of governmental units is made explicit in order to avoid any confusion that may arise if, for example, a municipality is incorporated and thus is legally a corporation as well as governmental unit. The definition does not include an estate or a trust, which are included only in the definition of 'entity' in proposed 11 U.S.C. 101(14). 'Petition' is defined for convenience in paragraph (31). Petition is a petition under section 301, 302, 303, or 304 of the bankruptcy code - that is, a petition that commences a case under title 11. Paragraph (32) defines purchaser as a transferee of a voluntary transfer, such as a sale or gift, and includes an immediate or mediate transferee of a purchaser. The definition of 'railroad' in paragraph (33) is derived from section 77 of the Bankruptcy Act (section 205 of former title 11). A railroad is a common carrier by railroad engaged in the transportation of individuals or property, or an owner of trackage facilities leased by such a common carrier. The effect of the definition and the use of the term in section 109(d) is to eliminate the limitation now found in section 77 of the Bankruptcy Act that only railroads engaged in interstate commerce may proceed under the railroad reorganization provisions. The limitation may have been inserted because of a doubt that the commerce power could not reach intrastate railroads. Be that as it may, this bill is enacted under the bankruptcy power. Paragraph (34) defines 'relative' as an individual related by affinity or consanguinity within the third degree as determined by the common law, and includes individuals in a step or adoptive relationship. The definition is similar to current law, but adds the latter phrase. This definition should be applied as of the time when the transaction that it concerns took place. Thus, a former spouse is not a relative, but if, for example, for purposes of the preference section, proposed 11 U.S.C. 547(b)(4)(B), the transferee was a spouse of the debtor at the time of the transfer sought to be avoided, then the transferee would be relative and subject to the insider rules, even if the transferee was no longer married to the debtor at the time of the commencement of the case or at the time of the commencement of the preference recovery proceeding. Paragraph (35) defines 'security.' The definition is new and is modeled on the most recent draft of the American Law Institute's proposed securities code, with some exceptions. The interest of a limited partner in a limited partnership is included in order to make sure that everything that is defined as an equity security is also a 'security.' The definition, as with the definition of 'entity', 'insider', and 'person', is open-ended because the term is not susceptible of precise specification. Thus the courts will be able to use the characterization provided in this definition to treat with new kinds of documents on a flexible basis. Paragraphs (36) and (37) defined 'security agreement' and 'security interest.' A security interest is one of the kinds of liens. It is a lien created by an agreement. Security agreement is defined as the agreement creating the security interest. Though these terms are similar to the same terms in the Uniform Commercial Code, article IX, they are broader. For example, the U.C.C. does not cover real property mortgages. Under this definition, such a mortgage is included, as are all other liens created by agreement, even though not covered by the U.C.C. All U.C.C. security interests and security agreements are, however, security interests and security agreements under this definition. Whether a consignment or a lease constitutes a security interest under the bankruptcy code will depend on whether it constitutes a security interest under applicable State or local law. Paragraph (38) defines another kind of lien, 'statutory lien.' The definition, derived from current law, states that a statutory lien is a lien arising solely by force of statute on specified circumstances or conditions and includes a lien of distress for rent (whether statutory, common law, or otherwise). The definition excludes judicial liens and security interests, whether or not they are provided for or are dependent on a statute, and whether or not they are made fully effective by statute. A statutory lien is only one that arises automatically, and is not based on an agreement to give a lien or on judicial action. Mechanics', materialmen's, and warehousemen's liens are examples. Tax liens are also included in the definition of statutory lien. 'Stockbroker' is defined in paragraph (39) as a person engaged in the business of effecting transactions in securities for the account of others or with members of the general public from or for such person's own account, if the person has a customer, as defined. Thus, the definition, derived from a combination of the definitions of 'broker' and 'dealer' in the Securities Exchange Act of 1934 (15 U.S.C. 78c), encompasses both brokers and dealers. The definition is used in section 109 and in subchapter III of chapter 7, Stockholder Liquidation. The term does not encompass an employee who acts for a principal that 'effects' transaction or deals with the public, because such an employee will not have a 'customer'. Paragraph (40) defines 'transfer.' It is derived and adapted, with stylistic changes, from section 1(30) of the Bankruptcy Act (section 1(30) of former title 11). A transfer is a disposition of an interest in property. The definition of transfer is as broad as possible. Many of the potentially limiting words in current law are deleted, and the language is simplified. Under this definition, any transfer of an interest in property is a transfer, including a transfer of possession, custody, or control even if there is no transfer of title, because possession, custody, and control are interests in property. A deposit in a bank account or similar account is a transfer. -REFTEXT- REFERENCES IN TEXT Section 3 of the Federal Deposit Insurance Act, referred to in pars. (3)(A), (33)(A), and (35)(A), is classified to section 1813 of Title 12, Banks and Banking. The Securities Act of 1933 (15 U.S.C. 77a et seq.), referred to in par. (49)(A)(xii), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, as amended, which is classified generally to subchapter I (Sec. 77a et seq.) of chapter 2A of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 77a of Title 15 and Tables. -MISC2- AMENDMENTS 1990 - Par. (3). Pub. L. 101-647, Sec. 2522(e)(4), added par. (3). Former par. (3) redesignated (4). Pars. (4) to (23). Pub. L. 101-647, Sec. 2522(e)(3), redesignated pars. (3) to (22) as (4) to (23), respectively. Former par. (23) redesignated (24). Par. (24). Pub. L. 101-647, Sec. 2522(e)(3), redesignated par. (23) as (24). Former par. (24) redesignated (25). Pub. L. 101-311, Sec. 201(1), inserted 'as defined in section 761(8) of this title, or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade,' after 'transfer of commodity,' and ', including, but not limited to, a repurchase transaction, reverse repurchase transaction, consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction, or any combination thereof or option thereon' after 'entered into'. Par. (25). Pub. L. 101-647, Sec. 2522(e)(3), redesignated par. (24) as (25). Former par. (25) redesignated (26). Pub. L. 101-311, Sec. 201(2), substituted 'a commodity, as defined in section 761(8) of this title, or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade' for 'commodities'. Pars. (26) to (32). Pub. L. 101-647, Sec. 2522(e)(3), redesignated pars. (25) to (31) as (26) to (32), respectively. Former par. (32) redesignated (36). Par. (33). Pub. L. 101-647, Sec. 2522(e)(2), added par. (33). Former par. (33) redesignated (37). Par. (34). Pub. L. 101-647, Sec. 2522(e)(2), added par. (34). Former par. (34) redesignated (38). Pub. L. 101-311, Sec. 201(4), added par. (34). Former par. (34) redesignated (36). Par. (35). Pub. L. 101-647, Sec. 2522(e)(2), added par. (35). Former par. (35) redesignated (39). Pub. L. 101-311, Sec. 201(4), added par. (35). Former par. (35) redesignated (37). Par. (36). Pub. L. 101-647, Sec. 2522(e)(1), redesignated par. (32) as (36). Former par. (36) redesignated (40). Pub. L. 101-311, Sec. 201(3), redesignated par. (34) as (36). Former par. (36) redesignated (38). Pars. (37) to (48). Pub. L. 101-647, Sec. 2522(e)(1), redesignated pars. (33) to (44) as (37) to (48), respectively. Former pars. (45) to (48) redesignated (49) to (52), respectively. Pub. L. 101-311, Sec. 201(3), redesignated pars. (35) to (46) as (37) to (48), respectively. Former pars. (47) and (48) redesignated (49) and (50), respectively. Pars. (49), (50). Pub. L. 101-647, Sec. 2522(e)(1), redesignated pars. (45) and (46) as (49) and (50), respectively. Former pars. (49) and (50) redesignated (53) and (54) defining 'stockbroker', respectively. Pub. L. 101-311, Sec. 201(3), redesignated pars. (47) and (48) as (49) and (50), respectively. Former pars. (49) and (50) redesignated (51) and (52), respectively. Pub. L. 101-311, Sec. 101(2), added pars. (49) and (50). Former pars. (49) and (50) redesignated (51) and (52), respectively. Par. (51). Pub. L. 101-647, Sec. 2522(e)(1), redesignated par. (47) as (51). Former par. (51) redesignated (55) defining 'swap agreement'. Pub. L. 101-311, Sec. 201(3), redesignated par. (49) as (51). Former par. (51) redesignated (53). Pub. L. 101-311, Sec. 101(1), redesignated par. (49) as (51). Former par. (51) redesignated (53). Par. (52). Pub. L. 101-647, Sec. 2522(e)(1), redesignated par. (48) as (52). Former par. (52) redesignated (56) defining 'swap participant'. Pub. L. 101-311, Sec. 201(3), redesignated par. (50) as (52). Former par. (52) redesignated (54) defining 'transfer'. Pub. L. 101-311, Sec. 101(1), redesignated par. (50) as (52). Former par. (52) redesignated (54). Par. (53). Pub. L. 101-647, Sec. 2522(e)(1), redesignated par. (49) as (53). Former par. (53) redesignated (57) defining 'timeshare plan'. Pub. L. 101-311, Sec. 201(3), redesignated par. (51) as (53). Former par. (53) redesignated (55) defining 'United States'. Pub. L. 101-311, Sec. 101(1), redesignated par. (51) as (53). Former par. (53) redesignated (55). Par. (54). Pub. L. 101-647, Sec. 2522(e)(1), redesignated par. (50) as (54) defining 'stockbroker'. Pub. L. 101-311, Sec. 201(3), redesignated par. (52) as (54) defining 'transfer'. Former par. (54) redesignated (56) defining 'intellectual property'. Pub. L. 101-311, Sec. 101(1), redesignated par. (52) as (54). Par. (55). Pub. L. 101-647, Sec. 2522(e)(1), redesignated par. (51) as (55) defining 'swap agreement'. Pub. L. 101-311, Sec. 201(3), redesignated par. (53) as (55) defining 'United States'. Former par. (55) redesignated (57) defining 'mask work'. Pub. L. 101-311, Sec. 101(1), redesignated par. (53) as (55). Par. (56). Pub. L. 101-647, Sec. 2522(e)(1), redesignated par. (52) as (56) defining 'swap participant'. Pub. L. 101-311, Sec. 201(3), redesignated par. (54) as (56) defining 'intellectual property'. Par. (57). Pub. L. 101-647, Sec. 2522(e)(1), redesignated par. (53) as (57) defining 'timeshare plan'. Pub. L. 101-311, Sec. 201(3), redesignated par. (55) as (57) defining 'mask work'. 1988 - Par. (31). Pub. L. 100-597 inserted 'and a municipality' after 'partnership' in subpar. (A) and added subpar. (C). Pars. (52), (53). Pub. L. 100-506 added pars. (52) and (53). 1986 - Par. (14). Pub. L. 99-554, Sec. 201(1), substituted 'governmental unit, and United States trustee' for 'and governmental unit'. Pars. (17), (18). Pub. L. 99-554, Sec. 251(2), (3), added pars. (17) and (18) and redesignated former pars. (17) and (18) as (19) and (20), respectively. Par. (19). Pub. L. 99-554, Sec. 251(1), (2), redesignated former par. (17) as (19) and inserted '(except when such term appears in the term 'family farmer')'. Former par. (19) redesignated (21). Pars. (20) to (25). Pub. L. 99-554, Sec. 251(2), redesignated former pars. (18) to (23) as (20) to (25), respectively. Former pars. (24) and (25) redesignated (26) and (27), respectively. Par. (26). Pub. L. 99-554, Sec. 201(2), inserted '(but not a United States trustee while serving as a trustee in a case under this title)'. Pub. L. 99-554, Sec. 251(2), redesignated former par. (24) as (26). Former par. (26) redesignated (28). Pars. (27) to (42). Pub. L. 99-554, Sec. 251(2), redesignated former pars. (25) to (40) as (27) to (42), respectively. Former pars. (41) and (42) redesignated (43) and (44), respectively. Par. (43). Pub. L. 99-554, Sec. 251(2), redesignated former par. (41) as (43). Former par. (43) redesignated (45). Par. (43)(A)(xv). Pub. L. 99-554, Sec. 283(a)(1), substituted 'security' for 'secuity'. Pars. (44) to (50). Pub. L. 99-554, Sec. 251(2), redesignated former pars. (42) to (48) as (44) to (50), respectively. Former par. (49) redesignated (51). Par. (51). Pub. L. 99-554, Sec. 283(a)(2), substituted a period for the semicolon at the end thereof. Pub. L. 99-554, Sec. 251(2), redesignated former par. (49) as (51). 1984 - Par. (2)(D). Pub. L. 98-353, Sec. 421(a), struck out 'or all' after 'business'. Par. (8)(B). Pub. L. 98-353, Sec. 421(b), substituted a semicolon for the colon at end of subpar. (B). Par. (9)(B). Pub. L. 98-353, Sec. 421(c), inserted reference to section 348(d). Par. (14). Pub. L. 98-353, Sec. 421(d), inserted 'and' after 'trust,'. Pars. (19) to (21). Pub. L. 98-353, Sec. 421(j)(3), (4), added par. (19) and redesignated former pars. (19), (20), and (21) as (20), (21), and (24), respectively. Pars. (22), (23). Pub. L. 98-353, Sec. 421(j)(2), (5), added pars. (22) and (23) and redesignated former pars. (22) and (23) as (25) and (26), respectively. Pars. (24) to (26). Pub. L. 98-353, Sec. 421(j)(2), redesignated former pars. (21) to (23) as (24) to (26), respectively. Former pars. (24) to (26) redesignated (27) to (29), respectively. Par. (27). Pub. L. 98-353, Sec. 421(e), (j)(2), redesignated former par. (24) as (27) and substituted 'stockbroker' for 'stock broker'. Former par. (27) redesignated (30). Par. (28). Pub. L. 98-353, Sec. 421(j)(2), redesignated former par. (25) as (28). Former par. (28) redesignated (31). Par. (29). Pub. L. 98-353, Sec. 421(f), (j)(2), redesignated former par. (26) as (29) and, in subpar. (B)(ii), substituted 'nonpartnership' and '(A)' for 'separate' and '(A)(ii)', respectively, wherever appearing. Former par. (29) redesignated (32). Pars. (30) to (32). Pub. L. 98-353, Sec. 421(j)(2), redesignated former pars. (27) to (29) as (30) to (32), respectively. Former pars. (30) to (32) redesignated (33) to (35), respectively. Par. (33). Pub. L. 98-353, Sec. 421(g), (j)(2), redesignated former par. (30) as (33) and amended definition of 'person' generally, thereby inserting proviso relating to consideration of certain governmental units as persons for purposes of section 1102 of this title. Former par. (33) redesignated (36). Par. (34). Pub. L. 98-353, Sec. 421(j)(2), redesignated former par. (31) as (34). Former par. (34) redesignated (37). Pars. (35), (36). Pub. L. 98-353, Sec. 421(j)(2), redesignated former pars. (32) and (33) as (35) and (36), respectively. Former pars. (35) and (36), as added by Pub. L. 98-353, Sec. 391(2), redesignated (38) and (39), respectively. Pub. L. 98-353, Sec. 391, added pars. (35) and (36), and redesignated former pars. (35) and (36) as (37) and (38) which were again redesignated as (40) and (41), respectively. Par. (37). Pub. L. 98-353, Sec. 421(j)(2), redesignated former par. (34) as (37). Former par. (37) redesignated successively as (39) and again as (42). Par. (38). Pub. L. 98-353, Sec. 391(2), 421(j)(2), added par. (35) and redesignated such par. (35) as (38). Former par. (38) redesignated successively as (40) and again as (43). Par. (39). Pub. L. 98-353, Sec. 391(2), 421(j)(2), added par. (36) and redesignated such par. (36) as (39). Former par. (39) redesignated successively as (41) and again as (45). Par. (40). Pub. L. 98-353, Sec. 391(1), 421(j)(2), redesignated successively former par. (35) as (37) and again as (40). Former par. (40) redesignated successively as (42) and again as (46). Par. (41). Pub. L. 98-353, Sec. 391(1), 401(1), 421(h), (j)(2), redesignated successively former par. (36) as (38) and again as (41), and, in subpar. (B)(vi), substituted 'certificate of a kind specified in subparagraph (A)(xii)' for 'certificate specified in clause (xii) of subparagraph (A)' and substituted 'required to be the subject of a registration statement' for 'the subject of such registration statement'. Former par. (41) redesignated successively as (43), again as (44), and again as (48). Par. (42). Pub. L. 98-353, Sec. 391(1), 421(j)(2), redesignated successively former par. (37) as (39) and again as (42). Par. (43). Pub. L. 98-353, Sec. 391(1), 421(j)(2), redesignated successively former par. (38) as (40) and again as (43). Pub. L. 98-353, Sec. 401, redesignated former par. (43), originally par. (41), as (44), and added another par. (43) which was redesignated (47). Par. (44). Pub. L. 98-353, Sec. 421(j)(6), added par. (44). Former par. (44) originally was par. (41) and was redesignated successively as (43), again as (44), and again as (48). Pars. (45), (46). Pub. L. 98-353, Sec. 391(1), 421(j)(1), redesignated successively former pars. (39) and (40) as (41) and (42), and again as (45) and (46), respectively. Par. (47). Pub. L. 98-353, Sec. 401(2), 421(j)(1), added par. (43) and redesignated such par. (43) as (47). Par. (48). Pub. L. 98-353, Sec. 391(1), 401(1), 421(i), (j)(1), redesignated successively former par. (41) as (43), again as (44), and again as (48), and substituted 'and foreclosure of the debtor's equity of redemption; and' for the period at the end. Par. (49). Pub. L. 98-353, Sec. 421(j)(7), added par. (49). 1982 - Par. (35). Pub. L. 97-222, Sec. 1(a)(2), added par. (35). Former par. (35) redesignated (36). Par. (36). Pub. L. 97-222, Sec. 1(a)(1), (b), (c), redesignated par. (35) as (36) and substituted 'is required to be the subject of a registration statement' for 'is the subject of a registration statement' in subpar. (A)(xii) and substituted 'forward contract' for 'forward commodity contract' in subpar. (B)(iii). Former par. (36) redesignated (37). Pars. (37) to (39). Pub. L. 97-222, Sec. 1(a)(1), redesignated pars. (36) to (38) as (37) to (39), respectively. Former par. (39) redesignated (40). Pars. (40), (41). Pub. L. 97-222, Sec. 1(a)(1), (d), redesignated former par. (39) as (40) and restructured its provisions by dividing the former introductory provisions into subpars. (A) and (B) and by redesignating former subpars. (A) and (B) as cls. (i) and (ii), respectively, of subpar. (B). Former par. (40) redesignated (41). EFFECTIVE DATE OF 1988 AMENDMENTS Section 12 of Pub. L. 100-597 provided that: '(a) Effective Date. - Except as provided in subsection (b), this Act and the amendments made by this Act (enacting sections 927 to 929 of this title, amending this section and sections 109, 901, 902, 922, 926, and 943 of this title, and renumbering section 927 of this title as 930) shall take effect on the date of the enactment of this Act (Nov. 3, 1988). '(b) Application of Amendments. - The amendments made by this Act shall not apply with respect to cases commenced under title 11 of the United States Code before the date of the enactment of this Act (Nov. 3, 1988).' Section 2 of Pub. L. 100-506 provided that: '(a) Effective Date. - Except as provided in subsection (b), this Act and the amendments made by this Act (amending this section and section 365 of this title) shall take effect on the date of the enactment of this Act (Oct. 18, 1988). '(b) Application of Amendments. - The amendments made by this Act shall not apply with respect to any case commenced under title 11 of the United States Code before the date of the enactment of this Act (Oct. 18, 1988).' EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by section 201 of Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 251 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554. Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Section 552, formerly Sec. 553, of title III (Sec. 301-553) of Pub. L. 98-353, as renumbered by Pub. L. 98-531, Sec. 1(2), Oct. 19, 1984, 98 Stat. 2704, provided that: '(a) Except as otherwise provided in this section the amendments made by this title (see Tables for classification) shall become effective to cases filed 90 days after the date of enactment of this Act (July 10, 1984). '(b) The amendments made by section 426(b) (amending section 303 of this title) shall become effective upon the date of enactment of this Act. '(c) The amendments made by subtitle J (enacting section 1113 of this title), shall become effective as provided in section 541(c) (set out as an Effective Date note under section 1113 of this title).' SHORT TITLE OF 1990 AMENDMENTS Pub. L. 101-581, Sec. 1, Nov. 15, 1990, 104 Stat. 2865, and section 3101 of title XXXI of Pub. L. 101-647, provided respectively that such Act and such title (amending sections 523 and 1328 of this title and enacting provisions set out as a note under section 523 of this title) may be cited as the 'Criminal Victims Protection Act of 1990'. SHORT TITLE OF 1988 AMENDMENT Pub. L. 100-334, Sec. 1, June 16, 1988, 102 Stat. 610, provided that: 'This Act (enacting section 1114 of this title, amending section 1129 of this title, enacting provisions set out as a note under section 1114 of this title, and amending and repealing provisions set out as notes under section 1106 of this title) may be cited as the 'Retiree Benefits Bankruptcy Protection Act of 1988'.' SHORT TITLE OF 1984 AMENDMENT Section 361 of subtitle C (Sec. 361-363) of title III of Pub. L. 98-353 provided that: 'This subtitle (amending sections 362, 365, and 541 of this title) may be cited as the 'Leasehold Management Bankruptcy Amendments Act of 1983'.' SEPARABILITY Section 551 of title III (Sec. 301-553) of Pub. L. 98-353 provided that: 'If any provision of this title or any amendment made by this title (see Tables for classification), or the application thereof to any person or circumstance is held invalid, the provisions of every other part, and their application shall not be affected thereby.' -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 362 of this title; title 12 sections 1787, 1821; title 15 sections 78eee, 78fff-1; title 28 section 1930. ------DocID 14673 Document 18 of 646------ -CITE- 11 USC Sec. 102 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 102. Rules of construction -STATUTE- In this title - (1) 'after notice and a hearing', or a similar phrase - (A) means after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances; but (B) authorizes an act without an actual hearing if such notice is given properly and if - (i) such a hearing is not requested timely by a party in interest; or (ii) there is insufficient time for a hearing to be commenced before such act must be done, and the court authorizes such act; (2) 'claim against the debtor' includes claim against property of the debtor; (3) 'includes' and 'including' are not limiting; (4) 'may not' is prohibitive, and not permissive; (5) 'or' is not exclusive; (6) 'order for relief' means entry of an order for relief; (7) the singular includes the plural; (8) a definition, contained in a section of this title that refers to another section of this title, does not, for the purpose of such reference, affect the meaning of a term used in such other section; and (9) 'United States trustee' includes a designee of the United States trustee. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2554; Pub. L. 98-353, title III, Sec. 422, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title II, Sec. 202, Oct. 27, 1986, 100 Stat. 3097.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 102 specifies various rules of construction but is not exclusive. Other rules of construction that are not set out in title 11 are nevertheless intended to be followed in construing the bankruptcy code. For example, the phrase 'on request of a party in interest' or a similar phrase, is used in connection with an action that the court may take in various sections of the Code. The phrase is intended to restrict the court from acting sua sponte. Rules of bankruptcy procedure or court decisions will determine who is a party in interest for the particular purposes of the provision in question, but the court will not be permitted to act on its own. Although 'property' is not construed in this section, it is used consistently throughout the code in its broadest sense, including cash, all interests in property, such as liens, and every kind of consideration including promises to act or forbear to act as in section 548(d). Section 102(1) expands on a rule of construction contained in H.R. 8200 as passed by the House and in the Senate amendment. The phrase 'after notice and a hearing', or a similar phrase, is intended to be construed according to the particular proceeding to mean after such notice as is appropriate in the particular circumstances, and such opportunity, if any, for a hearing as is appropriate in the particular circumstances. If a provision of title 11 authorizes an act to be taken 'after notice and a hearing' this means that if appropriate notice is given and no party to whom such notice is sent timely requests a hearing, then the act sought to be taken may be taken without an actual hearing. In very limited emergency circumstances, there will be insufficient time for a hearing to be commenced before an action must be taken. The action sought to be taken may be taken if authorized by the court at an ex parte hearing of which a record is made in open court. A full hearing after the fact will be available in such an instance. In some circumstances, such as under section 1128, the bill requires a hearing and the court may act only after a hearing is held. In those circumstances the judge will receive evidence before ruling. In other circumstances, the court may take action 'after notice and a hearing,' if no party in interest requests a hearing. In that event a court order authorizing the action to be taken is not necessary as the ultimate action taken by the court implies such an authorization. Section 102(8) is new. It contains a rule of construction indicating that a definition contained in a section in title 11 that refers to another section of title 11 does not, for the purposes of such reference, take the meaning of a term used in the other section. For example, section 522(a)(2) defines 'value' for the purposes of section 522. Section 548(d)(2) defines 'value' for purposes of section 548. When section 548 is incorporated by reference in section 522, this rule of construction makes clear that the definition of 'value' in section 548 governs its meaning in section 522 notwithstanding a different definition of 'value' in section 522(a)(2). SENATE REPORT NO. 95-989 Section 102 provides seven rules of construction. Some are derived from current law; others are derived from 1 U.S.C. 1; a few are new. They apply generally throughout proposed title 11. These are terms that are not appropriate for definition, but that require an explanation. Paragraph (1) defines the concept of 'after notice and a hearing.' The concept is central to the bill and to the separation of the administrative and judicial functions of bankruptcy judges. The phrase means after such notice as is appropriate in the particular circumstances (to be prescribed by either the Rules of Bankruptcy Procedure or by the court in individual circumstances that the Rules do not cover. In many cases, the Rules will provide for combined notice of several proceedings), and such opportunity for a hearing as is appropriate in the particular circumstances. Thus, a hearing will not be necessary in every instance. If there is no objection to the proposed action, the action may go ahead without court action. This is a significant change from present law, which requires the affirmative approval of the bankruptcy judge for almost every action. The change will permit the bankruptcy judge to stay removed from the administration of the bankruptcy or reorganization case, and to become involved only when there is a dispute about a proposed action, that is, only when there is an objection. The phrase 'such opportunity for a hearing as is appropriate in the particular circumstances' is designed to permit the Rules and the courts to expedite or dispense with hearings when speed is essential. The language 'or similar phrase' is intended to cover the few instances in the bill where 'after notice and a hearing' is interrupted by another phrase, such as 'after notice to the debtor and a hearing.' Paragraph (2) specifies that 'claim against the debtor' includes claim against property of the debtor. This paragraph is intended to cover nonrecourse loan agreements where the creditor's only rights are against property of the debtor, and not against the debtor personally. Thus, such an agreement would give rise to a claim that would be treated as a claim against the debtor personally, for the purposes of the bankruptcy code. Paragraph (3) is a codification of American Surety Co. v. Marotta, 287 U.S. 513 (1933). It specifies that 'includes' and 'including' are not limiting. Paragraph (4) specifies that 'may not' is prohibitive and not permissive (such as in 'might not'). Paragraph (5) specifies that 'or' is not exclusive. Thus, if a party 'may do (a) or (b)', then the party may do either or both. The party is not limited to a mutually exclusive choice between the two alternatives. Paragraph (6) makes clear that 'order for relief' means entry of an order for relief. If the court orally orders relief, but the order is not entered until a later time, then any time measurements in the bill are from entry, not from the oral order. In a voluntary case, the entry of the order for relief is the filing of the petition commencing the voluntary case. Paragraph (7) specifies that the singular includes the plural. The plural, however, generally does not include the singular. The bill uses only the singular, even when the item in question most often is found in plural quantities, in order to avoid the confusion possible if both rules of construction applied. When an item is specified in the plural, the plural is intended. AMENDMENTS 1986 - Par. (9). Pub. L. 99-554 added par. (9). 1984 - Par. (8). Pub. L. 98-353 substituted 'contained' for 'continued'. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. ------DocID 14674 Document 19 of 646------ -CITE- 11 USC Sec. 103 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 103. Applicability of chapters -STATUTE- (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. (b) Subchapters I and II of chapter 7 of this title apply only in a case under such chapter. (c) Subchapter III of chapter 7 of this title applies only in a case under such chapter concerning a stockbroker. (d) Subchapter IV of chapter 7 of this title applies only in a case under such chapter concerning a commodity broker. (e) Except as provided in section 901 of this title, only chapters 1 and 9 of this title apply in a case under such chapter 9. (f) Except as provided in section 901 of this title, subchapters I, II, and III of chapter 11 of this title apply only in a case under such chapter. (g) Subchapter IV of chapter 11 of this title applies only in a case under such chapter concerning a railroad. (h) Chapter 13 of this title applies only in a case under such chapter. (i) Chapter 12 of this title applies only in a case under such chapter. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2555; Pub. L. 97-222, Sec. 2, July 27, 1982, 96 Stat. 235; Pub. L. 98-353, title III, Sec. 423, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title II, Sec. 252, Oct. 27, 1986, 100 Stat. 3104.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Section 103 prescribes which chapters of the proposed bankruptcy code apply in various cases. All cases, other than cases ancillary to foreign proceedings, are filed under chapter 7, 9, 11, or 13, the operative chapters of the proposed bankruptcy code. The general provisions that apply no matter which chapter a case is filed under are found in chapters 1, 3, and 5. Subsection (a) makes this explicit, with an exception for chapter 9. The other provisions, which are self-explanatory, provide the special rules for Stockbroker Liquidations, Commodity Broker Liquidations, Municipal Debt Adjustments, and Railroad Reorganizations. AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554, Sec. 252(1), inserted reference to chapter 12. Subsec. (i). Pub. L. 99-554, Sec. 252(2), added subsec. (i). 1984 - Subsec. (c). Pub. L. 98-353 substituted 'stockbroker' for 'stockholder'. 1982 - Subsec. (d). Pub. L. 97-222 struck out 'except with respect to section 746(c) which applies to margin payments made by any debtor to a commodity broker or forward contract merchant' after 'concerning a commodity broker'. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 901, 902, 943 of this title. ------DocID 14675 Document 20 of 646------ -CITE- 11 USC Sec. 104 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 104. Adjustment of dollar amounts -STATUTE- The Judicial Conference of the United States shall transmit to the Congress and to the President before May 1, 1985, and before May 1 of every sixth year after May 1, 1985, a recommendation for the uniform percentage adjustment of each dollar amount in this title and in section 1930 of title 28. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2555.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 104 represents a compromise between the House bill and the Senate amendment with respect to the adjustment of dollar amounts in title 11. The House amendment authorizes the Judicial Conference of the United States to transmit a recommendation for the uniform percentage of adjustment for each dollar amount in title 11 and in 28 U.S.C. 1930 to the Congress and to the President before May 1, 1985, and before May 1 of every sixth year thereafter. The requirement in the House bill that each such recommendation be based only on any change in the cost-of-living increase during the period immediately preceding the recommendation is deleted. SENATE REPORT NO. 95-989 This section requires that the Director of the Administrative Office of the U. S. Courts report to Congress and the President before Oct. 1, 1985, and before May 1 every 6 years thereafter a recommendation for adjustment in dollar amounts found in this title. The Committee feels that regular adjustment of the dollar amounts by the Director will conserve congressional time and yet assure that the relative dollar amounts used in the bill are maintained. Changes in the cost of living should be a significant, but not necessarily the only, factor considered by the Director. The fact that there has been an increase in the cost of living does not necessarily mean that an adjustment of dollar amounts would be needed or warranted. HOUSE REPORT NO. 95-595 This section requires the Judicial Conference to report to the Congress every four years after the effective date of the bankruptcy code any changes that have occurred in the cost of living during the preceding four years, and the appropriate adjustments to the dollar amounts in the bill. The dollar amounts are found primarily in the exemption section (11 U.S.C. 522), the wage priority (11 U.S.C. 507), and the eligibility for chapter 13 (11 U.S.C. 109). This section requires that the Conference recommend uniform percentage changes in these amounts based solely on cost of living changes. The dollar amounts in the bill would not change on that recommendation, absent Congressional veto. Instead, Congress is required to take affirmative action, by passing a law amending the appropriate section, if it wishes to accomplish the change. If the Judicial Conference has policy recommendations concerning the appropriate dollar amounts in the bankruptcy code based other than on cost of living considerations there are adequate channels through which it may communicate its views. This section is solely for the housekeeping function of maintaining the dollar amounts in the code at fairly constant real dollar levels. ------DocID 14676 Document 21 of 646------ -CITE- 11 USC Sec. 105 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 105. Power of court -STATUTE- (a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. (b) Notwithstanding subsection (a) of this section, a court may not appoint a receiver in a case under this title. (c) The ability of any district judge or other officer or employee of a district court to exercise any of the authority or responsibilities conferred upon the court under this title shall be determined by reference to the provisions relating to such judge, officer, or employee set forth in title 28. This subsection shall not be interpreted to exclude bankruptcy judges and other officers or employees appointed pursuant to chapter 6 of title 28 from its operation. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2555; Pub. L. 98-353, title I, Sec. 118, July 10, 1984, 98 Stat. 344; Pub. L. 99-554, title II, Sec. 203, Oct. 27, 1986, 100 Stat. 3097.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Section 105 is derived from section 2a (15) of present law (section 11(a)(15) of former title 11), with two changes. First, the limitation on the power of a bankruptcy judge (the power to enjoin a court being reserved to the district judge) is removed as inconsistent with the increased powers and jurisdiction of the new bankruptcy court. Second, the bankruptcy judge is prohibited from appointing a receiver in a case under title 11 under any circumstances. The bankruptcy code has ample provision for the appointment of a trustee when needed. Appointment of a receiver would simply circumvent the established procedures. This section is also an authorization, as required under 28 U.S.C. 2283, for a court of the United States to stay the action of a State court. As such, Toucey v. New York Life Insurance Company, 314 U.S. 118 (1941), is overruled. AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554 inserted at end 'No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.' 1984 - Subsecs. (a), (b). Pub. L. 98-353, Sec. 118(1), struck out 'bankruptcy' before 'court'. Subsec. (c). Pub. L. 98-353, Sec. 118(2), added subsec. (c). EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective July 10, 1984, see section 122(a) of Pub. L. 98-353, set out as an Effective Date note under section 151 of Title 28, Judiciary and Judicial Procedure. ------DocID 14677 Document 22 of 646------ -CITE- 11 USC Sec. 106 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 106. Waiver of sovereign immunity -STATUTE- (a) A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental unit's claim arose. (b) There shall be offset against an allowed claim or interest of a governmental unit any claim against such governmental unit that is property of the estate. (c) Except as provided in subsections (a) and (b) of this section and notwithstanding any assertion of sovereign immunity - (1) a provision of this title that contains 'creditor', 'entity', or 'governmental unit' applies to governmental units; and (2) a determination by the court of an issue arising under such a provision binds governmental units. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2555.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 106(c) relating to sovereign immunity is new. The provision indicates that the use of the term 'creditor,' 'entity,' or 'governmental unit' in title 11 applies to governmental units notwithstanding any assertion of sovereign immunity and that an order of the court binds governmental units. The provision is included to comply with the requirement in case law that an express waiver of sovereign immunity is required in order to be effective. Section 106(c) codifies In re Gwilliam, 519 F.2d 407 (9th Cir., 1975), and In re Dolard, 519 F.2d 282 (9th Cir., 1975), permitting the bankruptcy court to determine the amount and dischargeability of tax liabilities owing by the debtor or the estate prior to or during a bankruptcy case whether or not the governmental unit to which such taxes are owed files a proof of claim. Except as provided in sections 106(a) and (b), subsection (c) is not limited to those issues, but permits the bankruptcy court to bind governmental units on other matters as well. For example, section 106(c) permits a trustee or debtor in possession to assert avoiding powers under title 11 against a governmental unit; contrary language in the House report to H.R. 8200 is thereby overruled. SENATE REPORT NO. 95-989 Section 106 provides for a limited waiver of sovereign immunity in bankruptcy cases. Though Congress has the power to waive sovereign immunity for the Federal government completely in bankruptcy cases, the policy followed here is designed to achieve approximately the same result that would prevail outside of bankruptcy. Congress does not, however, have the power to waive sovereign immunity completely with respect to claims of a bankrupt estate against a State, though it may exercise its bankruptcy power through the supremacy clause to prevent or prohibit State action that is contrary to bankruptcy policy. There is, however, a limited change from the result that would prevail in the absence of bankruptcy; the change is two-fold and is within Congress' power vis-a-vis both the Federal Government and the States. First, the filing of a proof of claim against the estate by a governmental unit is a waiver by that governmental unit of sovereign immunity with respect to compulsory counterclaims, as defined in the Federal Rules of Civil Procedure (title 28, appendix), that is, counterclaims arising out of the same transaction or occurrence. The governmental unit cannot receive a distribution from the estate without subjecting itself to any liability it has to the estate within the confines of a compulsory counterclaim rule. Any other result would be one-sided. The counterclaim by the estate against the governmental unit is without limit. Second, the estate may offset against the allowed claim of a governmental unit, up to the amount of the governmental unit's claim, any claim that the debtor, and thus the estate, has against the governmental unit, without regard to whether the estate's claim arose out of the same transaction or occurrence as the government's claim. Under this provision, the setoff permitted is only to the extent of the governmental unit's claim. No affirmative recovery is permitted. Subsection (a) governs affirmative recovery. Though this subsection creates a partial waiver of immunity when the governmental unit files a proof of claim, it does not waive immunity if the debtor or trustee, and not the governmental unit, files proof of a governmental unit's claim under proposed 11 U.S.C. 501(c). This section does not confer sovereign immunity on any governmental unit that does not already have immunity. It simply recognizes any immunity that exists and prescribes the proper treatment of claims by and against that sovereign. ------DocID 14678 Document 23 of 646------ -CITE- 11 USC Sec. 107 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 107. Public access to papers -STATUTE- (a) Except as provided in subsection (b) of this section, a paper filed in a case under this title and the dockets of a bankruptcy court are public records and open to examination by an entity at reasonable times without charge. (b) On request of a party in interest, the bankruptcy court shall, and on the bankruptcy court's own motion, the bankruptcy court may - (1) protect an entity with respect to a trade secret or confidential research, development, or commercial information; or (2) protect a person with respect to scandalous or defamatory matter contained in a paper filed in a case under this title. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2556.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Subsection (a) of this section makes all papers filed in a bankruptcy case and the dockets of the bankruptcy court public and open to examination at reasonable times without charge. 'Docket' includes the claims docket, the proceedings docket, and all papers filed in a case. Subsection (b) permits the court, on its own motion, and requires the court, on the request of a party in interest, to protect trade secrets, confidential research, development, or commercial information, and to protect persons against scandalous or defamatory matter. ------DocID 14679 Document 24 of 646------ -CITE- 11 USC Sec. 108 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 108. Extension of time -STATUTE- (a) If applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor may commence an action, and such period has not expired before the date of the filing of the petition, the trustee may commence such action only before the later of - (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or (2) two years after the order for relief. (b) Except as provided in subsection (a) of this section, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor or an individual protected under section 1201 or 1301 of this title may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, before the later of - (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or (2) 60 days after the order for relief. (c) Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of - (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or (2) 30 days after notice of the termination or expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to such claim. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2556; Pub. L. 98-353, title III, Sec. 424, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title II, Sec. 257(b), Oct. 27, 1986, 100 Stat. 3114.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Extension of time: The House amendment adopts section 108(c)(1) of the Senate amendment which expressly includes any special suspensions of statutes of limitation periods on collection outside bankruptcy when assets are under the authority of a court. For example, section 6503(b) of the Internal Revenue Code (title 26) suspends collection of tax liabilities while the debtor's assets are in the control or custody of a court, and for 6 months thereafter. By adopting the language of the Senate amendment, the House amendment insures not only that the period for collection of the taxes outside bankruptcy will not expire during the title 11 proceedings, but also that such period will not expire until at least 6 months thereafter, which is the minimum suspension period provided by the Internal Revenue Code (title 26). SENATE REPORT NO. 95-989 Subsections (a) and (b), derived from Bankruptcy Act section 11 (section 29 of former title 11), permit the trustee, when he steps into the shoes of the debtor, an extension of time for filing an action or doing some other act that is required to preserve the debtor's rights. Subsection (a) extends any statute of limitation for commencing or continuing an action by the debtor for two years after the date of the order for relief, unless it would expire later. Subsection (b) gives the trustee 60 days to take other actions not covered under subsection (a), such as filing a pleading, demand, notice, or proof of claim or loss (such as an insurance claim), unless the period for doing the relevant act expires later than 60 days after the date of the order for relief. Subsection (c) extends the statute of limitations for creditors. Thus, if a creditor is stayed from commencing or continuing an action against the debtor because of the bankruptcy case, then the creditor is permitted an additional 30 days after notice of the event by which the stay is terminated, whether that event be relief from the automatic stay under proposed 11 U.S.C. 362 or 1301, the closing of the bankruptcy case (which terminates the stay), or the exception from discharge of the debts on which the creditor claims. In the case of Federal tax liabilities, the Internal Revenue Code (title 26) suspends the statute of limitations on a tax liability of a taxpayer from running while his assets are in the control or custody of a court and for 6 months thereafter (sec. 6503(b) of the Code (title 26)). The amendment applies this rule in a title 11 proceeding. Accordingly, the statute of limitations on collection of a nondischargeable Federal tax liability of a debtor will resume running after 6 months following the end of the period during which the debtor's assets are in the control or custody of the bankruptcy court. This rule will provide the Internal Revenue Service adequate time to collect nondischargeable taxes following the end of the title 11 proceedings. AMENDMENTS 1986 - Subsec. (b). Pub. L. 99-554, Sec. 257(b)(1), inserted reference to section 1201 of this title. Subsec. (c). Pub. L. 99-554, Sec. 257(b)(2)(A), inserted reference to section 1201 of this title in provisions preceding par. (1). Subsec. (c)(2). Pub. L. 99-554, Sec. 257(b)(2)(B), which directed the amendment of subsec. (c) by inserting '1201,' after '722,' was executed to par. (2) by inserting '1201,' after '922,' as the probable intent of Congress. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 424(b), inserted 'nonbankruptcy' after 'applicable' and 'entered in a' in provisions preceding par. (1). Subsec. (a)(1). Pub. L. 98-353, Sec. 424(a), substituted 'or' for 'and' after the semicolon. Subsec. (b). Pub. L. 98-353, Sec. 424(b), inserted 'nonbankruptcy' after 'applicable' and 'entered in a' in provisions preceding par. (1). Subsec. (b)(1). Pub. L. 98-353, Sec. 424(a), substituted 'or' for 'and' after the semicolon. Subsec. (c). Pub. L. 98-353, Sec. 424(b), inserted 'nonbankruptcy' after 'applicable' and 'entered in a' in provisions preceding par. (1). Subsec. (c)(1). Pub. L. 98-353, Sec. 424(a), substituted 'or' for 'and' after the semicolon. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. ------DocID 14680 Document 25 of 646------ -CITE- 11 USC Sec. 109 -EXPCITE- TITLE 11 CHAPTER 1 -HEAD- Sec. 109. Who may be a debtor -STATUTE- (a) Notwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title. (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, 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 (12 U.S.C. 1813(h)); 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. (c) An entity may be a debtor under chapter 9 of this title if and only if such entity - (1) is a municipality; (2) is generally authorized to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter; (3) is insolvent; (4) desires to effect a plan to adjust such debts; and (5)(A) has obtained the agreement of creditors holding at least a majority in amount of the claims of each class that such entity intends to impair under a plan in a case under such chapter; (B) has negotiated in good faith with creditors and has failed to obtain the agreement of creditors holding at least a majority in amount of the claims of each class that such entity intends to impair under a plan in a case under such chapter; (C) is unable to negotiate with creditors because such negotiation is impracticable; or (D) reasonably believes that a creditor may attempt to obtain a transfer that is avoidable under section 547 of this title. (d) Only a person that may be a debtor under chapter 7 of this title, except a stockbroker or a commodity broker, and a railroad may be a debtor under chapter 11 of this title. (e) Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $100,000 and noncontingent, liquidated, secured debts of less than $350,000, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $100,000 and noncontingent, liquidated, secured debts of less than $350,000 may be a debtor under chapter 13 of this title. (f) Only a family farmer with regular annual income may be a debtor under chapter 12 of this title. (g) Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if - (1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or (2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2557; Pub. L. 97-320, title VII, Sec. 703(d), Oct. 15, 1982, 96 Stat. 1539; Pub. L. 98-353, title III, Sec. 301, 425, July 10, 1984, 98 Stat. 352, 369; Pub. L. 99-554, title II, Sec. 253, Oct. 27, 1986, 100 Stat. 3105; Pub. L. 100-597, Sec. 2, Nov. 3, 1988, 102 Stat. 3028.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 109(b) of the House amendment adopts a provision contained in H.R. 8200 as passed by the House. Railroad liquidations will occur under chapter 11, not chapter 7. Section 109(c) contains a provision which tracks the Senate amendment as to when a municipality may be a debtor under chapter 11 of title 11. As under the Bankruptcy Act (former title 11), State law authorization and prepetition negotiation efforts are required. Section 109(e) represents a compromise between H.R. 8200 as passed by the House and the Senate amendment relating to the dollar amounts restricting eligibility to be a debtor under chapter 13 of title 11. The House amendment adheres to the limit of $100,000 placed on unsecured debts in H.R. 8200 as passed by the House. It adopts a midpoint of $350,000 as a limit on secured claims, a compromise between the level of $500,000 in H.R. 8200 as passed by the House and $200,000 as contained in the Senate amendment. SENATE REPORT NO. 95-989 This section specifies eligibility to be a debtor under the bankruptcy laws. The first criterion, found in the current Bankruptcy Act section 2a(1) (section 11(a)(1) of former title 11) requires that the debtor reside or have a domicile, a place of business, or property in the United States. Subsection (b) defines eligibility for liquidation under chapter 7. All persons are eligible except insurance companies, and certain banking institutions. These exclusions are contained in current law. However, the banking institution exception is expanded in light of changes in various banking laws since the current law was last amended on this point. A change is also made to clarify that the bankruptcy laws cover foreign banks and insurance companies not engaged in the banking or insurance business in the United States but having assets in the United States. Banking institutions and insurance companies engaged in business in this country are excluded from liquidation under the bankruptcy laws because they are bodies for which alternate provision is made for their liquidation under various State or Federal regulatory laws. Conversely, when a foreign bank or insurance company is not engaged in the banking or insurance business in the United States, then those regulatory laws do not apply, and the bankruptcy laws are the only ones available for administration of any assets found in United States. The first clause of subsection (b) provides that a railroad is not a debtor except where the requirements of section 1174 are met. Subsection (c) (now (d)) provides that only a person who may be a debtor under chapter 7 and a railroad may also be a debtor under chapter 11, but a stockbroker or commodity broker is eligible for relief only under chapter 7. Subsection (d) (now (e)) establishes dollar limitations on the amount of indebtedness that an individual with regular income can incur and yet file under chapter 13. HOUSE REPORT NO. 95-595 Subsection (c) defines eligibility for chapter 9. Only a municipality that is unable to pay its debts as they mature, and that is not prohibited by State law from proceeding under chapter 9, is permitted to be a chapter 9 debtor. The subsection is derived from Bankruptcy Act Sec. 84 (section 404 of former title 11), with two changes. First, section 84 requires that the municipality be 'generally authorized to file a petition under this chapter by the legislature, or by a governmental officer or organization empowered by State law to authorize the filing of a petition.' The 'generally authorized' language is unclear, and has generated a problem for a Colorado Metropolitan District that attempted to use chapter IX (chapter 9 of former title 11) in 1976. The 'not prohibited' language provides flexibility for both the States and the municipalities involved, while protecting State sovereignty as required by Ashton v. Cameron County Water District No. 1, 298 U.S. 513 (1936) (56 S.Ct. 892, 80 L.Ed. 1309, 31 Am.Bankr.Rep.N.S. 96, rehearing denied 57 S.Ct. 5, 299 U.S. 619, 81 L.Ed. 457) and Bekins v. United States, 304 U.S. 27 (1938) (58 S.Ct. 811, 82 L.Ed. 1137, 36 Am.Bankr.Rep.N.S. 187, rehearing denied 58 S.Ct. 1043, 1044, 304 U.S. 589, 82 L.Ed. 1549). The second change deletes the four prerequisites to filing found in section 84 (section 404 of former title 11). The prerequisites require the municipality to have worked out a plan in advance, to have attempted to work out a plan without success, to fear that a creditor will attempt to obtain a preference, or to allege that prior negotiation is impracticable. The loopholes in those prerequisites are larger than the requirement itself. It was a compromise from pre-1976 chapter IX (chapter 9 of former title 11) under which a municipality could file only if it had worked out an adjustment plan in advance. In the meantime, chapter IX protection was unavailable. There was some controversy at the time of the enactment of current chapter IX concerning deletion of the pre-negotiation requirement. It was argued that deletion would lead to a rash of municipal bankruptcies. The prerequisites now contained in section 84 were inserted to assuage that fear. They are largely cosmetic and precatory, however, and do not offer any significant deterrent to use of chapter IX. Instead, other factors, such as a general reluctance on the part of any debtor, especially a municipality, to use the bankruptcy laws, operates as a much more effective deterrent against capricious use. Subsection (d) permits a person that may proceed under chapter 7 to be a debtor under chapter 11, Reorganization, with two exceptions. Railroads, which are excluded from chapter 7, are permitted to proceed under chapter 11. Stockbrokers and commodity brokers, which are permitted to be debtors under chapter 7, are excluded from chapter 11. The special rules for treatment of customer accounts that are the essence of stockbroker and commodity broker liquidations are available only in chapter 7. Customers would be unprotected under chapter 11. The special protective rules are unavailable in chapter 11 because their complexity would make reorganization very difficult at best, and unintelligible at worst. The variety of options available in reorganization cases make it extremely difficult to reorganize and continue to provide the special customer protection necessary in these cases. Subsection (e) specifies eligibility for chapter 13, Adjustment of Debts of an Individual with Regular Income. An individual with regular income, or an individual with regular income and the individual's spouse, may proceed under chapter 13. As noted in connection with the definition of the term 'individual with regular income', this represents a significant departure from current law. The change might have been too great, however, without some limitation. Thus, the debtor (or the debtor and spouse) must have unsecured debts that aggregate less than $100,000, and secured debts that aggregate less than $500,000. These figures will permit the small sole proprietor, for whom a chapter 11 reorganization is too cumbersome a procedure, to proceed under chapter 13. It does not create a presumption that any sole proprietor within that range is better off in chapter 13 than chapter 11. The conversion rules found in section 1307 will govern the appropriateness of the two chapters for any particular individual. The figures merely set maximum limits. Whether a small business operated by a husband and wife, the so-called 'mom and pop grocery store,' will be a partnership and thus excluded from chapter 13, or a business owned by an individual, will have to be determined on the facts of each case. Even if partnership papers have not been filed, for example, the issue will be whether the assets of the grocery store are for the benefit of all creditors of the debtor or only for business creditors, and whether such assets may be the subject of a chapter 13 proceeding. The intent of the section is to follow current law that a partnership by estoppel may be adjudicated in bankruptcy and therefore would not prevent a chapter 13 debtor from subjecting assets in such a partnership to the reach of all creditors in a chapter 13 case. However, if the partnership is found to be a partnership by agreement, even informal agreement, than a separate entity exists and the assets of that entity would be exempt from a case under chapter 13. AMENDMENTS 1988 - Subsec. (c)(3). Pub. L. 100-597 struck out 'or unable to meet such entity's debts as such debts mature' after 'insolvent'. 1986 - Subsec. (f). Pub. L. 99-554, Sec. 253(1)(B), (2), added subsec. (f) and redesignated former subsec. (f) as (g). Subsec. (g). Pub. L. 99-554, Sec. 253(1), redesignated former subsec. (f) as (g) and inserted reference to family farmer. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 425(a), struck out 'in the United States,' after 'only a person that resides'. Subsec. (c)(5)(D). Pub. L. 98-353, Sec. 425(b), substituted 'transfer that is avoidable under section 547 of this title' for 'preference'. Subsec. (d). Pub. L. 98-353, Sec. 425(c), substituted 'stockbroker' for 'stockholder'. Subsec. (f). Pub. L. 98-353, Sec. 301, added subsec. (f). 1982 - Subsec. (b)(2). Pub. L. 97-320 inserted reference to industrial banks or similar institutions which are insured banks as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)). EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100-597 effective Nov. 3, 1988, but not applicable to any case commenced under this title before that date, see section 12 of Pub. L. 100-597, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 349, 921 of this title. ------DocID 14681 Document 26 of 646------ -CITE- 11 USC CHAPTER 3 -EXPCITE- TITLE 11 CHAPTER 3 -HEAD- CHAPTER 3 - CASE ADMINISTRATION -MISC1- SUBCHAPTER I - COMMENCEMENT OF A CASE Sec. 301. Voluntary cases. 302. Joint cases. 303. Involuntary cases. 304. Cases ancillary to foreign proceedings. 305. Abstention. 306. Limited appearance. 307. United States trustee. SUBCHAPTER II - OFFICERS 321. Eligibility to serve as trustee. 322. Qualification of trustee. 323. Role and capacity of trustee. 324. Removal of trustee or examiner. 325. Effect of vacancy. 326. Limitation on compensation of trustee. 327. Employment of professional persons. 328. Limitation on compensation of professional persons. 329. Debtor's transactions with attorneys. 330. Compensation of officers. 331. Interim compensation. SUBCHAPTER III - ADMINISTRATION 341. Meetings of creditors and equity security holders. 342. Notice. 343. Examination of the debtor. 344. Self-incrimination; immunity. 345. Money of estates. 346. Special tax provisions. 347. Unclaimed property. 348. Effect of conversion. 349. Effect of dismissal. 350. Closing and reopening cases. SUBCHAPTER IV - ADMINISTRATIVE POWERS 361. Adequate protection. 362. Automatic stay. 363. Use, sale, or lease of property. 364. Obtaining credit. 365. Executory contracts and unexpired leases. 366. Utility service. AMENDMENTS 1986 - Pub. L. 99-554, title II, Sec. 205(b), Oct. 27, 1986, 100 Stat. 3098, added item 307. -SECREF- CHAPTER REFERRED TO IN OTHER SECTIONS This chapter is referred to in section 103 of this title; title 15 section 78fff. ------DocID 14682 Document 27 of 646------ -CITE- 11 USC SUBCHAPTER I -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER I -HEAD- SUBCHAPTER I - COMMENCEMENT OF A CASE ------DocID 14683 Document 28 of 646------ -CITE- 11 USC Sec. 301 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER I -HEAD- Sec. 301. Voluntary cases -STATUTE- 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. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2558.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Sections 301, 302, 303, and 304 are all modified in the House amendment to adopt an idea contained in sections 301 and 303 of the Senate amendment requiring a petition commencing a case to be filed with the bankruptcy court. The exception contained in section 301 of the Senate bill relating to cases filed under chapter 9 is deleted. Chapter 9 cases will be handled by a bankruptcy court as are other title 11 cases. SENATE REPORT NO. 95-989 Section 301 specifies the manner in which a voluntary bankruptcy case is commenced. The debtor files a petition under this section under the particular operative chapter of the bankruptcy code under which he wishes to proceed. The filing of the petition constitutes an order for relief in the case under that chapter. The section contains no change from current law, except for the use of the phrase 'order for relief' instead of 'adjudication.' The term adjudication is replaced by a less pejorative phrase in light of the clear power of Congress to permit voluntary bankruptcy without the necessity for an adjudication, as under the 1898 act (former title 11), which was adopted when voluntary bankruptcy was a concept not thoroughly tested. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 101, 362, 522, 541, 901, 921 of this title. ------DocID 14684 Document 29 of 646------ -CITE- 11 USC Sec. 302 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER I -HEAD- Sec. 302. Joint cases -STATUTE- (a) A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual's spouse. The commencement of a joint case under a chapter of this title constitutes an order for relief under such chapter. (b) After the commencement of a joint case, the court shall determine the extent, if any, to which the debtors' estates shall be consolidated. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2558.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 A joint case is a voluntary bankruptcy case concerning a wife and husband. Under current law, there is no explicit provision for joint cases. Very often, however, in the consumer debtor context, a husband and wife are jointly liable on their debts, and jointly hold most of their property. A joint case will facilitate consolidation of their estates, to the benefit of both the debtors and their creditors, because the cost of administration will be reduced, and there will be only one filing fee. Section 302 specifies that a joint case is commenced by the filing of a petition under an appropriate chapter by an individual and that individual's spouse. Thus, one spouse cannot take the other into bankruptcy without the other's knowledge or consent. The filing of the petition constitutes an order for relief under the chapter selected. Subsection (b) requires the court to determine the extent, if any, to which the estates of the two debtors will be consolidated; that is, assets and liabilities combined in a single pool to pay creditors. Factors that will be relevant in the court's determination include the extent of jointly held property and the amount of jointly-owned debts. The section, of course, is not license to consolidate in order to avoid other provisions of the title to the detriment of either the debtors or their creditors. It is designed mainly for ease of administration. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 101, 362, 522, 541 of this title. ------DocID 14685 Document 30 of 646------ -CITE- 11 USC Sec. 303 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER I -HEAD- Sec. 303. Involuntary cases -STATUTE- (a) An involuntary case may be commenced only under chapter 7 or 11 of this title, and only against a person, except a farmer, family farmer, or a corporation that is not a moneyed, business, or commercial corporation, that may be a debtor under the chapter under which such case is commenced. (b) An involuntary case against a person is commenced by the filing with the bankruptcy court of a petition under chapter 7 or 11 of this title - (1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute, or an indenture trustee representing such a holder, if such claims aggregate at least $5,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims; (2) if there are fewer than 12 such holders, excluding any employee or insider of such person and any transferee of a transfer that is voidable under section 544, 545, 547, 548, 549, or 724(a) of this title, by one or more of such holders that hold in the aggregate at least $5,000 of such claims; (3) if such person is a partnership - (A) by fewer than all of the general partners in such partnership; or (B) if relief has been ordered under this title with respect to all of the general partners in such partnership, by a general partner in such partnership, the trustee of such a general partner, or a holder of a claim against such partnership; or (4) by a foreign representative of the estate in a foreign proceeding concerning such person. (c) After the filing of a petition under this section but before the case is dismissed or relief is ordered, a creditor holding an unsecured claim that is not contingent, other than a creditor filing under subsection (b) of this section, may join in the petition with the same effect as if such joining creditor were a petitioning creditor under subsection (b) of this section. (d) The debtor, or a general partner in a partnership debtor that did not join in the petition, may file an answer to a petition under this section. (e) After notice and a hearing, and for cause, the court may require the petitioners under this section to file a bond to indemnify the debtor for such amounts as the court may later allow under subsection (i) of this section. (f) Notwithstanding section 363 of this title, except to the extent that the court orders otherwise, and until an order for relief in the case, any business of the debtor may continue to operate, and the debtor may continue to use, acquire, or dispose of property as if an involuntary case concerning the debtor had not been commenced. (g) At any time after the commencement of an involuntary case under chapter 7 of this title but before an order for relief in the case, the court, on request of a party in interest, after notice to the debtor and a hearing, and if necessary to preserve the property of the estate or to prevent loss to the estate, may order the United States trustee to appoint an interim trustee under section 701 of this title to take possession of the property of the estate and to operate any business of the debtor. Before an order for relief, the debtor may regain possession of property in the possession of a trustee ordered appointed under this subsection if the debtor files such bond as the court requires, conditioned on the debtor's accounting for and delivering to the trustee, if there is an order for relief in the case, such property, or the value, as of the date the debtor regains possession, of such property. (h) If the petition is not timely controverted, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed, only if - (1) the debtor is generally not paying such debtor's debts as such debts become due unless such debts are the subject of a bona fide dispute; or (2) within 120 days before the date of the filing of the petition, a custodian, other than a trustee, receiver, or agent appointed or authorized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property, was appointed or took possession. (i) If the court dismisses a petition under this section other than on consent of all petitioners and the debtor, and if the debtor does not waive the right to judgment under this subsection, the court may grant judgment - (1) against the petitioners and in favor of the debtor for - (A) costs; or (B) a reasonable attorney's fee; or (2) against any petitioner that filed the petition in bad faith, for - (A) any damages proximately caused by such filing; or (B) punitive damages. (j) Only after notice to all creditors and a hearing may the court dismiss a petition filed under this section - (1) on the motion of a petitioner; (2) on consent of all petitioners and the debtor; or (3) for want of prosecution. (k) Notwithstanding subsection (a) of this section, an involuntary case may be commenced against a foreign bank that is not engaged in such business in the United States only under chapter 7 of this title and only if a foreign proceeding concerning such bank is pending. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2559; Pub. L. 98-353, title III, Sec. 426, 427, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title II, Sec. 204, 254, 283(b), Oct. 27, 1986, 100 Stat. 3097, 3105, 3116.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 303(b)(1) is modified to make clear that unsecured claims against the debtor must be determined by taking into account liens securing property held by third parties. Section 303(b)(3) adopts a provision contained in the Senate amendment indicating that an involuntary petition may be commenced against a partnership by fewer than all of the general partners in such partnership. Such action may be taken by fewer than all of the general partners notwithstanding a contrary agreement between the partners or State or local law. Section 303(h)(1) in the House amendment is a compromise of standards found in H.R. 8200 as passed by the House and the Senate amendment pertaining to the standards that must be met in order to obtain an order for relief in an involuntary case under title 11. The language specifies that the court will order such relief only if the debtor is generally not paying debtor's debts as they become due. Section 303(h)(2) reflects a compromise pertaining to section 543 of title 11 relating to turnover of property by a custodian. It provides an alternative test to support an order for relief in an involuntary case. If a custodian, other than a trustee, receiver, or agent appointed or authorized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property, was appointed or took possession within 120 days before the date of the filing of the petition, then the court may order relief in the involuntary case. The test under section 303(h)(2) differs from section 3a(5) of the Bankruptcy Act (section 21(a)(5) of former title 11), which requires an involuntary case to be commenced before the earlier of time such custodian was appointed or took possession. The test in section 303(h)(2) authorizes an order for relief to be entered in an involuntary case from the later date on which the custodian was appointed or took possession. SENATE REPORT NO. 95-989 Section 303 governs the commencement of involuntary cases under title 11. An involuntary case may be commenced only under chapter 7, Liquidation, or chapter 11, Reorganization. Involuntary cases are not permitted for municipalities, because to do so may constitute an invasion of State sovereignty contrary to the 10th amendment, and would constitute bad policy, by permitting the fate of a municipality, governed by officials elected by the people of the municipality, to be determined by a small number of creditors of the municipality. Involuntary chapter 13 cases are not permitted either. To do so would constitute bad policy, because chapter 13 only works when there is a willing debtor that wants to repay his creditors. Short of involuntary servitude, it is difficult to keep a debtor working for his creditors when he does not want to pay them back. See chapter 3, supra. The exceptions contained in current law that prohibit involuntary cases against farmers, ranchers and eleemosynary institutions are continued. Farmers and ranchers are excepted because of the cyclical nature of their business. One drought year or one year of low prices, as a result of which a farmer is temporarily unable to pay his creditors, should not subject him to involuntary bankruptcy. Eleemosynary institutions, such as churches, schools, and charitable organizations and foundations, likewise are exempt from involuntary bankruptcy. The provisions for involuntary chapter 11 cases is a slight change from present law, based on the proposed consolidation of the reorganization chapters. Currently, involuntary cases are permitted under chapters X and XII (chapters 10 and 12 of former title 11) but not under chapter XI (chapter 11 of former title 11). The consolidation requires a single rule for all kinds of reorganization proceedings. Because the assets of an insolvent debtor belong equitably to his creditors, the bill permits involuntary cases in order that creditors may realize on their assets through reorganization as well as through liquidation. Subsection (b) of the section specifies who may file an involuntary petition. As under current law, if the debtor has more than 12 creditors, three creditors must join in the involuntary petition. The dollar amount limitation is changed from current law to $5,000. The new amount applies both to liquidation and reorganization cases in order that there not be an artificial difference between the two chapters that would provide an incentive for one or the other. Subsection (b)(1) makes explicit the right of an indenture trustee to be one of the three petitioning creditors on behalf of the creditors the trustee represents under the indenture. If all of the general partners in a partnership are in bankruptcy, then the trustee of a single general partner may file an involuntary petition against the partnership. Finally, a foreign representative may file an involuntary case concerning the debtor in the foreign proceeding, in order to administer assets in this country. This subsection is not intended to overrule Bankruptcy Rule 104(d), which places certain restrictions on the transfer of claims for the purpose of commencing an involuntary case. That Rule will be continued under section 405(d) of this bill. Subsection (c) permits creditors other than the original petitioning creditors to join in the petition with the same effect as if the joining creditor had been one of the original petitioning creditors. Thus, if the claim of one of the original petitioning creditors is disallowed, the case will not be dismissed for want of three creditors or want of $5,000 in petitioning claims if the joining creditor suffices to fulfill the statutory requirements. Subsection (d) permits the debtor to file an answer to an involuntary petition. The subsection also permits a general partner in a partnership debtor to answer an involuntary petition against the partnership if he did not join in the petition. Thus, a partnership petition by less than all of the general partners is treated as an involuntary, not a voluntary, petition. The court may, under subsection (e), require the petitioners to file a bond to indemnify the debtor for such amounts as the court may later allow under subsection (i). Subsection (i) provides for costs, attorneys fees, and damages in certain circumstances. The bonding requirement will discourage frivolous petitions as well as spiteful petitions based on a desire to embarrass the debtor (who may be a competitor of a petitioning creditor) or to put the debtor out of business without good cause. An involuntary petition may put a debtor out of business even if it is without foundation and is later dismissed. Subsection (f) is both a clarification and a change from existing law. It permits the debtor to continue to operate any business of the debtor and to dispose of property as if the case had not been commenced. The court is permitted, however, to control the debtor's powers under this subsection by appropriate orders, such as where there is a fear that the debtor may attempt to abscond with assets, dispose of them at less than their fair value, or dismantle his business, all to the detriment of the debtor's creditors. The court may also, under subsection (g), appoint an interim trustee to take possession of the debtor's property and to operate any business of the debtor, pending trial on the involuntary petition. The court may make such an order only on the request of a party in interest, and after notice to the debtor and a hearing. There must be a showing that a trustee is necessary to preserve the property of the estate or to prevent loss to the estate. The debtor may regain possession by posting a sufficient bond. Subsection (h) provides the standard for an order for relief on an involuntary petition. If the petition is not timely controverted (the Rules of Bankruptcy Procedure will fix time limits), the court orders relief after a trial, only if the debtor is generally unable to pay its debts as they mature, or if the debtor has failed to pay a major portion of his debts as they become due, or if a custodian was appointed during the 90-day period preceding the filing of the petition. The first two tests are variations of the equity insolvency test. They represent the most significant departure from present law concerning the grounds for involuntary bankruptcy, which requires an act of bankruptcy. Proof of the commission of an act of bankruptcy has frequently required a showing that the debtor was insolvent on a 'balance-sheet' test when the act was committed. This bill abolishes the concept of acts of bankruptcy. The equity insolvency test has been in equity jurisprudence for hundreds of years, and though it is new in the bankruptcy context (except in chapter X (chapter 10 of former title 11)), the bankruptcy courts should have no difficulty in applying it. The third test, appointment of a custodian within ninety days before the petition, is provided for simplicity. It is not a partial re-enactment of acts of bankruptcy. If a custodian of all or substantially all of the property of the debtor has been appointed, this paragraph creates an irrebuttable presumption that the debtor is unable to pay its debts as they mature. Moreover, once a proceeding to liquidate assets has been commenced, the debtor's creditors have an absolute right to have the liquidation (or reorganization) proceed in the bankruptcy court and under the bankruptcy laws with all of the appropriate creditor and debtor protections that those laws provide. Ninety days gives creditors ample time in which to seek bankruptcy liquidation after the appointment of a custodian. If they wait beyond the ninety day period, they are not precluded from filing an involuntary petition. They are simply required to prove equity insolvency rather than the more easily provable custodian test. Subsection (i) permits the court to award costs, reasonable attorney's fees, or damages if an involuntary petition is dismissed other than by consent of all petitioning creditors and the debtor. The damages that the court may award are those that may be caused by the taking of possession of the debtor's property under subsection (g) or section 1104 of the bankruptcy code. In addition, if a petitioning creditor filed the petition in bad faith, the court may award the debtor any damages proximately caused by the filing of the petition. These damages may include such items as loss of business during and after the pendency of the case, and so on. 'Or' is not exclusive in this paragraph. The court may grant any or all of the damages provided for under the provision. Dismissal in the best interests of credits under section 305(a)(1) would not give rise to a damages claim. Under subsection (j), the court may dismiss the petition by consent only after giving notice to all creditors. The purpose of the subsection is to prevent collusive settlements among the debtor and the petitioning creditors while other creditors, that wish to see relief ordered with respect to the debtor but that did not participate in the case, are left without sufficient protection. Subsection (k) governs involuntary cases against foreign banks that are not engaged in business in the United States but that have assets located here. The subsection prevents a foreign bank from being placed into bankruptcy in this country unless a foreign proceeding against the bank is pending. The special protection afforded by this section is needed to prevent creditors from effectively closing down a foreign bank by the commencement of an involuntary bankruptcy case in this country unless that bank is involved in a proceeding under foreign law. An involuntary case commenced under this subsection gives the foreign representative an alternative to commencing a case ancillary to a foreign proceeding under section 304. AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554, Sec. 254, inserted reference to family farmer. Subsec. (b). Pub. L. 99-554, Sec. 283(b)(1), substituted 'subject of' for 'subject on'. Subsec. (g). Pub. L. 99-554, Sec. 204(1), substituted 'may order the United States trustee to appoint' for 'may appoint'. Subsec. (h)(1). Pub. L. 99-554, Sec. 283(b)(2), substituted 'are the' for 'that are the'. Subsec. (i)(1). Pub. L. 99-554, Sec. 204(2), inserted 'or' at end of subpar. (A) and struck out subpar. (C) which read as follows: 'any damages proximately caused by the taking of possession of the debtor's property by a trustee appointed under subsection (g) of this section or section 1104 of this title; or'. 1984 - Subsec. (b). Pub. L. 98-353, Sec. 426(a), inserted 'against a person' after 'involuntary case'. Subsec. (b)(1). Pub. L. 98-353, Sec. 426(b)(1), inserted 'or the subject on a bona fide dispute,'. Subsec. (h)(1). Pub. L. 98-353, Sec. 426(b)(2), inserted 'unless such debts that are the subject of a bona fide dispute'. Subsec. (j)(2). Pub. L. 98-353, Sec. 427, substituted 'debtor' for 'debtors'. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by section 204 of Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 254 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554. Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by sections 426(a) and 427 of Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, and amendment by section 426(b) of Pub. L. 98-353 effective July 10, 1984, see section 552(a), (b) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 101, 306, 362, 503, 504, 522, 541, 549 of this title; title 28 sections 1411, 1480. ------DocID 14686 Document 31 of 646------ -CITE- 11 USC Sec. 304 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER I -HEAD- Sec. 304. Cases ancillary to foreign proceedings -STATUTE- (a) A case ancillary to a foreign proceeding is commenced by the filing with the bankruptcy court of a petition under this section by a foreign representative. (b) Subject to the provisions of subsection (c) of this section, if a party in interest does not timely controvert the petition, or after trial, the court may - (1) enjoin the commencement or continuation of - (A) any action against - (i) a debtor with respect to property involved in such foreign proceeding; or (ii) such property; or (B) the enforcement of any judgment against the debtor with respect to such property, or any act or the commencement or continuation of any judicial proceeding to create or enforce a lien against the property of such estate; (2) order turnover of the property of such estate, or the proceeds of such property, to such foreign representative; or (3) order other appropriate relief. (c) In determining whether to grant relief under subsection (b) of this section, the court shall be guided by what will best assure an economical and expeditious administration of such estate, consistent with - (1) just treatment of all holders of claims against or interests in such estate; (2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding; (3) prevention of preferential or fraudulent dispositions of property of such estate; (4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title; (5) comity; and (6) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2560.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 304(b) adopts a provision contained in the Senate amendment with modifications. The provision indicates that if a party in interest does not timely controvert the petition in a case ancillary to a foreign proceeding, or after trial on the merits, the court may take various actions, including enjoining the commencement or continuation of any action against the debtor with respect to property involved in the proceeding, or against the property itself; enjoining the enforcement of any judgment against the debtor or the debtor's property; or the commencement or continuation of any judicial proceeding to create or enforce a lien against the property of the debtor or the estate. Section 304(c) is modified to indicate that the court shall be guided by considerations of comity in addition to the other factors specified therein. SENATE REPORT NO. 95-989 This section governs cases filed in the bankruptcy courts that are ancillary to foreign proceedings. That is, where a foreign bankruptcy case is pending concerning a particular debtor and that debtor has assets in this country, the foreign representative may file a petition under this section, which does not commence a full bankruptcy case, in order to administer assets located in this country, to prevent dismemberment by local creditors of assets located here, or for other appropriate relief. The debtor is given the opportunity to controvert the petition. Subsection (c) requires the court to consider several factors in determining what relief, if any, to grant. The court is to be guided by what will best assure an economical and expeditious administration of the estate, consistent with just treatment of all creditors and equity security holders; protection of local creditors and equity security holders against prejudice and inconvenience in processing claims and interests in the foreign proceeding; prevention of preferential or fraudulent disposition of property of the estate; distribution of the proceeds of the estate substantially in conformity with the distribution provisions of the bankruptcy code; and, if the debtor is an individual, the provision of an opportunity for a fresh start. These guidelines are designed to give the court the maximum flexibility in handling ancillary cases. Principles of international comity and respect for the judgments and laws of other nations suggest that the court be permitted to make the appropriate orders under all of the circumstances of each case, rather than being provided with inflexible rules. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 101, 305, 306 of this title; title 28 section 1410. ------DocID 14687 Document 32 of 646------ -CITE- 11 USC Sec. 305 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER I -HEAD- Sec. 305. Abstention -STATUTE- (a) The court, after notice and a hearing, may dismiss a case under this title, or may suspend all proceedings in a case under this title, at any time if - (1) the interests of creditors and the debtor would be better served by such dismissal or suspension; or (2)(A) there is pending a foreign proceeding; and (B) the factors specified in section 304(c) of this title warrant such dismissal or suspension. (b) A foreign representative may seek dismissal or suspension under subsection (a)(2) of this section. (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 of this title (FOOTNOTE 1) or by the Supreme Court of the United States under section 1254 of this title. (FOOTNOTE 1) (FOOTNOTE 1) So in original. Words 'of this title' probably should be 'of title 28'. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561; Pub. L. 101-650, title III, Sec. 309(a), Dec. 1, 1990, 104 Stat. 5113.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 A principle of the common law requires a court with jurisdiction over a particular matter to take jurisdiction. This section recognizes that there are cases in which it would be appropriate for the court to decline jurisdiction. Abstention under this section, however, is of jurisdiction over the entire case. Abstention from jurisdiction over a particular proceeding in a case is governed by proposed 28 U.S.C. 1471(c). Thus, the court is permitted, if the interests of creditors and the debtor would be better served by dismissal of the case or suspension of all proceedings in the case, to so order. The court may dismiss or suspend under the first paragraph, for example, if an arrangement is being worked out by creditors and the debtor out of court, there is no prejudice to the results of creditors in that arrangement, and an involuntary case has been commenced by a few recalcitrant creditors to provide a basis for future threats to extract full payment. The less expensive out-of-court workout may better serve the interests in the case. Likewise, if there is pending a foreign proceeding concerning the debtor and the factors specified in proposed 11 U.S.C. 304(c) warrant dismissal or suspension, the court may so act. Subsection (b) gives a foreign representative authority to appear in the bankruptcy court to request dismissal or suspension. Subsection (c) makes the dismissal or suspension order nonreviewable by appeal or otherwise. The bankruptcy court, based on its experience and discretion is vested with the power of decision. AMENDMENTS 1990 - Subsec. (c). Pub. L. 101-650 inserted before period at end 'by the court of appeals under section 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under section 1254 of this title'. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 306 of this title. ------DocID 14688 Document 33 of 646------ -CITE- 11 USC Sec. 306 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER I -HEAD- Sec. 306. Limited appearance -STATUTE- An appearance in a bankruptcy court by a foreign representative in connection with a petition or request under section 303, 304, or 305 of this title does not submit such foreign representative to the jurisdiction of any court in the United States for any other purpose, but the bankruptcy court may condition any order under section 303, 304, or 305 of this title on compliance by such foreign representative with the orders of such bankruptcy court. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Section 306 permits a foreign representative that is seeking dismissal or suspension under section 305 of an ancillary case or that is appearing in connection with a petition under section 303 or 304 to appear without subjecting himself to the jurisdiction of any other court in the United States, including State courts. The protection is necessary to allow the foreign representative to present his case and the case of the foreign estate, without waiving the normal jurisdictional rules of the foreign country. That is, creditors in this country will still have to seek redress against the foreign estate according to the host country's jurisdictional rules. Any other result would permit local creditors to obtain unfair advantage by filing an involuntary case, thus requiring the foreign representative to appear, and then obtaining local jurisdiction over the representative in connection with his appearance in this country. That kind of bankruptcy law would legalize an ambush technique that has frequently been rejected by the common law in other contexts. However, the bankruptcy court is permitted under section 306 to condition any relief under section 303, 304, or 305 on the compliance by the foreign representative with the orders of the bankruptcy court. The last provision is not carte blanche to the bankruptcy court to require the foreign representative to submit to jurisdiction in other courts contrary to the general policy of the section. It is designed to enable the bankruptcy court to enforce its own orders that are necessary to the appropriate relief granted under section 303, 304, or 305. ------DocID 14689 Document 34 of 646------ -CITE- 11 USC Sec. 307 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER I -HEAD- Sec. 307. United States trustee -STATUTE- The United States trustee may raise and may appear and be heard on any issue in any case or proceeding under this title but may not file a plan pursuant to section 1121(c) of this title. -SOURCE- (Added Pub. L. 99-554, title II, Sec. 205(a), Oct. 27, 1986, 100 Stat. 3098.) -MISC1- EFFECTIVE DATE Effective date and applicability of section dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. STANDING AND AUTHORITY OF BANKRUPTCY ADMINISTRATOR Pub. L. 101-650, title III, Sec. 317(b), Dec. 1, 1990, 104 Stat. 5115, provided that: 'A bankruptcy administrator may raise and may appear and be heard on any issue in any case under title 11, United States Code, but may not file a plan pursuant to section 1121(c) of such title.' ------DocID 14690 Document 35 of 646------ -CITE- 11 USC SUBCHAPTER II -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- SUBCHAPTER II - OFFICERS ------DocID 14691 Document 36 of 646------ -CITE- 11 USC Sec. 321 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 321. Eligibility to serve as trustee -STATUTE- (a) A person may serve as trustee in a case under this title only if such person is - (1) an individual that is competent to perform the duties of trustee and, in a case under chapter 7, 12, or 13 of this title, resides or has an office in the judicial district within which the case is pending, or in any judicial district adjacent to such district; or (2) a corporation authorized by such corporation's charter or bylaws to act as trustee, and, in a case under chapter 7, 12, or 13 of this title, having an office in at least one of such districts. (b) A person that has served as an examiner in the case may not serve as trustee in the case. (c) The United States trustee for the judicial district in which the case is pending is eligible to serve as trustee in the case if necessary. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2561; Pub. L. 98-353, title III, Sec. 428, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title II, Sec. 206, 257(c), Oct. 27, 1986, 100 Stat. 3098, 3114.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 321 indicates that an examiner may not serve as a trustee in the case. SENATE REPORT NO. 95-989 Section 321 is adapted from current Bankruptcy Act Sec. 45 (section 73 of former title 11) and Bankruptcy Rule 209. Subsection (a) specifies that an individual may serve as trustee in a bankruptcy case only if he is competent to perform the duties of trustee and resides or has an office in the judicial district within which the case is pending, or in an adjacent judicial district. A corporation must be authorized by its charter or bylaws to act as trustee, and, for chapter 7 or 13 cases, must have an office in any of the above mentioned judicial districts. AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(c), inserted reference to chapter 12 in two places. Subsec. (c). Pub. L. 99-554, Sec. 206, added subsec. (c). 1984 - Subsec. (b). Pub. L. 98-353 substituted 'the case' for 'a case' after 'an examiner in'. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by section 206 of Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. ------DocID 14692 Document 37 of 646------ -CITE- 11 USC Sec. 322 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 322. Qualification of trustee -STATUTE- (a) Except as provided in subsection (b)(1), a person selected under section 701, 702, 703, 1104, 1163, 1302, or 1202 of this title to serve as trustee in a case under this title qualifies if before five days after such selection, and before beginning official duties, such person has filed with the court a bond in favor of the United States conditioned on the faithful performance of such official duties. (b)(1) The United States trustee qualifies wherever such trustee serves as trustee in a case under this title. (2) The United States trustee shall determine - (A) the amount of a bond required to be filed under subsection (a) of this section; and (B) the sufficiency of the surety on such bond. (c) A trustee is not liable personally or on such trustee's bond in favor of the United States for any penalty or forfeiture incurred by the debtor. (d) A proceeding on a trustee's bond may not be commenced after two years after the date on which such trustee was discharged. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 98-353, title III, Sec. 429, July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title II, Sec. 207, 257(d), Oct. 27, 1986, 100 Stat. 3098, 3114.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 322(a) is modified to include a trustee serving in a railroad reorganization under subchapter IV of chapter 11. SENATE REPORT NO. 95-989 A trustee qualifies in a case by filing, within five days after selection, a bond in favor of the United States, conditioned on the faithful performance of his official duties. This section is derived from the Bankruptcy Act section 50b (section 78(b) of former title 11). The court is required to determine the amount of the bond and the sufficiency of the surety on the bond. Subsection (c), derived from Bankruptcy Act section 50i (section 78(i) of former title 11), relieves the trustee from personal liability and from liability on his bond for any penalty or forfeiture incurred by the debtor. Subsection (d), derived from section 50m (section 78(m) of former title 11), fixes a two-year statute of limitations on any action on a trustee's bond. Finally, subsection (e) dispenses with the bonding requirement for the United States trustee. AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(d), inserted reference to section 1202 of this title. Pub. L. 99-554, Sec. 207(1), substituted 'Except as provided in subsection (b)(1), a person' for 'A person'. Subsec. (b). Pub. L. 99-554, Sec. 207(2), amended subsec. (b) generally, adding par. (1), designating existing provisions as par. (2), substituting 'The United States trustee' for 'The court', '(A) the amount' for '(1) the amount', and '(B) the sufficiency' for '(2) the sufficiency'. 1984 - Subsec. (b)(1). Pub. L. 98-353 inserted 'required to be'. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by section 207 of Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 701, 703, 746, 1101, 1104, 1202, 1302 of this title; title 15 section 78eee. ------DocID 14693 Document 38 of 646------ -CITE- 11 USC Sec. 323 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 323. Role and capacity of trustee -STATUTE- (a) The trustee in a case under this title is the representative of the estate. (b) The trustee in a case under this title has capacity to sue and be sued. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Subsection (a) of this section makes the trustee the representative of the estate. Subsection (b) grants the trustee the capacity to sue and to be sued. If the debtor remains in possession in a chapter 11 case, section 1107 gives the debtor in possession these rights of the trustee: the debtor in possession becomes the representative of the estate, and may sue and be sued. The same applies in a chapter 13 case. ------DocID 14694 Document 39 of 646------ -CITE- 11 USC Sec. 324 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 324. Removal of trustee or examiner -STATUTE- (a) The court, after notice and a hearing, may remove a trustee, other than the United States trustee, or an examiner, for cause. (b) Whenever the court removes a trustee or examiner under subsection (a) in a case under this title, such trustee or examiner shall thereby be removed in all other cases under this title in which such trustee or examiner is then serving unless the court orders otherwise. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 99-554, title II, Sec. 208, Oct. 27, 1986, 100 Stat. 3098.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 This section permits the court, after notice and a hearing, to remove a trustee for cause. AMENDMENTS 1986 - Pub. L. 99-554 amended section generally, designating existing provisions as subsec. (a), substituting 'a trustee, other than the United States trustee, or an examiner' for 'a trustee or an examiner', and adding subsec. (b). EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 703, 1104 of this title. ------DocID 14695 Document 40 of 646------ -CITE- 11 USC Sec. 325 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 325. Effect of vacancy -STATUTE- A vacancy in the office of trustee during a case does not abate any pending action or proceeding, and the successor trustee shall be substituted as a party in such action or proceeding. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Section 325, derived from Bankruptcy Act section 46 (section 74 of former title 11) and Bankruptcy Rule 221(b), specifies that a vacancy in the office of trustee during a case does not abate any pending action or proceeding. The successor trustee, when selected and qualified, is substituted as a party in any pending action or proceeding. ------DocID 14696 Document 41 of 646------ -CITE- 11 USC Sec. 326 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 326. Limitation on compensation of trustee -STATUTE- (a) In a case under chapter 7 or 11, the court may allow reasonable compensation under section 330 of this title of the trustee for the trustee's services, payable after the trustee renders such services, not to exceed fifteen percent on the first $1,000 or less, six percent on any amount in excess of $1,000 but not in excess of $3,000, and three percent on any amount in excess of $3,000, upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims. (b) In a case under chapter 12 or 13 of this title, the court may not allow compensation for services or reimbursement of expenses of the United States trustee or of a standing trustee appointed under section 586(b) of title 28, but may allow reasonable compensation under section 330 of this title of a trustee appointed under section 1202(a) or 1302(a) of this title for the trustee's services, payable after the trustee renders such services, not to exceed five percent upon all payments under the plan. (c) If more than one person serves as trustee in the case, the aggregate compensation of such persons for such service may not exceed the maximum compensation prescribed for a single trustee by subsection (a) or (b) of this section, as the case may be. (d) The court may deny allowance of compensation for services or reimbursement of expenses of the trustee if the trustee failed to make diligent inquiry into facts that would permit denial of allowance under section 328(c) of this title or, with knowledge of such facts, employed a professional person under section 327 of this title. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2562; Pub. L. 98-353, title III, Sec. 430(a), (b), July 10, 1984, 98 Stat. 369; Pub. L. 99-554, title II, Sec. 209, Oct. 27, 1986, 100 Stat. 3098.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 326(a) of the House amendment modifies a provision as contained in H.R. 8200 as passed by the House. The percentage limitation on the fees of a trustee contained in the House bill is retained, but no additional percentage is specified for cases in which a trustee operates the business of the debtor. Section 326(b) of the Senate amendment is deleted as an unnecessary restatement of the limitation contained in section 326(a) as modified. The provision contained in section 326(a) of the Senate amendment authorizing a trustee to receive a maximum fee of $150 regardless of the availability of assets in the estate is deleted. It will not be necessary in view of the increase in section 326(a) and the doubling of the minimum fee as provided in section 330(b). Section 326(b) of the House amendment derives from section 326(c) of H.R. 8200 as passed by the House. It is a conforming amendment to indicate a change with respect to the selection of a trustee in a chapter 13 case under section 1302(a) of title 11. SENATE REPORT NO. 95-989 This section is derived in part from section 48c of the Bankruptcy Act (section 76(c) of former title 11). It must be emphasized that this section does not authorize compensation of trustees. This section simply fixes the maximum compensation of a trustee. Proposed 11 U.S.C. 330 authorizes and fixes the standard of compensation. Under section 48c of current law, the maximum limits have tended to become minimums in many cases. This section is not intended to be so interpreted. The limits in this section, together with the limitations found in section 330, are to be applied as outer limits, and not as grants or entitlements to the maximum fees specified. The maximum fee schedule is derived from section 48c(1) of the present act (section 76(c)(1) of former title 11), but with a change relating to the bases on which the percentage maxima are computed. The maximum fee schedule is based on decreasing percentages of increasing amounts. The amounts are the amounts of money distributed by the trustee to parties in interest, excluding the debtor, but including secured creditors. These amounts were last amended in 1952. Since then, the cost of living has approximately doubled. Thus, the bases were doubled. It should be noted that the bases on which the maximum fee is computed includes moneys turned over to secured creditors, to cover the situation where the trustee liquidates property subject to a lien and distributes the proceeds. It does not cover cases in which the trustee simply turns over the property to the secured creditor, nor where the trustee abandons the property and the secured creditor is permitted to foreclose. The provision is also subject to the rights of the secured creditor generally under proposed section 506, especially 506(c). The $150 discretionary fee provision of current law is retained. Subsection (b) of this section entitles an operating trustee to a reasonable fee, without any limitation based on the maximum provided for a liquidating trustee as in current law, Bankruptcy Act Sec. 48c(2) (section 76(c)(2) of former title 11). Subsection (c) (now (b)) permits a maximum fee of five percent on all payments to creditors under a chapter 13 plan to the trustee appointed in the case. Subsection (d) (now (c)) provides a limitation not found in current law. Even if more than one trustee serves in the case, the maximum fee payable to all trustees does not change. For example, if an interim trustee is appointed and an elected trustee replaces him, the combined total of the fees payable to the interim trustee and the permanent trustee may not exceed the amount specified in this section. Under current law, very often a receiver receives a full fee and a subsequent trustee also receives a full fee. The resultant 'double-dipping', especially in cases in which the receiver and the trustee are the same individual, is detrimental to the interests of creditors, by needlessly increasing the cost of administering bankruptcy estates. Subsection (e) (now (d)) permits the court to deny compensation to a trustee if the trustee has been derelict in his duty by employing counsel, who is not disinterested. AMENDMENTS 1986 - Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally, substituting 'under chapter 12 or 13 of this title' for 'under chapter 13 of this title', 'expenses of the United States trustee or of a standing trustee appointed under section 586(b) of title 28' for 'expenses of a standing trustee appointed under section 1302(d) of this title', and 'under section 1202(a) or 1302(a) of this title' for 'under section 1302(a) of this title'. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 430(a), substituted 'and three percent on any amount in excess of $3000' for 'three percent on any amount in excess of $3,000 but not in excess of $20,000, two percent on any amount in excess of $20,000 but not in excess of $50,000, and one percent on any amount in excess of $50,000'. Subsec. (d). Pub. L. 98-353, Sec. 430(b), amended subsec. (d) generally. Prior to amendment, subsec. (d) read as follows: 'The court may deny allowance of compensation for services and reimbursement of expenses of the trustee if the trustee - '(1) failed to make diligent inquiry into facts that would permit denial of allowance under section 328(c) of this title; or '(2) with knowledge of such facts, employed a professional person under section 327 of this title.' EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. REFERENCES IN SUBSECTION (B) TEMPORARILY DEEMED TO INCLUDE ADDITIONAL REFERENCES Until the amendments made by subtitle A (Sec. 201 to 231) of title II of Pub. L. 99-554 become effective in a district and apply to a case, for purposes of such case any reference in subsec. (b) of this section - (1) to chapter 13 of this title is deemed to be a reference to chapter 12 or 13 of this title, (2) to section 1302(d) of this title is deemed to be a reference to section 1302(d) of this title or section 586(b) of Title 28, Judiciary and Judicial Procedure, and (3) to section 1302(a) of this title is deemed to be a reference to section 1202(a) or 1302(a) of this title, see section 302(c)(3)(A), (d), (e) of Pub. L. 99-554, set out as an Effective Date note under section 581 of Title 28. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 330, 557 of this title. ------DocID 14697 Document 42 of 646------ -CITE- 11 USC Sec. 327 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 327. Employment of professional persons -STATUTE- (a) Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title. (b) If the trustee is authorized to operate the business of the debtor under section 721, 1202, or 1108 of this title, and if the debtor has regularly employed attorneys, accountants, or other professional persons on salary, the trustee may retain or replace such professional persons if necessary in the operation of such business. (c) In a case under chapter 7, 12, or 11 of this title, a person is not disqualified for employment under this section solely because of such person's employment by or representation of a creditor, unless there is objection by another creditor or the United States trustee, in which case the court shall disapprove such employment if there is an actual conflict of interest. (d) The court may authorize the trustee to act as attorney or accountant for the estate if such authorization is in the best interest of the estate. (e) The trustee, with the court's approval, may employ, for a specified special purpose, other than to represent the trustee in conducting the case, an attorney that has represented the debtor, if in the best interest of the estate, and if such attorney does not represent or hold any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed. (f) The trustee may not employ a person that has served as an examiner in the case. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2563; Pub. L. 98-353, title III, Sec. 430(c), July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title II, Sec. 210, 257(e), Oct. 27, 1986, 100 Stat. 3099, 3114.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 327(a) of the House amendment contains a technical amendment indicating that attorneys, and perhaps other officers enumerated therein, represent, rather than assist, the trustee in carrying out the trustee's duties. Section 327(c) represents a compromise between H.R. 8200 as passed by the House and the Senate amendment. The provision states that former representation of a creditor, whether secured or unsecured, will not automatically disqualify a person from being employed by a trustee, but if such person is employed by the trustee, the person may no longer represent the creditor in connection with the case. Section 327(f) prevents an examiner from being employed by the trustee. SENATE REPORT NO. 95-989 This section authorizes the trustee, subject to the court's approval, to employ professional persons, such as attorneys, accountants, appraisers, and auctioneers, to represent or perform services for the estate. The trustee may employ only disinterested persons that do not hold or represent an interest adverse to the estate. Subsection (b) is an exception, and authorizes the trustee to retain or replace professional persons that the debtor has employed if necessary in the operation of the debtor's business. Subsection (c) provides a professional person is not disqualified for employment solely because of the person's prior employment by or representation of a secured or unsecured creditor. Subsection (d) permits the court to authorize the trustee, if qualified to act as his own counsel or accountant. Subsection (e) permits the trustee, subject to the court's approval, to employ for a specified special purpose an attorney that has represented the debtor, if such employment is in the best interest of the estate and if the attorney does not hold or represent an interest adverse to the debtor of the estate with respect to the matter on which he is to be employed. This subsection does not authorize the employment of the debtor's attorney to represent the estate generally or to represent the trustee in the conduct of the bankruptcy case. The subsection will most likely be used when the debtor is involved in complex litigation, and changing attorneys in the middle of the case after the bankruptcy case has commenced would be detrimental to the progress of that other litigation. HOUSE REPORT NO. 95-595 Subsection (c) is an additional exception. The trustee may employ as his counsel a nondisinterested person if the only reason that the attorney is not disinterested is because of his representation of an unsecured creditor. AMENDMENTS 1986 - Subsec. (b). Pub. L. 99-554, Sec. 257(e)(1), which directed the insertion of ', 1202,' after 'section 721,' was executed by making the insertion after 'section 721' to reflect the probable intent of Congress. Subsec. (c). Pub. L. 99-554, Sec. 257(e)(2), which directed the insertion of ', 12,' after 'section 7,' was executed by making the insertion after 'chapter 7' to reflect the probable intent of Congress. Pub. L. 99-554, Sec. 210, inserted 'or the United States trustee' after 'another creditor'. 1984 - Subsec. (c). Pub. L. 98-353 substituted 'In a case under chapter 7 or 11 of this title, a person is not disqualified for employment under this section solely because of such person's employment by or representation of a creditor, unless there is objection by another creditor, in which case the court shall disapprove such employment if there is an actual conflict of interest.' for 'In a case under chapter 7 or 11 of this title, a person is not disqualified for employment under this section solely because of such person's employment by or representation of a creditor, but may not, while employed by the trustee, represent, in connection with the case, a creditor.' EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by section 210 of Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 326, 328, 330, 331, 1107 of this title; title 28 section 586. ------DocID 14698 Document 43 of 646------ -CITE- 11 USC Sec. 328 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 328. Limitation on compensation of professional persons -STATUTE- (a) The trustee, or a committee appointed under section 1102 of this title, with the court's approval, may employ or authorize the employment of a professional person under section 327 or 1103 of this title, as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, or on a contingent fee basis. Notwithstanding such terms and conditions, the court may allow compensation different from the compensation provided under such terms and conditions after the conclusion of such employment, if such terms and conditions prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions. (b) If the court has authorized a trustee to serve as an attorney or accountant for the estate under section 327(d) of this title, the court may allow compensation for the trustee's services as such attorney or accountant only to the extent that the trustee performed services as attorney or accountant for the estate and not for performance of any of the trustee's duties that are generally performed by a trustee without the assistance of an attorney or accountant for the estate. (c) Except as provided in section 327(c), 327(e), or 1107(b) of this title, the court may deny allowance of compensation for services and reimbursement of expenses of a professional person employed under section 327 or 1103 of this title if, at any time during such professional person's employment under section 327 or 1103 of this title, such professional person is not a disinterested person, or represents or holds an interest adverse to the interest of the estate with respect to the matter on which such professional person is employed. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2563; Pub. L. 98-353, title III, Sec. 431, July 10, 1984, 98 Stat. 370.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 328(c) adopts a technical amendment contained in the Senate amendment indicating that an attorney for the debtor in possession is not disqualified for compensation for services and reimbursement of expenses simply because of prior representation of the debtor. SENATE REPORT NO. 95-989 This section, which is parallel to section 326, fixes the maximum compensation allowable to a professional person employed under section 327. It authorizes the trustee, with the court's approval, to employ professional persons on any reasonable terms, including on a retainer, on an hourly or on a contingent fee basis. Subsection (a) further permits the court to allow compensation different from the compensation provided under the trustee's agreement if the prior agreement proves to have been improvident in light of development unanticipatable at the time of the agreement. The court's power includes the power to increase as well as decrease the agreed upon compensation. This provision is permissive, not mandatory, and should not be used by the court if to do so would violate the code of ethics of the professional involved. Subsection (b) limits a trustee that has been authorized to serve as his own counsel to only one fee for each service. The purpose of permitting the trustee to serve as his own counsel is to reduce costs. It is not included to provide the trustee with a bonus by permitting him to receive two fees for the same service or to avoid the maxima fixed in section 326. Thus, this subsection requires the court to differentiate between the trustee's services as trustee, and his services as trustee's counsel, and to fix compensation accordingly. Services that a trustee normally performs for an estate without assistance of counsel are to be compensated under the limits fixed in section 326. Only services that he performs that are normally performed by trustee's counsel may be compensated under the maxima imposed by this section. Subsection (c) permits the court to deny compensation for services and reimbursement of expenses if the professional person is not disinterested or if he represents or holds an interest adverse to the estate on the matter on which he is employed. The subsection provides a penalty for conflicts of interest. AMENDMENTS 1984 - Subsec. (a). Pub. L. 98-353 substituted 'not capable of being anticipated' for 'unanticipatable'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 326, 330 of this title. ------DocID 14699 Document 44 of 646------ -CITE- 11 USC Sec. 329 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 329. Debtor's transactions with attorneys -STATUTE- (a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation. (b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to - (1) the estate, if the property transferred - (A) would have been property of the estate; or (B) was to be paid by or on behalf of the debtor under a plan under chapter 11, 12, or 13 of this title; or (2) the entity that made such payment. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 98-353, title III, Sec. 432, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title II, Sec. 257(c), Oct. 27, 1986, 100 Stat. 3114.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 This section, derived in large part from current Bankruptcy Act section 60d (section 96(d) of former title 11), requires the debtor's attorney to file with the court a statement of the compensation paid or agreed to be paid to the attorney for services in contemplation of and in connection with the case, and the source of the compensation. Payments to a debtor's attorney provide serious potential for evasion of creditor protection provisions of the bankruptcy laws, and serious potential for overreaching by the debtor's attorney, and should be subject to careful scrutiny. Subsection (b) permits the court to deny compensation to the attorney, to cancel an agreement to pay compensation, or to order the return of compensation paid, if the compensation exceeds the reasonable value of the services provided. The return of payments already made are generally to the trustee for the benefit of the estate. However, if the property would not have come into the estate in any event, the court will order it returned to the entity that made the payment. The Bankruptcy Commission recommended a provision similar to this that would have also permitted an examination of the debtor's transactions with insiders. S. 236, 94th Cong., 1st sess, sec. 4-311(b) (1975). Its exclusion here is to permit it to be dealt with by the Rules of Bankruptcy Procedure. It is not intended that the provision be deleted entirely, only that the flexibility of the rules is more appropriate for such evidentiary matters. AMENDMENTS 1986 - Subsec. (b)(1)(B). Pub. L. 99-554 inserted reference to chapter 12. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 432(a), substituted 'or' for 'and' after 'in contemplation of'. Subsec. (b)(1). Pub. L. 98-353, Sec. 432(b), substituted 'estate' for 'trustee'. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 330, 541 of this title. ------DocID 14700 Document 45 of 646------ -CITE- 11 USC Sec. 330 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 330. Compensation of officers -STATUTE- (a) After notice to any parties in interest and to the United States trustee and a hearing, and subject to sections 326, 328, and 329 of this title, the court may award to a trustee, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor's attorney - (1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, or attorney, as the case may be, and by any paraprofessional persons employed by such trustee, professional person, or attorney, as the case may be, based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services other than in a case under this title; and (2) reimbursement for actual, necessary expenses. (b) There shall be paid from the filing fee in a case under chapter 7 of this title $45 to the trustee serving in such case, after such trustee's services are rendered. (c) Unless the court orders otherwise, in a case under chapter 12 or 13 of this title the compensation paid to the trustee serving in the case shall not be less than $5 per month from any distribution under the plan during the administration of the plan. (d) In a case in which the United States trustee serves as trustee, the compensation of the trustee under this section shall be paid to the clerk of the bankruptcy court and deposited by the clerk into the United States Trustee System Fund established by section 589a of title 28. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 98-353, title III, Sec. 433, 434, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title II, Sec. 211, 257(f), Oct. 27, 1986, 100 Stat. 3099, 3114.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 330(a) contains the standard of compensation adopted in H.R. 8200 as passed by the House rather than the contrary standard contained in the Senate amendment. Attorneys' fees in bankruptcy cases can be quite large and should be closely examined by the court. However bankruptcy legal services are entitled to command the same competency of counsel as other cases. In that light, the policy of this section is to compensate attorneys and other professionals serving in a case under title 11 at the same rate as the attorney or other professional would be compensated for performing comparable services other than in a case under title 11. Contrary language in the Senate report accompanying S. 2266 is rejected, and Massachusetts Mutual Life Insurance Company v. Brock, 405 F.2d 429, 432 (5th Cir. 1968) is overruled. Notions of economy of the estate in fixing fees are outdated and have no place in a bankruptcy code. Section 330(a)(2) of the Senate amendment is deleted although the Securities and Exchange Commission retains a right to file an advisory report under section 1109. Section 330(b) of the Senate amendment is deleted as unnecessary, as the limitations contained therein are covered by section 328(c) of H.R. 8200 as passed by the House and contained in the House amendment. Section 330(c) of the Senate amendment providing for a trustee to receive a fee of $20 for each estate from the filing fee paid to the clerk is retained as section 330(b) of the House amendment. The section will encourage private trustees to serve in cases under title 11 and in pilot districts will place less of a burden on the U.S. trustee to serve in no-asset cases. Section 330(b) of H.R. 8200 as passed by the House is retained by the House amendment as section 330(c) (section 15330). SENATE REPORT NO. 95-989 Section 330 authorizes the court to award compensation for services and reimbursement of expenses of officers of the estate, and other professionals. The compensation is to be reasonable, for economy in administration is the basic objective. Compensation is to be for actual necessary services, based on the time spent, the nature, the extent and the value of the services rendered, and the cost of comparable services in nonbankruptcy cases. There are the criteria that have been applied by the courts as analytic aids in defining 'reasonable' compensation. The reference to 'the cost of comparable services' in a nonbankruptcy case is not intended as a change of existing law. In a bankruptcy case fees are not a matter for private agreement. There is inherent a 'public interest' that 'must be considered in awarding fees,' Massachusetts Mutual Life Insurance Co. v. Brock, 405 F.2d 429, 432 (C.A.5, 1968), cert. denied, 395 U.S. 906 (1969). An allowance is the result of a balance struck between moderation in the interest of the estate and its security holders and the need to be 'generous enough to encourage' lawyers and others to render the necessary and exacting services that bankruptcy cases often require. In re Yale Express System, Inc., 366 F.Supp. 1376, 1381 (S.D.N.Y. 1973). The rates for similar kinds of services in private employment is one element, among others, in that balance. Compensation in private employment noted in subsection (a) is a point of reference, not a controlling determinant of what shall be allowed in bankruptcy cases. One of the major reforms in 1938, especially for reorganization cases, was centralized control over fees in the bankruptcy courts. See Brown v. Gerdes, 321 U.S. 178, 182-184 (1944); Leiman v. Guttman, 336 U.S. 1, 4-9 (1949). It was intended to guard against a recurrence of 'the many sordid chapters' in 'the history of fees in corporate reorganizations.' Dickinson Industrial Site, Inc. v. Cowan, 309 U.S. 382, 388 (1940). In the years since then the bankruptcy bar has flourished and prospered, and persons of merit and quality have not eschewed public service in bankruptcy cases merely because bankruptcy courts, in the interest of economy in administration, have not allowed them compensation that may be earned in the private economy of business or the professions. There is no reason to believe that, in generations to come, their successors will be less persuaded by the need to serve in the public interest because of stronger allures of private gain elsewhere. Subsection (a) provides for compensation of paraprofessionals in order to reduce the cost of administering bankruptcy cases. Paraprofessionals can be employed to perform duties which do not require the full range of skills of a qualified professional. Some courts have not hesitated to recognize paraprofessional services as compensable under existing law. An explicit provision to that effect is useful and constructive. The last sentence of subsection (a) provides that in the case of a public company - defined in section 1101(3) - the court shall refer, after a hearing, all applications to the Securities and Exchange Commission for a report, which shall be advisory only. In Chapter X cases in which the Commission has appeared, it generally filed reports on fee applications. Usually, courts have accorded the SEC's views substantial weight, as representing the opinion of a disinterested agency skilled and experienced in reorganization affairs. The last sentence intends for the advisory assistance of the Commission to be sought only in case of a public company in reorganization under chapter 11. Subsection (b) reenacts section 249 of Chapter X of the Bankruptcy Act ((former) 11 U.S.C. 649). It is a codification of equitable principles designed to prevent fiduciaries in the case from engaging in the specified transactions since they are in a position to gain inside information or to shape or influence the course of the reorganization. Wolf v. Weinstein, 372 U.S. 633 (1963). The statutory bar of compensation and reimbursement is based on the principle that such transactions involve conflicts of interest. Private gain undoubtedly prompts the purchase or sale of claims or stock interests, while the fiduciary's obligation is to render loyal and disinterested service which his position of trust has imposed upon him. Subsection (b) extends to a trustee, his attorney, committees and their attorneys, or any other persons 'acting in the case in a representative or fiduciary capacity.' It bars compensation to any of the foregoing, who after assuming to act in such capacity has purchased or sold, directly or indirectly, claims against, or stock in the debtor. The bar is absolute. It makes no difference whether the transaction brought a gain or loss, or neither, and the court is not authorized to approve a purchase or sale, before or after the transaction. The exception is for an acquisition or transfer 'otherwise' than by a voluntary purchase or sale, such as an acquisition by bequest. See Otis & Co. v. Insurance Bldg. Corp., 110 F.2d 333, 335 (C.A.1, 1940). Subsection (c) (now (b)) is intended for no asset liquidation cases where minimal compensation for trustees is needed. The sum of $20 will be allowed in each case, which is double the amount provided under current law. HOUSE REPORT NO. 95-595 Section 330 authorizes compensation for services and reimbursement of expenses of officers of the estate. It also prescribes the standards on which the amount of compensation is to be determined. As noted above, the compensation allowable under this section is subject to the maxima set out in sections 326, 328, and 329. The compensation is to be reasonable, for actual necessary services rendered, based on the time, the nature, the extent, and the value of the services rendered, and on the cost of comparable services other than in a case under the bankruptcy code. The effect of the last provision is to overrule In re Beverly Crest Convalescent Hospital, Inc., 548 F.2d 817 (9th Cir. 1976, as amended 1977), which set an arbitrary limit on fees payable based on the amount of a district judge's salary, and other, similar cases that require fees to be determined based on notions of conservation of the estate and economy of administration. If that case were allowed to stand, attorneys that could earn much higher incomes in other fields would leave the bankruptcy arena. Bankruptcy specialists, who enable the system to operate smoothly, efficiently, and expeditiously, would be driven elsewhere, and the bankruptcy field would be occupied by those who could not find other work and those who practice bankruptcy law only occasionally almost as a public service. Bankruptcy fees that are lower than fees in other areas of the legal profession may operate properly when the attorneys appearing in bankruptcy cases do so intermittently, because a low fee in a small segment of a practice can be absorbed by other work. Bankruptcy specialists, however, if required to accept fees in all of their cases that are consistently lower than fees they could receive elsewhere, will not remain in the bankruptcy field. This subsection provides for reimbursement of actual, necessary expenses. It further provides for compensation of paraprofessionals employed by professional persons employed by the estate of the debtor. The provision is included to reduce the cost of administering bankruptcy cases. In nonbankruptcy areas, attorneys are able to charge for a paraprofessional's time on an hourly basis, and not include it in overhead. If a similar practice does not pertain in bankruptcy cases then the attorney will be less inclined to use paraprofessionals even where the work involved could easily be handled by an attorney's assistant, at much lower cost to the estate. This provision is designed to encourage attorneys to use paraprofessional assistance where possible, and to insure that the estate, not the attorney, will bear the cost, to the benefit of both the estate and the attorneys involved. AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554, Sec. 211(1), inserted 'to any parties in interest and to the United States trustee' after 'notice'. Subsec. (c). Pub. L. 99-554, Sec. 257(f), inserted reference to chapter 12. Subsec. (d). Pub. L. 99-554, Sec. 211(2), added subsec. (d). 1984 - Subsec. (a). Pub. L. 98-353, Sec. 433(1), struck out 'to any parties in interest and to the United States trustee' after 'After notice'. Subsec. (a)(1). Pub. L. 98-353, Sec. 433(2), substituted 'nature, the extent, and the value of such services, the time spent on such services' for 'time, the nature, the extent, and the value of such services'. Subsec. (b). Pub. L. 98-353, Sec. 434(a), substituted '$45' for '$20'. Subsec. (c). Pub. L. 98-353, Sec. 434(b), added subsec. (c). EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by section 211 of Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 326, 331, 503, 1107, 1203 of this title; title 28 sections 586, 589a. ------DocID 14701 Document 46 of 646------ -CITE- 11 USC Sec. 331 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER II -HEAD- Sec. 331. Interim compensation -STATUTE- A trustee, an examiner, a debtor's attorney, or any professional person employed under section 327 or 1103 of this title may apply to the court not more than once every 120 days after an order for relief in a case under this title, or more often if the court permits, for such compensation for services rendered before the date of such an application or reimbursement for expenses incurred before such date as is provided under section 330 of this title. After notice and a hearing, the court may allow and disburse to such applicant such compensation or reimbursement. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Section 331 permits trustees and professional persons to apply to the court not more than once every 120 days for interim compensation and reimbursement payments. The court may permit more frequent applications if the circumstances warrant, such as in very large cases where the legal work is extensive and merits more frequent payments. The court is authorized to allow and order disbursement to the applicant of compensation and reimbursement that is otherwise allowable under section 330. The only effect of this section is to remove any doubt that officers of the estate may apply for, and the court may approve, compensation and reimbursement during the case, instead of being required to wait until the end of the case, which in some instances, may be years. The practice of interim compensation is followed in some courts today, but has been subject to some question. This section explicitly authorizes it. This section will apply to professionals such as auctioneers and appraisers only if they are not paid on a per job basis. ------DocID 14702 Document 47 of 646------ -CITE- 11 USC SUBCHAPTER III -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- SUBCHAPTER III - ADMINISTRATION ------DocID 14703 Document 48 of 646------ -CITE- 11 USC Sec. 341 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 341. Meetings of creditors and equity security holders -STATUTE- (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. (b) The United States trustee may convene a meeting of any equity security holders. (c) The court may not preside at, and may not attend, any meeting under this section including any final meeting of creditors. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2564; Pub. L. 99-554, title II, Sec. 212, Oct. 27, 1986, 100 Stat. 3099.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 341(c) of the Senate amendment is deleted and a contrary provision is added indicating that the bankruptcy judge will not preside at or attend the first meeting of creditors or equity security holders but a discharge hearing for all individuals will be held at which the judge will preside. SENATE REPORT NO. 95-989 Section (Subsection) (a) of this section requires that there be a meeting of creditors within a reasonable time after the order for relief in the case. The Bankruptcy Act (former title 11) and the current Rules of Bankruptcy Procedure provide for a meeting of creditors, and specify the time and manner of the meeting, and the business to be conducted. This bill leaves those matters to the rules. Under section 405(d) of the bill, the present rules will continue to govern until new rules are promulgated. Thus, pending the adoption of different rules, the present procedure for the meeting will continue. Subsection (b) authorizes the court to order a meeting of equity security holders in cases where such a meeting would be beneficial or useful, for example, in a chapter 11 reorganization case where it may be necessary for the equity security holders to organize in order to be able to participate in the negotiation of a plan of reorganization. Subsection (c) makes clear that the bankruptcy judge is to preside at the meeting of creditors. AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554, Sec. 212(1), substituted 'the United States trustee shall convene and preside at a meeting of creditors' for 'there shall be a meeting of creditors'. Subsec. (b). Pub. L. 99-554, Sec. 212(2), substituted 'United States trustee may convene' for 'court may order'. Subsec. (c). Pub. L. 99-554, Sec. 212(3), inserted 'including any final meeting of creditors'. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 343, 702, 705, 1161 of this title. ------DocID 14704 Document 49 of 646------ -CITE- 11 USC Sec. 342 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 342. Notice -STATUTE- (a) There shall be given such notice as is appropriate, including notice to any holder of a community claim, of an order for relief in a case under this title. (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. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title III, Sec. 302, 435, July 10, 1984, 98 Stat. 352, 370.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 342(b) and (c) of the Senate amendment are adopted in principle but moved to section 549(c), in lieu of section 342(b) of H.R. 8200 as passed by the House. Section 342(c) of H.R. 8200 as passed by the House is deleted as a matter to be left to the Rules of Bankruptcy Procedure. SENATE REPORT NO. 95-989 Subsection (a) of section 342 requires the clerk of the bankruptcy court to give notice of the order for relief. The rules will prescribe to whom the notice should be sent and in what manner notice will be given. The rules already prescribe such things, and they will continue to govern unless changed as provided in section 404(a) of the bill. Due process will certainly require notice to all creditors and equity security holders. State and Federal governmental representatives responsible for collecting taxes will also receive notice. In cases where the debtor is subject to regulation, the regulatory agency with jurisdiction will receive notice. In order to insure maximum notice to all parties in interest, the Rules will include notice by publication in appropriate cases and for appropriate issues. Other notices will be given as appropriate. Subsections (b) and (c) (now section 549(c)) are derived from section 21g of the Bankruptcy Act (section 44(g) of former title 11). They specify that the trustee may file notice of the commencement of the case in land recording offices in order to give notice of the pendency of the case to potential transferees of the debtor's real property. Such filing is unnecessary in the county in which the bankruptcy case is commenced. If notice is properly filed, a subsequent purchaser of the property will not be a bona fide purchaser. Otherwise, a purchaser, including a purchaser at a judicial sale, that has no knowledge of the case, is not prevented from obtaining the status of a bona fide purchaser by the mere commencement of the case. 'County' is defined in title 1 of the United States Code to include other political subdivisions where counties are not used. AMENDMENTS 1984 - Subsec. (a). Pub. L. 98-353, Sec. 435, amended subsec. (a) generally, inserting requirement respecting notice to any holder of a community claim. Pub. L. 98-353, Sec. 302(1), designated existing provisions as subsec. (a). Subsec. (b). Pub. L. 98-353, Sec. 302(2), added subsec. (b). EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 348, 741, 743, 762, 765 of this title. ------DocID 14705 Document 50 of 646------ -CITE- 11 USC Sec. 343 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 343. Examination of the debtor -STATUTE- The debtor shall appear and submit to examination under oath at the meeting of creditors under section 341(a) of this title. Creditors, any indenture trustee, any trustee or examiner in the case, or the United States trustee may examine the debtor. The United States trustee may administer the oath required under this section. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title III, Sec. 436, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title II, Sec. 213, Oct. 27, 1986, 100 Stat. 3099.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 This section, derived from section 21a of the Bankruptcy Act (section 44(a) of former title 11), requires the debtor to appear at the meeting of creditors and submit to examination under oath. The purpose of the examination is to enable creditors and the trustee to determine if assets have improperly been disposed of or concealed or if there are grounds for objection to discharge. The scope of the examination under this section will be governed by the Rules of Bankruptcy Procedure, as it is today. See rules 205(d), 10-213(c), and 11-26. It is expected that the scope prescribed by these rules for liquidation cases, that is, 'only the debtor's acts, conduct, or property, or any matter that may affect the administration of the estate, or the debtor's right to discharge' will remain substantially unchanged. In reorganization cases, the examination would be broader, including inquiry into the liabilities and financial condition of the debtor, the operation of his business, and the desirability of the continuance thereof, and other matters relevant to the case and to the formulation of the plan. Examination of other persons in connection with the bankruptcy case is left completely to the rules, just as examination of witnesses in civil cases is governed by the Federal Rules of Civil Procedure. AMENDMENTS 1986 - Pub. L. 99-554 amended section generally. Prior to amendment, section read as follows: 'The debtor shall appear and submit to examination under oath at the meeting of creditors under section 341(a) of this title. Creditors, any indenture trustee, or any trustee or examiner in the case may examine the debtor.' 1984 - Pub. L. 98-353 substituted 'examine' for 'examiner'. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 1161 of this title. ------DocID 14706 Document 51 of 646------ -CITE- 11 USC Sec. 344 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 344. Self-incrimination; immunity -STATUTE- Immunity for persons required to submit to examination, to testify, or to provide information in a case under this title may be granted under part V of title 18. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Part V (Sec. 6001 et seq.) of title 18 of the United States Code governs the granting of immunity to witnesses before Federal tribunals. The immunity provided under part V is only use immunity, not transactional immunity. Part V applies to all proceedings before Federal courts, before Federal grand juries, before administrative agencies, and before Congressional committees. It requires the Attorney General or the U. S. attorney to request or to approve any grant of immunity, whether before a court, grand jury, agency, or congressional committee. This section carries part V over into bankruptcy cases. Thus, for a witness to be ordered to testify before a bankruptcy court in spite of a claim of privilege, the U. S. attorney for the district in which the court sits would have to request from the district court for that district the immunity order. The rule would apply to both debtors, creditors, and any other witnesses in a bankruptcy case. If the immunity were granted, the witness would be required to testify. If not, he could claim the privilege against self-incrimination. Part V is a significant departure from current law. Under section 7a(10) of the Bankruptcy Act (section 25(a)(10) of former title 11), a debtor is required to testify in all circumstances, but any testimony he gives may not be used against him in any criminal proceeding, except testimony given in any hearing on objections to discharge. With that exception, section 7a(10) amounts to a blanket grant of use immunity to all debtors. Immunity for other witnesses in bankruptcy courts today is governed by part V of title 18. The consequences of a claim of privileges by a debtor under proposed law and under current law differ as well. Under section 14c(6) of current law (section 32(c)(6) of former title 11), any refusal to answer a material question approved by the court will result in the denial of a discharge, even if the refusal is based on the privilege against self incrimination. Thus, the debtor is confronted with the choice between losing his discharge and opening himself up to possible criminal prosecution. Under section 727(a)(6) of the proposed title 11, a debtor is only denied a discharge if he refuses to testify after having been granted immunity. If the debtor claims the privilege and the U. S. attorney does not request immunity from the district courts, then the debtor may refuse to testify and still retain his right to a discharge. It removes the Scylla and Charibdis choice for debtors that exists under the Bankruptcy Act (former title 11). -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 521, 901 of this title. ------DocID 14707 Document 52 of 646------ -CITE- 11 USC Sec. 345 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 345. Money of estates -STATUTE- (a) A trustee in a case under this title may make such deposit or investment of the money of the estate for which such trustee serves as will yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment. (b) Except with respect to a deposit or investment that is insured or guaranteed by the United States or by a department, agency, or instrumentality of the United States or backed by the full faith and credit of the United States, the trustee shall require from an entity with which such money is deposited or invested - (1) a bond - (A) in favor of the United States; (B) secured by the undertaking of a corporate surety approved by the United States trustee for the district in which the case is pending; and (C) conditioned on - (i) a proper accounting for all money so deposited or invested and for any return on such money; (ii) prompt repayment of such money and return; and (iii) faithful performance of duties as a depository; or (2) the deposit of securities of the kind specified in section 9303 of title 31. (c) An entity with which such moneys are deposited or invested is authorized to deposit or invest such moneys as may be required under this section. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 97-258, Sec. 3(c), Sept. 13, 1982, 96 Stat. 1064; Pub. L. 98-353, title III, Sec. 437, July 10, 1984, 98 Stat. 370; Pub. L. 99-554, title II, Sec. 214, Oct. 27, 1986, 100 Stat. 3099.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS The House amendment moves section 345(c) of the House bill to chapter 15 as part of the pilot program for the U.S. trustees. The bond required by section 345(b) may be a blanket bond posted by the financial depository sufficient to cover deposits by trustees in several cases, as is done under current law. SENATE REPORT NO. 95-989 This section is a significant departure from section 61 of the Bankruptcy Act (section 101 of former title 11). It permits a trustee in a bankruptcy case to make such deposit of investment of the money of the estate for which he serves as will yield the maximum reasonable net return on the money, taking into account the safety of such deposit or investment. Under current law, the trustee is permitted to deposit money only with banking institutions. Thus, the trustee is generally unable to secure a high rate of return on money of estates pending distribution, to the detriment of creditors. Under this section, the trustee may make deposits in savings and loans, may purchase government bonds, or make such other deposit or investment as is appropriate. Under proposed 11 U.S.C. 541(a)(6), and except as provided in subsection (c) of this section, any interest or gain realized on the deposit or investment of funds under this section will become property of the estate, and will thus enhance the recovery of creditors. In order to protect the creditors, subsection (b) requires certain precautions against loss of the money so deposited or invested. The trustee must require from a person with which he deposits or invests money of an estate a bond in favor of the United States secured by approved corporate surety and conditioned on a proper accounting for all money deposited or invested and for any return on such money. Alternately, the trustee may require the deposit of securities of the kind specified in section 15 of title 6 of the United States Code (31 U.S.C. 9303), which governs the posting of security by banks that receive public moneys on deposit. These bonding requirements do not apply to deposits or investments that are insured or guaranteed the United States or a department, agency, or instrumentality of the United States, or that are backed by the full faith and credit of the United States. These provisions do not address the question of aggregation of funds by a private chapter 13 trustee and are not to be construed as excluding such possibility. The Rules of Bankruptcy Procedure may provide for aggregation under appropriate circumstances and adequate safeguards in cases where there is a significant need, such as in districts in which there is a standing chapter 13 trustee. In such case, the interest or return on the funds would help defray the cost of administering the cases in which the standing trustee serves. AMENDMENTS 1986 - Subsec. (b). Pub. L. 99-554 amended subsec. (b) generally, substituting 'approved by the United States trustee for the district' for 'approved by the court for the district' in par. (1)(B). 1984 - Subsec. (c). Pub. L. 98-353 added subsec. (c). 1982 - Subsec. (b)(2). Pub. L. 97-258 substituted 'section 9303 of title 31' for 'section 15 of title 6'. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99-554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in title 28 section 586. ------DocID 14708 Document 53 of 646------ -CITE- 11 USC Sec. 346 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 346. Special tax provisions -STATUTE- (a) Except to the extent otherwise provided in this section, subsections (b), (c), (d), (e), (g), (h), (i), and (j) of this section apply notwithstanding any State or local law imposing a tax, but subject to the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.). (b)(1) In a case under chapter 7, 12, or 11 of this title concerning an individual, any income of the estate may be taxed under a State or local law imposing a tax on or measured by income only to the estate, and may not be taxed to such individual. Except as provided in section 728 of this title, if such individual is a partner in a partnership, any gain or loss resulting from a distribution of property from such partnership, or any distributive share of income, gain, loss, deduction, or credit of such individual that is distributed, or considered distributed, from such partnership, after the commencement of the case is gain, loss, income, deduction, or credit, as the case may be, of the estate. (2) Except as otherwise provided in this section and in section 728 of this title, any income of the estate in such a case, and any State or local tax on or measured by such income, shall be computed in the same manner as the income and the tax of an estate. (3) The estate in such a case shall use the same accounting method as the debtor used immediately before the commencement of the case. (c)(1) The commencement of a case under this title concerning a corporation or a partnership does not effect a change in the status of such corporation or partnership for the purposes of any State or local law imposing a tax on or measured by income. Except as otherwise provided in this section and in section 728 of this title, any income of the estate in such case may be taxed only as though such case had not been commenced. (2) In such a case, except as provided in section 728 of this title, the trustee shall make any tax return otherwise required by State or local law to be filed by or on behalf of such corporation or partnership in the same manner and form as such corporation or partnership, as the case may be, is required to make such return. (d) In a case under chapter 13 of this title, any income of the estate or the debtor may be taxed under a State or local law imposing a tax on or measured by income only to the debtor, and may not be taxed to the estate. (e) A claim allowed under section 502(f) or 503 of this title, other than a claim for a tax that is not otherwise deductible or a capital expenditure that is not otherwise deductible, is deductible by the entity to which income of the estate is taxed unless such claim was deducted by another entity, and a deduction for such a claim is deemed to be a deduction attributable to a business. (f) The trustee shall withhold from any payment of claims for wages, salaries, commissions, dividends, interest, or other payments, or collect, any amount required to be withheld or collected under applicable State or local tax law, and shall pay such withheld or collected amount to the appropriate governmental unit at the time and in the manner required by such tax law, and with the same priority as the claim from which such amount was withheld was paid. (g)(1) Neither gain nor loss shall be recognized on a transfer - (A) by operation of law, of property to the estate; (B) other than a sale, of property from the estate to the debtor; or (C) in a case under chapter 11 or 12 of this title concerning a corporation, of property from the estate to a corporation that is an affiliate participating in a joint plan with the debtor, or that is a successor to the debtor under the plan, except that gain or loss may be recognized to the same extent that such transfer results in the recognition of gain or loss under section 371 of the Internal Revenue Code of 1986 (26 U.S.C. 371). (FOOTNOTE 1) (FOOTNOTE 1) See Reference in Text note below. (2) The transferee of a transfer of a kind specified in this subsection shall take the property transferred with the same character, and with the transferor's basis, as adjusted under subsection (j)(5) of this section, and holding period. (h) Notwithstanding sections 728(a) and 1146(a) of this title, for the purpose of determining the number of taxable periods during which the debtor or the estate may use a loss carryover or a loss carryback, the taxable period of the debtor during which the case is commenced is deemed not to have been terminated by such commencement. (i)(1) In a case under chapter 7, 12, or 11 of this title concerning an individual, the estate shall succeed to the debtor's tax attributes, including - (A) any investment credit carryover; (B) any recovery exclusion; (C) any loss carryover; (D) any foreign tax credit carryover; (E) any capital loss carryover; and (F) any claim of right. (2) After such a case is closed or dismissed, the debtor shall succeed to any tax attribute to which the estate succeeded under paragraph (1) of this subsection but that was not utilized by the estate. The debtor may utilize such tax attributes as though any applicable time limitations on such utilization by the debtor were suspended during the time during which the case was pending. (3) In such a case, the estate may carry back any loss of the estate to a taxable period of the debtor that ended before the order for relief under such chapter the same as the debtor could have carried back such loss had the debtor incurred such loss and the case under this title had not been commenced, but the debtor may not carry back any loss of the debtor from a taxable period that ends after such order to any taxable period of the debtor that ended before such order until after the case is closed. (j)(1) Except as otherwise provided in this subsection, income is not realized by the estate, the debtor, or a successor to the debtor by reason of forgiveness or discharge of indebtedness in a case under this title. (2) For the purposes of any State or local law imposing a tax on or measured by income, a deduction with respect to a liability may not be allowed for any taxable period during or after which such liability is forgiven or discharged under this title. In this paragraph, 'a deduction with respect to a liability' includes a capital loss incurred on the disposition of a capital asset with respect to a liability that was incurred in connection with the acquisition of such asset. (3) Except as provided in paragraph (4) of this subsection, for the purpose of any State or local law imposing a tax on or measured by income, any net operating loss of an individual or corporate debtor, including a net operating loss carryover to such debtor, shall be reduced by the amount of indebtedness forgiven or discharged in a case under this title, except to the extent that such forgiveness or discharge resulted in a disallowance under paragraph (2) of this subsection. (4) A reduction of a net operating loss or a net operating loss carryover under paragraph (3) of this subsection or of basis under paragraph (5) of this subsection is not required to the extent that the indebtedness of an individual or corporate debtor forgiven or discharged - (A) consisted of items of a deductible nature that were not deducted by such debtor; or (B) resulted in an expired net operating loss carryover or other deduction that - (i) did not offset income for any taxable period; and (ii) did not contribute to a net operating loss in or a net operating loss carryover to the taxable period during or after which such indebtedness was discharged. (5) For the purposes of a State or local law imposing a tax on or measured by income, the basis of the debtor's property or of property transferred to an entity required to use the debtor's basis in whole or in part shall be reduced by the lesser of - (A)(i) the amount by which the indebtedness of the debtor has been forgiven or discharged in a case under this title; minus (ii) the total amount of adjustments made under paragraphs (2) and (3) of this subsection; and (B) the amount by which the total basis of the debtor's assets that were property of the estate before such forgiveness or discharge exceeds the debtor's total liabilities that were liabilities both before and after such forgiveness or discharge. (6) Notwithstanding paragraph (5) of this subsection, basis is not required to be reduced to the extent that the debtor elects to treat as taxable income, of the taxable period in which indebtedness is forgiven or discharged, the amount of indebtedness forgiven or discharged that otherwise would be applied in reduction of basis under paragraph (5) of this subsection. (7) For the purposes of this subsection, indebtedness with respect to which an equity security, other than an interest of a limited partner in a limited partnership, is issued to the creditor to whom such indebtedness was owed, or that is forgiven as a contribution to capital by an equity security holder other than a limited partner in the debtor, is not forgiven or discharged in a case under this title - (A) to any extent that such indebtedness did not consist of items of a deductible nature; or (B) if the issuance of such equity security has the same consequences under a law imposing a tax on or measured by income to such creditor as a payment in cash to such creditor in an amount equal to the fair market value of such equity security, then to the lesser of - (i) the extent that such issuance has the same such consequences; and (ii) the extent of such fair market value. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2565; Pub. L. 98-353, title III, Sec. 438, July 10, 1984, 98 Stat. 370; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 99-554, title II, Sec. 257(g), 283(c), Oct. 27, 1986, 100 Stat. 3114, 3116.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 346 of the House amendment, together with sections 728 and 1146, represent special tax provisions applicable in bankruptcy. The policy contained in those sections reflects the policy that should be applied in Federal, State, and local taxes in the view of the House Committee on the Judiciary. The House Ways and Means Committee and the Senate Finance Committee did not have time to process a bankruptcy tax bill during the 95th Congress. It is anticipated that early in the 96th Congress, and before the effective date of the bankruptcy code (Oct. 1, 1979), the tax committees of Congress will have an opportunity to consider action with respect to amendments to the Internal Revenue Code (title 26) and the special tax provisions in title 11. Since the special tax provisions are likely to be amended during the first part of the 96th Congress, it is anticipated that the bench and bar will also study and comment on these special tax provisions prior to their revision. Special tax provisions: State and local rules. This section provides special tax provisions dealing with the treatment, under State or local, but not Federal, tax law, of the method of taxing bankruptcy estates of individuals, partnerships, and corporations; survival and allocation of tax attributes between the bankrupt and the estate; return filing requirements; and the tax treatment of income from discharge of indebtedness. The Senate bill removed these rules pending adoption of Federal rules on these issues in the next Congress. The House amendment returns the State and local tax rules to section 346 so that they may be studied by the bankruptcy and tax bars who may wish to submit comments to Congress. Withholding rules: Both the House bill and Senate amendment provide that the trustee is required to comply with the normal withholding rules applicable to the payment of wages and other payments. The House amendment retains this rule for State and local taxes only. The treatment of withholding of Federal taxes will be considered in the next Congress. Section 726 of the Senate amendment provides that the rule requiring pro rata payment of all expenses within a priority category does not apply to the payment of amounts withheld by a bankruptcy trustee. The purpose of this rule was to insure that the trustee pay the full amount of the withheld taxes to the appropriate governmental tax authority. The House amendment deletes this rule as unnecessary because the existing practice conforms essentially to that rule. If the trustee fails to pay over in full amounts that he withheld, it is a violation of his trustee's duties which would permit the taxing authority to sue the trustee on his bond. When taxes considered 'incurred': The Senate amendment contained rules of general application dealing with when a tax is 'incurred' for purposes of the various tax collection rules affecting the debtor and the estate. The House amendment adopts the substance of these rules and transfers them to section 507 of title 11. Penalty for failure to pay tax: The Senate amendment contains a rule which relieves the debtor and the trustee from certain tax penalties for failure to make timely payment of a tax to the extent that the bankruptcy rules prevent the trustee or the debtor from paying the tax on time. Since most of these penalties relate to Federal taxes, the House amendment deletes these rules pending consideration of Federal tax rules affecting bankruptcy in the next Congress. SENATE REPORT NO. 95-989 Subsection (a) indicates that subsections (b), (c), (d), (e), (g), (h), (i), and (j) apply notwithstanding any State or local tax law, but are subject to Federal tax law. Subsection (b)(1) provides that in a case concerning an individual under chapter 7 or 11 of title 11, income of the estate is taxable only to the estate and not to the debtor. The second sentence of the paragraph provides that if such individual is a partner, the tax attributes of the partnership are distributable to the partner's estate rather than to the partner, except to the extent that section 728 of title 11 provides otherwise. Subsection (b)(2) states a general rule that the estate of an individual is to be taxed as an estate. The paragraph is made subject to the remainder of section 346 and section 728 of title 11. Subsection (b)(3) requires the accounting method, but not necessarily the accounting period, of the estate to be the same as the method used by the individual debtor. Subsection (c)(1) states a general rule that the estate of a partnership or a corporated debtor is not a separate entity for tax purposes. The income of the debtor is to be taxed as if the case were not commenced, except as provided in the remainder of section 346 and section 728. Subsection (c)(2) requires the trustee, except as provided in section 728 of title 11, to file all tax returns on behalf of the partnership or corporation during the case. Subsection (d) indicates that the estate in a chapter 13 case is not a separate taxable entity and that all income of the estate is to be taxed to the debtor. Subsection (e) establishes a business deduction consisting of allowed expenses of administration except for tax or capital expenses that are not otherwise deductible. The deduction may be used by the estate when it is a separate taxable entity or by the entity to which the income of the estate is taxed when it is not. Subsection (f) imposes a duty on the trustee to comply with any Federal, State, or local tax law requiring withholding or collection of taxes from any payment of wages, salaries, commissions, dividends, interest, or other payments. Any amount withheld is to be paid to the taxing authority at the same time and with the same priority as the claim from which such amount withheld was paid. Subsection (g)(1)(A) indicates that neither gain nor loss is recognized on the transfer by law of property from the debtor or a creditor to the estate. Subparagraph (B) provides a similar policy if the property of the estate is returned from the estate to the debtor other than by a sale of property to debtor. Subparagraph (C) also provides for nonrecognition of gain or loss in a case under chapter 11 if a corporate debtor transfers property to a successor corporation or to an affiliate under a joint plan. An exception is made to enable a taxing authority to cause recognition of gain or loss to the extent provided in IRC (title 26) section 371 (as amended by section 109 of this bill). Subsection (g)(2) provides that any of the three kinds of transferees specified in paragraph (1) take the property with the same character, holding period, and basis in the hands of the transferor at the time of such transfer. The transferor's basis may be adjusted under section 346(j)(5) even if the discharge of indebtedness occurs after the transfer of property. Of course, no adjustment will occur if the transfer is from the debtor to the estate or if the transfer is from an entity that is not discharged. Subsection (h) provides that the creation of the estate of an individual under chapter 7 or 11 of title 11 as a separate taxable entity does not affect the number of taxable years for purposes of computing loss carryovers or carrybacks. The section applies with respect to carryovers or carrybacks of the debtor transferred into the estate under section 346(i)(1) of title 11 or back to the debtor under section 346(i)(2) of title 11. Subsection (i)(1) states a general rule that an estate that is a separate taxable entity nevertheless succeeds to all tax attributes of the debtor. The six enumerated attributes are illustrative and not exhaustive. Subsection (i)(2) indicates that attributes passing from the debtor into an estate that is a separate taxable entity will return to the debtor if unused by the estate. The debtor is permitted to use any such attribute as though the case had not been commenced. Subsection (i)(3) permits an estate that is a separate taxable entity to carryback losses of the estate to a taxable period of the debtor that ended before the case was filed. The estate is treated as if it were the debtor with respect to time limitations and other restrictions. The section makes clear that the debtor may not carryback any loss of his own from a tax year during the pendency of the case to such a period until the case is closed. No tolling of any period of limitation is provided with respect to carrybacks by the debtor of post-petition losses. Subsection (j) sets forth seven special rules treating with the tax effects of forgiveness or discharge of indebtedness. The terms 'forgiveness' and 'discharge' are redundant, but are used to clarify that 'discharge' in the context of a special tax provision in title 11 includes forgiveness of indebtedness whether or not such indebtedness is 'discharged' in the bankruptcy sense. Paragraph (1) states the general rule that forgiveness of indebtedness is not taxable except as otherwise provided in paragraphs (2)-(7). The paragraph is patterned after sections 268, 395, and 520 of the Bankruptcy Act (sections 668, 795, and 920 of former title 11). Paragraph (2) disallows deductions for liabilities of a deductible nature in any year during or after the year of cancellation of such liabilities. For the purposes of this paragraph, 'a deduction with respect to a liability' includes a capital loss incurred on the disposition of a capital asset with respect to a liability that was incurred in connection with the acquisition of such asset. Paragraph (3) causes any net operating loss of a debtor that is an individual or corporation to be reduced by any discharge of indebtedness except as provided in paragraphs (2) or (4). If a deduction is disallowed under paragraph (2), then no double counting occurs. Thus, paragraph (3) will reflect the reduction of losses by liabilities that have been forgiven, including deductible liabilities or nondeductible liabilities such as repayment of principal on borrowed funds. Paragraph (4) specifically excludes two kinds of indebtedness from reduction of net operating losses under paragraph (3) or from reduction of basis under paragraph (5). Subparagraph (A) excludes items of a deductible nature that were not deducted or that could not be deducted such as gambling losses or liabilities for interest owed to a relative of the debtor. Subparagraph (B) excludes indebtedness of a debtor that is an individual or corporation that resulted in deductions which did not offset income and that did not contribute to an unexpired net operating loss or loss carryover. In these situations, the debtor has derived no tax benefit so there is no need to incur an offsetting reduction. Paragraph (5) provides a two-point test for reduction of basis. The paragraph replaces sections 270, 396, and 522 of the Bankruptcy Act (sections 670, 796, and 922 of former title 11). Subparagraph (A) sets out the maximum amount by which basis may be reduced - the total indebtedness forgiven less adjustments made under paragraphs (2) and (3). This avoids double counting. If a deduction is disallowed under paragraph (2) or a carryover is reduced under paragraph (3) then the tax benefit is neutralized, and there is no need to reduce basis. Subparagraph (B) reduces basis to the extent the debtor's total basis of assets before the discharge exceeds total preexisting liabilities still remaining after discharge of indebtedness. This is a 'basis solvency' limitation which differs from the usual test of solvency because it measures against the remaining liabilities the benefit aspect of assets, their basis, rather than their value. Paragraph (5) applies so that any transferee of the debtor's property who is required to use the debtor's basis takes the debtor's basis reduced by the lesser of (A) and (B). Thus, basis will be reduced, but never below a level equal to undischarged liabilities. Paragraph (6) specifies that basis need not be reduced under paragraph (5) to the extent the debtor treats discharged indebtedness as taxable income. This permits the debtor to elect whether to recognize income, which may be advantageous if the debtor anticipates subsequent net operating losses, rather than to reduce basis. Paragraph (7) establishes two rules excluding from the category of discharged indebtedness certain indebtedness that is exchanged for an equity security issued under a plan or that is forgiven as a contribution to capital by an equity security holder. Subparagraph (A) creates the first exclusion to the extent indebtedness consisting of items not of a deductible nature is exchanged for an equity security, other than the interests of a limited partner in a limited partnership, issued by the debtor or is forgiven as a contribution to capital by an equity security holder. Subparagraph (B) excludes indebtedness consisting of items of a deductible nature, if the exchange of stock for debts has the same effect as a cash payment equal to the value of the equity security, in the amount of the fair market value of the equity security or, if less, the extent to which such exchange has such effect. The two provisions treat the debtor as if it had originally issued stock instead of debt. Subparagraph (B) rectifies the inequity under current law between a cash basis and accrual basis debtor concerning the issuance of stock in exchange for previous services rendered that were of a greater value than the stock. Subparagraph (B) also changes current law by taxing forgiveness of indebtedness to the extent that stock is exchanged for the accrued interest component of a security, because the recipient of such stock would not be regarded as having received money under the Carman doctrine. -REFTEXT- REFERENCES IN TEXT The Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.), referred to in subsec. (a), is classified generally to Title 26, Internal Revenue Code. Section 371 of the Internal Revenue Code of 1986 (26 U.S.C. 371), referred to in subsec. (g)(1)(C), was repealed by Pub. L. 101-508, title XI, Sec. 11801(a)(19), Nov. 5, 1990, 104 Stat. 1388-521. -MISC2- AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-514 substituted 'Internal Revenue Code of 1986' for 'Internal Revenue Code of 1954'. Subsec. (b)(1). Pub. L. 99-554, Sec. 257(g)(1), inserted reference to chapter 12. Subsec. (g)(1)(C). Pub. L. 99-554, Sec. 257(g)(2), inserted reference to chapter 12. Pub. L. 99-514 substituted 'Internal Revenue Code of 1986' for 'Internal Revenue Code of 1954'. Subsec. (i)(1). Pub. L. 99-554, Sec. 257(g)(3), inserted reference to chapter 12. Subsec. (j)(7). Pub. L. 99-554, Sec. 283(c), substituted 'owed' for 'owned'. 1984 - Subsec. (c)(2). Pub. L. 98-353 substituted 'corporation' for 'operation'. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 1146, 1231 of this title. ------DocID 14709 Document 54 of 646------ -CITE- 11 USC Sec. 347 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 347. Unclaimed property -STATUTE- (a) Ninety days after the final distribution under section 726, 1226, or 1326 of this title in a case under chapter 7, 12, or 13 of this title, as the case may be, the trustee shall stop payment on any check remaining unpaid, and any remaining property of the estate shall be paid into the court and disposed of under chapter 129 of title 28. (b) Any security, money, or other property remaining unclaimed at the expiration of the time allowed in a case under chapter 9, 11, or 12 of this title for the presentation of a security or the performance of any other act as a condition to participation in the distribution under any plan confirmed under section 943(b), 1129, 1173, or 1225 of this title, as the case may be, becomes the property of the debtor or of the entity acquiring the assets of the debtor under the plan, as the case may be. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2568; Pub. L. 99-554, title II, Sec. 257(h), Oct. 27, 1986, 100 Stat. 3114.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 347(a) of the House amendment adopts a comparable provision contained in the Senate amendment instructing the trustee to stop payment on any check remaining unpaid more than 90 days after the final distribution in a case under Chapter 7 or 13. Technical changes are made in section 347(b) to cover distributions in a railroad reorganization. SENATE REPORT NO. 95-989 Section 347 is derived from Bankruptcy Act Sec. 66 (section 106 of former title 11). Subsection (a) requires the trustee to stop payment on any distribution check that is unpaid 90 days after the final distribution in a case under chapter 7 or 13. The unclaimed funds, and any other property of the estate are paid into the court and disposed of under chapter 129 (Sec. 2041 et seq.) of title 28, which requires the clerk of court to hold the funds for their owner for 5 years, after which they escheat to the Treasury. Subsection (b) specifies that any property remaining unclaimed at the expiration of the time allowed in a chapter 9 or 11 case for presentation (exchange) of securities or the performance of any other act as a condition to participation in the plan reverts to the debtor or the entity acquiring the assets of the debtor under the plan. Conditions to participation under a plan include such acts as cashing a check, surrendering securities for cancellation, and so on. Similar provisions are found in sections 96(d) and 205 of current law (sections 416(d) and 605 of former title 11). AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(h)(1), inserted references to section 1226 and chapter 12 of this title. Subsec. (b). Pub. L. 99-554, Sec. 257(h)(2), inserted references to chapter 12 and section 1225 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 901 of this title. ------DocID 14710 Document 55 of 646------ -CITE- 11 USC Sec. 348 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 348. Effect of conversion -STATUTE- (a) Conversion of a case from a case under one chapter of this title to a case under another chapter of this title constitutes an order for relief under the chapter to which the case is converted, but, except as provided in subsections (b) and (c) of this section, does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief. (b) Unless the court for cause orders otherwise, in sections 701(a), 727(a)(10), 727(b), 728(a), 728(b), 1102(a), 1110(a)(1), 1121(b), 1121(c), 1141(d)(4), 1146(a), 1146(b), 1301(a), 1305(a), 1201(a), 1221, and 1228(a) of this title, 'the order for relief under this chapter' in a chapter to which a case has been converted under section 706, 1112, 1307, or 1208 of this title means the conversion of such case to such chapter. (c) Sections 342 and 365(d) of this title apply in a case that has been converted under section 706, 1112, 1307, or 1208 of this title, as if the conversion order were the order for relief. (d) A claim against the estate or the debtor that arises after the order for relief but before conversion in a case that is converted under section 1112, 1307, or 1208 of this title, other than a claim specified in section 503(b) of this title, shall be treated for all purposes as if such claim had arisen immediately before the date of the filing of the petition. (e) Conversion of a case under section 706, 1112, 1307, or 1208 of this title terminates the service of any trustee or examiner that is serving in the case before such conversion. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2568; Pub. L. 99-554, title II, Sec. 257(i), Oct. 27, 1986, 100 Stat. 3115.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS The House amendment adopts section 348(b) of the Senate amendment with slight modifications, as more accurately reflecting sections to which this particular effect of conversion should apply. Section 348(e) of the House amendment is a stylistic revision of similar provisions contained in H.R. 8200 as passed by the House and in the Senate amendment. Termination of services is expanded to cover any examiner serving in the case before conversion, as done in H.R. 8200 as passed by the House. SENATE REPORT NO. 95-989 This section governs the effect of the conversion of a case from one chapter of the bankruptcy code to another chapter. Subsection (a) specifies that the date of the filing of the petition, the commencement of the case, or the order for relief are unaffected by conversion, with some exceptions specified in subsections (b) and (c). Subsection (b) lists certain sections in the operative chapters of the bankruptcy code in which there is a reference to 'the order for relief under this chapter.' In those sections, the reference is to be read as a reference to the conversion order if the case has been converted into the particular chapter. Subsection (c) specifies that notice is to be given of the conversion order the same as notice was given of the order for relief, and that the time the trustee (or debtor in possession) has for assuming or rejecting executory contracts recommences, thus giving an opportunity for a newly appointed trustee to familiarize himself with the case. Subsection (d) provides for special treatment of claims that arise during chapter 11 or 13 cases before the case is converted to a liquidation case. With the exception of claims specified in proposed 11 U.S.C. 503(b) (administrative expenses), preconversion claims are treated the same as prepetition claims. Subsection (e) provides that conversion of a case terminates the service of any trustee serving in the case prior to conversion. AMENDMENTS 1986 - Subsec. (b). Pub. L. 99-554, Sec. 257(i)(1), substituted references to sections 1201(a), 1221, and 1228(a) of this title for reference to section 1328(a) of this title, and inserted reference to section 1208 of this title. Subsecs. (c) to (e). Pub. L. 99-554, Sec. 257(i)(2), (3), inserted reference to section 1208 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 101 of this title. ------DocID 14711 Document 56 of 646------ -CITE- 11 USC Sec. 349 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 349. Effect of dismissal -STATUTE- (a) Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(f) (FOOTNOTE 1) of this title. (FOOTNOTE 1) So in original. See References in Text note below. (b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title - (1) reinstates - (A) any proceeding or custodianship superseded under section 543 of this title; (B) any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or preserved under section 510(c)(2), 522(i)(2), or 551 of this title; and (C) any lien voided under section 506(d) of this title; (2) vacates any order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553 of this title; and (3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title III, Sec. 303, July 10, 1984, 98 Stat. 352.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 349(b)(2) of the House amendment adds a cross reference to section 553 to reflect the new right of recovery of setoffs created under that section. Corresponding changes are made throughout the House amendment. SENATE REPORT NO. 95-989 Subsection (a) specifies that unless the court for cause orders otherwise, the dismissal of a case is without prejudice. The debtor is not barred from receiving a discharge in a later case of debts that were dischargeable in the case dismissed. Of course, this subsection refers only to pre-discharge dismissals. If the debtor has already received a discharge and it is not revoked, then the debtor would be barred under section 727(a) from receiving a discharge in a subsequent liquidation case for six years. Dismissal of an involuntary on the merits will generally not give rise to adequate cause so as to bar the debtor from further relief. Subsection (b) specifies that the dismissal reinstates proceedings or custodianships that were superseded by the bankruptcy case, reinstates avoided transfers, reinstates voided liens, vacates any order, judgment, or transfer ordered as a result of the avoidance of a transfer, and revests the property of the estate in the entity in which the property was vested at the commencement of the case. The court is permitted to order a different result for cause. The basic purpose of the subsection is to undo the bankruptcy case, as far as practicable, and to restore all property rights to the position in which they were found at the commencement of the case. This does not necessarily encompass undoing sales of property from the estate to a good faith purchaser. Where there is a question over the scope of the subsection, the court will make the appropriate orders to protect rights acquired in reliance on the bankruptcy case. -REFTEXT- REFERENCES IN TEXT Section 109(f) of this title, referred to in subsec. (a), was redesignated section 109(g) of this title by section 253(1)(A) of Pub. L. 99-554. -MISC2- AMENDMENTS 1984 - Subsec. (a). Pub. L. 98-353 inserted '; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(f) of this title'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 901 of this title. ------DocID 14712 Document 57 of 646------ -CITE- 11 USC Sec. 350 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER III -HEAD- Sec. 350. Closing and reopening cases -STATUTE- (a) After an estate is fully administered and the court has discharged the trustee, the court shall close the case. (b) A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title III, Sec. 439, July 10, 1984, 98 Stat. 370.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Subsection (a) requires the court to close a bankruptcy case after the estate is fully administered and the trustee discharged. The Rules of Bankruptcy Procedure will provide the procedure for case closing. Subsection (b) permits reopening of the case to administer assets, to accord relief to the debtor, or for other cause. Though the court may permit reopening of a case so that the trustee may exercise an avoiding power, laches may constitute a bar to an action that has been delayed too long. The case may be reopened in the court in which it was closed. The rules will prescribe the procedure by which a case is reopened and how it will be conducted after reopening. AMENDMENTS 1984 - Subsec. (b). Pub. L. 98-353 substituted 'A' for 'a'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 554, 703, 901 of this title. ------DocID 14713 Document 58 of 646------ -CITE- 11 USC SUBCHAPTER IV -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER IV -HEAD- SUBCHAPTER IV - ADMINISTRATIVE POWERS ------DocID 14714 Document 59 of 646------ -CITE- 11 USC Sec. 361 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER IV -HEAD- Sec. 361. Adequate protection -STATUTE- When adequate protection is required under section 362, 363, or 364 of this title of an interest of an entity in property, such adequate protection may be provided by - (1) requiring the trustee to make a cash payment or periodic cash payments to such entity, to the extent that the 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. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2569; Pub. L. 98-353, title III, Sec. 440, July 10, 1984, 98 Stat. 370.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 361 of the House amendment represents a compromise between H.R. 8200 as passed by the House and the Senate amendment regarding the issue of 'adequate protection' of a secured party. The House amendment deletes the provision found in section 361(3) of H.R. 8200 as passed by the House. It would have permitted adequate protection to be provided by giving the secured party an administrative expense regarding any decrease in the value of such party's collateral. In every case there is the uncertainty that the estate will have sufficient property to pay administrative expenses in full. Section 361(4) of H.R. 8200 as passed by the House is modified in section 361(3) of the House amendment to indicate that the court may grant other forms of adequate protection, other than an administrative expense, which will result in the realization by the secured creditor of the indubitable equivalent of the creditor's interest in property. In the special instance where there is a reserve fund maintained under the security agreement, such as in the typical bondholder case, indubitable equivalent means that the bondholders would be entitled to be protected as to the reserve fund, in addition to the regular payments needed to service the debt. Adequate protection of an interest of an entity in property is intended to protect a creditor's allowed secured claim. To the extent the protection proves to be inadequate after the fact, the creditor is entitled to a first priority administrative expense under section 503(b). In the special case of a creditor who has elected application of creditor making an election under section 1111(b)(2), that creditor is entitled to adequate protection of the creditor's interest in property to the extent of the value of the collateral not to the extent of the creditor's allowed secured claim, which is inflated to cover a deficiency as a result of such election. SENATE REPORT NO. 95-989 Sections 362, 363, and 364 require, in certain circumstances, that the court determine in noticed hearings whether the interest of a secured creditor or co-owner of property with the debtor is adequately protected in connection with the sale or use of property. The interests of which the court may provide protection in the ways described in this section include equitable as well as legal interests. For example, a right to enforce a pledge and a right to recover property delivered to a debtor under a consignment agreement or an agreement of sale or return are interests that may be entitled to protection. This section specifies means by which adequate protection may be provided but, to avoid placing the court in an administrative role, does not require the court to provide it. Instead, the trustee or debtor in possession or the creditor will provide or propose a protection method. If the party that is affected by the proposed action objects, the court will determine whether the protection provided is adequate. The purpose of this section is to illustrate means by which it may be provided and to define the limits of the concept. The concept of adequate protection is derived from the fifth amendment protection of property interests as enunciated by the Supreme Court. See Wright v. Union Central Life Ins. Co., 311 U.S. 273 (1940); Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555 (1935). The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor's assets prevents that. Subsection (a) defines the scope of the automatic stay, by listing the acts that are stayed by the commencement of the case. The commencement or continuation, including the issuance of process, of a judicial, administrative or other proceeding against the debtor that was or could have been commenced before the commencement of the bankruptcy case is stayed under paragraph (1). The scope of this paragraph is broad. All proceedings are stayed, including arbitration, administrative, and judicial proceedings. Proceeding in this sense encompasses civil actions and all proceedings even if they are not before governmental tribunals. The stay is not permanent. There is adequate provision for relief from the stay elsewhere in the section. However, it is important that the trustee have an opportunity to inventory the debtor's position before proceeding with the administration of the case. Undoubtedly the court will lift the stay for proceedings before specialized or nongovernmental tribunals to allow those proceedings to come to a conclusion. Any party desiring to enforce an order in such a proceeding would thereafter have to come before the bankruptcy court to collect assets. Nevertheless, it will often be more appropriate to permit proceedings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum and to relieve the bankruptcy court from many duties that may be handled elsewhere. Paragraph (2) stays the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the bankruptcy case. Thus, execution and levy against the debtors' prepetition property are stayed, and attempts to collect a judgment from the debtor personally are stayed. Paragraph (3) stays any act to obtain possession of property of the estate (that is, property of the debtor as of the date of the filing of the petition) or property from the estate (property over which the estate has control or possession). The purpose of this provision is to prevent dismemberment of the estate. Liquidation must proceed in an orderly fashion. Any distribution of property must be by the trustee after he has had an opportunity to familiarize himself with the various rights and interests involved and with the property available for distribution. Paragraph (4) stays lien creation against property of the estate. Thus, taking possession to perfect a lien or obtaining court process is prohibited. To permit lien creation after bankruptcy would give certain creditors preferential treatment by making them secured instead of unsecured. Paragraph (5) stays any act to create or enforce a lien against property of the debtor, that is, most property that is acquired after the date of the filing of the petition, property that is exempted, or property that does not pass to the estate, to the extent that the lien secures a prepetition claim. Again, to permit postbankruptcy lien creation or enforcement would permit certain creditors to receive preferential treatment. It may also circumvent the debtors' discharge. Paragraph (6) prevents creditors from attempting in any way to collect a prepetition debt. Creditors in consumer cases occasionally telephone debtors to encourage repayment in spite of bankruptcy. Inexperienced, frightened, or ill-counseled debtors may succumb to suggestions to repay notwithstanding their bankruptcy. This provision prevents evasion of the purpose of the bankruptcy laws by sophisticated creditors. Paragraph (7) stays setoffs of mutual debts and credits between the debtor and creditors. As with all other paragraphs of subsection (a), this paragraph does not affect the right of creditors. It simply stays its enforcement pending an orderly examination of the debtor's and creditors' rights. Subsection (b) lists seven exceptions to the automatic stay. The effect of an exception is not to make the action immune from injunction. The court has ample other powers to stay actions not covered by the automatic stay. Section 105, of proposed title 11, derived from Bankruptcy Act Sec. 2a(15) (section 11(a)(15) of former title 11), grants the power to issue orders necessary or appropriate to carry out the provisions of title 11. The district court and the bankruptcy court as its adjunct have all the traditional injunctive powers of a court of equity, 28 U.S.C. Sec. 151 and 164 as proposed in S. 2266, Sec. 201, and 28 U.S.C. Sec. 1334, as proposed in S. 2266, Sec. 216. Stays or injunctions issued under these other sections will not be automatic upon the commencement of the case, but will be granted or issued under the usual rules for the issuance of injunctions. By excepting an act or action from the automatic stay, the bill simply requires that the trustee move the court into action, rather than requiring the stayed party to request relief from the stay. There are some actions, enumerated in the exceptions, that generally should not be stayed automatically upon the commencement of the case, for reasons of either policy or practicality. Thus, the court will have to determine on a case-by-case basis whether a particular action which may be harming the estate should be stayed. With respect to stays issued under other powers, or the application of the automatic stay, to governmental actions, this section and the other sections mentioned are intended to be an express waiver of sovereign immunity of the Federal Government, and an assertion of the bankruptcy power over State governments under the supremacy clause notwithstanding a State's sovereign immunity. The first exception is of criminal proceedings against the debtor. The bankruptcy laws are not a haven for criminal offenders, but are designed to give relief from financial overextension. Thus, criminal actions and proceedings may proceed in spite of bankruptcy. Paragraph (2) excepts from the stay the collection of alimony, maintenance or support from property that is not property of the estate. This will include property acquired after the commencement of the case, exempted property, and property that does not pass to the estate. The automatic stay is one means of protecting the debtor's discharge. Alimony, maintenance and support obligations are excepted from discharge. Staying collection of them, when not to the detriment of other creditors (because the collection effort is against property that is not property of the estate) does not further that goal. Moreover, it could lead to hardship on the part of the protected spouse or children. Paragraph (3) excepts any act to perfect an interest in property to the extent that the trustee's rights and powers are limited under section 546(a) of the bankruptcy code. That section permits postpetition perfection of certain liens to be effective against the trustee. If the act of perfection, such as filing, were stayed, the section would be nullified. Paragraph (4) excepts commencement or continuation of actions and proceedings by governmental units to enforce police or regulatory powers. Thus, where a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay. Paragraph (5) makes clear that the exception extends to permit an injunction and enforcement of an injunction, and to permit the entry of a money judgment, but does not extend to permit enforcement of a money judgment. Since the assets of the debtor are in the possession and control of the bankruptcy court, and since they constitute a fund out of which all creditors are entitled to share, enforcement by a governmental unit of a money judgment would give it preferential treatment to the detriment of all other creditors. Paragraph (6) excepts the setoff of any mutual debt and claim for commodity transactions. Paragraph (7) excepts actions by the Secretary of Housing and Urban Development to foreclose or take possession in a case of a loan insured under the National Housing Act (12 U.S.C. 1701 et seq.). A general exception for such loans is found in current sections 263 and 517 (sections 663 and 917 of former title 11), the exception allowed by this paragraph is much more limited. Subsection (c) of section 362 specifies the duration of the automatic stay. Paragraph (1) terminates a stay of an act against property of the estate when the property ceases to be property of the estate, such as by sale, abandonment, or exemption. It does not terminate the stay against property of the debtor if the property leaves the estate and goes to the debtor. Paragraph (2) terminates the stay of any other act on the earliest of the time the case is closed, the time the case is dismissed, or the time a discharge is granted or denied (unless the debtor is a corporation or partnership in a chapter 7 case). Subsection (c) governs automatic termination of the stay. Subsections (d) through (g) govern termination of the stay by the court on the request of a party in interest. Subsection (d) requires the court, upon motion of a party in interest, to grant relief from the stay for cause, such as by terminating, annulling, modifying, or conditioning the stay. The lack of adequate protection of an interest in property is one cause for relief, but is not the only cause. Other causes might include the lack of any connection with or interference with the pending bankruptcy case. Generally, proceedings in which the debtor is a fiduciary, or involving postpetition activities of the debtor, need not be stayed because they bear no relationship to the purpose of the automatic stay, which is protection of the debtor and his estate from his creditors. Upon the court's finding that the debtor has no equity in the property subject to the stay and that the property is not necessary to an effective reorganization of the debtor, the subsection requires the court grant relief from the stay. To aid in this determination, guidelines are established where the property subject to the stay is real property. An exception to 'the necessary to an effective reorganization' requirement is made for real property on which no business is being conducted other than operating the real property and activities incident thereto. The intent of this exception is to reach the single-asset apartment type cases which involve primarily tax-shelter investments and for which the bankruptcy laws have provided a too facile method to relay conditions, but not the operating shopping center and hotel cases where attempts at reorganization should be permitted. Property in which the debtor has equity but which is not necessary to an effective reorganization of the debtor should be sold under section 363. Hearings under this subsection are given calendar priority to ensure that court congestion will not unduly prejudice the rights of creditors who may be obviously entitled to relief from the operation of the automatic stay. Subsection (e) provides protection that is not always available under present law. The subsection sets a time certain within which the bankruptcy court must rule on the adequacy of protection provided for the secured creditor's interest. If the court does not rule within 30 days from a request by motion for relief from the stay, the stay is automatically terminated with respect to the property in question. To accommodate more complex cases, the subsection permits the court to make a preliminary ruling after a preliminary hearing. After a preliminary hearing, the court may continue the stay only if there is a reasonable likelihood that the party opposing relief from the stay will prevail at the final hearing. Because the stay is essentially an injunction, the three stages of the stay may be analogized to the three stages of an injunction. The filing of the petition which gives rise to the automatic stay is similar to a temporary restraining order. The preliminary hearing is similar to the hearing on a preliminary injunction, and the final hearing and order are similar to the hearing and issuance or denial of a permanent injunction. The main difference lies in which party must bring the issue before the court. While in the injunction setting, the party seeking the injunction must prosecute the action, in proceeding for relief from the automatic stay, the enjoined party must move. The difference does not, however, shift the burden of proof. Subsection (g) leaves that burden on the party opposing relief from the stay (that is, on the party seeking continuance of the injunction) on the issue of adequate protection and existence of an equity. It is not, however, intended to be confined strictly to the constitutional requirement. This section and the concept of adequate protection are based as much on policy grounds as on constitutional grounds. Secured creditors should not be deprived of the benefit of their bargain. There may be situations in bankruptcy where giving a secured creditor an absolute right to his bargain may be impossible or seriously detrimental to the policy of the bankruptcy laws. Thus, this section recognizes the availability of alternate means of protecting a secured creditor's interest where such steps are a necessary part of the rehabilitative process. Though the creditor might not be able to retain his lien upon the specific collateral held at the time of filing, the purpose of the section is to insure that the secured creditor receives the value for which he bargained. The section specifies two exclusive means of providing adequate protection, both of which may require an approximate determination of the value of the protected entity's interest in the property involved. The section does not specify how value is to be determined, nor does it specify when it is to be determined. These matters are left to case-by-case interpretation and development. In light of the restrictive approach of the section to the availability of means of providing adequate protection, this flexibility is important to permit the courts to adapt to varying circumstances and changing modes of financing. Neither is it expected that the courts will construe the term value to mean, in every case, forced sale liquidation value or full going concern value. There is wide latitude between those two extremes although forced sale liquidation value will be a minimum. In any particular case, especially a reorganization case, the determination of which entity should be entitled to the difference between the going concern value and the liquidation value must be based on equitable considerations arising from the facts of the case. Finally, the determination of value is binding only for the purposes of the specific hearing and is not to have a res judicata effect. The first method of adequate protection outlined is the making of cash payments to compensate for the expected decrease in value of the opposing entity's interest. This provision is derived from In re Bermec Corporation, 445 F.2d 367 (2d Cir. 1971), though in that case it is not clear whether the payments offered were adequate to compensate the secured creditors for their loss. The use of periodic payments may be appropriate where, for example, the property in question is depreciating at a relatively fixed rate. The periodic payments would be to compensate for the depreciation and might, but need not necessarily, be in the same amount as payments due on the secured obligation. The second method is the fixing of an additional or replacement lien on other property of the debtor to the extent of the decrease in value or actual consumption of the property involved. The purpose of this method is to provide the protected entity with an alternative means of realizing the value of the original property, if it should decline during the case, by granting an interest in additional property from whose value the entity may realize its loss. This is consistent with the view expressed in Wright v. Union Central Life Ins. Co., 311 U.S. 273 (1940), where the Court suggested that it was the value of the secured creditor's collateral, and not necessarily his rights in specific collateral, that was entitled to protection. The section makes no provision for the granting of an administrative priority as a method of providing adequate protection to an entity as was suggested in In re Yale Express System, Inc., 384 F.2d 990 (2d Cir. 1967), because such protection is too uncertain to be meaningful. HOUSE REPORT NO. 95-595 The section specifies four means of providing adequate protection. They are neither exclusive nor exhaustive. They all rely, however, on the value of the protected entity's interest in the property involved. The section does not specify how value is to be determined, nor does it specify when it is to be determined. These matters are left to case-by-case interpretation and development. It is expected that the courts will apply the concept in light of facts of each case and general equitable principles. It is not intended that the courts will develop a hard and fast rule that will apply in every case. The time and method of valuation is not specified precisely, in order to avoid that result. There are an infinite number of variations possible in dealings between debtors and creditors, the law is continually developing, and new ideas are continually being implemented in this field. The flexibility is important to permit the courts to adapt to varying circumstances and changing modes of financing. Neither is it expected that the courts will construe the term value to mean, in every case, forced sale liquidation value or full going concern value. There is wide latitude between those two extremes. In any particular case, especially a reorganization case, the determination of which entity should be entitled to the difference between the going concern value and the liquidation value must be based on equitable considerations based on the facts of the case. It will frequently be based on negotiation between the parties. Only if they cannot agree will the court become involved. The first method of adequate protection specified is periodic cash payments by the estate, to the extent of a decrease in value of the opposing entity's interest in the property involved. This provision is derived from In re Yale Express, Inc., 384 F.2d 990 (2d Cir. 1967) (though in that case it is not clear whether the payments required were adequate to compensate the secured creditors for their loss). The use of periodic payments may be appropriate, where for example, the property in question is depreciating at a relatively fixed rate. The periodic payments would be to compensate for the depreciation. The second method is the provision of an additional or replacement lien on other property to the extent of the decrease in value of the property involved. The purpose of this method is to provide the protected entity with a means of realizing the value of the original property, if it should decline during the case, by granting an interest in additional property from whose value the entity may realize its loss. The third method is the granting of an administrative expense priority to the protected entity to the extent of his loss. This method, more than the others, requires a prediction as to whether the unencumbered assets that will remain if the case if converted from reorganization to liquidation will be sufficient to pay the protected entity in full. It is clearly the most risky, from the entity's perspective, and should be used only when there is relative certainty that administrative expenses will be able to be paid in full in the event of liquidation. The fourth (now third) method gives the parties and the courts flexibility by allowing such other relief as will result in the realization by the protected entity of the value of its interest in the property involved. Under this provision, the courts will be able to adapt to new methods of financing and to formulate protection that is appropriate to the circumstances of the case if none of the other methods would accomplish the desired result. For example, another form of adequate protection might be the guarantee by a third party outside the judicial process of compensation for any loss incurred in the case. Adequate protection might also, in some circumstances, be provided by permitting a secured creditor to bid in his claim at the sale of the property and to offset the claim against the price bid in. The paragraph also defines, more clearly than the others, the general concept of adequate protection, by requiring such relief as will result in the realization of value. It is the general category, and as such, is defined by the concept involved rather than any particular method of adequate protection. AMENDMENTS 1984 - Par. (1). Pub. L. 98-353 inserted 'a cash payment or' after 'make'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 901, 1205 of this title. ------DocID 14715 Document 60 of 646------ -CITE- 11 USC Sec. 362 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER IV -HEAD- Sec. 362. Automatic stay -STATUTE- (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 (15 U.S.C. 78eee(a)(3)), operates as a stay, applicable to all entities, of - (1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; (2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title; (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; (4) any act to create, perfect, or enforce any lien against property of the estate; (5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title; (7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and (8) the commencement or continuation of a proceeding before the United States Tax Court concerning the debtor. (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 (15 U.S.C. 78eee(a)(3)), does not operate as a stay - (1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor; (2) under subsection (a) of this section, of the collection of alimony, maintenance, or support from property that is not property of the estate; (3) under subsection (a) of this section, of any act to perfect an interest in property to the extent that the trustee's rights and powers are subject to such perfection under section 546(b) of this title or to the extent that such act is accomplished within the period provided under section 547(e)(2)(A) of this title; (4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power; (5) under subsection (a)(2) of this section, of the enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power; (6) under subsection (a) of this section, of the setoff by a commodity broker, forward contract merchant, stockbroker, financial institutions, or securities clearing agency of any mutual debt and claim under or in connection with commodity contracts, as defined in section 761(4) of this title, forward contracts, or securities contracts, as defined in section 741(7) of this title, that constitutes the setoff of a claim against the debtor for a margin payment, as defined in section 101(34), 741(5), or 761(15) of this title, or settlement payment, as defined in section 101(35) or 741(8) of this title, arising out of commodity contracts, forward contracts, or securities contracts against cash, securities, or other property held by or due from such commodity broker, forward contract merchant, stockbroker, financial institutions, or securities clearing agency to margin, guarantee, secure, or settle commodity contracts, forward contracts, or securities contracts; (7) under subsection (a) of this section, of the setoff by a repo participant, of any mutual debt and claim under or in connection with repurchase agreements that constitutes the setoff of a claim against the debtor for a margin payment, as defined in section 741(5) or 761(15) of this title, or settlement payment, as defined in section 741(8) of this title, arising out of repurchase agreements against cash, securities, or other property held by or due from such repo participant to margin, guarantee, secure or settle repurchase agreements; (8) under subsection (a) of this section, of the commencement of any action by the Secretary of Housing and Urban Development to foreclose a mortgage or deed of trust in any case in which the mortgage or deed of trust held by the Secretary is insured or was formerly insured under the National Housing Act and covers property, or combinations of property, consisting of five or more living units; (9) under subsection (a) of this section, of the issuance to the debtor by a governmental unit of a notice of tax deficiency; (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; or (FOOTNOTE 1) (FOOTNOTE 1) So in original. The word 'or' probably should not appear. (11) under subsection (a) of this section, of the presentment of a negotiable instrument and the giving of notice of and protesting dishonor of such an instrument; (12) under subsection (a) of this section, after the date which is 90 days after the filing of such petition, of the commencement or continuation, and conclusion to the entry of final judgment, of an action which involves a debtor subject to reorganization pursuant to chapter 11 of this title and which was brought by the Secretary of Transportation under the Ship Mortgage Act, 1920 (FOOTNOTE 2) (46 App. U.S.C. 911 et seq.) (including distribution of any proceeds of sale) to foreclose a preferred ship or fleet mortgage, or a security interest in or relating to a vessel or vessel under construction, held by the Secretary of Transportation under section 207 or title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1117 and 1271 et seq., respectively), or under applicable State law; (FOOTNOTE 2) See References in Text note below. (13) under subsection (a) of this section, after the date which is 90 days after the filing of such petition, of the commencement or continuation, and conclusion to the entry of final judgment, of an action which involves a debtor subject to reorganization pursuant to chapter 11 of this title and which was brought by the Secretary of Commerce under the Ship Mortgage Act, 1920 (FOOTNOTE 2) (46 App. U.S.C. 911 et seq.) (including distribution of any proceeds of sale) to foreclose a preferred ship or fleet mortgage in a vessel or a mortgage, deed of trust, or other security interest in a fishing facility held by the Secretary of Commerce under section 207 or title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1117 and 1271 et seq., respectively); or (FOOTNOTE 3) (FOOTNOTE 3) So in original. The word 'or' probably should not appear. (14) (FOOTNOTE 4) 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. (FOOTNOTE 5) (FOOTNOTE 4) So in original. Two pars. (14) have been enacted. See 1990 Amendments notes below. (FOOTNOTE 5) So in original. The period probably should be a semicolon. (14) (FOOTNOTE 4) under subsection (a) of this section, of any action by an accrediting agency regarding the accreditation status of the debtor as an educational institution; (15) under subsection (a) of this section, of any action by a State licensing body regarding the licensure of the debtor as an educational institution; or (16) under subsection (a) of this section, of any action by a guaranty agency, as defined in section 435(j) of the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.) or the Secretary of Education regarding the eligibility of the debtor to participate in programs authorized under such Act. The provisions of paragraphs (12) and (13) of this subsection shall apply with respect to any such petition filed on or before December 31, 1989. (c) Except as provided in subsections (d), (e), and (f) 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. (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) for cause, including the lack of adequate protection of an interest in property of such party in interest; or (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. (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 commenced not later than thirty days after the conclusion of such preliminary hearing. (f) Upon request of a party in interest, the court, with or without a hearing, shall grant such relief from the stay provided under subsection (a) of this section as is necessary to prevent irreparable damage to the interest of an entity in property, if such interest will suffer such damage before there is an opportunity for notice and a hearing under subsection (d) or (e) of this section. (g) In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section - (1) the party requesting such relief has the burden of proof on the issue of the debtor's equity in property; and (2) the party opposing such relief has the burden of proof on all other issues. (h) 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. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2570; Pub. L. 97-222, Sec. 3, July 27, 1982, 96 Stat. 235; Pub. L. 98-353, title III, Sec. 304, 363(b), 392, 441, July 10, 1984, 98 Stat. 352, 363, 365, 371; Pub. L. 99-509, title V, Sec. 5001(a), Oct. 21, 1986, 100 Stat. 1911; Pub. L. 99-554, title II, Sec. 257(j), 283(d), Oct. 27, 1986, 100 Stat. 3115, 3116; Pub. L. 101-311, title I, Sec. 102, title II, Sec. 202, June 25, 1990, 104 Stat. 267, 269; Pub. L. 101-508, title III, Sec. 3007(a)(1), Nov. 5, 1990, 104 Stat. 1388-28.) -STATAMEND- AMENDMENT OF SECTION For termination of amendment by section 3008 of Pub. L. 101-508, see Effective and Termination Dates of 1990 Amendment note below. -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 362(a)(1) of the House amendment adopts the provision contained in the Senate amendment enjoining the commencement or continuation of a judicial, administrative, or other proceeding to recover a claim against the debtor that arose before the commencement of the case. The provision is beneficial and interacts with section 362(a)(6), which also covers assessment, to prevent harassment of the debtor with respect to pre-petition claims. Section 362(a)(7) contains a provision contained in H.R. 8200 as passed by the House. The differing provision in the Senate amendment was rejected. It is not possible that a debt owing to the debtor may be offset against an interest in the debtor. Section 362(a)(8) is new. The provision stays the commencement or continuation of any proceeding concerning the debtor before the U.S. Tax Court. Section 362(b)(4) indicates that the stay under section 362(a)(1) does not apply to affect the commencement or continuation of an action or proceeding by a governmental unit to enforce the governmental unit's police or regulatory power. This section is intended to be given a narrow construction in order to permit governmental units to pursue actions to protect the public health and safety and not to apply to actions by a governmental unit to protect a pecuniary interest in property of the debtor or property of the estate. Section 362(b)(6) of the House amendment adopts a provision contained in the Senate amendment restricting the exception to the automatic stay with respect to setoffs to permit only the setoff of mutual debts and claims. Traditionally, the right of setoff has been limited to mutual debts and claims and the lack of the clarifying term 'mutual' in H.R. 8200 as passed by the House created an unintentional ambiguity. Section 362(b)(7) of the House amendment permits the issuance of a notice of tax deficiency. The House amendment rejects section 362(b)(7) in the Senate amendment. It would have permitted a particular governmental unit to obtain a pecuniary advantage without a hearing on the merits contrary to the exceptions contained in sections 362(b)(4) and (5). Section 362(d) of the House amendment represents a compromise between comparable provisions in the House bill and Senate amendment. Under section 362(d)(1) of the House amendment, the court may terminate, annul, modify, or condition the automatic stay for cause, including lack of adequate protection of an interest in property of a secured party. It is anticipated that the Rules of Bankruptcy Procedure will provide that those hearings will receive priority on the calendar. Under section 362(d)(2) the court may alternatively terminate, annul, modify, or condition the automatic stay for cause including inadequate protection for the creditor. The court shall grant relief from the stay if there is no equity and it is not necessary to an effective reorganization of the debtor. The latter requirement is contained in section 362(d)(2). This section is intended to solve the problem of real property mortgage foreclosures of property where the bankruptcy petition is filed on the eve of foreclosure. The section is not intended to apply if the business of the debtor is managing or leasing real property, such as a hotel operation, even though the debtor has no equity if the property is necessary to an effective reorganization of the debtor. Similarly, if the debtor does have an equity in the property, there is no requirement that the property be sold under section 363 of title 11 as would have been required by the Senate amendment. Section 362(e) of the House amendment represents a modification of provisions in H.R. 8200 as passed by the House and the Senate amendment to make clear that a final hearing must be commenced within 30 days after a preliminary hearing is held to determine whether a creditor will be entitled to relief from the automatic stay. In order to insure that those hearings will in fact occur within such 30-day period, it is anticipated that the rules of bankruptcy procedure provide that such final hearings receive priority on the court calendar. Section 362(g) places the burden of proof on the issue of the debtor's equity in collateral on the party requesting relief from the automatic stay and the burden on other issues on the debtor. An amendment has been made to section 362(b) to permit the Secretary of the Department of Housing and Urban Development to commence an action to foreclose a mortgage or deed of trust. The commencement of such an action is necessary for tax purposes. The section is not intended to permit the continuation of such an action after it is commenced nor is the section to be construed to entitle the Secretary to take possession in lieu of foreclosure. Automatic stay: Sections 362(b)(8) and (9) contained in the Senate amendment are largely deleted in the House amendment. Those provisions add to the list of actions not stayed (a) jeopardy assessments, (b) other assessments, and (c) the issuance of deficiency notices. In the House amendment, jeopardy assessments against property which ceases to be property of the estate is already authorized by section 362(c)(1). Other assessments are specifically stayed under section 362(a)(6), while the issuance of a deficiency notice is specifically permitted. Stay of the assessment and the permission to issue a statutory notice of a tax deficiency will permit the debtor to take his personal tax case to the Tax Court, if the bankruptcy judge authorizes him to do so (as explained more fully in the discussion of section 505). SENATE REPORT NO. 95-989 The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy. The action commenced by the party seeking relief from the stay is referred to as a motion to make it clear that at the expedited hearing under subsection (e), and at hearings on relief from the stay, the only issue will be the lack of adequate protection, the debtor's equity in the property, and the necessity of the property to an effective reorganization of the debtor, or the existence of other cause for relief from the stay. This hearing will not be the appropriate time at which to bring in other issues, such as counterclaims against the creditor, which, although relevant to the question of the amount of the debt, concern largely collateral or unrelated matters. This approach is consistent with that taken in cases such as In re Essex Properties, Ltd., 430 F.Supp. 1112 (N.D.Cal.1977), that an action seeking relief from the stay is not the assertion of a claim which would give rise to the right or obligation to assert counterclaims. Those counterclaims are not to be handled in the summary fashion that the preliminary hearing under this provision will be. Rather, they will be the subject of more complete proceedings by the trustee to recover property of the estate or to object to the allowance of a claim. However, this would not preclude the party seeking continuance of the stay from presenting evidence on the existence of claims which the court may consider in exercising its discretion. What is precluded is a determination of such collateral claims on the merits at the hearing. HOUSE REPORT NO. 95-595 Paragraph (7) (of subsec. (a)) stays setoffs of mutual debts and credits between the debtor and creditors. As with all other paragraphs of subsection (a), this paragraph does not affect the right of creditors. It simply stays its enforcement pending an orderly examination of the debtor's and creditors' rights. Subsection (c) governs automatic termination of the stay. Subsections (d) through (g) govern termination of the stay by the court on the request of a party in interest. Subsection (d) requires the court, on request of a party in interest, to grant relief from the stay, such as by terminating, annulling, modifying, or conditioning the stay, for cause. The lack of adequate protection of an interest in property of the party requesting relief from the stay is one cause for relief, but is not the only cause. As noted above, a desire to permit an action to proceed to completion in another tribunal may provide another cause. Other causes might include the lack of any connection with or interference with the pending bankruptcy case. For example, a divorce or child custody proceeding involving the debtor may bear no relation to the bankruptcy case. In that case, it should not be stayed. A probate proceeding in which the debtor is the executor or administrator of another's estate usually will not be related to the bankruptcy case, and should not be stayed. Generally, proceedings in which the debtor is a fiduciary, or involving postpetition activities of the debtor, need not be stayed because they bear no relationship to the purpose of the automatic stay, which is debtor protection from his creditors. The facts of each request will determine whether relief is appropriate under the circumstances. Subsection (e) provides a protection for secured creditors that is not available under present law. The subsection sets a time certain within which the bankruptcy court must rule on the adequacy of protection provided of the secured creditor's interest. If the court does not rule within 30 days from a request for relief from the stay, the stay is automatically terminated with respect to the property in question. In order to accommodate more complex cases, the subsection permits the court to make a preliminary ruling after a preliminary hearing. After a preliminary hearing, the court may continue the stay only if there is a reasonable likelihood that the party opposing relief from the stay will prevail at the final hearing. Because the stay is essentially an injunction, the three stages of the stay may be analogized to the three stages of an injunction. The filing of the petition which gives rise to the automatic stay is similar to a temporary restraining order. The preliminary hearing is similar to the hearing on a preliminary injunction, and the final hearing and order is similar to a permanent injunction. The main difference lies in which party must bring the issue before the court. While in the injunction setting, the party seeking the injunction must prosecute the action, in proceedings for relief from the automatic stay, the enjoined party must move. The difference does not, however, shift the burden of proof. Subsection (g) leaves that burden on the party opposing relief from the stay (that is, on the party seeking continuance of the injunction) on the issue of adequate protection. At the expedited hearing under subsection (e), and at all hearings on relief from the stay, the only issue will be the claim of the creditor and the lack of adequate protection or existence of other cause for relief from the stay. This hearing will not be the appropriate time at which to bring in other issues, such as counterclaims against the creditor on largely unrelated matters. Those counterclaims are not to be handled in the summary fashion that the preliminary hearing under this provision will be. Rather, they will be the subject of more complete proceedings by the trustees to recover property of the estate or to object to the allowance of a claim. -REFTEXT- REFERENCES IN TEXT The National Housing Act, referred in subsec. (b)(8), is act June 27, 1934, ch. 847, 48 Stat. 1246, as amended, which is classified principally to chapter 13 (Sec. 1701 et seq.) of Title 12, Banks and Banking. For complete classification of this Act to the Code, see section 1701 of Title 12 and Tables. The Ship Mortgage Act, 1920, referred to in subsec. (b)(12), (13), is section 30 of act June 5, 1920, ch. 250, 41 Stat. 1000, as amended, which was classified generally to chapter 25 (Sec. 911 et seq.) of former Title 46, Shipping, and was repealed by Pub. L. 100-710, title I, Sec. 106(b)(2), Nov. 23, 1988, 102 Stat. 4752, and reenacted by section 102(c) thereof as chapters 301 and 313 of Title 46, Shipping. The Merchant Marine Act, 1936, referred to in subsec. (b)(12), (13), is act June 29, 1936, ch. 858, 49 Stat. 1985, as amended. Title XI of the Merchant Marine Act, 1936 is classified generally to subchapter XI (Sec. 1271 et seq.) of chapter 27 of Title 46, Appendix. For complete classification of this Act to the Code, see section 1245 of Title 46, Appendix, and Tables. The Higher Education Act of 1965, referred to in subsec. (b)(16), is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended, which is classified principally to chapter 28 (Sec. 1001 et seq.) of Title 20, Education. Section 435(j) of the Act is classified to section 1085(j) of Title 20. For complete classification of this Act to the Code, see Short Title note set out under section 1001 of Title 20 and Tables. -MISC2- AMENDMENTS 1990 - Subsec. (b)(6). Pub. L. 101-311, Sec. 202, inserted reference to sections 101(34) and 101(35) of this title. Subsec. (b)(12). Pub. L. 101-508, Sec. 3007(a)(1)(A), 3008, which temporarily directed the striking of 'or' after 'State law;', could not be executed because of a prior amendment by Pub. L. 101-311. See below. See also Effective and Termination Dates of 1990 Amendment note below. Pub. L. 101-311, Sec. 102(1), struck out 'or' after 'State law;'. Subsec. (b)(13). Pub. L. 101-508, Sec. 3007(a)(1)(B), 3008, which temporarily directed the substitution of a semicolon for a period at end thereof, could not be executed because of a prior amendment by Pub. L. 101-311. See below. See also Effective and Termination Dates of 1990 Amendment note below. Pub. L. 101-311, Sec. 102(2), substituted '; or' for period at end. Subsec. (b)(14) to (16). Pub. L. 101-508, Sec. 3007(a)(1)(C), 3008, temporarily added pars. (14) to (16). Notwithstanding directory language adding pars. (14) to (16) immediately following par. (13), pars. (14) to (16) were added after par. (14), as added by Pub. L. 101-311, to reflect the probable intent of Congress. See Effective and Termination Dates of 1990 Amendment note below. Pub. L. 101-311, Sec. 102(3), added par. (14) relating to the setoff by a swap participant of any mutual debt and claim under or in connection with a swap agreement. Notwithstanding directory language adding par. (14) at end of subsec. (b), par. (14) was added after par. (13) to reflect the probable intent of Congress. 1986 - Subsec. (b). Pub. L. 99-509 inserted sentence at end. Subsec. (b)(6). Pub. L. 99-554, Sec. 283(d)(1), substituted ', financial institutions' for 'financial institution,' in two places. Subsec. (b)(9). Pub. L. 99-554, Sec. 283(d)(2), (3), struck out 'or' at end of first par. (9) and redesignated as par. (10) the second par. (9) relating to leases of nonresidential property, which was added by section 363(b) of Pub. L. 98-353. Subsec. (b)(10). Pub. L. 99-554, Sec. 283(d)(3), (4), redesignated as par. (10) the second par. (9) relating to leases of nonresidential property, added by section 363(b) of Pub. L. 99-353, and substituted 'property; or' for 'property.'. Former par. (10) redesignated (11). Subsec. (b)(11). Pub. L. 99-554, Sec. 283(d)(3), redesignated former par. (10) as (11). Subsec. (b)(12), (13). Pub. L. 99-509 added pars. (12) and (13). Subsec. (c)(2)(C). Pub. L. 99-554, Sec. 257(j), inserted reference to chapter 12 of this title. 1984 - Subsec. (a)(1). Pub. L. 98-353, Sec. 441(a)(1), inserted 'action or' after 'other'. Subsec. (a)(3). Pub. L. 98-353, Sec. 441(a)(2), inserted 'or to exercise control over property of the estate'. Subsec. (b)(3). Pub. L. 98-353, Sec. 441(b)(1), inserted 'or to the extent that such act is accomplished within the period provided under section 547(e)(2)(A) of this title'. Subsec. (b)(6). Pub. L. 98-353, Sec. 441(b)(2), inserted 'or due from' after 'held by' and 'financial institution,' after 'stockbroker' in two places, and substituted 'secure, or settle commodity contracts' for 'or secure commodity contracts'. Subsec. (b)(7) to (9). Pub. L. 98-353, Sec. 441(b)(3), (4), in par. (8) as redesignated by Pub. L. 98-353, Sec. 392, substituted 'the' for 'said' and struck out 'or' the last place it appeared which probably meant 'or' after 'units;' that was struck out by Pub. L. 98-353, Sec. 363(b)(1); and, in par. (9), relating to notices of deficiencies, as redesignated by Pub. L. 98-353, Sec. 392, substituted a semicolon for the period. Pub. L. 98-353, Sec. 392, added par. (7) and redesignated former pars. (7) and (8) as (8) and (9), respectively. Pub. L. 98-353, Sec. 363(b), struck out 'or' at end of par. (7), substituted '; or' for the period at end of par. (8), and added par. (9) relating to leases of nonresidential property. Subsec. (b)(10). Pub. L. 98-353, Sec. 441(b)(5), added par. (10). Subsec. (c)(2)(B). Pub. L. 98-353, Sec. 441(c), substituted 'or' for 'and'. Subsec. (d)(2). Pub. L. 98-353, Sec. 441(d), inserted 'under subsection (a) of this section' after 'property'. Subsec. (e). Pub. L. 98-353, Sec. 441(e), inserted 'the conclusion of' after 'pending' and substituted '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 commenced not later than thirty days after the conclusion of such preliminary hearing.' for 'If the hearing under this subsection is a preliminary hearing - '(1) the court shall order such stay so continued if there is a reasonable likelihood that the party opposing relief from such stay will prevail at the final hearing under subsection (d) of this section; and '(2) such final hearing shall be commenced within thirty days after such preliminary hearing.' Subsec. (f). Pub. L. 98-353, Sec. 441(f), substituted 'Upon request of a party in interest, the court, with or' for 'The court,'. Subsec. (h). Pub. L. 98-353, Sec. 304, added subsec. (h). 1982 - Subsec. (a). Pub. L. 97-222, Sec. 3(a), inserted ', or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78eee(a)(3)),' after 'this title' in provisions preceding par. (1). Subsec. (b). Pub. L. 97-222, Sec. 3(b), inserted ', or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78eee(a)(3)),' after 'this title' in provisions preceding par. (1). Subsec. (b)(6). Pub. L. 97-222, Sec. 3(c), substituted provisions that the filing of a bankruptcy petition would not operate as a stay, under subsec. (a) of this section, of the setoff by a commodity broker, forward contract merchant, stockbroker, or securities clearing agency of any mutual debt and claim under or in connection with commodity, forward, or securities contracts that constitutes the setoff of a claim against the debtor for a margin or settlement payment arising out of commodity, forward, or securities contracts against cash, securities, or other property held by any of the above agents to margin, guarantee, or secure commodity, forward, or securities contracts, for provisions that such filing would not operate as a stay under subsection (a)(7) of this section, of the setoff of any mutual debt and claim that are commodity futures contracts, forward commodity contracts, leverage transactions, options, warrants, rights to purchase or sell commodity futures contracts or securities, or options to purchase or sell commodities or securities. EFFECTIVE AND TERMINATION DATES OF 1990 AMENDMENT Section 3007(a)(3) of Pub. L. 101-508 provided that: 'The amendments made by this subsection (amending this section and section 541 of this title) shall be effective upon date of enactment of this Act (Nov. 5, 1990).' Section 3008 of Pub. L. 101-508 provided that: 'The amendments made by this subtitle (subtitle A (Sec. 3001-3008) of title III of Pub. L. 101-508, amending this section, sections 541 and 1328 of this title, and sections 1078, 1078-1, 1078-7, 1085, 1088, and 1091 of Title 20, Education, and provisions set out as a note under section 1078-1 of Title 20) shall cease (to) be effective on October 1, 1996.' EFFECTIVE DATE OF 1986 AMENDMENTS Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. Section 5001(b) of Pub. L. 99-509 provided that: 'The amendments made by subsection (a) of this section (amending this section) shall apply only to petitions filed under section 362 of title 11, United States Code, which are made after August 1, 1986.' EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. REPORT TO CONGRESSIONAL COMMITTEES Section 5001(a) of Pub. L. 99-509 provided in part that: 'Before July 1, 1989, the Secretary of Transportation and the Secretary of Commerce each shall submit a report to the Committees on Merchant Marine and Fisheries, and the Judiciary of the House of Representatives and the Committees on Commerce, Science, and Transportation, and the Judiciary of the Senate on the effects of this subsection (amending this section) together with any recommendations for legislation.' -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 108, 109, 361, 363, 365, 505, 507, 542, 553, 557, 742, 901, 922, 1110, 1168, 1205 of this title; title 28 section 1334; title 46 section 31308. ------DocID 14716 Document 61 of 646------ -CITE- 11 USC Sec. 363 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER IV -HEAD- Sec. 363. Use, sale, or lease of property -STATUTE- (a) In this section, 'cash collateral' means cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents whenever acquired in which the estate and an entity other than the estate have an interest and includes the proceeds, products, offspring, rents, or profits of property subject to a security interest as provided in section 552(b) of this title, whether existing before or after the commencement of a case under this title. (b)(1) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. (2) If notification is required under subsection (a) of section 7A of the Clayton Act (15 U.S.C. 18a) in the case of a transaction under this subsection, then - (A) notwithstanding subsection (a) of such section, such notification shall be given by the trustee; and (B) notwithstanding subsection (b) of such section, the required waiting period shall end on the tenth day after the date of the receipt of such notification, unless the court, after notice and hearing, orders otherwise. (c)(1) If the business of the debtor is authorized to be operated under section 721, 1108, 1304, 1203, or 1204 of this title and unless the court orders otherwise, the trustee may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing. (2) The trustee may not use, sell, or lease cash collateral under paragraph (1) of this subsection unless - (A) each entity that has an interest in such cash collateral consents; or (B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance with the provisions of this section. (3) Any hearing under paragraph (2)(B) of this subsection may be a preliminary hearing or may be consolidated with a hearing under subsection (e) of this section, but shall be scheduled in accordance with the needs of the debtor. If the hearing under paragraph (2)(B) of this subsection is a preliminary hearing, the court may authorize such use, sale, or lease only if there is a reasonable likelihood that the trustee will prevail at the final hearing under subsection (e) of this section. The court shall act promptly on any request for authorization under paragraph (2)(B) of this subsection. (4) Except as provided in paragraph (2) of this subsection, the trustee shall segregate and account for any cash collateral in the trustee's possession, custody, or control. (d) The trustee may use, sell, or lease property under subsection (b) or (c) of this section only to the extent not inconsistent with any relief granted under section 362(c), 362(d), 362(e), or 362(f) of this title. (e) Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest. (f) The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if - (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest; (2) such entity consents; (3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property; (4) such interest is in bona fide dispute; or (5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest. (g) Notwithstanding subsection (f) of this section, the trustee may sell property under subsection (b) or (c) of this section free and clear of any vested or contingent right in the nature of dower or curtesy. (h) Notwithstanding subsection (f) of this section, the trustee may sell both the estate's interest, under subsection (b) or (c) of this section, and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if - (1) partition in kind of such property among the estate and such co-owners is impracticable; (2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners; (3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and (4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power. (i) Before the consummation of a sale of property to which subsection (g) or (h) of this section applies, or of property of the estate that was community property of the debtor and the debtor's spouse immediately before the commencement of the case, the debtor's spouse, or a co-owner of such property, as the case may be, may purchase such property at the price at which such sale is to be consummated. (j) After a sale of property to which subsection (g) or (h) of this section applies, the trustee shall distribute to the debtor's spouse or the co-owners of such property, as the case may be, and to the estate, the proceeds of such sale, less the costs and expenses, not including any compensation of the trustee, of such sale, according to the interests of such spouse or co-owners, and of the estate. (k) At a sale under subsection (b) of this section of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property. (l) Subject to the provisions of section 365, trustee may use, sell, or lease property under subsection (b) or (c) of this section, or a plan under chapter 11, 12, or 13 of this title may provide for the use, sale, or lease of property, notwithstanding any provision in a contract, a lease, or applicable law that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under this title concerning the debtor, or on the appointment of or the taking possession by a trustee in a case under this title or a custodian, and that effects, or gives an option to effect, a forfeiture, modification, or termination of the debtor's interest in such property. (m) The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal. (n) The trustee may avoid a sale under this section if the sale price was controlled by an agreement among potential bidders at such sale, or may recover from a party to such agreement any amount by which the value of the property sold exceeds the price at which such sale was consummated, and may recover any costs, attorneys' fees, or expenses incurred in avoiding such sale or recovering such amount. In addition to any recovery under the preceding sentence, the court may grant judgment for punitive damages in favor of the estate and against any such party that entered into such an agreement in willful disregard of this subsection. (o) In any hearing under this section - (1) the trustee has the burden of proof on the issue of adequate protection; and (2) the entity asserting an interest in property has the burden of proof on the issue of the validity, priority, or extent of such interest. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2572; Pub. L. 98-353, title III, Sec. 442, July 10, 1984, 98 Stat. 371; Pub. L. 99-554, title II, Sec. 257(k), Oct. 27, 1986, 100 Stat. 3115.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 363(a) of the House amendment defines 'cash collateral' as defined in the Senate amendment. The broader definition of 'soft collateral' contained in H.R. 8200 as passed by the House is deleted to remove limitations that were placed on the use, lease, or sale of inventory, accounts, contract rights, general intangibles, and chattel paper by the trustee or debtor in possession. Section 363(c)(2) of the House amendment is derived from the Senate amendment. Similarly, sections 363(c)(3) and (4) are derived from comparable provisions in the Senate amendment in lieu of the contrary procedure contained in section 363(c) as passed by the House. The policy of the House amendment will generally require the court to schedule a preliminary hearing in accordance with the needs of the debtor to authorize the trustee or debtor in possession to use, sell, or lease cash collateral. The trustee or debtor in possession may use, sell, or lease cash collateral in the ordinary course of business only 'after notice and a hearing.' Section 363(f) of the House amendment adopts an identical provision contained in the House bill, as opposed to an alternative provision contained in the Senate amendment. Section 363(h) of the House amendment adopts a new paragraph (4) representing a compromise between the House bill and Senate amendment. The provision adds a limitation indicating that a trustee or debtor in possession sell jointly owned property only if the property is not used in the production, transmission, or distribution for sale, of electric energy or of natural or synthetic gas for heat, light, or power. This limitation is intended to protect public utilities from being deprived of power sources because of the bankruptcy of a joint owner. Section 363(k) of the House amendment is derived from the third sentence of section 363(e) of the Senate amendment. The provision indicates that a secured creditor may bid in the full amount of the creditor's allowed claim, including the secured portion and any unsecured portion thereof in the event the creditor is undersecured, with respect to property that is subject to a lien that secures the allowed claim of the sale of the property. SENATE REPORT NO. 95-989 This section defines the right and powers of the trustee with respect to the use, sale or lease of property and the rights of other parties that have interests in the property involved. It applies in both liquidation and reorganization cases. Subsection (a) defines 'cash collateral' as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents in which the estate and an entity other than the estate have an interest, such as a lien or a co-ownership interest. The definition is not restricted to property of the estate that is cash collateral on the date of the filing of the petition. Thus, if 'non-cash' collateral is disposed of and the proceeds come within the definition of 'cash collateral' as set forth in this subsection, the proceeds would be cash collateral as long as they remain subject to the original lien on the 'non-cash' collateral under section 552(b). To illustrate, rents received from real property before or after the commencement of the case would be cash collateral to the extent that they are subject to a lien. Subsection (b) permits the trustees to use, sell, or lease, other than in the ordinary course of business, property of the estate upon notice and opportunity for objections and hearing thereon. Subsection (c) governs use, sale, or lease in the ordinary course of business. If the business of the debtor is authorized to be operated under Sec. 721, 1108, or 1304 of the bankruptcy code, then the trustee may use, sell, or lease property in the ordinary course of business or enter into ordinary course transactions without need for notice and hearing. This power is subject to several limitations. First, the court may restrict the trustee's powers in the order authorizing operation of the business. Second, with respect to cash collateral, the trustee may not use, sell, or lease cash collateral except upon court authorization after notice and a hearing, or with the consent of each entity that has an interest in such cash collateral. The same preliminary hearing procedure in the automatic stay section applies to a hearing under this subsection. In addition, the trustee is required to segregate and account for any cash collateral in the trustee's possession, custody, or control. Under subsections (d) and (e), the use, sale, or lease of property is further limited by the concept of adequate protection. Sale, use, or lease of property in which an entity other than the estate has an interest may be effected only to the extent not inconsistent with any relief from the stay granted to that interest's holder. Moreover, the court may prohibit or condition the use, sale, or lease as is necessary to provide adequate protection of that interest. Again, the trustee has the burden of proof on the issue of adequate protection. Subsection (e) also provides that where a sale of the property is proposed, an entity that has an interest in such property may bid at the sale thereof and set off against the purchase price up to the amount of such entity's claim. No prior valuation under section 506(a) would limit this bidding right, since the bid at the sale would be determinative of value. Subsection (f) permits sale of property free and clear of any interest in the property of an entity other than the estate. The trustee may sell free and clear if applicable nonbankruptcy law permits it, if the other entity consents, if the interest is a lien and the sale price of the property is greater than the amount secured by the lien, if the interest is in bona fide dispute, or if the other entity could be compelled to accept a money satisfaction of the interest in a legal or equitable proceeding. Sale under this subsection is subject to the adequate protection requirement. Most often, adequate protection in connection with a sale free and clear of other interests will be to have those interests attach to the proceeds of the sale. At a sale free and clear of other interests, any holder of any interest in the property being sold will be permitted to bid. If that holder is the high bidder, he will be permitted to offset the value of his interest against the purchase price of the property. Thus, in the most common situation, a holder of a lien on property being sold may bid at the sale and, if successful, may offset the amount owed to him that is secured by the lien on the property (but may not offset other amounts owed to him) against the purchase price, and be liable to the trustee for the balance of the sale price, if any. Subsection (g) permits the trustee to sell free and clear of any vested or contingent right in the nature of dower or curtesy. Subsection (h) permits sale of a co-owner's interest in property in which the debtor had an undivided ownership interest such as a joint tenancy, a tenancy in common, or a tenancy by the entirety. Such a sale is permissible only if partition is impracticable, if sale of the estate's interest would realize significantly less for the estate that sale of the property free of the interests of the co-owners, and if the benefit to the estate of such a sale outweighs any detriment to the co-owners. This subsection does not apply to a co-owner's interest in a public utility when a disruption of the utilities services could result. Subsection (i) provides protections for co-owners and spouses with dower, curtesy, or community property rights. It gives a right of first refusal to the co-owner or spouse at the price at which the sale is to be consummated. Subsection (j) requires the trustee to distribute to the spouse or co-owner the appropriate portion of the proceeds of the sale, less certain administrative expenses. Subsection (k) (now (l)) permits the trustee to use, sell, or lease property notwithstanding certain bankruptcy or ipso facto clauses that terminate the debtor's interest in the property or that work a forfeiture or modification of that interest. This subsection is not as broad as the anti-ipso facto provision in proposed 11 U.S.C. 541(c)(1). Subsection (l) (now (m)) protects good faith purchasers of property sold under this section from a reversal on appeal of the sale authorization, unless the authorization for the sale and the sale itself were stayed pending appeal. The purchaser's knowledge of the appeal is irrelevant to the issue of good faith. Subsection (m) (now (n)) is directed at collusive bidding on property sold under this section. It permits the trustee to void a sale if the price of the sale was controlled by an agreement among potential bidders. The trustees may also recover the excess of the value of the property over the purchase price, and may recover any costs, attorney's fees, or expenses incurred in voiding the sale or recovering the difference. In addition, the court is authorized to grant judgment in favor of the estate and against the collusive bidder if the agreement controlling the sale price was entered into in willful disregard of this subsection. The subsection does not specify the precise measure of damages, but simply provides for punitive damages, to be fixed in light of the circumstances. AMENDMENTS 1986 - Subsec. (c)(1). Pub. L. 99-554, Sec. 257(k)(1), inserted reference to sections 1203 and 1204 of this title. Subsec. (l). Pub. L. 99-554, Sec. 257(k)(2), inserted reference to chapter 12. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 442(a), inserted 'whenever acquired' after 'equivalents' and 'and includes the proceeds, products, offspring, rents, or profits of property subject to a security interest as provided in section 552(b) of this title, whether existing before or after the commencement of a case under this title' after 'interest'. Subsec. (b). Pub. L. 98-353, Sec. 442(b), designated existing provisions as par. (1) and added par. (2). Subsec. (e). Pub. L. 98-353, Sec. 442(c), inserted ', with or without a hearing,' after 'court' and struck out 'In any hearing under this section, the trustee has the burden of proof on the issue of adequate protection'. Subsec. (f)(3). Pub. L. 98-353, Sec. 442(d), substituted 'all liens on such property' for 'such interest'. Subsec. (h). Pub. L. 98-353, Sec. 442(e), substituted 'at the time of' for 'immediately before'. Subsec. (j). Pub. L. 98-353, Sec. 442(f), substituted 'compensation' for 'compenation'. Subsec. (k). Pub. L. 98-353, Sec. 442(g), substituted 'unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder' for 'if the holder'. Subsec. (l). Pub. L. 98-353, Sec. 442(h), substituted 'Subject to the provisions of section 365, the trustee' for 'The trustee', 'condition' for 'conditions', 'or the taking' for 'a taking', and 'interest' for 'interests'. Subsec. (n). Pub. L. 98-353, Sec. 442(i), substituted 'avoid' for 'void', 'avoiding' for 'voiding', and 'In addition to any recovery under the preceding sentence, the court may grant judgment for punitive damages in favor of the estate and against any such party that entered into such an agreement in willful disregard of this subsection' for 'The court may grant judgment in favor of the estate and against any such party that entered into such agreement in willful disregard of this subsection for punitive damages in addition to any recovery under the preceding sentence'. Subsec. (o). Pub. L. 98-353, Sec. 442(j), added subsec. (o). EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 303, 361, 507, 541, 542, 552, 553, 557, 1110, 1111, 1129, 1168, 1205, 1206, 1303, 1304 of this title. ------DocID 14717 Document 62 of 646------ -CITE- 11 USC Sec. 364 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER IV -HEAD- Sec. 364. Obtaining credit -STATUTE- (a) If the trustee is authorized to operate the business of the debtor under section 721, 1108, 1304, 1203, or 1204 of this title, unless the court orders otherwise, the trustee may obtain unsecured credit and incur unsecured debt in the ordinary course of business allowable under section 503(b)(1) of this title as an administrative expense. (b) The court, after notice and a hearing, may authorize the trustee to obtain unsecured credit or to incur unsecured debt other than under subsection (a) of this section, allowable under section 503(b)(1) of this title as an administrative expense. (c) If the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt - (1) with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title; (2) secured by a lien on property of the estate that is not otherwise subject to a lien; or (3) secured by a junior lien on property of the estate that is subject to a lien. (d)(1) The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if - (A) the trustee is unable to obtain such credit otherwise; and (B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted. (2) In any hearing under this subsection, the trustee has the burden of proof on the issue of adequate protection. (e) The reversal or modification on appeal of an authorization under this section to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt, or the granting of such priority or lien, were stayed pending appeal. (f) Except with respect to an entity that is an underwriter as defined in section 1145(b) of this title, section 5 of the Securities Act of 1933 (15 U.S.C. 77e), the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), and any State or local law requiring registration for offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in, a security does not apply to the offer or sale under this section of a security that is not an equity security. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2574; Pub. L. 99-554, title II, Sec. 257(l), Oct. 27, 1986, 100 Stat. 3115.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 364(f) of the House amendment is new. This provision continues the exemption found in section 3(a)(7) of the Securities Act of 1933 (15 U.S.C. 77c(a)(7)) for certificates of indebtedness issued by a trustee in bankruptcy. The exemption applies to any debt security issued under section 364 of title 11. The section does not intend to change present law which exempts such securities from the Trust Indenture Act, 15 U.S.C. 77aaa, et seq. (1976). SENATE REPORT NO. 95-989 This section is derived from provisions in current law governing certificates of indebtedness, but is much broader. It governs all obtaining of credit and incurring of debt by the estate. Subsection (a) authorizes the obtaining of unsecured credit and the incurring of unsecured debt in the ordinary course of business if the business of the debtor is authorized to be operated under section 721, 1108, or 1304. The debts so incurred are allowable as administrative expenses under section 503(b)(1). The court may limit the estate's ability to incur debt under this subsection. Subsection (b) permits the court to authorize the trustee to obtain unsecured credit and incur unsecured debts other than in the ordinary course of business, such as in order to wind up a liquidation case, or to obtain a substantial loan in an operating case. Debt incurred under this subsection is allowable as an administrative expense under section 503(b)(1). Subsection (c) is closer to the concept of certificates of indebtedness in current law. It authorizes the obtaining of credit and the incurring of debt with some special priority, if the trustee is unable to obtain unsecured credit under subsection (a) or (b). The various priorities are (1) with priority over any or all administrative expenses: (2) secured by a lien on unencumbered property of the estate; or (3) secured by a junior lien on encumbered property. The priorities granted under this subsection do not interfere with existing property rights. Subsection (d) grants the court the authority to authorize the obtaining of credit and the incurring of debt with a superiority, that is a lien on encumbered property that is senior or equal to the existing lien on the property. The court may authorize such a superpriority only if the trustee is otherwise unable to obtain credit, and if there is adequate protection of the original lien holder's interest. Again, the trustee has the burden of proof on the issue of adequate protection. Subsection (e) provides the same protection for credit extenders pending an appeal of an authorization to incur debt as is provided under section 363(l) for purchasers: the credit is not affected on appeal by reversal of the authorization and the incurring of the debt were stayed pending appeal. The protection runs to a good faith lender, whether or not he knew of the pendency of the appeal. A claim arising as a result of lending or borrowing under this section will be a priority claim, as defined in proposed section 507(a)(1), even if the claim is granted a super-priority over administrative expenses and is to be paid in advance of other first priority claims. -REFTEXT- REFERENCES IN TEXT The Trust Indenture Act of 1939, referred to in subsec. (f), is title III of act May 27, 1933, ch. 38, as added Aug. 3, 1939, ch. 411, 53 Stat. 1149, as amended, which is classified generally to subchapter III (Sec. 77aaa et seq.) of chapter 2A of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 77aaa of Title 15 and Tables. -MISC2- AMENDMENTS 1986 - Subsec. (a). Pub. L. 99-554 inserted reference to sections 1203 and 1204 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 361, 507, 901, 921, 922, 1205, 1304 of this title. ------DocID 14718 Document 63 of 646------ -CITE- 11 USC Sec. 365 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER IV -HEAD- Sec. 365. Executory contracts and unexpired leases -STATUTE- (a) Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d) of this section, the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor. (b)(1) If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee - (A) cures, or provides adequate assurance that the trustee will promptly cure, such default; (B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and (C) provides adequate assurance of future performance under such contract or lease. (2) Paragraph (1) of this subsection does not apply to a default that is a breach of a provision relating to - (A) the insolvency or financial condition of the debtor at any time before the closing of the case; (B) the commencement of a case under this title; or (C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement. (3) For the purposes of paragraph (1) of this subsection and paragraph (2)(B) of subsection (f), adequate assurance of future performance of a lease of real property in a shopping center includes adequate assurance - (A) of the source of rent and other consideration due under such lease, and in the case of an assignment, that the financial condition and operating performance of the proposed assignee and its guarantors, if any, shall be similar to the financial condition and operating performance of the debtor and its guarantors, if any, as of the time the debtor became the lessee under the lease; (B) that any percentage rent due under such lease will not decline substantially; (C) that assumption or assignment of such lease is subject to all the provisions thereof, including (but not limited to) provisions such as a radius, location, use, or exclusivity provision, and will not breach any such provision contained in any other lease, financing agreement, or master agreement relating to such shopping center; and (D) that assumption or assignment of such lease will not disrupt any tenant mix or balance in such shopping center. (4) Notwithstanding any other provision of this section, if there has been a default in an unexpired lease of the debtor, other than a default of a kind specified in paragraph (2) of this subsection, the trustee may not require a lessor to provide services or supplies incidental to such lease before assumption of such lease unless the lessor is compensated under the terms of such lease for any services and supplies provided under such lease before assumption of such lease. (c) The trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if - (1)(A) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and (B) such party does not consent to such assumption or assignment; or (2) such contract is a contract to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or to issue a security of the debtor; or (3) such lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief. (d)(1) In a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected. (2) In a case under chapter 9, 11, 12, or 13 of this title, the trustee may assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor at any time before the confirmation of a plan but the court, on the request of any party to such contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject such contract or lease. (3) The trustee shall timely perform all the obligations of the debtor, except those specified in section 365(b)(2), arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title. The court may extend, for cause, the time for performance of any such obligation that arises within 60 days after the date of the order for relief, but the time for performance shall not be extended beyond such 60-day period. This subsection shall not be deemed to affect the trustee's obligations under the provisions of subsection (b) or (f) of this section. Acceptance of any such performance does not constitute waiver or relinquishment of the lessor's rights under such lease or under this title. (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. (e)(1) Notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on - (A) the insolvency or financial condition of the debtor at any time before the closing of the case; (B) the commencement of a case under this title; or (C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement. (2) Paragraph (1) of this subsection does not apply to an executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if - (A)(i) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to the trustee or to an assignee of such contract or lease, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and (ii) such party does not consent to such assumption or assignment; or (B) such contract is a contract to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or to issue a security of the debtor. (f)(1) Except as provided in subsection (c) of this section, notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract or lease, the trustee may assign such contract or lease under paragraph (2) of this subsection. (2) The trustee may assign an executory contract or unexpired lease of the debtor only if - (A) the trustee assumes such contract or lease in accordance with the provisions of this section; and (B) adequate assurance of future performance by the assignee of such contract or lease is provided, whether or not there has been a default in such contract or lease. (3) Notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law that terminates or modifies, or permits a party other than the debtor to terminate or modify, such contract or lease or a right or obligation under such contract or lease on account of an assignment of such contract or lease, such contract, lease, right, or obligation may not be terminated or modified under such provision because of the assumption or assignment of such contract or lease by the trustee. (g) Except as provided in subsections (h)(2) and (i)(2) of this section, the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease - (1) if such contract or lease has not been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title, immediately before the date of the filing of the petition; or (2) if such contract or lease has been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title - (A) if before such rejection the case has not been converted under section 1112, 1307, or 1208 of this title, at the time of such rejection; or (B) if before such rejection the case has been converted under section 1112, 1307, or 1208 of this title - (i) immediately before the date of such conversion, if such contract or lease was assumed before such conversion; or (ii) at the time of such rejection, if such contract or lease was assumed after such conversion. (h)(1) If the trustee rejects an unexpired lease of real property of the debtor under which the debtor is the lessor, or a timeshare interest under a timeshare plan under which the debtor is the timeshare interest seller, the lessee or timeshare interest purchaser under such lease or timeshare plan may treat such lease or timeshare plan as terminated by such rejection, where the disaffirmance by the trustee amounts to such a breach as would entitle the lessee or timeshare interest purchaser to treat such lease or timeshare plan as terminated by virtue of its own terms, applicable nonbankruptcy law, or other agreements the lessee or timeshare interest purchaser has made with other parties; or, in the alternative, the lessee or timeshare interest purchaser may remain in possession of the leasehold or timeshare interest under any lease or timeshare plan the term of which has commenced for the balance of such term and for any renewal or extension of such term that is enforceable by such lessee or timeshare interest purchaser under applicable nonbankruptcy law. (2) If such lessee or timeshare interest purchaser remains in possession as provided in paragraph (1) of this subsection, such lessee or timeshare interest purchaser may offset against the rent reserved under such lease or moneys due for such timeshare interest for the balance of the term after the date of the rejection of such lease or timeshare interest, and any such renewal or extension thereof, any damages occurring after such date caused by the nonperformance of any obligation of the debtor under such lease or timeshare plan after such date, but such lessee or timeshare interest purchaser does not have any rights against the estate on account of any damages arising after such date from such rejection, other than such offset. (i)(1) If the trustee rejects an executory contract of the debtor for the sale of real property or for the sale of a timeshare interest under a timeshare plan, under which the purchaser is in possession, such purchaser may treat such contract as terminated, or, in the alternative, may remain in possession of such real property or timeshare interest. (2) If such purchaser remains in possession - (A) such purchaser shall continue to make all payments due under such contract, but may, offset against such payments any damages occurring after the date of the rejection of such contract caused by the nonperformance of any obligation of the debtor after such date, but such purchaser does not have any rights against the estate on account of any damages arising after such date from such rejection, other than such offset; and (B) the trustee shall deliver title to such purchaser in accordance with the provisions of such contract, but is relieved of all other obligations to perform under such contract. (j) A purchaser that treats an executory contract as terminated under subsection (i) of this section, or a party whose executory contract to purchase real property from the debtor is rejected and under which such party is not in possession, has a lien on the interest of the debtor in such property for the recovery of any portion of the purchase price that such purchaser or party has paid. (k) Assignment by the trustee to an entity of a contract or lease assumed under this section relieves the trustee and the estate from any liability for any breach of such contract or lease occurring after such assignment. (l) If an unexpired lease under which the debtor is the lessee is assigned pursuant to this section, the lessor of the property may require a deposit or other security for the performance of the debtor's obligations under the lease substantially the same as would have been required by the landlord upon the initial leasing to a similar tenant. (m) For purposes of this section 365 and sections 541(b)(2) and 362(b)(10), leases of real property shall include any rental agreement to use real property. (n)(1) If the trustee rejects an executory contract under which the debtor is a licensor of a right to intellectual property, the licensee under such contract may elect - (A) to treat such contract as terminated by such rejection if such rejection by the trustee amounts to such a breach as would entitle the licensee to treat such contract as terminated by virtue of its own terms, applicable nonbankruptcy law, or an agreement made by the licensee with another entity; or (B) to retain its rights (including a right to to (FOOTNOTE 1) enforce any exclusivity provision of such contract, but excluding any other right under applicable nonbankruptcy law to specific performance of such contract) under such contract and under any agreement supplementary to such contract, to such intellectual property (including any embodiment of such intellectual property to the extent protected by applicable nonbankruptcy law), as such rights existed immediately before the case commenced, for - (FOOTNOTE 1) So in original. (i) the duration of such contract; and (ii) any period for which such contract may be extended by the licensee as of right under applicable nonbankruptcy law. (2) If the licensee elects to retain its rights, as described in paragraph (1)(B) of this subsection, under such contract - (A) the trustee shall allow the licensee to exercise such rights; (B) the licensee shall make all royalty payments due under such contract for the duration of such contract and for any period described in paragraph (1)(B) of this subsection for which the licensee extends such contract; and (C) the licensee shall be deemed to waive - (i) any right of setoff it may have with respect to such contract under this title or applicable nonbankruptcy law; and (ii) any claim allowable under section 503(b) of this title arising from the performance of such contract. (3) If the licensee elects to retain its rights, as described in paragraph (1)(B) of this subsection, then on the written request of the licensee the trustee shall - (A) to the extent provided in such contract, or any agreement supplementary to such contract, provide to the licensee any intellectual property (including such embodiment) held by the trustee; and (B) not interfere with the rights of the licensee as provided in such contract, or any agreement supplementary to such contract, to such intellectual property (including such embodiment) including any right to obtain such intellectual property (or such embodiment) from another entity. (4) Unless and until the trustee rejects such contract, on the written request of the licensee the trustee shall - (A) to the extent provided in such contract or any agreement supplementary to such contract - (i) perform such contract; or (ii) provide to the licensee such intellectual property (including any embodiment of such intellectual property to the extent protected by applicable nonbankruptcy law) held by the trustee; and (B) not interfere with the rights of the licensee as provided in such contract, or any agreement supplementary to such contract, to such intellectual property (including such embodiment), including any right to obtain such intellectual property (or such embodiment) from another entity. (o) In a case under chapter 11 of this title, the trustee shall be deemed to have assumed (consistent with the debtor's other obligations under section 507), and shall immediately cure any deficit under, any commitment by the debtor to the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Director of the Office of Thrift Supervision, the Comptroller of the Currency, or the Board of Governors of the Federal Reserve System, or its predecessors or successors, to maintain the capital of an insured depository institution, and any claim for a subsequent breach of the obligations thereunder shall be entitled to priority under section 507. This subsection shall not extend any commitment that would otherwise be terminated by any act of such an agency. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2574; Pub. L. 98-353, title III, Sec. 362, 402-404, July 10, 1984, 98 Stat. 361, 367; Pub. L. 99-554, title II, Sec. 257(j), (m), 283(e), Oct. 27, 1986, 100 Stat. 3115, 3117; Pub. L. 100-506, Sec. 1(b), Oct. 18, 1988, 102 Stat. 2538; Pub. L. 101-647, title XXV, Sec. 2522(c), Nov. 29, 1990, 104 Stat. 4866.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 365(b)(3) represents a compromise between H.R. 8200 as passed by the House and the Senate amendment. The provision adopts standards contained in section 365(b)(5) of the Senate amendment to define adequate assurance of future performance of a lease of real property in a shopping center. Section 365(b)(4) of the House amendment indicates that after default the trustee may not require a lessor to supply services or materials without assumption unless the lessor is compensated as provided in the lease. Section 365(c)(2) and (3) likewise represent a compromise between H.R. 8200 as passed by the House and the Senate amendment. Section 365(c)(2) is derived from section 365(b)(4) of the Senate amendment but does not apply to a contract to deliver equipment as provided in the Senate amendment. As contained in the House amendment, the provision prohibits a trustee or debtor in possession from assuming or assigning an executory contract of the debtor to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or the issuance of a security of the debtor. Section 365(e) is a refinement of comparable provisions contained in the House bill and Senate amendment. Sections 365(e)(1) and (2)(A) restate section 365(e) of H.R. 8200 as passed by the House. Sections 365(e)(2)(B) expands the section to permit termination of an executory contract or unexpired lease of the debtor if such contract is a contract to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or for the issuance of a security of the debtor. Characterization of contracts to make a loan, or extend other debt financing or financial accommodations, is limited to the extension of cash or a line of credit and is not intended to embrace ordinary leases or contracts to provide goods or services with payments to be made over time. Section 365(f) is derived from H.R. 8200 as passed by the House. Deletion of language in section 365(f)(3) of the Senate amendment is done as a matter of style. Restrictions with respect to assignment of an executory contract or unexpired lease are superfluous since the debtor may assign an executory contract or unexpired lease of the debtor only if such contract is first assumed under section 364(f)(2)(A) of the House amendment. Section 363(h) of the House amendment represents a modification of section 365(h) of the Senate amendment. The House amendment makes clear that in the case of a bankrupt lessor, a lessee may remain in possession for the balance of the term of a lease and any renewal or extension of the term only to the extent that such renewal or extension may be obtained by the lessee without the permission of the landlord or some third party under applicable non-bankruptcy law. SENATE REPORT NO. 95-989 Subsection (a) of this section authorizes the trustee, subject to the court's approval, to assume or reject an executory contract or unexpired lease. Though there is no precise definition of what contracts are executory, it generally includes contracts on which performance remains due to some extent on both sides. A note is not usually an executory contract if the only performance that remains is repayment. Performance on one side of the contract would have been completed and the contract is no longer executory. Because of the volatile nature of the commodities markets and the special provisions governing commodity broker liquidations in subchapter IV of chapter 7, the provisions governing distribution in section 765(a) will govern if any conflict between those provisions and the provisions of this section arise. Subsections (b), (c), and (d) provide limitations on the trustee's powers. Subsection (b) requires the trustee to cure any default in the contract or lease and to provide adequate assurance of future performance if there has been a default, before he may assume. This provision does not apply to defaults under ipso facto or bankruptcy clauses, which is a significant departure from present law. Subsection (b)(3) permits termination of leases entered into prior to the effective date of this title in liquidation cases if certain other conditions are met. Subsection (b)(4) (now (c)(2)) prohibits the trustee's assumption of an executory contract requiring the other party to make a loan or deliver equipment to or to issue a security of the debtor. The purpose of this subsection is to make it clear that a party to a transaction which is based upon the financial strength of a debtor should not be required to extend new credit to the debtor whether in the form of loans, lease financing, or the purchase or discount of notes. Subsection (b)(5) provides that in lease situations common to shopping centers, protections must be provided for the lessor if the trustee assumes the lease, including protection against decline in percentage rents, breach of agreements with other tenants, and preservation of the tenant mix. Protection for tenant mix will not be required in the office building situation. Subsection (c) prohibits the trustee from assuming or assigning a contract or lease if applicable nonbankruptcy law excuses the other party from performance to someone other than the debtor, unless the other party consents. This prohibition applies only in the situation in which applicable law excuses the other party from performance independent of any restrictive language in the contract or lease itself. Subsection (d) places time limits on assumption and rejection. In a liquidation case, the trustee must assume within 60 days (or within an additional 60 days, if the court, for cause, extends the time). If not assumed, the contract or lease is deemed rejected. In a rehabilitation case, the time limit is not fixed in the bill. However, if the other party to the contract or lease requests the court to fix a time, the court may specify a time within which the trustee must act. This provision will prevent parties in contractual or lease relationships with the debtor from being left in doubt concerning their status vis-a-vis the estate. Subsection (e) invalidates ipso facto or bankruptcy clauses. These clauses, protected under present law, automatically terminate the contract or lease, or permit the other contracting party to terminate the contract or lease, in the event of bankruptcy. This frequently hampers rehabilitation efforts. If the trustee may assume or assign the contract under the limitations imposed by the remainder of the section, the contract or lease may be utilized to assist in the debtor's rehabilitation or liquidation. The unenforcibility of ipso facto or bankruptcy clauses proposed under this section will require the courts to be sensitive to the rights of the nondebtor party to executory contracts and unexpired leases. If the trustee is to assume a contract or lease, the court will have to insure that the trustee's performance under the contract or lease gives the other contracting party the full benefit of his bargain. This subsection does not limit the application of an ipso facto or bankruptcy clause if a new insolvency or receivership occurs after the bankruptcy case is closed. That is, the clause is not invalidated in toto, but merely made inapplicable during the case for the purposes of disposition of the executory contract or unexpired lease. Subsection (f) partially invalidates restrictions on assignment of contracts or leases by the trustee to a third party. The subsection imposes two restrictions on the trustee: he must first assume the contract or lease, subject to all the restrictions on assumption found in the section, and adequate assurance of future performance must be provided to the other contracting party. Paragraph (3) of the subsection invalidates contractual provisions that permit termination or modification in the event of an assignment, as contrary to the policy of this subsection. Subsection (g) defines the time as of which a rejection of an executory contract or unexpired lease constitutes a breach of the contract or lease. Generally, the breach is as of the date immediately preceding the date of the petition. The purpose is to treat rejection claims as prepetition claims. The remainder of the subsection specifies different times for cases that are converted from one chapter to another. The provisions of this subsection are not a substantive authorization to breach or reject an assumed contract. Rather, they prescribe the rules for the allowance of claims in case an assumed contract is breached, or if a case under chapter 11 in which a contract has been assumed is converted to a case under chapter 7 in which the contract is rejected. Subsection (h) protects real property lessees of the debtor if the trustee rejects an unexpired lease under which the debtor is the lessor (or sublessor). The subsection permits the lessee to remain in possession of the leased property or to treat the lease as terminated by the rejection. The balance of the term of the lease referred to in paragraph (1) will include any renewal terms that are enforceable by the tenant, but not renewal terms if the landlord had an option to terminate. Thus, the tenant will not be deprived of his estate for the term for which he bargained. If the lessee remains in possession, he may offset the rent reserved under the lease against damages caused by the rejection, but does not have any affirmative rights against the estate for any damages after the rejection that result from the rejection. Subsection (i) gives a purchaser of real property under a land installment sales contract similar protection. The purchaser, if the contract is rejected, may remain in possession or may treat the contract as terminated. If the purchaser remains in possession, he is required to continue to make the payments due, but may offset damages that occur after rejection. The trustee is required to deliver title, but is relieved of all other obligations to perform. A purchaser that treats the contract as terminated is granted a lien on the property to the extent of the purchase price paid. A party with a contract to purchase land from the debtor has a lien on the property to secure the price already paid, if the contract is rejected and the purchaser is not yet in possession. Subsection (k) relieves the trustee and the estate of liability for a breach of an assigned contract or lease that occurs after the assignment. HOUSE REPORT NO. 95-595 Subsection (c) prohibits the trustee from assuming or assigning a contract or lease if applicable nonbankruptcy law excuses the other party from performance to someone other than the debtor, unless the other party consents. This prohibition applies only in the situation in which applicable law excuses the other party from performance independent of any restrictive language in the contract or lease itself. The purpose of this subsection, at least in part, is to prevent the trustee from requiring new advances of money or other property. The section permits the trustee to continue to use and pay for property already advanced, but is not designed to permit the trustee to demand new loans or additional transfers of property under lease commitments. Thus, under this provision, contracts such as loan commitments and letters of credit are nonassignable, and may not be assumed by the trustee. Subsection (e) invalidates ipso facto or bankruptcy clauses. These clauses, protected under present law, automatically terminate the contract or lease, or permit the other contracting party to terminate the contract or lease, in the event of bankruptcy. This frequently hampers rehabilitation efforts. If the trustee may assume or assign the contract under the limitations imposed by the remainder of the section, then the contract or lease may be utilized to assist in the debtor's rehabilitation or liquidation. The unenforceability of ipso facto or bankruptcy clauses proposed under this section will require the courts to be sensitive to the rights of the nondebtor party to executory contracts and unexpired leases. If the trustee is to assume a contract or lease, the courts will have to insure that the trustee's performance under the contract or lease gives the other contracting party the full benefit of his bargain. An example of the complexity that may arise in these situations and the need for a determination of all aspects of a particular executory contract or unexpired lease is the shopping center lease under which the debtor is a tenant in a shopping center. A shopping center is often a carefully planned enterprise, and though it consists of numerous individual tenants, the center is planned as a single unit, often subject to a master lease or financing agreement. Under these agreements, the tenant mix in a shopping center may be as important to the lessor as the actual promised rental payments, because certain mixes will attract higher patronage of the stores in the center, and thus a higher rental for the landlord from those stores that are subject to a percentage of gross receipts rental agreement. Thus, in order to assure a landlord of his bargained for exchange, the court would have to consider such factors as the nature of the business to be conducted by the trustee or his assignee, whether that business complies with the requirements of any master agreement, whether the kind of business proposed will generate gross sales in an amount such that the percentage rent specified in the lease is substantially the same as what would have been provided by the debtor, and whether the business proposed to be conducted would result in a breach of other clauses in master agreements relating, for example, to tenant mix and location. This subsection does not limit the application of an ipso facto or bankruptcy clause to a new insolvency or receivership after the bankruptcy case is closed. That is, the clause is not invalidated in toto, but merely made inapplicable during the case for the purpose of disposition of the executory contract or unexpired lease. AMENDMENTS 1990 - Subsec. (o). Pub. L. 101-647 added subsec. (o). 1988 - Subsec. (n). Pub. L. 100-506 added subsec. (n). 1986 - Subsec. (c)(1)(A). Pub. L. 99-554, Sec. 283(e)(1), struck out 'or an assignee of such contract or lease' after 'debtor in possession'. Subsec. (c)(3). Pub. L. 99-554, Sec. 283(e)(2), inserted 'is' after 'lease' and 'and' after 'property'. Subsecs. (d)(2), (g)(1). Pub. L. 99-554, Sec. 257(j), (m)(1), inserted reference to chapter 12. Subsec. (g)(2). Pub. L. 99-554, Sec. 257(m)(2), inserted references to chapter 12 and section 1208 of this title. Subsec. (h)(1). Pub. L. 99-554, Sec. 283(e)(2), inserted 'or timeshare plan' after 'to treat such lease'. Subsec. (m). Pub. L. 99-554, Sec. 283(e)(3), substituted '362(b)(10)' for '362(b)(9)'. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 362(a), amended subsec. (a) generally, making minor changes. Subsec. (b). Pub. L. 98-353, Sec. 362(a), amended subsec. (b) generally, inserting in par. (3) reference to par. (2)(B) of subsec. (f) of this section, in par. (3)(A) inserting provisions relating to financial condition and operating performance in the case of an assignment, and in par. (3)(C) substituting 'that assumption or assignment of such lease is subject to all the provisions thereof, including (but not limited to) provisions such as a radius, location, use, or exclusivity provision, and will not breach any such provision contained in any other lease, financing agreement, or master agreement relating to such shopping center' for 'that assumption or assignment of such lease will not breach substantially any provision, such as a radius, location, use, or exclusivity provision, in any other lease, financing agreement, or master agreement relating to such shopping center'. Subsec. (c). Pub. L. 98-353, Sec. 362(a), amended subsec. (c) generally, substituting in par. (1)(A) 'applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession or an assignee of such contract or lease, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties' for 'applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to the trustee or an assignee of such contract or lease, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties' and adding par. (3). Subsec. (d). Pub. L. 98-353, Sec. 362(a), amended subsec. (d) generally, inserting in par. (1) reference to residential real property or personal property of the debtor, inserting in par. (2) reference to residential real property or personal property of the debtor, and adding pars. (3) and (4). Subsec. (h)(1). Pub. L. 98-353, Sec. 402, amended par. (1) generally. Prior to amendment, par. (1) read as follows: 'If the trustee rejects an unexpired lease of real property of the debtor under which the debtor is the lessor, the lessee under such lease may treat the lease as terminated by such rejection, or, in the alternative, may remain in possession for the balance of the term of such lease and any renewal or extension of such term that is enforceable by such lessee under applicable nonbankruptcy law.' Subsec. (h)(2). Pub. L. 98-353, Sec. 403, amended par. (2) generally. Prior to amendment, par. (2) read as follows: 'If such lessee remains in possession, such lessee may offset against the rent reserved under such lease for the balance of the term after the date of the rejection of such lease, and any such renewal or extension, any damages occurring after such date caused by the nonperformance of any obligation of the debtor after such date, but such lessee does not have any rights against the estate on account of any damages arising after such date from such rejection, other than such offset.' Subsec. (i)(1). Pub. L. 98-353, Sec. 404, amended par. (1) generally, inserting provisions relating to timeshare interests under timeshare plans. Subsecs. (l), (m). Pub. L. 98-353, Sec. 362(b), added subsecs. (l) and (m). EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100-506 effective Oct. 18, 1988, but not applicable to any case commenced under this title before such date, see section 2 of Pub. L. 100-506, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 348, 363, 502, 553, 555, 556, 557, 559, 560, 744, 901, 929, 1110, 1123, 1124, 1167, 1168, 1169, 1222, 1322 of this title. ------DocID 14719 Document 64 of 646------ -CITE- 11 USC Sec. 366 -EXPCITE- TITLE 11 CHAPTER 3 SUBCHAPTER IV -HEAD- Sec. 366. Utility service -STATUTE- (a) Except as provided in subsection (b) of this section, a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due. (b) Such utility may alter, refuse, or discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order for relief, furnishes adequate assurance of payment, in the form of a deposit or other security, for service after such date. On request of a party in interest and after notice and a hearing, the court may order reasonable modification of the amount of the deposit or other security necessary to provide adequate assurance of payment. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2578; Pub. L. 98-353, title III, Sec. 443, July 10, 1984, 98 Stat. 373.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 366 of the House amendment represents a compromise between comparable provisions contained in H.R. 8200 as passed by the House and the Senate amendment. Subsection (a) is modified so that the applicable date is the date of the order for relief rather than the date of the filing of the petition. Subsection (b) contains a similar change but is otherwise derived from section 366(b) of the Senate amendment, with the exception that a time period for continued service of 20 days rather than 10 days is adopted. SENATE REPORT NO. 95-989 This section gives debtors protection from a cut-off of service by a utility because of the filing of a bankruptcy case. This section is intended to cover utilities that have some special position with respect to the debtor, such as an electric company, gas supplier, or telephone company that is a monopoly in the area so that the debtor cannot easily obtain comparable service from another utility. The utility may not alter, refuse, or discontinue service because of the nonpayment of a bill that would be discharged in the bankruptcy case. Subsection (b) protects the utility company by requiring the trustee or the debtor to provide, within ten days, adequate assurance of payment for service provided after the date of the petition. AMENDMENTS 1984 - Subsec. (a). Pub. L. 98-353 inserted 'of the commencement of a case under this title or' after 'basis'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 901 of this title. ------DocID 14720 Document 65 of 646------ -CITE- 11 USC CHAPTER 5 -EXPCITE- TITLE 11 CHAPTER 5 -HEAD- CHAPTER 5 - CREDITORS, THE DEBTOR, AND THE ESTATE -MISC1- SUBCHAPTER I - CREDITORS AND CLAIMS Sec. 501. Filing of proofs of claims or interests. 502. Allowance of claims or interests. 503. Allowance of administrative expenses. 504. Sharing of compensation. 505. Determination of tax liability. 506. Determination of secured status. 507. Priorities. 508. Effect of distribution other than under this title. 509. Claims of codebtors. 510. Subordination. SUBCHAPTER II - DEBTOR'S DUTIES AND BENEFITS 521. Debtor's duties. 522. Exemptions. 523. Exceptions to discharge. 524. Effect of discharge. 525. Protection against discriminatory treatment. SUBCHAPTER III - THE ESTATE 541. Property of the estate. 542. Turnover of property to the estate. 543. Turnover of property by a custodian. 544. Trustee as lien creditor and as successor to certain creditors and purchasers. 545. Statutory liens. 546. Limitations on avoiding powers. 547. Preferences. 548. Fraudulent transfers and obligations. 549. Postpetition transactions. 550. Liability of transferee of avoided transfer. 551. Automatic preservation of avoided transfer. 552. Postpetition effect of security interest. 553. Setoff. 554. Abandonment of property of the estate. 555. Contractual right to liquidate a securities contract. 556. Contractual right to liquidate a commodity contract or forward contract. 557. Expedited determination of interests in, and abandonment or other disposition of grain assets. 558. Defenses of the estate. 559. Contractual right to liquidate a repurchase agreement. 560. Contractual right to terminate a swap agreement. AMENDMENTS 1990 - Pub. L. 101-311, title I, Sec. 106(b), June 25, 1990, 104 Stat. 268, added item 560. 1986 - Pub. L. 99-554, title II, Sec. 283(q), Oct. 27, 1986, 100 Stat. 3118, amended items 557 to 559 generally, substituting 'interests in, and abandonment or other disposition of grain assets' for 'in and disposition of grain' in item 557. 1984 - Pub. L. 98-353, title III, Sec. 352(b), 396(b), 470(b), July 10, 1984, 98 Stat. 361, 366, 380, added items 557, 558, and 559. 1982 - Pub. L. 97-222, Sec. 6(b), July 27, 1982, 96 Stat. 237, added items 555 and 556. -SECREF- CHAPTER REFERRED TO IN OTHER SECTIONS This chapter is referred to in section 103 of this title; title 15 section 78fff. ------DocID 14721 Document 66 of 646------ -CITE- 11 USC SUBCHAPTER I -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- SUBCHAPTER I - CREDITORS AND CLAIMS ------DocID 14722 Document 67 of 646------ -CITE- 11 USC Sec. 501 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 501. Filing of proofs of claims or interests -STATUTE- (a) A creditor or an indenture trustee may file a proof of claim. An equity security holder may file a proof of interest. (b) If a creditor does not timely file a proof of such creditor's claim, an entity that is liable to such creditor with the debtor, or that has secured such creditor, may file a proof of such claim. (c) If a creditor does not timely file a proof of such creditor's claim, the debtor or the trustee may file a proof of such claim. (d) A claim of a kind specified in section 502(e)(2), 502(f), 502(g), 502(h) or 502(i) of this title may be filed under subsection (a), (b), or (c) of this section the same as if such claim were a claim against the debtor and had arisen before the date of the filing of the petition. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2578; Pub. L. 98-353, title III, Sec. 444, July 10, 1984, 98 Stat. 373.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS The House amendment adopts section 501(b) of the Senate amendment leaving the Rules of Bankruptcy Procedure free to determine where a proof of claim must be filed. Section 501(c) expands language contained in section 501(c) of the House bill and Senate amendment to permit the debtor to file a proof of claim if a creditor does not timely file a proof of the creditor's claim in a case under title 11. The House amendment deletes section 501(e) of the Senate amendment as a matter to be left to the rules of bankruptcy procedure. It is anticipated that the rules will enable governmental units, like other creditors, to have a reasonable time to file proofs of claim in bankruptcy cases. For purposes of section 501, a proof of 'interest' includes the interest of a general or limited partner in a partnership, the interest of a proprietor in a sole proprietorship, or the interest of a common or preferred stockholder in a corporation. SENATE REPORT NO. 95-989 This section governs the means by which creditors and equity security holders present their claims or interests to the court. Subsection (a) permits a creditor to file a proof of claim or interest. An indenture trustee representing creditors may file a proof of claim on behalf of the creditors he represents. This subsection is permissive only, and does not require filing of a proof of claim by any creditor. It permits filing where some purpose would be served, such as where a claim that appears on a list filed under proposed 11 U.S.C. 924 or 1111 was incorrectly stated or listed as disputed, contingent, or unliquidated, where a creditor with a lien is undersecured and asserts a claim for the balance of the debt owed him (his unsecured claim, as determined under proposed 11 U.S.C. 506(a)), or in a liquidation case where there will be a distribution of assets to the holders of allowed claims. In other instances, such as in no-asset liquidation cases, in situations where a secured creditor does not assert any claim against the estate and a determination of his claim is not made under proposed 11 U.S.C. 506, or in situations where the claim asserted would be subordinated and the creditor would not recover from the estate in any event, filing of a proof of claim may simply not be necessary. The Rules of Bankruptcy Procedure and practice under the law will guide creditors as to when filing is necessary and when it may be dispensed with. In general, however, unless a claim is listed in a chapter 9 or chapter 11 case and allowed as a result of the list, a proof of claim will be a prerequisite to allowance for unsecured claims, including priority claims and the unsecured portion of a claim asserted by the holder of a lien. The Rules of Bankruptcy Procedure will set the time limits, the form, and the procedure for filing, which will determine whether claims are timely or tardily filed. The rules governing time limits for filing proofs of claims will continue to apply under section 405(d) of the bill. These provide a 6-month-bar date for the filing of tax claims. Subsection (b) permits a codebtor, surety, or guarantor to file a proof of claim on behalf of the creditor to which he is liable if the creditor does not timely file a proof of claim. In liquidation and individual repayment plan cases, the trustee or the debtor may file a proof of claim under subsection (c) if the creditor does not timely file. The purpose of this subsection is mainly to protect the debtor if the creditor's claim is nondischargeable. If the creditor does not file, there would be no distribution on the claim, and the debtor would have a greater debt to repay after the case is closed than if the claim were paid in part or in full in the case or under the plan. Subsection (d) governs the filing of claims of the kind specified in subsections (f), (g), (h), (i), or (j) of proposed 11 U.S.C. 502. The separation of this provision from the other claim-filing provisions in this section is intended to indicate that claims of the kind specified, which do not become fixed or do not arise until after the commencement of the case, must be treated differently for filing purposes such as the bar date for filing claims. The rules will provide for later filing of claims of these kinds. Subsection (e) gives governmental units (including tax authorities) at least six months following the date for the first meeting of creditors in a chapter 7 or chapter 13 case within which to file proof of claims. AMENDMENTS 1984 - Subsec. (d). Pub. L. 98-353 inserted '502(e)(2),'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 502, 506, 726, 727, 901, 925, 944, 1111, 1141 of this title. ------DocID 14723 Document 68 of 646------ -CITE- 11 USC Sec. 502 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 502. Allowance of claims or interests -STATUTE- (a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects. (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) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured; (2) such claim is for unmatured interest; (3) if such claim is for a tax assessed against property of the estate, such claim exceeds the value of the interest of the estate in such property; (4) if such claim is for services of an insider or attorney of the debtor, such claim exceeds the reasonable value of such services; (5) such claim is for a debt that is unmatured on the date of the filing of the petition and that is excepted from discharge under section 523(a)(5) of this title; (6) if such claim is the claim of a lessor for damages resulting from the termination of a lease of real property, such claim exceeds - (A) the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of - (i) the date of the filing of the petition; and (ii) the date on which such lessor repossessed, or the lessee surrendered, the leased property; plus (B) any unpaid rent due under such lease, without acceleration, on the earlier of such dates; (7) if such claim is the claim of an employee for damages resulting from the termination of an employment contract, such claim exceeds - (A) the compensation provided by such contract, without acceleration, for one year following the earlier of - (i) the date of the filing of the petition; or (ii) the date on which the employer directed the employee to terminate, or such employee terminated, performance under such contract; plus (B) any unpaid compensation due under such contract, without acceleration, on the earlier of such dates; or (8) such claim results from a reduction, due to late payment, in the amount of an otherwise applicable credit available to the debtor in connection with an employment tax on wages, salaries, or commissions earned from the debtor. (c) There shall be estimated for purpose of allowance under this section - (1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case; or (2) any right to payment arising from a right to an equitable remedy for breach of performance. (d) Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable under section 522(i), 542, 543, 550, or 553 of this title. (e)(1) Notwithstanding subsections (a), (b), and (c) of this section and paragraph (2) of this subsection, the court shall disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on or has secured the claim of a creditor, to the extent that - (A) such creditor's claim against the estate is disallowed; (B) such claim for reimbursement or contribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution; or (C) such entity asserts a right of subrogation to the rights of such creditor under section 509 of this title. (2) A claim for reimbursement or contribution of such an entity that becomes fixed after the commencement of the case shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) of this section, the same as if such claim had become fixed before the date of the filing of the petition. (f) In an involuntary case, a claim arising in the ordinary course of the debtor's business or financial affairs after the commencement of the case but before the earlier of the appointment of a trustee and the order for relief shall be determined as of the date such claim arises, and shall be allowed under subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition. (g) A claim arising from the rejection, under section 365 of this title or under a plan under chapter 9, 11, 12, or 13 of this title, of an executory contract or unexpired lease of the debtor that has not been assumed shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition. (h) A claim arising from the recovery of property under section 522, 550, or 553 of this title shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition. (i) A claim that does not arise until after the commencement of the case for a tax entitled to priority under section 507(a)(7) of this title shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition. (j) A claim that has been allowed or disallowed may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case. Reconsideration of a claim under this subsection does not affect the validity of any payment or transfer from the estate made to a holder of an allowed claim on account of such allowed claim that is not reconsidered, but if a reconsidered claim is allowed and is of the same class as such holder's claim, such holder may not receive any additional payment or transfer from the estate on account of such holder's allowed claim until the holder of such reconsidered and allowed claim receives payment on account of such claim proportionate in value to that already received by such other holder. This subsection does not alter or modify the trustee's right to recover from a creditor any excess payment or transfer made to such creditor. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2579; Pub. L. 98-353, title III, Sec. 445, July 10, 1984, 98 Stat. 373; Pub. L. 99-554, title II, Sec. 257(j), 283(f), Oct. 27, 1986, 100 Stat. 3115, 3117.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS The House amendment adopts a compromise position in section 502(a) between H.R. 8200, as passed by the House, and the Senate amendment. Section 502(a) has been modified to make clear that a party in interest includes a creditor of a partner in a partnership that is a debtor under chapter 7. Since the trustee of the partnership is given an absolute claim against the estate of each general partner under section 723(c), creditors of the partner must have standing to object to claims against the partnership at the partnership level because no opportunity will be afforded at the partner's level for such objection. The House amendment contains a provision in section 502(b)(1) that requires disallowance of a claim to the extent that such claim is unenforceable against the debtor and unenforceable against property of the debtor. This is intended to result in the disallowance of any claim for deficiency by an undersecured creditor on a non-recourse loan or under a State antideficiency law, special provision for which is made in section 1111, since neither the debtor personally, nor the property of the debtor is liable for such a deficiency. Similarly claims for usurious interest or which could be barred by an agreement between the creditor and the debtor would be disallowed. Section 502(b)(7)(A) represents a compromise between the House bill and the Senate amendment. The House amendment takes the provision in H.R. 8200 as passed by the House of Representatives but increases the percentage from 10 to 15 percent. As used in section 502(b)(7), the phrase 'lease of real property' applies only to a 'true' or 'bona fide' lease and does not apply to financing leases of real property or interests therein, or to leases of such property which are intended as security. Historically, the limitation on allowable claims of lessors of real property was based on two considerations. First, the amount of the lessor's damages on breach of a real estate lease was considered contingent and difficult to prove. Partly for this reason, claims of a lessor of real estate were not provable prior to the 1934 amendments, to the Bankruptcy Act (former title 11). Second, in a true lease of real property, the lessor retains all risks and benefits as to the value of the real estate at the termination of the lease. Historically, it was, therefore, considered equitable to limit the claims of real estate lessor. However, these considerations are not present in 'lease financing' transactions where, in substance, the 'lease' involves a sale of the real estate and the rental payments are in substance the payment of principal and interest on a secured loan or sale. In a financing lease the lessor is essentially a secured or unsecured creditor (depending upon whether his interest is perfected or not) of the debtor, and the lessor's claim should not be subject to the 502(b)(7) limitation. Financing 'leases' are in substance installment sales or loans. The 'lessors' are essentially sellers or lenders and should be treated as such for purposes of the bankruptcy law. Whether a 'lease' is true or bona fide lease or, in the alterntive a financing 'lease' or a lease intended as security, depends upon the circumstances of each case. The distinction between a true lease and a financing transaction is based upon the economic substance of the transaction and not, for example, upon the locus of title, the form of the transaction or the fact that the transaction is denominated as a 'lease.' The fact that the lessee, upon compliance with the terms of the lease, becomes or has the option to become the owner of the leased property for no additional consideration or for nominal consideration indicates that the transaction is a financing lease or lease intended as security. In such cases, the lessor has no substantial interest in the leased property at the expiration of the lease term. In addition, the fact that the lessee assumes and discharges substantially all the risks and obligations ordinarily attributed to the outright ownership of the property is more indicative of a financing transaction than of a true lease. The rental payments in such cases are in substance payments of principal and interest either on a loan secured by the leased real property or on the purchase of the leased real property. See, e.g., Financial Accounting Standards Board Statement No. 13 and SEC Reg. S-X, 17 C.F.R. sec. 210.3-16(q) (1977); cf. First National Bank of Chicago v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 1934); and Albenda and Lief, 'Net Lease Financing Transactions Under the Proposed Bankruptcy Act of 1973,' 30 Business Lawyer, 713 (1975). Section 502(c) of the House amendment presents a compromise between similar provisions contained in the House bill and the Senate amendment. The compromise language is consistent with an amendment to the definition of 'claim' in section 104(4)(B) of the House amendment and requires estimation of any right to an equitable remedy for breach of performance if such breach gives rise to a right to payment. To the extent language in the House and Senate reports indicate otherwise, such language is expressly overruled. Section 502(e) of the House amendment contains language modifying a similar section in the House bill and Senate amendment. Section 502(e)(1) states the general rule requiring the court to disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on, or that has secured, the claim of a creditor to any extent that the creditor's claim against the estate is disallowed. This adopts a policy that a surety's claim for reimbursement or contribution is entitled to no better status than the claim of the creditor assured by such surety. Section 502(e)(1)(B) alternatively disallows any claim for reimbursement or contribution by a surety to the extent such claim is contingent as of the time of allowance. Section 502(e)(2) is clear that to the extent a claim for reimbursement or contribution becomes fixed after the commencement of the case that it is to be considered a prepetition claim for purposes of allowance. The combined effect of sections 502(e)(1)(B) and 502(e)(2) is that a surety or codebtor is generally permitted a claim for reimbursement or contribution to the extent the surety or codebtor has paid the assured party at the time of allowance. Section 502(e)(1)(C) alternatively indicates that a claim for reimbursement or contribution of a surety or codebtor is disallowed to the extent the surety or codebtor requests subrogation under section 509 with respect to the rights of the assured party. Thus, the surety or codebtor has a choice; to the extent a claim for contribution or reimbursement would be advantageous, such as in the case where such a claim is secured, a surety or codebtor may opt for reimbursement or contribution under section 502(e). On the other hand, to the extent the claim for such surety or codebtor by way of subrogation is more advantageous, such as where such claim is secured, the surety may elect subrogation under section 509. The section changes current law by making the election identical in all other respects. To the extent a creditor's claim is satisfied by a surety or codebtor, other creditors should not benefit by the surety's inability to file a claim against the estate merely because such surety or codebtor has failed to pay such creditor's claim in full. On the other hand, to the extent the creditor's claim against the estate is otherwise disallowed, the surety or codebtor should not be entitled to increased rights by way of reimbursement or contribution, to the detriment of competing claims of other unsecured creditors, than would be realized by way of subrogation. While the foregoing scheme is equitable with respect to other unsecured creditors of the debtor, it is desirable to preserve present law to the extent that a surety or codebtor is not permitted to compete with the creditor he has assured until the assured party's claim has paid in full. Accordingly, section 509(c) of the House amendment subordinates both a claim by way of subrogation or a claim for reimbursement or contribution of a surety or codebtor to the claim of the assured party until the assured party's claim is paid in full. Section 502(h) of the House amendment expands similar provisions contained in the House bill and the Senate amendment to indicate that any claim arising from the recovery of property under section 522(i), 550, or 553 shall be determined as though it were a prepetition claim. Section 502(i) of the House amendment adopts a provision contained in section 502(j) of H.R. 8200 as passed by the House but that was not contained in the Senate amendment. Section 502(i) of H.R. 8200 as passed by the House, but was not included in the Senate amendment, is deleted as a matter to be left to the bankruptcy tax bill next year. The House amendment deletes section 502(i) of the Senate bill but adopts the policy of that section to a limited extent for confirmation of a plan of reorganization in section 1111(b) of the House amendment. Section 502(j) of the House amendment is new. The provision codifies section 57k of the Bankruptcy Act (section 93(k) of former title 11). Allowance of Claims or Interest: The House amendment adopts section 502(b)(9) of the House bill which disallows any tax claim resulting from a reduction of the Federal Unemployment Tax Act (FUTA) credit (sec. 3302 of the Internal Revenue Code (26 U.S.C. 3302)) on account of a tardy contribution to a State unemployment fund if the contribution is attributable to ways or other compensation paid by the debtor before bankruptcy. The Senate amendment allowed this reduction, but would have subordinated it to other claims in the distribution of the estate's assets by treating it as a punitive (nonpecuniary loss) penalty. The House amendment would also not bar reduction of the FUTA credit on account of a trustee's late payment of a contribution to a State unemployment fund if the contribution was attributable to a trustee's payment of compensation earned from the estate. Section 511 of the Senate amendment is deleted. Its substance is adopted in section 502(b)(9) of the House amendment which reflects an identical provision contained in H.R. 8200 as passed by the House. SENATE REPORT NO. 95-989 A proof of claim or interest is prima facie evidence of the claim or interest. Thus, it is allowed under subsection (a) unless a party in interest objects. The rules and case law will determine who is a party in interest for purposes of objection to allowance. The case law is well developed on this subject today. As a result of the change in the liability of a general partner's estate for the debts of this partnership, see proposed 11 U.S.C. 723, the category of persons that are parties in interest in the partnership case will be expanded to include a creditor of a partner against whose estate the trustee of the partnership estate may proceed under proposed 11 U.S.C. 723(c). Subsection (b) prescribes the grounds on which a claim may be disallowed. The court will apply these standards if there is an objection to a proof of claim. The burden of proof on the issue of allowance is left to the Rules of Bankruptcy Procedure. Under the current chapter XIII rules, a creditor is required to prove that his claim is free from usury, rule 13-301. It is expected that the rules will make similar provision for both liquidation and individual repayment plan cases. See Bankruptcy Act Sec. 656(b) (section 1056(b) of former title 11); H.R. 31, 94th Cong., 1st sess., sec. 6-104(a) (1975). Paragraph (1) requires disallowance if the claim is unenforceable against the debtor for any reason (such as usury, unconscionability, or failure of consideration) other than because it is contingent or unmatured. All such contingent or unmatured claims are to be liquidated by the bankruptcy court in order to afford the debtor complete bankruptcy relief; these claims are generally not provable under present law. Paragraph (2) requires disallowance to the extent that the claim is for unmatured interest as of the date of the petition. Whether interest is matured or unmatured on the date of bankruptcy is to be determined without reference to any ipso facto or bankruptcy clause in the agreement creating the claim. Interest disallowed under this paragraph includes postpetition interest that is not yet due and payable, and any portion of prepaid interest that represents an original discounting of the claim, yet that would not have been earned on the date of bankruptcy. For example, a claim on a $1,000 note issued the day before bankruptcy would only be allowed to the extent of the cash actually advanced. If the original discount was 10 percent so that the cash advanced was only $900, then notwithstanding the face amount of note, only $900 would be allowed. If $900 was advanced under the note some time before bankruptcy, the interest component of the note would have to be prorated and disallowed to the extent it was for interest after the commencement of the case. Section 502(b) thus contains two principles of present law. First, interest stops accruing at the date of the filing of the petition, because any claim for unmatured interest is disallowed under this paragraph. Second, bankruptcy operates as the acceleration of the principal amount of all claims against the debtor. One unarticulated reason for this is that the discounting factor for claims after the commencement of the case is equivalent to contractual interest rate on the claim. Thus, this paragraph does not cause disallowance of claims that have not been discounted to a present value because of the irrebuttable presumption that the discounting rate and the contractual interest rate (even a zero interest rate) are equivalent. Paragraph (3) requires disallowance of a claim to the extent that the creditor may offset the claim against a debt owing to the debtor. This will prevent double recovery, and permit the claim to be filed only for the balance due. This follows section 68 of the Bankruptcy Act (section 108 of former title 11). Paragraph (4) requires disallowance of a property tax claim to the extent that the tax due exceeds the value of the property. This too follows current law to the extent the property tax is ad valorem. Paragraph (5) prevents overreaching by the debtor's attorneys and concealing of assets by debtors. It permits the court to examine the claim of a debtor's attorney independently of any other provision of this subsection, and to disallow it to the extent that it exceeds the reasonable value of the attorneys' services. Postpetition alimony, maintenance or support claims are disallowed under paragraph (6). They are to be paid from the debtor's postpetition property, because the claims are nondischargeable. Paragraph (7), derived from current law, limits the damages allowable to a landlord of the debtor. The history of this provision is set out at length in Oldden v. Tonto Realty Co., 143 F.2d 916 (2d Cir. 1944). It is designed to compensate the landlord for his loss while not permitting a claim so large (based on a long-term lease) as to prevent other general unsecured creditors from recovering a dividend from the estate. The damages a landlord may assert from termination of a lease are limited to the rent reserved for the greater of one year or ten percent of the remaining lease term, not to exceed three years, after the earlier of the date of the filing of the petition and the date of surrender or repossession in a chapter 7 case and 3 years lease payments in a chapter 9, 11, or 13 case. The sliding scale formula for chapter 7 cases is new and designed to protect the long-term lessor. This subsection does not apply to limit administrative expense claims for use of the leased premises to which the landlord is otherwise entitled. This paragraph will not overrule Oldden, or the proposition for which it has been read to stand: To the extent that a landlord has a security deposit in excess of the amount of his claim allowed under this paragraph, the excess comes into the estate. Moreover, his allowed claim is for his total damages, as limited by this paragraph. By virtue of proposed 11 U.S.C. 506(a) and 506(d), the claim will be divided into a secured portion and an unsecured portion in those cases in which the deposit that the landlord holds is less than his damages. As under Oldden, he will not be permitted to offset his actual damages against his security deposit and then claim for the balance under this paragraph. Rather, his security deposit will be applied in satisfaction of the claim that is allowed under this paragraph. As used in section 502(b)(7), the phrase 'lease of real property' applies only to a 'true' or 'bona fide' lease and does not apply to financing leases of real property or interests therein, or to leases of such property which are intended as security. Historically, the limitation on allowable claims of lessors of real property was based on two considerations. First, the amount of the lessors damages on breach of a real estate lease was considered contingent and difficult to prove. Partly for this reason, claims of a lessor of real estate were not provable prior to the 1934 amendments to the Bankruptcy Act (former title 11). Second, in a true lease of real property, the lessor retains all risk and benefits as to the value of the real estate at the termination of the lease. Historically, it was, therefore, considered equitable to limit the claims of a real estate lessor. However, these considerations are not present in 'lease financing' transactions where, in substance, the 'lease' involves a sale of the real estate and the rental payments are in substance the payment of principal and interest on a secured loan or sale. In a financing lease the lessor is essentially a secured or unsecured creditor (depending upon whether his interest is perfected or not) of the debtor, and the lessor's claim should not be subject to the 502(b)(7) limitation. Financing 'leases' are in substance installment sales or loans. The 'lessors' are essentially sellers or lenders and should be treated as such for purposes of the bankruptcy law. Whether a 'lease' is true or bona fide lease or, in the alternative, a financing 'lease' or a lease intended as security, depends upon the circumstances of each case. The distinction between a true lease and a financing transaction is based upon the economic substance of the transaction and not, for example, upon the locus of title, the form of the transaction or the fact that the transaction is denominated as a 'lease'. The fact that the lessee, upon compliance with the terms of the lease, becomes or has the option to become the owner of the leased property for no additional consideration or for nominal consideration indicates that the transaction is a financing lease or lease intended as security. In such cases, the lessor has no substantial interest in the leased property at the expiration of the lease term. In addition, the fact that the lessee assumes and discharges substantially all the risks and obligations ordinarily attributed to the outright ownership of the property is more indicative of a financing transaction than of a true lease. The rental payments in such cases are in substance payments of principal and interest either on a loan secured by the leased real property or on the purchase of the leased real property. See, e. g., Financial Accounting Standards Board Statement No. 13 and SEC Reg. S-X, 17 C.F.R. sec. 210.3-16(q) (1977); cf. First National Bank of Chicago v. Irving Trust Co., 74 F.2d 263 (2nd Cir. 1934); and Albenda and Lief, 'Net Lease Financing Transactions Under the Proposed Bankruptcy Act of 1973,' 30 Business Lawyer, 713 (1975). Paragraph (8) is new. It tracks the landlord limitation on damages provision in paragraph (7) for damages resulting from the breach by the debtor of an employment contract, but limits the recovery to the compensation reserved under an employment contract for the year following the earlier of the date of the petition and the termination of employment. Subsection (c) requires the estimation of any claim liquidation of which would unduly delay the closing of the estate, such as a contingent claim, or any claim for which applicable law provides only an equitable remedy, such as specific performance. This subsection requires that all claims against the debtor be converted into dollar amounts. Subsection (d) is derived from present law. It requires disallowance of a claim of a transferee of a voidable transfer in toto if the transferee has not paid the amount or turned over the property received as required under the sections under which the transferee's liability arises. Subsection (e) also derived from present law, requires disallowance of the claim for reimbursement or contribution of a codebtor, surety or guarantor of an obligation of the debtor, unless the claim of the creditor on such obligation has been paid in full. The provision prevents competition between a creditor and his guarantor for the limited proceeds in the estate. Subsection (f) specifies that 'involuntary gap' creditors receive the same treatment as prepetition creditors. Under the allowance provisions of this subsection, knowledge of the commencement of the case will be irrelevant. The claim is to be allowed 'the same as if such claim had arisen before the date of the filing of the petition.' Under voluntary petition, proposed 11 U.S.C. 303(f), creditors must be permitted to deal with the debtor and be assured that their claims will be paid. For purposes of this subsection, 'creditors' include governmental units holding claims for tax liabilities incurred during the period after the petition is filed and before the earlier of the order for relief or appointment of a trustee. Subsection (g) gives entities injured by the rejection of an executory contract or unexpired lease, either under section 365 or under a plan or reorganization, a prepetition claim for any resulting damages, and requires that the injured entity be treated as a prepetition creditor with respect to that claim. Subsection (h) gives a transferee of a setoff that is recovered by one trustee a prepetition claim for the amount recovered. Subsection (i) answers the nonrecourse loan problem and gives the creditor an unsecured claim for the difference between the value of the collateral and the debt in response to the decision in Great National Life Ins. Co. v. Pine Gate Associates, Ltd., Bankruptcy Case No. B75-4345A (N.D.Ga. Sept. 16, 1977). The bill, as reported, deletes a provision in the bill as originally introduced (former sec. 502(i)) requiring a tax authority to file a proof of claim for recapture of an investment credit where, during title 11 proceedings, the trustee sells or otherwise disposes of property before the title 11 case began. The tax authority should not be required to submit a formal claim for a taxable event (a sale or other disposition of the asset) of whose occurrence the trustee necessarily knows better than the taxing authority. For procedural purposes, the recapture of investment credit is to be treated as an administrative expense, as to which only a request for payment is required. HOUSE REPORT NO. 95-595 Paragraph (9) (of subsec. (b)) requires disallowance of certain employment tax claims. These relate to a Federal tax credit for State unemployment insurance taxes which is disallowed if the State tax is paid late. This paragraph disallows the Federal claim for the tax the same as if the credit had been allowed in full on the Federal return. AMENDMENTS 1986 - Subsec. (b)(6)(A)(ii). Pub. L. 99-554, Sec. 283(f)(1), substituted 'repossessed' for 'reposessed'. Subsec. (g). Pub. L. 99-554, Sec. 257(j), inserted reference to chapter 12. Subsec. (i). Pub. L. 99-554, Sec. 283(f)(2), substituted '507(a)(7)' for '507(a)(6)'. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 445(a), inserted 'general' before 'partner'. Subsec. (b). Pub. L. 98-353, Sec. 445(b)(1), (2), in provisions preceding par. (1), inserted '(e)(2),' after 'subsections' and 'in lawful currency of the United States' after 'claim'. Subsec. (b)(1). Pub. L. 98-353, Sec. 445(b)(3), substituted 'and' for ', and unenforceable against'. Subsec. (b)(3). Pub. L. 98-353, Sec. 445(b)(5), inserted 'the' after 'exceeds'. Pub. L. 98-353, Sec. 445(b)(4), struck out par. (3) 'such claim may be offset under section 553 of this title against a debt owing to the debtor;', and redesignated par. (4) as (3). Subsec. (b)(4). Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (5) as (4). Former par. (4) redesignated (3). Subsec. (b)(5). Pub. L. 98-353, Sec. 445(b)(6), substituted 'such claim' for 'the claim' and struck out the comma after 'petition'. Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (6) as (5). Former par. (5) redesignated (4). Subsec. (b)(6). Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (7) as (6). Former par. (6) redesignated (5). Subsec. (b)(7). Pub. L. 98-353, Sec. 445(b)(7)(A), inserted 'the claim of an employee' before 'for damages'. Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (8) as (7). Former par. (7) redesignated (6). Subsec. (b)(7)(A)(i). Pub. L. 98-353, Sec. 445(b)(7)(B), substituted 'or' for 'and'. Subsec. (b)(7)(B). Pub. L. 98-353, Sec. 445(b)(7)(C), (D), substituted 'any' for 'the' and inserted a comma after 'such contract'. Subsec. (b)(8), (9). Pub. L. 98-353, Sec. 445(b)(4), redesignated par. (9) as (8). Former par. (8) redesignated (7). Subsec. (c)(1). Pub. L. 98-353, Sec. 445(c)(1), inserted 'the' before 'fixing' and substituted 'administration' for 'closing'. Subsec. (c)(2). Pub. L. 98-353, Sec. 445(c)(2), inserted 'right to payment arising from a' after 'any' and struck out 'if such breach gives rise to a right to payment' after 'breach of performance'. Subsec. (e)(1). Pub. L. 98-353, Sec. 445(d)(1), (2), in provisions preceding subpar. (A) substituted ', (b), and (c)' for 'and (b)' and substituted 'or has secured' for ', or has secured,'. Subsec. (e)(1)(B). Pub. L. 98-353, Sec. 445(d)(3), inserted 'or disallowance' after 'allowance'. Subsec. (e)(1)(C). Pub. L. 98-353, Sec. 445(d)(4), substituted 'asserts a right of subrogation to the rights of such creditor' for 'requests subrogation' and struck out 'to the rights of such creditor' after 'of this title'. Subsec. (h). Pub. L. 98-353, Sec. 445(e), substituted '522' for '522(i)'. Subsec. (j). Pub. L. 98-353, Sec. 445(f), amended subsec. (j) generally, inserting provisions relating to reconsideration of a disallowed claim, and provisions relating to reconsideration of a claim under this subsection. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 101, 346, 501, 503, 506, 507, 509, 510, 522, 544, 553, 723, 727, 901, 929, 944, 1111, 1114, 1126, 1141, 1228, 1305, 1328 of this title. ------DocID 14724 Document 69 of 646------ -CITE- 11 USC Sec. 503 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 503. Allowance of administrative expenses -STATUTE- (a) An entity may file a request for payment of an administrative expense. (b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including - (1)(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case; (B) any tax - (i) incurred by the estate, except a tax of a kind specified in section 507(a)(7) of this title; or (ii) attributable to an excessive allowance of a tentative carryback adjustment that the estate received, whether the taxable year to which such adjustment relates ended before or after the commencement of the case; and (C) any fine, penalty, or reduction in credit relating to a tax of a kind specified in subparagraph (B) of this paragraph; (2) compensation and reimbursement awarded under section 330(a) of this title; (3) the actual, necessary expenses, other than compensation and reimbursement specified in paragraph (4) of this subsection, incurred by - (A) a creditor that files a petition under section 303 of this title; (B) a creditor that recovers, after the court's approval, for the benefit of the estate any property transferred or concealed by the debtor; (C) a creditor in connection with the prosecution of a criminal offense relating to the case or to the business or property of the debtor; (D) a creditor, an indenture trustee, an equity security holder, or a committee representing creditors or equity security holders other than a committee appointed under section 1102 of this title, in making a substantial contribution in a case under chapter 9 or 11 of this title; or (E) a custodian superseded under section 543 of this title, and compensation for the services of such custodian; (4) reasonable compensation for professional services rendered by an attorney or an accountant of an entity whose expense is allowable under paragraph (3) of this subsection, based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title, and reimbursement for actual, necessary expenses incurred by such attorney or accountant; (5) reasonable compensation for services rendered by an indenture trustee in making a substantial contribution in a case under chapter 9 or 11 of this title, based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title; and (6) the fees and mileage payable under chapter 119 of title 28. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2581; Pub. L. 98-353, title III, Sec. 446, July 10, 1984, 98 Stat. 374; Pub. L. 99-554, title II, Sec. 283(g), Oct. 27, 1986, 100 Stat. 3117.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 503(a) of the House amendment represents a compromise between similar provisions in the House bill and the Senate amendment by leaving to the Rules of Bankruptcy Procedure the determination of the location at which a request for payment of an administrative expense may be filed. The preamble to section 503(b) of the House bill makes a similar change with respect to the allowance of administrative expenses. Section 503(b)(1) adopts the approach taken in the House bill as modified by some provisions contained in the Senate amendment. The preamble to section 503(b) makes clear that none of the paragraphs of section 503(b) apply to claims or expenses of the kind specified in section 502(f) that arise in the ordinary course of the debtor's business or financial affairs and that arise during the gap between the commencement of an involuntary case and the appointment of a trustee or the order for relief, whichever first occurs. The remainder of section 503(b) represents a compromise between H.R. 8200 as passed by the House and the Senate amendments. Section 503(b)(3)(E) codifies present law in cases such as Randolph v. Scruggs, 190 U.S. 533, which accords administrative expense status to services rendered by a prepetition custodian or other party to the extent such services actually benefit the estate. Section 503(b)(4) of the House amendment conforms to the provision contained in H.R. 8200 as passed by the House and deletes language contained in the Senate amendment providing a different standard of compensation under section 330 of that amendment. SENATE REPORT NO. 95-989 Subsection (a) of this section permits administrative expense claimants to file with the court a request for payment of an administrative expense. The Rules of Bankruptcy Procedure will specify the time, the form, and the method of such a filing. Subsection (b) specifies the kinds of administrative expenses that are allowable in a case under the bankruptcy code. The subsection is derived mainly from section 64a(1) of the Bankruptcy Act (section 104(a)(1) of former title 11), with some changes. The actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the order for relief, and any taxes on, measured by, or withheld from such wages, salaries, or commissions, are allowable as administrative expenses. In general, administrative expenses include taxes which the trustee incurs in administering the debtor's estate, including taxes on capital gains from sales of property by the trustee and taxes on income earned by the estate during the case. Interest on tax liabilities and certain tax penalties incurred by the trustee are also included in this first priority. Taxes which the Internal Revenue Service may find due after giving the trustee a so-called 'quickie' tax refund and later doing an audit of the refund are also payable as administrative expenses. The tax code (title 26) permits the trustee of an estate which suffers a net operating loss to carry back the loss against an earlier profit year of the estate or of the debtor and to obtain a tentative refund for the earlier year, subject, however, to a later full audit of the loss which led to the refund. The bill, in effect, requires the Internal Revenue Service to issue a tentative refund to the trustee (whether the refund was applied for by the debtor or by the trustee), but if the refund later proves to have been erroneous in amount, the Service can request that the tax attributable to the erroneous refund be payable by the estate as an administrative expense. Postpetition payments to an individual debtor for services rendered to the estate are administrative expenses, and are not property of the estate when received by the debtor. This situation would most likely arise when the individual was a sole proprietor and was employed by the estate to run the business after the commencement of the case. An individual debtor in possession would be so employed, for example. See Local Loan v. Hunt, 292 U.S. 234, 243 (1943). Compensation and reimbursement awarded officers of the estate under section 330 are allowable as administrative expenses. Actual, necessary expenses, other than compensation of a professional person, incurred by a creditor that files an involuntary petition, by a creditor that recovers property for the benefit of the estate, by a creditor that acts in connection with the prosecution of a criminal offense relating to the case, by a creditor, indenture, trustee, equity security holder, or committee of creditors or equity security holders (other than official committees) that makes a substantial contribution to a reorganization or municipal debt adjustment case, or by a superseded custodian, are all allowable administrative expenses. The phrase 'substantial contribution in the case' is derived from Bankruptcy Act Sec. 242 and 243 (sections 642 and 643 of former title 11). It does not require a contribution that leads to confirmation of a plan, for in many cases, it will be a substantial contribution if the person involved uncovers facts that would lead to a denial of confirmation, such as fraud in connection with the case. Paragraph (4) permits reasonable compensation for professional services rendered by an attorney or an accountant of an equity whose expense is compensable under the previous paragraph. Paragraph (5) permits reasonable compensation for an indenture trustee in making a substantial contribution in a reorganization or municipal debt adjustment case. Finally, paragraph (6) permits witness fees and mileage as prescribed under chapter 119 (Sec. 2041 et seq.) of title 28. AMENDMENTS 1986 - Subsec. (b)(1)(B)(i). Pub. L. 99-554, Sec. 283(g)(1), substituted '507(a)(7)' for '507(a)(6)'. Subsec. (b)(5). Pub. L. 99-554, Sec. 283(g)(2), inserted 'and' after 'title;'. Subsec. (b)(6). Pub. L. 99-554, Sec. 283(g)(3), substituted a period for '; and'. 1984 - Subsec. (b). Pub. L. 98-353, Sec. 446(1), struck out the comma after 'be allowed' in provisions preceding par. (1). Subsec. (b)(1)(C). Pub. L. 98-353, Sec. 446(2), struck out the comma after 'credit'. Subsec. (b)(2). Pub. L. 98-353, Sec. 446(3), inserted '(a)' after '330'. Subsec. (b)(3). Pub. L. 98-353, Sec. 446(4), inserted a comma after 'paragraph (4) of this subsection'. Subsec. (b)(3)(C). Pub. L. 98-353, Sec. 446(5), struck out the comma after 'case'. Subsec. (b)(5). Pub. L. 98-353, Sec. 446(6), struck out 'and' after 'title;'. Subsec. (b)(6). Pub. L. 98-353, Sec. 446(7), substituted '; and' for period at end. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 346, 348, 361, 364, 365, 504, 507, 557, 726, 901, 922, 1114, 1205, 1226, 1228, 1326 of this title; title 26 section 1398. ------DocID 14725 Document 70 of 646------ -CITE- 11 USC Sec. 504 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 504. Sharing of compensation -STATUTE- (a) Except as provided in subsection (b) of this section, a person receiving compensation or reimbursement under section 503(b)(2) or 503(b)(4) of this title may not share or agree to share - (1) any such compensation or reimbursement with another person; or (2) any compensation or reimbursement received by another person under such sections. (b)(1) A member, partner, or regular associate in a professional association, corporation, or partnership may share compensation or reimbursement received under section 503(b)(2) or 503(b)(4) of this title with another member, partner, or regular associate in such association, corporation, or partnership, and may share in any compensation or reimbursement received under such sections by another member, partner, or regular associate in such association, corporation, or partnership. (2) An attorney for a creditor that files a petition under section 303 of this title may share compensation and reimbursement received under section 503(b)(4) of this title with any other attorney contributing to the services rendered or expenses incurred by such creditor's attorney. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2582.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 Section 504 prohibits the sharing of compensation, or fee splitting, among attorneys, other professionals, or trustees. The section provides only two exceptions: partners or associates in the same professional association, partnership, or corporation may share compensation inter se; and attorneys for petitioning creditors that join in a petition commencing an involuntary case may share compensation. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 901 of this title; title 15 section 78fff. ------DocID 14726 Document 71 of 646------ -CITE- 11 USC Sec. 505 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 505. Determination of tax liability -STATUTE- (a)(1) Except as provided in paragraph (2) of this subsection, the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction. (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. (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 such return is fraudulent, or contains a material misrepresentation, the trustee, the debtor, and any successor to the debtor are discharged from any liability for such tax - (1) upon payment of the tax shown on such return, if - (A) such governmental unit does not notify the trustee, within 60 days after such request, that such return has been selected for examination; or (B) such governmental unit does not complete such an examination and notify the trustee of any tax due, within 180 days after such request or within such additional time as the court, for cause, permits; (2) upon payment of the tax determined by the court, after notice and a hearing, after completion by such governmental unit of such examination; or (3) upon payment of the tax determined by such governmental unit to be due. (c) Notwithstanding section 362 of this title, after determination by the court of a tax under this section, the governmental unit charged with responsibility for collection of such tax may assess such tax against the estate, the debtor, or a successor to the debtor, as the case may be, subject to any otherwise applicable law. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2582; Pub. L. 98-353, title III, Sec. 447, July 10, 1984, 98 Stat. 374.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 505 of the House amendment adopts a compromise position with respect to the determination of tax liability from the position taken in H.R. 8200 as passed by the House and in the Senate amendment. Determinations of tax liability: Authority of bankruptcy court to rule on merits of tax claims. - The House amendment authorizes the bankruptcy court to rule on the merits of any tax claim involving an unpaid tax, fine, or penalty relating to a tax, or any addition to a tax, of the debtor or the estate. This authority applies, in general, whether or not the tax, penalty, fine, or addition to tax had been previously assessed or paid. However, the bankruptcy court will not have jurisdiction to rule on the merits of any tax claim which has been previously adjudicated, in a contested proceeding, before a court of competent jurisdiction. For this purpose, a proceeding in the U.S. Tax Court is to be considered 'contested' if the debtor filed a petition in the Tax Court by the commencement of the case and the Internal Revenue Service had filed an answer to the petition. Therefore, if a petition and answer were filed in the Tax Court before the title II petition was filed, and if the debtor later defaults in the Tax Court, then, under res judicata principles, the bankruptcy court could not then rule on the debtor's or the estate's liability for the same taxes. The House amendment adopts the rule of the Senate bill that the bankruptcy court can, under certain conditions, determine the amount of tax refund claim by the trustee. Under the House amendment, if the refund results from an offset or counterclaim to a claim or request for payment by the Internal Revenue Service, or other tax authority, the trustee would not first have to file an administrative claim for refund with the tax authority. However, if the trustee requests a refund in other situations, he would first have to submit an administrative claim for the refund. Under the House amendment, if the Internal Revenue Service, or other tax authority does not rule on the refund claim within 120 days, then the bankruptcy court may rule on the merits of the refund claim. Under the Internal Revenue Code (title 26), a suit for refund of Federal taxes cannot be filed until 6 months after a claim for refund is filed with the Internal Revenue Service (sec. 6532(a) (title 26)). Because of the bankruptcy aim to close the estate as expeditiously as possible, the House amendment shortens to 120 days the period for the Internal Revenue Service to decide the refund claim. The House amendment also adopts the substance of the Senate bill rule permitting the bankruptcy court to determine the amount of any penalty, whether punitive or pecuniary in nature, relating to taxes over which it has jurisdiction. Jurisdiction of the tax court in bankruptcy cases: The Senate amendment provided a detailed series of rules concerning the jurisdiction of the U.S. Tax Court, or similar State or local administrative tribunal to determine personal tax liabilities of an individual debtor. The House amendment deletes these specific rules and relies on procedures to be derived from broad general powers of the bankruptcy court. Under the House amendment, as under present law, a corporation seeking reorganization under chapter 11 is considered to be personally before the bankruptcy court for purposes of giving that court jurisdiction over the debtor's personal liability for a nondischargeable tax. The rules are more complex where the debtor is an individual under chapter 7, 11, or 13. An individual debtor or the tax authority can, as under section 17c of the present Bankruptcy Act (section 35(c) of former title 11), file a request that the bankruptcy court determine the debtor's personal liability for the balance of any nondischargeable tax not satisfied from assets of the estate. The House amendment intends to retain these procedures and also adds a rule staying commencement or continuation of any proceeding in the Tax Court after the bankruptcy petition is filed, unless and until that stay is lifted by the bankruptcy judge under section 362(a)(8). The House amendment also stays assessment as well as collection of a prepetition claim against the debtor (sec. 362(a)(6)). A tax authority would not, however, be stayed from issuing a deficiency notice during the bankruptcy case (sec. (b)(7)) (sec. 362(b)(8)). The Senate amendment repealed the existing authority of the Internal Revenue Service to make an immediate assessment of taxes upon bankruptcy (sec. 6871(a) of the code (title 26). See section 321 of the Senate bill. As indicated, the substance of that provision, also affecting State and local taxes, is contained in section 362(a)(6) of the House amendment. The statute of limitations is tolled under the House amendment while the bankruptcy case is pending. Where no proceeding in the Tax Court is pending at the commencement of the bankruptcy case, the tax authority can, under the House amendment, file a claim against the estate for a prepetition tax liability and may also file a request that the bankruptcy court hear arguments and decide the merits of an individual debtor's personal liability for the balance of any nondischargeable tax liability not satisfied from assets of the estate. Bankruptcy terminology refers to the latter type of request as a creditor's complaint to determine the dischargeability of a debt. Where such a complaint is filed, the bankruptcy court will have personal jurisdiction over an individual debtor, and the debtor himself would have no access to the Tax Court, or to any other court, to determine his personal liability for nondischargeable taxes. If a tax authority decides not to file a claim for taxes which would typically occur where there are few, if any, assets in the estate, normally the tax authority would also not request the bankruptcy court to rule on the debtor's personal liability for a nondischargeable tax. Under the House amendment, the tax authority would then have to follow normal procedures in order to collect a nondischargeable tax. For example, in the case of nondischargeable Federal income taxes, the Internal Revenue Service would be required to issue a deficiency notice to an individual debtor, and the debtor could then file a petition in the Tax Court - or a refund suit in a district court - as the forum in which to litigate his personal liability for a nondischargeable tax. Under the House amendment, as under present law, an individual debtor can also file a complaint to determine dischargeability. Consequently, where the tax authority does not file a claim or a request that the bankruptcy court determine dischargeability of a specific tax liability, the debtor could file such a request on his own behalf, so that the bankruptcy court would then determine both the validity of the claim against assets in the estate and also the personal liability of the debtor for any nondischargeable tax. Where a proceeding is pending in the Tax Court at the commencement of the bankruptcy case, the commencement of the bankruptcy case automatically stays further action in the Tax Court case unless and until the stay is lifted by the bankruptcy court. The Senate amendment repealed a provision of the Internal Revenue case barring a debtor from filing a petition in the Tax Court after commencement of a bankruptcy case (sec. 6871(b) of the code (26 U.S.C. 6871(b))). See section 321 of the Senate bill. As indicated earlier, the equivalent of the code amendment is embodied in section 362(a)(8) of the House amendment, which automatically stays commencement or continuation of any proceeding in the Tax Court until the stay is lifted or the case is terminated. The stay will permit sufficient time for the bankruptcy trustee to determine if he desires to join the Tax Court proceeding on behalf of the estate. Where the trustee chooses to join the Tax Court proceeding, it is expected that he will seek permission to intervene in the Tax Court case and then request that the stay on the Tax Court proceeding be lifted. In such a case, the merits of the tax liability will be determined by the Tax Court, and its decision will bind both the individual debtor as to any taxes which are nondischargeable and the trustee as to the tax claim against the estate. Where the trustee does not want to intervene in the Tax Court, but an individual debtor wants to have the Tax Court determine the amount of his personal liability for nondischargeable taxes, the debtor can request the bankruptcy court to lift the automatic stay on existing Tax Court proceedings. If the stay is lifted and the Tax Court reaches its decision before the bankruptcy court's decision on the tax claim against the estate, the decision of the Tax Court would bind the bankruptcy court under principles of res judicata because the decision of the Tax Court affected the personal liability of the debtor. If the trustee does not wish to subject the estate to the decision of the Tax Court if the latter court decides the issues before the bankruptcy court rules, the trustee could resist the lifting of the stay on the existing Tax Court proceeding. If the Internal Revenue Service had issued a deficiency notice to the debtor before the bankruptcy case began, but as of the filing of the bankruptcy petition the 90-day period for filing in the Tax Court was still running, the debtor would be automatically stayed from filing a petition in the Tax Court. If either the debtor or the Internal Revenue Service then files a complaint to determine dischargeability in the bankruptcy court, the decision of the bankruptcy court would bind both the debtor and the Internal Revenue Service. The bankruptcy judge could, however, lift the stay on the debtor to allow him to petition the Tax Court, while reserving the right to rule on the tax authority's claim against assets of the estate. The bankruptcy court could also, upon request by the trustee, authorize the trustee to intervene in the Tax Court for purposes of having the estate also governed by the decision of the Tax Court. In essence, under the House amendment, the bankruptcy judge will have authority to determine which court will determine the merits of the tax claim both as to claims against the estate and claims against the debtor concerning his personal liability for nondischargeable taxes. Thus, if the Internal Revenue Service, or a State or local tax authority, files a petition to determine dischargeability, the bankruptcy judge can either rule on the merits of the claim and continue the stay on any pending Tax Court proceeding or lift the stay on the Tax Court and hold the dischargeability complaint in abeyance. If he rules on the merits of the complaint before the decision of the Tax Court is reached, the bankruptcy court's decision would bind the debtor as to nondischargeable taxes and the Tax Court would be governed by that decision under principles of res judicata. If the bankruptcy judge does not rule on the merits of the complaint before the decision of the Tax Court is reached, the bankruptcy court will be bound by the decision of the Tax Court as it affects the amount of any claim against the debtor's estate. If the Internal Revenue Service does not file a complaint to determine dischargeability and the automatic stay on a pending Tax Court proceeding is not lifted, the bankruptcy court could determine the merits of any tax claim against the estate. That decision will not bind the debtor personally because he would not have been personally before the bankruptcy court unless the debtor himself asks the bankruptcy court to rule on his personal liability. In any such situation where no party filed a dischargeability petition, the debtor would have access to the Tax Court to determine his personal liability for a nondischargeable tax debt. While the Tax Court in such a situation could take into account the ruling of the bankruptcy court on claims against the estate in deciding the debtor's personal liability, the bankruptcy court's ruling would not bind the Tax Court under principles of res judicata, because the debtor, in that situation, would not have been personally before the bankruptcy court. If neither the debtor nor the Internal Revenue Service files a claim against the estate or a request to rule on the debtor's personal liability, any pending tax court proceeding would be stayed until the closing of the bankruptcy case, at which time the stay on the tax court would cease and the tax court case could continue for purposes of deciding the merits of the debtor's personal liability for nondischargeable taxes. Audit of trustee's returns: Under both bills, the bankruptcy court could determine the amount of any administrative period taxes. The Senate amendment, however, provided for an expedited audit procedure, which was mandatory in some cases. The House amendment (sec. 505(b)), adopts the provision of the House bill allowing the trustee discretion in all cases whether to ask the Internal Revenue Service, or State or local tax authority for a prompt audit of his returns on behalf of the estate. The House amendment, however, adopts the provision of the Senate bill permitting a prompt audit only on the basis of tax returns filed by the trustee for completed taxable periods. Procedures for a prompt audit set forth in the Senate bill are also adopted in modified form. Under the procedure, before the case can be closed, the trustee may request a tax audit by the local, State or Federal tax authority of all tax returns filed by the trustee. The taxing authority would have to notify the trustee and the bankruptcy court within 60 days whether it accepts returns or desires to audit the returns more fully. If an audit is conducted, the taxing authority would have to notify the trustee of tax deficiency within 180 days after the original request, subject to extensions of time if the bankruptcy court approves. If the trustee does not agree with the results of the audit, the trustee could ask the bankruptcy court to resolve the dispute. Once the trustee's tax liability for administration period taxes has thus been determined, the legal effect in a case under chapter 7 or 11 would be to discharge the trustee and any predecessor of the trustee, and also the debtor, from any further liability for these taxes. The prompt audit procedure would not be available with respect to any tax liability as to which any return required to be filed on behalf of the estate is not filed with the proper tax authority. The House amendment also specifies that a discharge of the trustee or the debtor which would otherwise occur will not be granted, or will be void if the return filed on behalf of the estate reflects fraud or material misrepresentation of facts. For purposes of the above prompt audit procedures, it is intended that the tax authority with which the request for audit is to be filed is, as the Federal taxes, the office of the District Director in the district where the bankruptcy case is pending. Under the House amendment, if the trustee does not request a prompt audit, the debtor would not be discharged from possible transferee liability if any assets are returned to the debtor. Assessment after decision: As indicated above, the commencement of a bankruptcy case automatically stays assessment of any tax (sec. 362(a)(6)). However, the House amendment provides (sec. 505(c)) that if the bankruptcy court renders a final judgment with regard to any tax (under the rules discussed above), the tax authority may then make an assessment (if permitted to do so under otherwise applicable tax law) without waiting for termination of the case or confirmation of a reorganization plan. Trustee's authority to appeal tax cases: The equivalent provision in the House bill (sec. 505(b)) and in the Senate bill (sec. 362(h)) authorizing the trustee to prosecute an appeal or review of a tax case are deleted as unnecessary. Section 541(a) of the House amendment provides that property of the estate is to include all legal or equitable interests of the debtor. These interests include the debtor's causes of action, so that the specific provisions of the House and Senate bills are not needed. SENATE REPORT NO. 95-989 Subsections (a) and (b) are derived, with only stylistic changes, from section 2a(2A) of the Bankruptcy Act (section 11(a)(2A) of former title 11). They permit determination by the bankruptcy court of any unpaid tax liability of the debtor that has not been contested before or adjudicated by a judicial or administrative tribunal of competent jurisdiction before the bankruptcy case, and the prosecution by the trustee of an appeal from an order of such a body if the time for review or appeal has not expired before the commencement of the bankruptcy case. As under current Bankruptcy Act Sec. 2a (2A), Arkansas Corporation Commissioner v. Thompson, 313 U.S. 132 (1941), remains good law to permit abstention where uniformity of assessment is of significant importance. Section (c) deals with procedures for obtaining a prompt audit of tax returns filed by the trustee in a liquidation or reorganization case. Under the bill as originally introduced, a trustee who is 'in doubt' concerning tax liabilities of the estate incurred during a title 11 proceeding could obtain a discharge from personal liability for himself and the debtor (but not for the debtor or the debtor's successor in a reorganization), provided that certain administrative procedures were followed. The trustee could request a prompt tax audit by the local, State, or Federal governmental unit. The taxing authority would have to notify the trustee and the court within sixty days whether it accepted the return or desired to audit the returns more fully. If an audit were conducted, the tax office would have to notify the trustee of any tax deficiency within 4 months (subject to an extension of time if the court approved). These procedures would apply only to tax years completed on or before the case was closed and for which the trustee had filed a tax return. The committee bill eliminates the 'in doubt' rule and makes mandatory (rather than optional) the trustee's request for a prompt audit of the estate's tax returns. In many cases, the trustee could not be certain that his returns raised no doubt about possible tax issues. In addition, it is desirable not to create a situation where the taxing authority asserts a tax liability against the debtor (as transferee of surplus assets, if any, return to him) after the case is over; in any such situation, the debtor would be called on to defend a tax return which he did not prepare. Under the amendment, all disputes concerning these returns are to be resolved by the bankruptcy court, and both the trustee and the debtor himself do not then face potential post-bankruptcy tax liabilities based on these returns. This result would occur as to the debtor, however, only in a liquidation case. In a reorganization in which the debtor or a successor to the debtor continues in existence, the trustee could obtain a discharge from personal liability through the prompt audit procedure, but the Treasury could still claim a deficiency against the debtor (or his successor) for additional taxes due on returns filed during the title 11 proceedings. HOUSE REPORT NO. 95-595 Subsection (c) is new. It codifies in part the referee's decision in In re Statmaster Corp., 465 F.2d 987 (5th Cir. 1972). Its purpose is to protect the trustee from personal liability for a tax falling on the estate that is not assessed until after the case is closed. If necessary to permit expeditious closing of the case, the court, on request of the trustee, must order the governmental unit charged with the responsibility for collection or determination of the tax to audit the trustee's return or be barred from attempting later collection. The court will be required to permit sufficient time to perform an audit, if the taxing authority requests it. The final order of the court and the payment of the tax determined in that order discharges the trustee, the debtor, and any successor to the debtor from any further liability for the tax. See Plumb, The Tax Recommendations of the Commission on the Bankruptcy Laws: Tax Procedures, 88 Harv. L. Rev. 1360, 1423-42 (1975). AMENDMENTS 1984 - Subsec. (a)(2)(B)(i). Pub. L. 98-353 substituted 'or' for 'and'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in title 26 sections 6212, 6512, 6532, 7434; title 28 section 2201. ------DocID 14727 Document 72 of 646------ -CITE- 11 USC Sec. 506 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 506. Determination of secured status -STATUTE- (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. (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 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. (d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless - (1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or (2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2583; Pub. L. 98-353, title III, Sec. 448, July 10, 1984, 98 Stat. 374.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 506(a) of the House amendment adopts the provision contained in the Senate amendment and rejects a contrary provision as contained in H.R. 8200 as passed by the House. The provision contained in the Senate amendment and adopted by the House amendment recognizes that an amount subject to set-off is sufficient to recognize a secured status in the holder of such right. Additionally a determination of what portion of an allowed claim is secured and what portion is unsecured is binding only for the purpose for which the determination is made. Thus determinations for purposes of adequate protection is not binding for purposes of 'cram down' on confirmation in a case under chapter 11. Section 506(b) of the House amendment adopts language contained in the Senate amendment and rejects language contained in H.R. 8200 as passed by the House. If the security agreement between the parties provides for attorneys' fees, it will be enforceable under title 11, notwithstanding contrary law, and is recoverable from the collateral after any recovery under section 506(c). Section 506(c) of the House amendment was contained in H.R. 8200 as passed by the House and adopted, verbatim, in the Senate amendment. Any time the trustee or debtor in possession expends money to provide for the reasonable and necessary cost and expenses of preserving or disposing of a secured creditor's collateral, the trustee or debtor in possession is entitled to recover such expenses from the secured party or from the property securing an allowed secured claim held by such party. Section 506(d) of the House amendment is derived from H.R. 8200 as passed by the House and is adopted in lieu of the alternative test provided in section 506(d) of the Senate amendment. For purposes of section 506(d) of the House amendment, the debtor is a party in interest. Determination of Secured Status: The House amendment deletes section 506(d)(3) of the Senate amendment, which insures that a tax lien securing a nondischargeable tax claim is not voided because a tax authority with notice or knowledge of the bankruptcy case fails to file a claim for the liability (as it may elect not to do, if it is clear there are insufficient assets to pay the liability). Since the House amendment retains section 506(d) of the House bill that a lien is not voided unless a party in interest has requested that the court determine and allow or disallow the claim, provision of the Senate amendment is not necessary. SENATE REPORT NO. 95-989 Subsection (a) of this section separates an undersecured creditor's claim into two parts: He has a secured claim to the extent of the value of his collateral; and he has an unsecured claim for the balance of his claim. The subsection also provides for the valuation of claims which involve setoffs under section 553. While courts will have to determine value on a case-by-case basis, the subsection makes it clear that valuation is to be determined in light of the purpose of the valuation and the proposed disposition or use of the subject property. This determination shall be made in conjunction with any hearing on such disposition or use of property or on a plan affecting the creditor's interest. To illustrate, a valuation early in the case in a proceeding under sections 361-363 would not be binding upon the debtor or creditor at the time of confirmation of the plan. Throughout the bill, references to secured claims are only to the claim determined to be secured under this subsection, and not to the full amount of the creditor's claim. This provision abolishes the use of the terms 'secured creditor' and 'unsecured creditor' and substitutes in their places the terms 'secured claim' and 'unsecured claim.' Subsection (b) codifies current law by entitling a creditor with an oversecured claim to any reasonable fees (including attorney's fees), costs, or charges provided under the agreement under which the claim arose. These fees, costs, and charges are secured claims to the extent that the value of the collateral exceeds the amount of the underlying claim. Subsection (c) also codifies current law by permitting the trustee to recover from property the value of which is greater than the sum of the claims secured by a lien on that property the reasonable, necessary costs and expenses of preserving, or disposing of, the property. The recovery is limited to the extent of any benefit to the holder of such claim. Subsection (d) provides that to the extent a secured claim is not allowed, its lien is void unless the holder had neither actual notice nor knowledge of the case, the lien was not listed by the debtor in a chapter 9 or 11 case or such claim was disallowed only under section 502(e). HOUSE REPORT NO. 95-595 Subsection (d) permits liens to pass through the bankruptcy case unaffected. However, if a party in interest requests the court to determine and allow or disallow the claim secured by the lien under section 502 and the claim is not allowed, then the lien is void to the extent that the claim is not allowed. The voiding provision does not apply to claims disallowed only under section 502(e), which requires disallowance of certain claims against the debtor by a codebtor, surety, or guarantor for contribution or reimbursement. AMENDMENTS 1984 - Subsec. (b). Pub. L. 98-353, Sec. 448(a), inserted 'for' after 'provided'. Subsec. (d)(1). Pub. L. 98-353, Sec. 448(b), substituted 'such claim was disallowed only under section 502(b)(5) or 502(e) of this title' for 'a party in interest has not requested that the court determine and allow or disallow such claim under section 502 of this title'. Subsec. (d)(2). Pub. L. 98-353, Sec. 448(b), substituted 'such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title' for 'such claim was disallowed only under section 502(e) of this title'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 349, 522, 551, 552, 901, 1111 of this title. ------DocID 14728 Document 73 of 646------ -CITE- 11 USC Sec. 507 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 507. Priorities -STATUTE- (a) The following expenses and claims have priority in the following order: (1) First, administrative expenses allowed under section 503(b) of this title, and any fees and charges assessed against the estate under chapter 123 of title 28. (2) Second, unsecured claims allowed under section 502(f) of this title. (3) Third, allowed unsecured claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay - (A) earned by an individual within 90 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first; but only (B) to the extent of $2,000 for each such individual. (4) Fourth, allowed unsecured claims for contributions to an employee benefit plan - (A) arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first; but only (B) for each such plan, to the extent of - (i) the number of employees covered by each such plan multiplied by $2,000; less (ii) the aggregate amount paid to such employees under paragraph (3) of this subsection, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan. (5) Fifth, allowed unsecured claims of persons - (A) engaged in the production or raising of grain, as defined in section 557(b)(1) of this title, against a debtor who owns or operates a grain storage facility, as defined in section 557(b)(2) of this title, for grain or the proceeds of grain, or (B) engaged as a United States fisherman against a debtor who has acquired fish or fish produce from a fisherman through a sale or conversion, and who is engaged in operating a fish produce storage or processing facility - but only to the extent of $2,000 for each such individual. (6) Sixth, allowed unsecured claims of individuals, to the extent of $900 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided. (7) Seventh, allowed 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; (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 (iii) other than a tax of a kind specified in section 523(a)(1)(B) or 523(a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case; (B) a property tax assessed before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition; (C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity; (D) an employment tax on a wage, salary, or commission of a kind specified in paragraph (3) of this subsection earned from the debtor before the date of the filing of the petition, whether or not actually paid before such date, for which a return is last due, under applicable law or under any extension, after three years before the date of the filing of the petition; (E) an excise tax on - (i) a transaction occurring before the date of the filing of the petition for which a return, if required, is last due, under applicable law or under any extension, after three years before the date of the filing of the petition; or (ii) if a return is not required, a transaction occurring during the three years immediately preceding the date of the filing of the petition; (F) a customs duty arising out of the importation of merchandise - (i) entered for consumption within one year before the date of the filing of the petition; (ii) covered by an entry liquidated or reliquidated within one year before the date of the filing of the petition; or (iii) entered for consumption within four years before the date of the filing of the petition but unliquidated on such date, if the Secretary of the Treasury certifies that failure to liquidate such entry was due to an investigation pending on such date into assessment of antidumping or countervailing duties or fraud, or if information needed for the proper appraisement or classification of such merchandise was not available to the appropriate customs officer before such date; or (G) a penalty related to a claim of a kind specified in this paragraph and in compensation for actual pecuniary loss. (8) Eighth, allowed unsecured claims based upon any commitment by the debtor to the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Director of the Office of Thrift Supervision, the Comptroller of the Currency, or the Board of Governors of the Federal Reserve System, or their predecessors or successors, to maintain the capital of an insured depository institution. (b) If the trustee, under section 362, 363, or 364 of this title, provides adequate protection of the interest of a holder of a claim secured by a lien on property of the debtor and if, notwithstanding such protection, such creditor has a claim allowable under subsection (a)(1) of this section arising from the stay of action against such property under section 362 of this title, from the use, sale, or lease of such property under section 363 of this title, or from the granting of a lien under section 364(d) of this title, then such creditor's claim under such subsection shall have priority over every other claim allowable under such subsection. (c) For the purpose of subsection (a) of this section, a claim of a governmental unit arising from an erroneous refund or credit of a tax has the same priority as a claim for the tax to which such refund or credit relates. (d) An entity that is subrogated to the rights of a holder of a claim of a kind specified in subsection (a)(3), (a)(4), (a)(5), (FOOTNOTE 1) or (a)(6) (FOOTNOTE 1) of this section is not subrogated to the right of the holder of such claim to priority under such subsection. (FOOTNOTE 1) See References in Text note below. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2583; Pub. L. 98-353, title III, Sec. 350, 449, July 10, 1984, 98 Stat. 358, 374; Pub. L. 101-647, title XXV, Sec. 2522(d), Nov. 29, 1990, 104 Stat. 4867.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 507(a)(3) of the House amendment represents a compromise dollar amount and date for the priority between similar provisions contained in H.R. 8200 as passed by the House and the Senate amendments. A similar compromise is contained in section 507(a)(4). Section 507(a)(5) represents a compromise on amount between the priority as contained in H.R. 8200 as passed by the House and the Senate amendment. The Senate provision for limiting the priority to consumers having less than a fixed gross income is deleted. Section 507(a)(6) of the House amendment represents a compromise between similar provisions contained in H.R. 8200 as passed by the House and the Senate amendment. Section 507(b) of the House amendment is new and is derived from the compromise contained in the House amendment with respect to adequate protection under section 361. Subsection (b) provides that to the extent adequate protection of the interest of a holder of a claim proves to be inadequate, then the creditor's claim is given priority over every other allowable claim entitled to distribution under section 507(a). Section 507(b) of the Senate amendment is deleted. Section 507(c) of the House amendment is new. Section 507(d) of the House amendment prevents subrogation with respect to priority for certain priority claims. Subrogation with respect to priority is intended to be permitted for administrative claims and claims arising during the gap period. Priorities: Under the House amendment, taxes receive priority as follows: First. Administration expenses: The amendment generally follows the Senate amendment in providing expressly that taxes incurred during the administration of the estate share the first priority given to administrative expenses generally. Among the taxes which receives first priority, as defined in section 503, are the employees' and the employer's shares of employment taxes on wages earned and paid after the petition is filed. Section 503(b)(1) also includes in administration expenses a tax liability arising from an excessive allowance by a tax authority of a 'quickie refund' to the estate. (In the case of Federal taxes, such refunds are allowed under special rules based on net operating loss carrybacks (sec. 6411 of the Internal Revenue Code (title 26)). An exception is made to first priority treatment for taxes incurred by the estate with regard to the employer's share of employment taxes on wages earned from the debtor before the petition but paid from the estate after the petition has been filed. In this situation, the employer's tax receives either sixth priority or general claim treatment. The House amendment also adopts the provisions of the Senate amendment which include in the definition of administrative expenses under section 503 any fine, penalty (including 'additions to tax' under applicable tax laws) or reduction in credit imposed on the estate. Second. 'Involuntary gap' claims: 'Involuntary gap' creditors are granted second priority by paragraph (2) of section 507(a). This priority includes tax claims arising in the ordinary course of the debtor's business or financial affairs after he has been placed involuntarily in bankruptcy but before a trustee is appointed or before the order for relief. Third. Certain taxes on prepetition wages: Wage claims entitled to third priority are for compensation which does not exceed $2,000 and was earned during the 90 days before the filing of the bankruptcy petition or the cessation of the debtor's business. Certain employment taxes receive third priority in payment from the estate along with the payment of wages to which the taxes relate. In the case of wages earned before the filing of the petition, but paid by the trustee (rather than by the debtor) after the filing of the petition, claims or the employees' share of the employment taxes (withheld income taxes and the employees' share of the social security or railroad retirement tax) receive third priority to the extent the wage claims themselves are entitled to this priority. In the case of wages earned from and paid by the debtor before the filing of the petition, the employer's share of the employment taxes on these wages paid by the debtor receives sixth priority or, if not entitled to that priority, are treated only as general claims. Under the House amendment, the employer's share of employment taxes on wages earned by employees of the debtor, but paid by the trustee after the filing of the bankruptcy petition, will also receive sixth priority to the extent that claims for the wages receive third priority. To the extent the claims for wages do not receive third priority, but instead are treated only as general claims, claims for the employer's share of the employment taxes attributable to those wages will also be treated as general claims. In calculating the amounts payable as general wage claims, the trustee must pay the employer's share of employment taxes on such wages. Sixth priority. The House amendment modifies the provisions of both the House bill and Senate amendment in the case of sixth priority taxes. Under the amendment, the following Federal, State and local taxes are included in the sixth priority: First. Income and gross receipts taxes incurred before the date of the petition for which the last due date of the return, including all extensions of time granted to file the return, occurred within 3 years before the date on which the petition was filed, or after the petition date. Under this rule, the due date of the return, rather than the date on which the taxes were assessed, determines the priority. Second. Income and gross receipts taxes assessed at any time within 240 days before the petition date. Under this rule, the date on which the governmental unit assesses the tax, rather than the due date of the return, determines the priority. If, following assessment of a tax, the debtor submits an offer in compromise to the governmental unit, the House amendment provides that the 240-day period is to be suspended for the duration of the offer and will resume running after the offer is withdrawn or rejected by the governmental unit, but the tax liability will receive priority if the title 11 petition is filed during the balance of the 240-day period or during a minimum of 30 days after the offer is withdrawn or rejected. This rule modifies a provision of the Senate amendment dealing specifically with offers in compromise. Under the modified rule, if, after the assessment, an offer in compromise is submitted by the debtor and is still pending (without having been accepted or rejected) at the date on which a title 11 petition is filed, the underlying liability will receive sixth priority. However, if an assessment of a tax liability is made but the tax is not collected within 240 days, the tax will not receive priority under section 507(a)(6)(A)(i) and the debtor cannot revive a priority for that tax by submitting an offer in compromise. Third. Income and gross receipts taxes not assessed before the petition date but still permitted, under otherwise applicable tax laws, to be assessed. Thus, for example, a prepetition tax liability is to receive sixth priority under this rule if, under the applicable statute of limitations, the tax liability can still be assessed by the tax authority. This rule also covers situations referred to in section 507(a)(6)(B)(ii) of the Senate amendment where the assessment or collection of a tax was prohibited before the petition pending exhaustion of judicial or administrative remedies, except that the House amendment eliminates the 300-day limitation of the Senate bill. So, for example, if before the petition a debtor was engaged in litigation in the Tax Court, during which the Internal Revenue Code (title 26) bars the Internal Revenue Service from assessing or collecting the tax, and if the tax court decision is made in favor of the Service before the petition under title 11 is filed, thereby lifting the restrictions on assessment and collection, the tax liability will receive sixth priority even if the tax authority does not make an assessment within 300 days before the petition (provided, of course, that the statute of limitations on assessment has not expired by the petition date). In light of the above categories of the sixth priority, and tax liability of the debtor (under the Internal Revenue Code (title 26) or State or local law) as a transferee of property from another person will receive sixth priority without the limitations contained in the Senate amendment so long as the transferee liability had not been assessed by the tax authority by the petition date but could still have been assessed by that date under the applicable tax statute of limitations or, if the transferee liability had been assessed before the petition, the assessment was made no more than 240 days before the petition date. Also in light of the above categories, the treatment of prepetition tax liabilities arising from an excessive allowance to the debtor of a tentative carryback adjustment, such as a 'quickie refund' under section 6411 of the Internal Revenue Code (title 26) is revised as follows: If the tax authority has assessed the additional tax before the petition, the tax liability will receive priority if the date of assessment was within 240 days before the petition date. If the tax authority had not assessed the additional tax by the petition, the tax liability will still receive priority so long as, on the petition date, assessment of the liability is not barred by the statute of limitations. Fourth. Any property tax assessed before the commencement of the case and last payable without penalty within 1 year before the petition, or thereafter. Fifth. Taxes which the debtor was required by law to withhold or collect from others and for which he is liable in any capacity, regardless of the age of the tax claims. This category covers the so-called 'trust fund' taxes, that is, income taxes which an employer is required to withhold from the pay of his employees, and the employees' share of social security taxes. In addition, this category includes the liability of a responsible officer under the Internal Revenue Code (sec. 6672) (title 26) for income taxes or for the employees' share of social security taxes which that officer was responsible for withholding from the wages of employees and paying to the Treasury, although he was not himself the employer. This priority will operate when a person found to be a responsible officer has himself filed in title 11, and the priority will cover the debtor's responsible officer liability regardless of the age of the tax year to which the tax relates. The U.S. Supreme Court has interpreted present law to require the same result as will be reached under this rule. U.S. v. Sotelo, 436 U.S. 268 (1978) (98 S.Ct. 1795, 56 L.Ed.2d 275, rehearing denied 98 S.Ct. 3126, 438 U.S. 907, 57 L.Ed.2d 1150). This category also includes the liability under section 3505 of the Internal Revenue Code (26 U.S.C. 3505) of a taxpayer who loans money for the payment of wages or other compensation. Sixth. The employer's share of employment taxes on wages paid before the petition and on third-priority wages paid postpetition by the estate. The priority rules under the House amendment governing employment taxes can thus be summarized as follows: Claims for the employees' shares of employment taxes attributable to wages both earned and paid before the filing of the petition are to receive sixth priority. In the case of employee wages earned, but not paid, before the filing of the bankruptcy petition, claims for the employees' share of employment taxes receive third priority to the extent the wages themselves receive third priority. Claims which relate to wages earned before the petition, but not paid before the petition (and which are not entitled to the third priority under the rule set out above), will be paid as general claims. Since the related wages will receive no priority, the related employment taxes would also be paid as nonpriority general claims. The employer's share of the employment taxes on wages earned and paid before the bankruptcy petition will receive sixth priority to the extent the return for these taxes was last due (including extensions of time) within 3 years before the filing of the petition, or was due after the petition was filed. Older tax claims of this nature will be payable as general claims. In the case of wages earned by employees before the petition, but actually paid by the trustee (as claims against the estate) after the title 11 case commenced, the employer's share of the employment taxes on third priority wages will be payable as sixth priority claims and the employer's taxes on prepetition wages which are treated only as general claims will be payable only as general claims. In calculating the amounts payable as general wage claims, the trustee must pay the employer's share of employment taxes on such wages. The House amendment thus deletes the provision of the Senate amendment that certain employer taxes receive third priority and are to be paid immediately after payment of third priority wages and the employees' shares of employment taxes on those wages. In the case of employment taxes relating to wages earned and paid after the petition, both the employees' shares and the employer's share will receive first priority as administration expenses of the estate. Seventh. Excise taxes on transactions for which a return, if required, is last due, under otherwise applicable law or under any extension of time to file the return, within 3 years before the petition was filed, or thereafter. If a return is not required with regard to a particular excise tax, priority is given if the transaction or event itself occurred within 3 years before the date on which the title 11 petition was filed. All Federal, State or local taxes generally considered or expressly treated as excises are covered by this category, including sales taxes, estate and gift taxes, gasoline and special fuel taxes, and wagering and truck taxes. Eighth. Certain unpaid customs duties. The House amendment covers in this category duties on imports entered for consumption within 1 year before the filing of the petition, but which are still unliquidated on the petition date; duties covered by an entry liquidated or reliquidated within 1 year before the petition date; and any duty on merchandise entered for consumption within 4 years before the petition but not liquidated on the petition date, if the Secretary of the Treasury or his delegate certifies that duties were not liquidated because of possible assessment of antidumping or countervailing duties or fraud penalties. For purposes of the above priority rules, the House amendment adopts the provision of the Senate bill that any tax liability which, under otherwise applicable tax law, is collectible in the form of a 'penalty,' is to be treated in the same manner as a tax liability. In bankruptcy terminology, such tax liabilities are referred to as pecuniary loss penalties. Thus, any tax liability which under the Internal Revenue Code (title 26) or State or local tax law is payable as a 'penalty,' in addition to the liability of a responsible person under section 6672 of the Internal Revenue Code (26 U.S.C. 6672) will be entitled to the priority which the liability would receive if it were expressly labeled as a 'tax' under the applicable tax law. However, a tax penalty which is punitive in nature is given subordi- nated treatment under section 726(a)(4). The House amendment also adopts the provision of the Senate amendment that a claim arising from an erroneous refund or credit of tax, other than a 'quickie refund,' is to receive the same priority as the tax to which the refund or credit relates. The House amendment deletes the express provision of the Senate amendment that a tax liability is to receive sixth priority if it satisfies any one of the subparagraphs of section 507(a)(6) even if the liability fails to satisfy the terms of one or more other subparagraphs. No change of substance is intended by the deletion, however, in light of section 102(5) of the House amendment, providing a rule of construction that the word 'or' is not intended to be exclusive. The House amendment deletes from the express priority categories of the Senate amendment the priority for a debtor's liability as a third party for failing to surrender property or to pay an obligation in response to a levy for taxes of another, and the priority for amounts provided for under deferred payment agreements between a debtor and the tax authority. The House amendment also adopts the substance of the definition in section 346(a) the Senate amendment of when taxes are to be considered 'incurred' except that the House amendment applies these definitions solely for purposes of determining which category of section 507 tests the priority of a particular tax liability. Thus, for example, the House amendment contains a special rule for the treatment of taxes under the 45-day exception to the preference rules under section 547 and the definitions of when a tax is incurred for priority purposes are not to apply to such preference rules. Under the House amendment, for purposes of the priority rules, a tax on income for a particular period is to be considered 'incurred' on the last day of the period. A tax on or measured by some event, such as the payment of wages or a transfer by reason of death or gift, or an excise tax on a sale or other transaction, is to be considered 'incurred' on the date of the transaction or event. SENATE REPORT NO. 95-989 Section 507 specifies the kinds of claims that are entitled to priority in distribution, and the order of their priority. Paragraph (1) grants first priority to allowed administrative expenses and to fees and charges assessed against the estate under chapter 123 (Sec. 1911 et seq.) of title 28. Taxes included as administrative expenses under section 503(b)(1) of the bill generally receive the first priority, but the bill makes certain qualifications: Examples of these specially treated claims are the estate's liability for recapture of an investment tax credit claimed by the debtor before the title 11 case (this liability receives sixth priority) and the estate's employment tax liabilities on wages earned before, but paid after, the petition was filed (this liability generally receives the same priority as the wages). 'Involuntary gap' creditors, granted first priority under current law, are granted second priority by paragraph (2). This priority, covering claims arising in the ordinary course of the debtor's business or financial affairs after a title 11 case has begun but before a trustee is appointed or before the order for relief, includes taxes incurred during the conduct of such activities. Paragraph (3) expands and increases the wage priority found in current section 64a(2) (section 104(a)(2) of former title 11). The amount entitled to priority is raised from $600 to $1,800. The former figure was last adjusted in 1926. Inflation has made it nearly meaningless, and the bill brings it more than up to date. The three month limit of current law is retained, but is modified to run from the earlier of the date of the filing of the petition or the date of the cessation of the debtor's business. The priority is expanded to cover vacation, severance, and sick leave pay. The bill adds to the third priority so-called 'trust fund' taxes, that is, withheld income taxes and the employees' share of the social security or railroad retirement taxes, but only to the extent that the wages on which taxes are imposed are themselves entitled to third priority. The employer's share, the employment tax and the employer's share of the social security or railroad retirement tax on third priority compensation, is also included in the third priority category, but only if, and to the extent that the wages and related trust fund taxes have first been paid in full. Because of the claimants urgent need for their wages in the typical cases, the employer's taxes should not be paid before the wage claims entitled to priority, as well as the related trust fund taxes, are fully paid. Paragraph (4) overrules United States v. Embassy Restaurant, 359 U.S. 29 (1958), which held that fringe benefits were not entitled to wage priority status. The bill recognizes the realities of labor contract negotiations, where fringe benefits may be substituted for wage demands. The priority granted is limited to claims for contributions to employee benefit plans such as pension plans, health or life insurance plans, and others, arising from services rendered within 120 days before the commencement of the case or the date of cessation of the debtor's business, whichever occurs first. The dollar limit placed on the total of all contributions payable under this paragraph is equal to the difference between the maximum allowable priority under paragraph (3), $1,800, times the number of employees covered by the plan less the actual distributions under paragraph (3) with respect to these employees. Paragraph (5) is a new priority for consumer creditors - those who have deposited money in connection with the purchase, lease, or rental of property, or the purchase of services, for their personal, family, or household use, that were not delivered or provided. The priority amount is not to exceed $600. In order to reach only those persons most deserving of this special priority, it is limited to individuals whose adjustable gross income from all sources derived does not exceed $20,000. See Senate Hearings, testimony of Prof. Vern Countryman, at pp. 848-849. The income of the husband and wife should be aggregated for the purposes of the $20,000 limit if either or both spouses assert such a priority claim. The sixth priority is for certain taxes. Priority is given to income taxes for a taxable year that ended on or before the date of the filing of the petition, if the last due date of the return for such year occurred not more than 3 years immediately before the date on which the petition was filed (Sec. 507(a)(6)(A)(i)). For the purposes of this rule, the last due date of the return is the last date under any extension of time to file the return which the taxing authority may have granted the debtor. Employment taxes and transfer taxes (including gift, estate, sales, use and other excise taxes) are also given sixth priority if the transaction or event which gave rise to the tax occurred before the petition date, provided that the required return or report of such tax liabilities was last due within 3 years before the petition was filed or was last due after the petition date (Sec. 507(a)(6)(A)(ii)). The employment taxes covered under this rule are the employer's share of the social security and railroad retirement taxes and required employer payments toward unemployment insurance. Priority is given to income taxes and other taxes of a kind described in section 507(a)(6)(A)(i) and (ii) which the Federal, State, or local tax authority had assessed within 3 years after the last due date of the return, that is, including any extension of time to file the return, if the debtor filed in title 11 within 240 days after the assessment was made (Sec. 507(a)(6)(B)(i)). This rule may bring into the sixth priority the debtor's tax liability for some taxable years which would not qualify for priority under the general three-year rule of section 507(a)(6)(A). The sixth priority category also includes taxes which the tax authority was barred by law from assessing or collecting at any time during the 300 days before the petition under title 11 was filed (Sec. 507(a)(6)(B)(ii)). In the case of certain Federal taxes, this preserves a priority for tax liabilities for years more than three years before the filing of the petition where the debtor and the Internal Revenue Service were negotiating over an audit of the debtor's returns or were engaged in litigation in the Tax Court. In such situations, the tax law prohibits the service's right to assess a tax deficiency until ninety days after the service sends the taxpayer a deficiency letter or, if the taxpayer files a petition in the Tax Court during that 90-day period, until the outcome of the litigation. A similar priority exists in present law, except that the taxing authority is allowed no time to assess and collect the taxes after the restrictions on assessment (discussed above) are lifted. Some taxpayers have exploited this loophole by filing in bankruptcy immediately after the end of the 90-day period or immediately after the close of Tax Court proceedings. The bill remedies this defect by preserving a priority for taxes the assessment of which was barred by law by giving the tax authority 300 days within which to make the assessment after the lifting of the bar and then to collect or file public notice of its tax lien. Thus, if a taxpayer files a title 11 petition at any time during that 300-day period, the tax deficiency will be entitled to priority. If the petition is filed more than 300 days after the restriction on assessment was lifted, the taxing authority will not have priority for the tax deficiency. Taxes for which an offer in compromise was withdrawn by the debtor, or rejected by a governmental unit, within 240 days before the petition date (Sec. 507(a)(6)(B)(iii)) will also receive sixth priority. This rule closes a loophole under present law under which, following an assessment of tax, some taxpayers have submitted a formal offer in compromise, dragged out negotiations with the taxing authority until the tax liability would lose priority under the three-year priority period of present law, and then filed in bankruptcy before the governmental unit could take collection steps. Also included are certain taxes for which no return or report is required by law (Sec. 507(a)(6)(C)), if the taxable transaction occurred within three years before the petition was filed. Taxes (not covered by the third priority) which the debtor was required by law to withhold or collect from others and for which he is liable in any capacity, regardless of the age of the tax claims (Sec. 507(a)(6)(D)) are included. This category covers the so-called 'trust fund' taxes, that is, income taxes which an employer is required to withhold from the pay of his employees, the employees' shares of social security and railroad retirement taxes, and also Federal unemployment insurance. This category also includes excise taxes which a seller of goods or services is required to collect from a buyer and pay over to a taxing authority. This category also covers the liability of a responsible corporate officer under the Internal Revenue Code (title 26) for income taxes or for the employees' share of employment taxes which, under the tax law, the employer was required to withhold from the wages of employees. This priority will operate where a person found to be a responsible officer has himself filed a petition under title 11, and the priority covers the debtor's liability as an officer under the Internal Revenue Code, regardless of the age of the tax year to which the tax relates. The priority rules under the bill governing employment taxes can be summarized as follows: In the case of wages earned and actually paid before the petition under title 11 was filed, the liability for the employees' share of the employment taxes, regardless of the prepetition year in which the wages were earned and paid. The employer's share of the employment taxes on all wages earned and paid before the petition receive sixth priority; generally, these taxes will be those for which a return was due within three years before the petition. With respect to wages earned by employees before the petition but actually paid by the trustee after the title 11 case commenced, taxes required to be withheld receives the same priority as the wages themselves. Thus, the employees' share of taxes on third priority wages also receives third priority. Taxes on the balance of such wages receive no priority and are collectible only as general claims because the wages themselves are payable only as general claims and liability for the taxes arises only to the extent the wages are actually paid. The employer's share of employment taxes on third priority wages earned before the petition but paid after the petition was filed receives third priority, but only if the wages in this category have first been paid in full. Assuming there are sufficient funds to pay third priority wages and the related employer taxes in full, the employer's share of taxes on the balance of wage payments becomes a general claim (because the wages themselves are payable as general claims). Both the employees' and the employer's share of employment taxes on wages earned and paid after the petition was filed receive first priority as administrative expenses. Also covered by this sixth priority are property taxes required to be assessed within 3 years before the filing of the petition (Sec. 507(a)(6)(E)). Taxes attributable to a tentative carryback adjustment received by the debtor before the petition was filed, such as a 'quickie refund' received under section 6411 of the Internal Revenue Code (title 26) (Sec. 507(a)(6)(F)) are included. However, the tax claim against the debtor will rein a prepetition loss year for which the tax return was last due, including extensions, within 3 years before the petition was filed. Taxes resulting from a recapture, occasioned by a transfer during bankruptcy, of a tax credit or deduction taken during an earlier tax year (Sec. 507(a)(6)(G)) are included. A typical example occurs when there is a sale by the trustee of depreciable property during the case and depreciation deductions taken in prepetition years are subject to recapture under section 1250 of the Code (title 26). Taxes owed by the debtor as a transferee of assets from another person who is liable for a tax, if the tax claim against the transferor would have received priority in a chapter 11 case commenced by the transferor within 1 year before the date of the petition filed by the transferee (Sec. 507(a)(6)(H)), are included. Also included are certain tax payments required to have been made during the 1 year immediately before the petition was filed, where the debtor had previously entered into a deferred payment agreement (including an offer in compromise) to pay an agreed liability in periodic installments but had become delinquent in one or more installments before the petition was filed (Sec. 507(a)(6)(I)). This priority covers all types of deferred or part payment agreements. The priority covers only installments which first became due during the 1 year before the petition but which remained unpaid at the date of the petition. The priority does not come into play, however, if before the case began or during the case, the debtor and the taxing authority agree to a further extension of time to pay the delinquent amounts. Certain tax-related liabilities which are not true taxes or which are not collected by regular assessment procedures (Sec. 507(a)(6)(J)) are included. One type of liability covered in this category is the liability under section 3505 of the Internal Revenue Code (title 26) of a lender who pays wages directly to employees of another employer or who supplies funds to an employer for the payment of wages. Another is the liability under section 6332 of the Internal Revenue Code (title 26), of a person who fails to turn over money or property of the taxpayer in response to a levy. Since the taxing authority must collect such a liability from the third party by suit rather than normal assessment procedures, an extra year is added to the normal 3-year priority periods. If a suit was commenced by the taxing authority within the four-year period and before the petition was filed, the priority is also preserved, provided that the suit had not terminated more than 1 year before the date of the filing of the petition. Also included are certain unpaid customs duties which have not grown unreasonably 'stale' (Sec. 507(a)(6)(K)). These include duties on imports entered for consumption with 3 years before the filing of the petition if the duties are still unliquidated on the petition date. If an import entry has been liquidated (in general, liquidation is in an administrative determination of the value and tariff rate of the item) or reliquidated, within two years of the filing of the petition the customs liability is given priority. If the Secretary of the Treasury certifies that customs duties were not liquidated because of an investigation into possible assessment of antidumping or countervailing duties, or because of fraud penalties, duties not liquidated for this reason during the five years before the importer filed under title 11 also will receive priority. Subsection (a) of this section also provides specifically that interest on sixth priority tax claims accrued before the filing of the petition is also entitled to sixth priority. Subsection (b) of this section provides that any fine or penalty which represents compensation for actual pecuniary loss of a governmental unit, and which involves a tax liability entitled to sixth priority, is to receive the same priority. Subsection (b) also provides that a claim arising from an erroneous refund or credit of tax is to be given the same priority as the tax to which the refund or credit relates. -REFTEXT- REFERENCES IN TEXT Subsections (a)(5) and (a)(6) of this section, referred to in subsec. (d), were redesignated subsections (a)(6) and (a)(7) of this section by Pub. L. 98-353, title III, Sec. 350(1), (2), July 10, 1984, 98 Stat. 358. -MISC2- AMENDMENTS 1990 - Subsec. (a)(8). Pub. L. 101-647 added par. (8). 1984 - Subsec. (a)(3). Pub. L. 98-353, Sec. 449(a)(1), inserted a comma after 'severance'. Subsec. (a)(4). Pub. L. 98-353, Sec. 449(a)(2), substituted 'an employee benefit plan' for 'employee benefit plans' in provisions preceding subpar. (A). Subsec. (a)(4)(B)(i). Pub. L. 98-353, Sec. 449(a)(3), inserted 'each' after 'covered by'. Subsec. (a)(5). Pub. L. 98-353, Sec. 350(3), added par. (5). Former par. (5) redesignated (6). Subsec. (a)(6). Pub. L. 98-353, Sec. 350(1), redesignated former par. (5) as (6) and substituted 'Sixth' for 'Fifth'. Former par. (6) redesignated (7). Subsec. (a)(7). Pub. L. 98-353, Sec. 350(2), 449(a)(4), redesignated former par. (6) as (7), substituted 'Seventh' for 'Sixth', and inserted 'only' after 'units,'. Subsec. (c). Pub. L. 98-353, Sec. 449(b), substituted 'has the same priority' for 'shall be treated the same'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 364, 365, 502, 503, 523, 724, 726, 752, 766, 901, 943, 1123, 1129, 1222, 1226, 1322, 1326 of this title; title 15 section 78fff. ------DocID 14729 Document 74 of 646------ -CITE- 11 USC Sec. 508 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 508. Effect of distribution other than under this title -STATUTE- (a) If a creditor receives, in a foreign proceeding, payment of, or a transfer of property on account of, a claim that is allowed under this title, such creditor may not receive any payment under this title on account of such claim until each of the other holders of claims on account of which such holders are entitled to share equally with such creditor under this title has received payment under this title equal in value to the consideration received by such creditor in such foreign proceeding. (b) If a creditor of a partnership debtor receives, from a general partner that is not a debtor in a case under chapter 7 of this title, payment of, or a transfer of property on account of, a claim that is allowed under this title and that is not secured by a lien on property of such partner, such creditor may not receive any payment under this title on account of such claim until each of the other holders of claims on account of which such holders are entitled to share equally with such creditor under this title has received payment under this title equal in value to the consideration received by such creditor from such general partner. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2585.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 508(b) of the House amendment is new and provides an identical rule with respect to a creditor of a partnership who receives payment from a partner, to that of a creditor of a debtor who receives a payment in a foreign proceeding involving the debtor. SENATE REPORT NO. 95-989 This section prohibits a creditor from receiving any distribution in the bankruptcy case if he has received payment of a portion of his claim in a foreign proceeding, until the other creditors in the bankruptcy case in this country that are entitled to share equally with that creditor have received as much as he has in the foreign proceeding. ------DocID 14730 Document 75 of 646------ -CITE- 11 USC Sec. 509 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 509. Claims of codebtors -STATUTE- (a) Except as provided in subsection (b) or (c) of this section, an entity that is liable with the debtor on, or that has secured, a claim of a creditor against the debtor, and that pays such claim, is subrogated to the rights of such creditor to the extent of such payment. (b) Such entity is not subrogated to the rights of such creditor to the extent that - (1) a claim of such entity for reimbursement or contribution on account of such payment of such creditor's claim is - (A) allowed under section 502 of this title; (B) disallowed other than under section 502(e) of this title; or (C) subordinated under section 510 of this title; or (2) as between the debtor and such entity, such entity received the consideration for the claim held by such creditor. (c) The court shall subordinate to the claim of a creditor and for the benefit of such creditor an allowed claim, by way of subrogation under this section, or for reimbursement or contribution, of an entity that is liable with the debtor on, or that has secured, such creditor's claim, until such creditor's claim is paid in full, either through payments under this title or otherwise. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2585; Pub. L. 98-353, title III, Sec. 450, July 10, 1984, 98 Stat. 375.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 509 of the House amendment represents a substantial revision of provisions contained in H.R. 8200 as passed by the House and in the Senate amendment. Section 509(a) states a general rule that a surety or co-debtor is subrogated to the rights of a creditor assured by the surety or co-debtor to the extent the surety or co-debtor pays such creditor. Section 509(b) states a general exception indicating that subrogation is not granted to the extent that a claim of a surety or co-debtor for reimbursement or contribution is allowed under section 502 or disallowed other than under section 502(e). Additionally, section 509(b)(1)(C) provides that such claims for subrogation are subordinated to the extent that a claim of the surety or co-debtor for reimbursement or contribution is subordinated under section 510(a)(1) or 510(b). Section 509(b)(2) reiterates the well-known rule that prevents a debtor that is ultimately liable on the debt from recovering from a surety or a co-debtor. Although the language in section 509(b)(2) focuses in terms of receipt of consideration, legislative history appearing elsewhere indicates that an agreement to share liabilities should prevail over an agreement to share profits throughout title 11. This is particularly important in the context of co-debtors who are partners. Section 509(c) subordinates the claim of a surety or co-debtor to the claim of an assured creditor until the creditor's claim is paid in full. SENATE REPORT NO. 95-989 Section 509 deals with codebtors generally, and is in addition to the disallowance provision in section 502(e). This section is based on the notion that the only rights available to a surety, guarantor, or comaker are contribution, reimbursement, and subrogation. The right that applies in a particular situation will depend on the agreement between the debtor and the codebtor, and on whether and how payment was made by the codebtor to the creditor. The claim of a surety or codebtor for contribution or reimbursement is discharged even if the claim is never filed, as is any claim for subrogation even if the surety or codebtor chooses to file a claim for contribution or reimbursement instead. Subsection (a) subrogates the codebtor (whether as a codebtor, surety, or guarantor) to the rights of the creditor, to the extent of any payment made by the codebtor to the creditor. Whether the creditor's claim was filed under section 501(a) or 501(b) is irrelevant. The right of subrogation will exist even if the primary creditor's claim is allowed by virtue of being listed under proposed 11 U.S.C. 924 or 1111, and not by reason of a proof of claim. Subsection (b) permits a subrogated codebtor to receive payments in the bankruptcy case only if the creditor has been paid in full, either through payments under the bankruptcy code or otherwise. AMENDMENTS 1984 - Subsec. (a). Pub. L. 98-353, Sec. 450(a), substituted 'subsection (b) or' for 'subsections (b) and', and inserted 'against the debtor' after 'a creditor'. Subsec. (b)(1). Pub. L. 98-353, Sec. 450(b), substituted 'of such' for 'of a' after 'account'. Subsec. (c). Pub. L. 98-353, Sec. 450(c), substituted 'this section' for 'section 509 of this title'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 502, 901 of this title. ------DocID 14731 Document 76 of 646------ -CITE- 11 USC Sec. 510 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER I -HEAD- Sec. 510. Subordination -STATUTE- (a) A subordination agreement is enforceable in a case under this title to the same extent that such agreement is enforceable under applicable nonbankruptcy law. (b) For the purpose of distribution under this title, a claim arising from rescission of a purchase or sale of a security of the debtor or of an affiliate of the debtor, for damages arising from the purchase or sale of such a security, or for reimbursement or contribution allowed under section 502 on account of such a claim, shall be subordinated to all claims or interests that are senior to or equal the claim or interest represented by such security, except that if such security is common stock, such claim has the same priority as common stock. (c) Notwithstanding subsections (a) and (b) of this section, after notice and a hearing, the court may - (1) under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or all or part of an allowed interest to all or part of another allowed interest; or (2) order that any lien securing such a subordinated claim be transferred to the estate. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2586; Pub. L. 98-353, title III, Sec. 451, July 10, 1984, 98 Stat. 375.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 510(c)(1) of the House amendment represents a compromise between similar provisions in the House bill and Senate amendment. After notice and a hearing, the court may, under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or all or part of an allowed interest to all or part of another allowed interest. As a matter of equity, it is reasonable that a court subordinate claims to claims and interests to interests. It is intended that the term 'principles of equitable subordination' follow existing case law and leave to the courts development of this principle. To date, under existing law, a claim is generally subordinated only if holder of such claim is guilty of inequitable conduct, or the claim itself is of a status susceptible to subordination, such as a penalty or a claim for damages arising from the purchase or sale of a security of the debtor. The fact that such a claim may be secured is of no consequence to the issue of subordination. However, it is inconceivable that the status of a claim as a secured claim could ever be grounds for justifying equitable subordination. Subordination: Since the House amendment authorizes subordination of claims only under principles of equitable subordination, and thus incorporates principles of existing case law, a tax claim would rarely be subordinated under this provision of the bill. Section 511 of the Senate amendment is deleted. Its substance is adopted in section 502(b)(9) of the House amendment which reflects an identical provision contained in H.R. 8200 as passed by the House. SENATE REPORT NO. 95-989 Subsection (a) requires the court to enforce subordination agreements. A subordination agreement will not be enforced, however, in a reorganization case in which the class that is the beneficiary of the agreement has accepted, as specified in proposed 11 U.S.C. 1126, a plan that waives their rights under the agreement. Otherwise, the agreement would prevent just what chapter 11 contemplates: that seniors may give up rights to juniors in the interest of confirmation of a plan and rehabilitation of the debtor. The subsection also requires the court to subordinate in payment any claim for rescission of a purchase or sale of a security of the debtor or of an affiliate, or for damages arising from the purchase or sale of such a security, to all claims and interests that are senior to the claim or interest represented by the security. Thus, the later subordination varies with the claim or interest involved. If the security is a debt instrument, the damages or rescission claim will be granted the status of a general unsecured claim. If the security is an equity security, the damages or rescission claim is subordinated to all creditors and treated the same as the equity security itself. Subsection (b) authorizes the bankruptcy court, in ordering distribution of assets, to subordinate all or any part of any claim to all or any part of another claim, regardless of the priority ranking of either claim. In addition, any lien securing such a subordinated claim may be transferred to the estate. The bill provides, however, that any subordination ordered under this provision must be based on principles of equitable subordination. These principles are defined by case law, and have generally indicated that a claim may normally be subordinated only if its holder is guilty of misconduct. As originally introduced, the bill provided specifically that a tax claim may not be subordinated on equitable grounds. The bill deletes this express exception, but the effect under the amendment should be much the same in most situations since, under the judicial doctrine of equitable subordination, a tax claim would rarely be subordinated. AMENDMENTS 1984 - Subsec. (b). Pub. L. 98-353 amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: 'Any claim for recission of a purchase or sale of a security of the debtor or of an affiliate or for damages arising from the purchase or sale of such a security shall be subordinated for purposes of distribution to all claims and interests that are senior or equal to the claim or interest represented by such security.' EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 349, 509, 522, 541, 726, 747, 752, 766, 901, 1129 of this title. ------DocID 14732 Document 77 of 646------ -CITE- 11 USC SUBCHAPTER II -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER II -HEAD- SUBCHAPTER II - DEBTOR'S DUTIES AND BENEFITS ------DocID 14733 Document 78 of 646------ -CITE- 11 USC Sec. 521 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER II -HEAD- Sec. 521. Debtor's duties -STATUTE- 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; (2) if an individual debtor's schedule of assets and liabilities includes consumer debts which are secured by property of the estate - (A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property; (B) within forty-five days after the filing of a notice of intent under this section, or within such additional time as the court, for cause, within such forty-five 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; (3) if a trustee is serving in the case, cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties under this title; (4) if a trustee is serving in the case, 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. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2586; Pub. L. 98-353, title III, Sec. 305, 452, July 10, 1984, 98 Stat. 352, 375; Pub. L. 99-554, title II, Sec. 283(h), Oct. 27, 1986, 100 Stat. 3117.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 521 of the House amendment modifies a comparable provision contained in the House bill and Senate amendment. The Rules of Bankruptcy Procedure should provide where the list of creditors is to be filed. In addition, the debtor is required to attend the hearing on discharge under section 524(d). SENATE REPORT NO. 95-989 This section lists three duties of the debtor in a bankruptcy case. The Rules of Bankruptcy Procedure will specify the means of carrying out these duties. The first duty is to file with the court a list of creditors and, unless the court orders otherwise, a schedule of assets and liabilities and a statement of his financial affairs. Second, the debtor is required to cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties. Finally, the debtor must 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. This phrase 'recorded information, including books, documents, records, and papers,' has been used here and throughout the bill as a more general term, and includes such other forms of recorded information as data in computer storage or in other machine readable forms. The list in this section is not exhaustive of the debtor's duties. Others are listed elsewhere in proposed title 11, such as in section 343, which requires the debtor to submit to examination, or in the Rules of Bankruptcy Procedure, as continued by Sec. 404(a) of S. 2266, such as the duty to attend any hearing on discharge, Rule 402(2). AMENDMENTS 1986 - Par. (4). Pub. L. 99-554 inserted ', whether or not immunity is granted under section 344 of this title' after second reference to 'estate'. 1984 - Par. (1). Pub. L. 98-353, Sec. 305(2), inserted 'a schedule of current income and current expenditures,' after 'liabilities,'. Pars. (2) to (5). Pub. L. 98-353, Sec. 305(1), (3), added par. (2), redesignated former pars. (2) to (4) as (3) to (5), respectively. Pub. L. 98-353, Sec. 452, which directed the insertion of ', whether or not immunity is granted under section 344 of this title' after second reference to 'estate' in par. (3) as redesignated above, could not be executed because such reference appeared in par. (4) rather than in par. (3). EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 523, 554, 704, 707, 1106, 1111, 1112, 1307 of this title. ------DocID 14734 Document 79 of 646------ -CITE- 11 USC Sec. 522 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER II -HEAD- Sec. 522. Exemptions -STATUTE- (a) In this section - (1) 'dependent' includes spouse, whether or not actually dependent; and (2) 'value' means fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate. (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 Bankruptcy Rules, 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) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or, in the alternative, (2)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days 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. (c) Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case, except - (1) a debt of a kind specified in section 523(a)(1) or 523(a)(5) of this title; (2) a debt secured by a lien that is - (A)(i) not avoided under subsection (f) or (g) of this section or under section 544, 545, 547, 548, 549, or 724(a) of this title; and (ii) not void under section 506(d) of this title; or (B) a tax lien, notice of which is properly filed; or (3) a debt of a kind specified in section 523(a)(4) or 523(a)(6) of this title owed by an institution-affiliated party of an insured depository institution to a Federal depository institutions regulatory agency acting in its capacity as conservator, receiver, or liquidating agent for such institution. (d) The following property may be exempted under subsection (b)(1) of this section: (1) The debtor's aggregate interest, not to exceed $7,500 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor. (2) The debtor's interest, not to exceed $1,200 in value, in one motor vehicle. (3) The debtor's interest, not to exceed $200 in value in any particular item or $4,000 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. (4) The debtor's aggregate interest, not to exceed $500 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. (5) The debtor's aggregate interest in any property, not to exceed in value $400 plus up to $3,750 of any unused amount of the exemption provided under paragraph (1) of this subsection. (6) The debtor's aggregate interest, not to exceed $750 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor. (7) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract. (8) The debtor's aggregate interest, not to exceed in value $4,000 less any amount of property of the estate transferred in the manner specified in section 542(d) of this title, in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent. (9) Professionally prescribed health aids for the debtor or a dependent of the debtor. (10) The debtor's right to receive - (A) a social security benefit, unemployment compensation, or a local public assistance benefit; (B) a veterans' benefit; (C) a disability, illness, or unemployment benefit; (D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; (E) a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless - (i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor's rights under such plan or contract arose; (ii) such payment is on account of age or length of service; and (iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), 408, or 409 (FOOTNOTE 1) of the Internal Revenue Code of 1986 (26 U.S.C. 401(a), 403(a), 403(b), 408, or 409). (FOOTNOTE 1) See References in Text note below. (11) The debtor's right to receive, or property that is traceable to - (A) an award under a crime victim's reparation law; (B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; (C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual's death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; (D) a payment, not to exceed $7,500, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or (E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor. (e) A waiver of an exemption executed in favor of a creditor that holds an unsecured claim against the debtor is unenforceable in a case under this title with respect to such claim against property that the debtor may exempt under subsection (b) of this section. A waiver by the debtor of a power under subsection (f) or (h) of this section to avoid a transfer, under subsection (g) or (i) of this section to exempt property, or under subsection (i) of this section to recover property or to preserve a transfer, is unenforceable in a case under this title. (f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is - (1) a judicial lien; or (2) a nonpossessory, nonpurchase-money security interest in any - (A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor; (B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or (C) professionally prescribed health aids for the debtor or a dependent of the debtor. (g) Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if - (1)(A) such transfer was not a voluntary transfer of such property by the debtor; and (B) the debtor did not conceal such property; or (2) the debtor could have avoided such transfer under subsection (f)(2) of this section. (h) The debtor may avoid a transfer of property of the debtor or recover a setoff to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if - (1) such transfer is avoidable by the trustee under section 544, 545, 547, 548, 549, or 724(a) of this title or recoverable by the trustee under section 553 of this title; and (2) the trustee does not attempt to avoid such transfer. (i)(1) If the debtor avoids a transfer or recovers a setoff under subsection (f) or (h) of this section, the debtor may recover in the manner prescribed by, and subject to the limitations of, section 550 of this title, the same as if the trustee had avoided such transfer, and may exempt any property so recovered under subsection (b) of this section. (2) Notwithstanding section 551 of this title, a transfer avoided under section 544, 545, 547, 548, 549, or 724(a) of this title, under subsection (f) or (h) of this section, or property recovered under section 553 of this title, may be preserved for the benefit of the debtor to the extent that the debtor may exempt such property under subsection (g) of this section or paragraph (1) of this subsection. (j) Notwithstanding subsections (g) and (i) of this section, the debtor may exempt a particular kind of property under subsections (g) and (i) of this section only to the extent that the debtor has exempted less property in value of such kind than that to which the debtor is entitled under subsection (b) of this section. (k) Property that the debtor exempts under this section is not liable for payment of any administrative expense except - (1) the aliquot share of the costs and expenses of avoiding a transfer of property that the debtor exempts under subsection (g) of this section, or of recovery of such property, that is attributable to the value of the portion of such property exempted in relation to the value of the property recovered; and (2) any costs and expenses of avoiding a transfer under subsection (f) or (h) of this section, or of recovery of property under subsection (i)(1) of this section, that the debtor has not paid. (l) The debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section. If the debtor does not file such a list, a dependent of the debtor may file such a list, or may claim property as exempt from property of the estate on behalf of the debtor. Unless a party in interest objects, the property claimed as exempt on such list is exempt. (m) Subject to the limitation in subsection (b), this section shall apply separately with respect to each debtor in a joint case. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2586; Pub. L. 98-353, title III, Sec. 306, 453, July 10, 1984, 98 Stat. 353, 375; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 99-554, title II, Sec. 283(i), Oct. 27, 1986, 100 Stat. 3117; Pub. L. 101-647, title XXV, Sec. 2522(b), Nov. 29, 1990, 104 Stat. 4866.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 522 of the House amendment represents a compromise on the issue of exemptions between the position taken in the House bill, and that taken in the Senate amendment. Dollar amounts specified in section 522(d) of the House bill have been reduced from amounts as contained in H.R. 8200 as passed by the House. The States may, by passing a law, determine whether the Federal exemptions will apply as an alternative to State exemptions in bankruptcy cases. Section 522(c)(1) tracks the House bill and provides that dischargeable tax claims may not be collected out of exempt property. Section 522(f)(2) is derived from the Senate amendment restricting the debtor to avoidance of nonpossessory, nonpurchase money security interests. Exemptions: Section 522(c)(1) of the House amendment adopts a provision contained in the House bill that dischargeable taxes cannot be collected from exempt assets. This changes present law, which allows collection of dischargeable taxes from exempt property, a rule followed in the Senate amendment. Nondischargeable taxes, however, will continue to the (be) collectable out of exempt property. It is anticipated that in the next session Congress will review the exemptions from levy currently contained in the Internal Revenue Code (title 26) with a view to increasing the exemptions to more realistic levels. SENATE REPORT NO. 95-989 Subsection (a) of this section defines two terms: 'dependent' includes the debtor's spouse, whether or not actually dependent; and 'value' means fair market value as of the date of the filing of the petition. Subsection (b) tracks current law. It permits a debtor the exemptions to which he is entitled under other Federal law and the law of the State of his domicile. Some of the items that may be exempted under Federal laws other than title 11 include: Foreign Service Retirement and Disability payments, 22 U.S.C. 1104; (FOOTNOTE 2) (FOOTNOTE 2) Replaced by 22 U.S.C. 4060(c). Social security payments, 42 U.S.C. 407; Injury or death compensation payments from war risk hazards, 42 U.S.C. 1717; Wages of fishermen, seamen, and apprentices, 46 U.S.C. 601; (FOOTNOTE 3) (FOOTNOTE 3) Replaced by 46 U.S.C. 11108, 11109. Civil service retirement benefits, 5 U.S.C. 729, 2265; (FOOTNOTE 4) (FOOTNOTE 4) Replaced by 5 U.S.C. 8346. Longshoremen's and Harbor Workers' Compensation Act death and disability benefits, 33 U.S.C. 916; Railroad Retirement Act annuities and pensions, 45 U.S.C. 228(L); (FOOTNOTE 5) (FOOTNOTE 5) Replaced by 45 U.S.C. 231m. Veterans benefits, 45 U.S.C. 352(E); (FOOTNOTE 6) (FOOTNOTE 6) Railroad unemployment benefits are covered by 45 U.S.C. 352(e). Special pensions paid to winners of the Congressional Medal of Honor, 38 U.S.C. 3101; (FOOTNOTE 7) and (FOOTNOTE 7) Veterans benefits generally are covered by 38 U.S.C. 3101. Federal homestead lands on debts contracted before issuance of the patent, 43 U.S.C. 175. He may also exempt an interest in property in which the debtor had an interest as a tenant by the entirety or joint tenant to the extent that interest would have been exempt from process under applicable nonbankruptcy law. Under proposed section 541, all property of the debtor becomes property of the estate, but the debtor is permitted to exempt certain property from property of the estate under this section. Property may be exempted even if it is subject to a lien, but only the unencumbered portion of the property is to be counted in computing the 'value' of the property for the purposes of exemption. As under current law, the debtor will be permitted to convert nonexempt property into exempt property before filing a bankruptcy petition. The practice is not fraudulent as to creditors, and permits the debtor to make full use of the exemptions to which he is entitled under the law. Subsection (c) insulates exempt property from prepetition claims other than tax claims (whether or not dischargeable), and other than alimony, maintenance, or support claims that are excepted from discharge. The bankruptcy discharge does not prevent enforcement of valid liens. The rule of Long v. Bullard, 117 U.S. 617 (1886), is accepted with respect to the enforcement of valid liens on nonexempt property as well as on exempt property. Cf. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 583 (1935). Subsection (c)(3) permits the collection of dischargeable taxes from exempt assets. Only assets exempted from levy under Section 6334 of the Internal Revenue Code (title 26) or under applicable state or local tax law cannot be applied to satisfy these tax claims. This rule applies to prepetition tax claims against the debtor regardless of whether the claims do or do not receive priority and whether they are dischargeable or nondischargeable. Thus, even if a tax is dischargeable vis-a-vis the debtor's after-acquired assets, it may nevertheless be collectible from exempt property held by the estate. (Taxes incurred by the debtor's estate which are collectible as first priority administrative expenses are not collectible from the debtor's estate which are collectible as first priority administrative expenses are not collectible from the debtor's exempt assets.) Subsection (d) protects the debtor's exemptions, either Federal or State, by making unenforceable in a bankruptcy case a waiver of exemptions or a waiver of the debtor's avoiding powers under the following subsections. Subsection (e) protects the debtor's exemptions, his discharge, and thus his fresh start by permitting him to avoid certain liens on exempt property. The debtor may avoid a judicial lien on any property to the extent that the property could have been exempted in the absence of the lien, and may similarly avoid a nonpurchase-money security interest in certain household and personal goods. The avoiding power is independent of any waiver of exemptions. Subsection (f) gives the debtor the ability to exempt property that the trustee recovers under one of the trustee's avoiding powers if the property was involuntarily transferred away from the debtor (such as by the fixing of a judicial lien) and if the debtor did not conceal the property. The debtor is also permitted to exempt property that the trustee recovers as the result of the avoiding of the fixing of certain security interests to the extent that the debtor could otherwise have exempted the property. Subsection (g) provides that if the trustee does not exercise an avoiding power to recover a transfer of property that would be exempt, the debtor may exercise it and exempt the property, if the transfer was involuntary and the debtor did not conceal the property. If the debtor wishes to preserve his right to pursue any action under this provision, then he must intervene in any action brought by the trustee based on the same cause of action. It is not intended that the debtor be given an additional opportunity to avoid a transfer or that the transferee should have to defend the same action twice. Rather, the section is primarily designed to give the debtor the rights the trustee could have, but has not, pursued. The debtor is given no greater rights under this provision than the trustee, and thus, the debtor's avoiding powers under proposed sections 544, 545, 547, and 548, are subject to proposed 546, as are the trustee's powers. These subsections are cumulative. The debtor is not required to choose which he will use to gain an exemption. Instead, he may use more than one in any particular instance, just as the trustee's avoiding powers are cumulative. Subsection (h) permits recovery by the debtor of property transferred by an avoided transfer from either the initial or subsequent transferees. It also permits preserving a transfer for the benefit of the debtor. In either event, the debtor may exempt the property recovered or preserved. Subsection (i) makes clear that the debtor may exempt property under the avoiding subsections (f) and (h) only to the extent he has exempted less property than allowed under subsection (b). Subsection (j) makes clear that the liability of the debtor's exempt property is limited to the debtor's aliquot share of the costs and expenses recovery of property that the trustee recovers and the debtor later exempts, and any costs and expenses of avoiding a transfer by the debtor that the debtor has not already paid. Subsection (k) requires the debtor to file a list of property that he claims as exempt from property of the estate. Absent an objection to the list, the property is exempted. A dependent of the debtor may file it and thus be protected if the debtor fails to file the list. Subsection (l) provides the rule for a joint case. HOUSE REPORT NO. 95-595 Subsection (a) of this section defines two terms: 'dependent' includes the debtor's spouse, whether or not actually dependent; and 'value' means fair market value as of the date of the filing of the petition. Subsection (b), the operative subsection of this section, is a significant departure from present law. It permits an individual debtor in a bankruptcy case a choice between exemption systems. The debtor may choose the Federal exemptions prescribed in subsection (d), or he may choose the exemptions to which he is entitled under other Federal law and the law of the State of his domicile. If the debtor chooses the latter, some of the items that may be exempted under other Federal laws include: - Foreign Service Retirement and Disability payments, 22 U.S.C. 1104; (FOOTNOTE 8) (FOOTNOTE 8) Replaced by 22 U.S.C. 4060(c). - Social security payments, 42 U.S.C. 407; - Injury or death compensation payments from war risk hazards, 42 U.S.C. 1717; - Wages of fishermen, seamen, and apprentices, 46 U.S.C. 601; - Civil service retirement benefits, 5 U.S.C. 729, 2265; (FOOTNOTE 9) (FOOTNOTE 9) Replaced by 5 U.S.C. 8346. - Longshoremen's and Harbor Workers' Compensation Act death and disability benefits, 33 U.S.C. 916; - Railroad Retirement Act annuities and pensions, 45 U.S.C. 228(l); (FOOTNOTE 01) (FOOTNOTE 01) Replaced by 45 U.S.C. 231m. - Veterans benefits, 45 U.S.C. 352(E); (FOOTNOTE 11) (FOOTNOTE 11) Railroad unemployment benefits are covered by 45 U.S.C. 352(e). - Special pensions paid to winners of the Congressional Medal of Honor, 38 U.S.C. 3101; (FOOTNOTE 21) and (FOOTNOTE 21) Veterans benefits generally are covered by 38 U.S.C. 3101. - Federal homestead lands on debts contracted before issuance of the patent, 43 U.S.C. 175. He may also exempt an interest in property in which the debtor had an interest as a tenant by the entirety or joint tenant to the extent that interest would have been exempt from process under applicable nonbankruptcy law. The Rules will provide for the situation where the debtor's choice of exemption, Federal or State, was improvident and should be changed, for example, where the court has ruled against the debtor with respect to a major exemption. Under proposed 11 U.S.C. 541, all property of the debtor becomes property of the estate, but the debtor is permitted to exempt certain property from property of the estate under this section. Property may be exempted even if it is subject to a lien, but only the unencumbered portion of the property is to be counted in computing the 'value' of the property for the purposes of exemption. Thus, for example, a residence worth $30,000 with a mortgage of $25,000 will be exemptable to the extent of $5,000. This follows current law. The remaining value of the property will be dealt with in the bankruptcy case as is any interest in property that is subject to a lien. As under current law, the debtor will be permitted to convert nonexempt property into exempt property before filing a bankruptcy petition. See Hearings, pt. 3, at 1355-58. The practice is not fraudulent as to creditors and permits the debtor to make full use of the exemptions to which he is entitled under the law. Subsection (c) insulates exempt property from prepetition claims, except tax and alimony, maintenance, or support claims that are excepted from discharge. The bankruptcy discharge will not prevent enforcement of valid liens. The rule of Long v. Bullard, 117 U.S. 617 (1886) (6 S.Ct. 917, 29 L.Ed. 1004), is accepted with respect to the enforcement of valid liens on nonexempt property as well as on exempt property. Cf. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 583 (1935) (55 S.Ct. 854). Subsection (d) specifies the Federal exemptions to which the debtor is entitled. They are derived in large part from the Uniform Exemptions Act, promulgated by the Commissioners of Uniform State Laws in August, 1976. Eleven categories of property are exempted. First is a homestead to the extent of $10,000, which may be claimed in real or personal property that the debtor or a dependent of the debtor uses as a residence. Second, the debtor may exempt a motor vehicle to the extent of $1500. Third, the debtor may exempt household goods, furnishings, clothing, and similar household items, held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. 'Animals' includes all animals, such as pets, livestock, poultry, and fish, if they are held primarily for personal, family or household use. The limitation for third category items is $300 on any particular item. The debtor may also exempt up to $750 of personal jewelry. Paragraph (5) permits the exemption of $500, plus any unused amount of the homestead exemption, in any property, in order not to discriminate against the nonhomeowner. Paragraph (6) grants the debtor up to $1000 in implements, professional books, or tools, of the trade of the debtor or a dependent. Paragraph (7) exempts a life insurance contract, other than a credit life insurance contract, owned by the debtor. This paragraph refers to the life insurance contract itself. It does not encompass any other rights under the contract, such as the right to borrow out the loan value. Because of this provision, the trustee may not surrender a life insurance contract, which remains property of the debtor if he chooses the Federal exemptions. Paragraph (8) permits the debtor to exempt up to $5000 in loan value in a life insurance policy owned by the debtor under which the debtor or an individual of whom the debtor is a dependent is the insured. The exemption provided by this paragraph and paragraph (7) will also include the debtor's rights in a group insurance certificate under which the insured is an individual of whom the debtor is a dependent (assuming the debtor has rights in the policy that could be exempted) or the debtor. A trustee is authorized to collect the entire loan value on every life insurance policy owned by the debtor as property of the estate. First, however, the debtor will choose which policy or policies under which the loan value will be exempted. The $5000 figure is reduced by the amount of any automatic premium loan authorized after the date of the filing of the petition under section 542(d). Paragraph (9) exempts professionally prescribed health aids. Paragraph (10) exempts certain benefits that are akin to future earnings of the debtor. These include social security, unemployment compensation, or public assistance benefits, veteran's benefits, disability, illness, or unemployment benefits, alimony, support, or separate maintenance (but only to the extent reasonably necessary for the support of the debtor and any dependents of the debtor), and benefits under a certain stock bonus, pension, profitsharing, annuity or similar plan based on illness, disability, death, age or length of service. Paragraph (11) allows the debtor to exempt certain compensation for losses. These include crime victim's reparation benefits, wrongful death benefits (with a reasonably necessary for support limitation), life insurance proceeds (same limitation), compensation for bodily injury, not including pain and suffering ($10,000 limitation), and loss of future earnings payments (support limitation). This provision in subparagraph (D)(11) is designed to cover payments in compensation of actual bodily injury, such as the loss of a limb, and is not intended to include the attendant costs that accompany such a loss, such as medical payments, pain and suffering, or loss of earnings. Those items are handled separately by the bill. Subsection (e) protects the debtor's exemptions, either Federal or State, by making unenforceable in a bankruptcy case a waiver of exemptions or a waiver of the debtor's avoiding powers under the following subsections. Subsection (f) protects the debtor's exemptions, his discharge, and thus his fresh start by permitting him to avoid certain liens on exempt property. The debtor may avoid a judicial lien on any property to the extent that the property could have been exempted in the absence of the lien, and may similarly avoid a nonpurchase-money security interest in certain household and personal goods. The avoiding power is independent of any waiver of exemptions. Subsection (g) gives the debtor the ability to exempt property that the trustee recovers under one of the trustee's avoiding powers if the property was involuntarily transferred away from the debtor (such as by the fixing of a judicial lien) and if the debtor did not conceal the property. The debtor is also permitted to exempt property that the trustee recovers as the result of the avoiding of the fixing of certain security interests to the extent that the debtor could otherwise have exempted the property. If the trustee does not pursue an avoiding power to recover a transfer of property that would be exempt, the debtor may pursue it and exempt the property, if the transfer was involuntary and the debtor did not conceal the property. If the debtor wishes to preserve his right to pursue an action under this provision, then he must intervene in any action brought by the trustee based on the same cause of action. It is not intended that the debtor be given an additional opportunity to avoid a transfer or that the transferee have to defend the same action twice. Rather, the section is primarily designed to give the debtor the rights the trustee could have pursued if the trustee chooses not to pursue them. The debtor is given no greater rights under this provision than the trustee, and thus the debtor's avoiding powers under proposed 11 U.S.C. 544, 545, 547, and 548, are subject to proposed 11 U.S.C. 546, as are the trustee's powers. These subsections are cumulative. The debtor is not required to choose which he will use to gain an exemption. Instead, he may use more than one in any particular instance, just as the trustee's avoiding powers are cumulative. Subsection (i) permits recovery by the debtor of property transferred in an avoided transfer from either the initial or subsequent transferees. It also permits preserving a transfer for the benefit of the debtor. Under either case the debtor may exempt the property recovered or preserved. Subsection (k) makes clear that the debtor's aliquot share of the costs and expenses (for) recovery of property that the trustee recovers and the debtor later exempts, and any costs and expenses of avoiding a transfer by the debtor that the debtor has not already paid. Subsection (l) requires the debtor to file a list of property that he claims as exempt from property of the estate. Absent an objection to the list, the property is exempted. A dependent of the debtor may file it and thus be protected if the debtor fails to file the list. Subsection (m) requires the clerk of the bankruptcy court to give notice of any exemptions claimed under subsection (l), in order that parties in interest may have an opportunity to object to the claim. Subsection (n) provides the rule for a joint case: each debtor is entitled to the Federal exemptions provided under this section or to the State exemptions, whichever the debtor chooses. -REFTEXT- REFERENCES IN TEXT The Bankruptcy Rules, referred to in subsec. (b), are set out in the Appendix to this title. Section 409 of the Internal Revenue Code (26 U.S.C. 409), referred to in subsec. (d)(10)(E)(iii), which related to retirement bonds, was repealed by Pub. L. 98-369, div. A, title IV, Sec. 491(b), July 18, 1984, 98 Stat. 848, and section 409A of the Internal Revenue Code (26 U.S.C. 409A), which related to qualifications for tax credit employee stock ownership plans, was redesignated section 409. -MISC2- AMENDMENTS 1990 - Subsec. (c)(3). Pub. L. 101-647 added par. (3). 1986 - Subsec. (d)(10)(E)(iii). Pub. L. 99-514 substituted 'Internal Revenue Code of 1986' for 'Internal Revenue Code of 1954'. Subsec. (h)(1). Pub. L. 99-554, Sec. 283(i)(1), substituted '553 of this title' for '553 of this tittle'. Subsec. (i)(2). Pub. L. 99-554, Sec. 283(i)(2), substituted 'this' for 'his' after 'subsection (g) of'. 1984 - Subsec. (a)(2). Pub. L. 98-353, Sec. 453(a), inserted 'or, with respect to property that becomes property of an estate after such date, as of the date such property becomes property of the estate'. Subsec. (b). Pub. L. 98-353, Sec. 306(a), inserted provision that 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 Bankruptcy Rules, 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, but that 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. Subsec. (c). Pub. L. 98-353, Sec. 453(b), amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: '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 claim had arisen before the commencement of the case, except - '(1) a debt of a kind specified in section 523(a)(1) or section 523(a)(5) of this title; or '(2) a lien that is - '(A) not avoided under section 544, 545, 547, 548, 549, or 724(a) of this title; '(B) not voided under section 506(d) of this title; or '(C)(i) a tax lien, notice of which is properly filed; and '(ii) avoided under section 545(2) of this title.' Subsec. (d)(3). Pub. L. 98-353, Sec. 306(b), inserted 'or $4,000 in aggregate value'. Subsec. (d)(5). Pub. L. 98-353, Sec. 306(c), amended par. (5) generally. Prior to amendment, par. (5) read as follows: 'The debtor's aggregate interest, not to exceed in value $400 plus any unused amount of the exemption provided under paragraph (1) of this subsection, in any property.' Subsec. (e). Pub. L. 98-353, Sec. 453(c), substituted 'an exemption' for 'exemptions'. Subsec. (m). Pub. L. 98-353, Sec. 306(d), substituted 'Subject to the limitation in subsection (b), this section shall apply separately with respect to each debtor in a joint case' for 'This section shall apply separately with respect to each debtor in a joint case'. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 101, 349, 502, 542, 551, 552, 722, 1123 of this title; title 26 sections 1017, 1398; title 28 section 3014; title 29 section 1405. ------DocID 14735 Document 80 of 646------ -CITE- 11 USC Sec. 523 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER II -HEAD- Sec. 523. Exceptions to discharge -STATUTE- (a) A discharge under section 727, 1141,, (FOOTNOTE 1) 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt - (FOOTNOTE 1) So in original. (1) for a tax or a customs duty - (A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed; (B) with respect to which a return, if required - (i) was not filed; or (ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or (C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax; (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, other than a statement respecting the debtor's or an insider's financial condition; (B) use of a statement in writing - (i) that is materially false; (ii) respecting the debtor's or an insider's financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive; or (C) for purposes of subparagraph (A) of this paragraph, consumer debts owed to a single creditor and aggregating more than $500 for 'luxury goods or services' incurred by an individual debtor on or within forty 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 twenty 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 (15 U.S.C. 1601 et seq.); (3) neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit - (A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or (B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request; (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; (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 402(a)(26) 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; (6) for willful and malicious injury by the debtor to another entity or to the property of another entity; (7) to the extent such debt is for a fine, penalty, 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) relating to a tax of a kind not specified in paragraph (1) of this subsection; or (B) imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition; (8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless - (A) such loan, benefit, scholarship, or stipend overpayment first became due more than 7 years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or (B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents; (9) for death or personal injury caused by the debtor's operation of a motor vehicle if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance; (10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act; (11) provided in any final judgment, unreviewable order, or consent order or decree entered in any court of the United States or of any State, issued by a Federal depository institutions regulatory agency, or contained in any settlement agreement entered into by the debtor, arising from any act of fraud or defalcation while acting in a fiduciary capacity committed with respect to any depository institution or insured credit union; or (12) for malicious or reckless failure to fulfill any commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured depository institution, except that this paragraph shall not extend any such commitment which would otherwise be terminated due to any act of such agency; (FOOTNOTE 2) (FOOTNOTE 2) So in original. The semicolon probably should be a period. (b) Notwithstanding subsection (a) of this section, a debt that was excepted from discharge under subsection (a)(1), (a)(3), or (a)(8) of this section, under section 17a(1), 17a(3), or 17a(5) of the Bankruptcy Act, under section 439A of the Higher Education Act of 1965 (20 U.S.C. 1087-3), or under section 733(g) of the Public Health Service Act (42 U.S.C. 294f) in a prior case concerning the debtor under this title, or under the Bankruptcy Act, is dischargeable in a case under this title unless, by the terms of subsection (a) of this section, such debt is not dischargeable in the case under this title. (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), 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), or (6), as the case may be, of subsection (a) of this section. (2) Paragraph (1) shall not apply in the case of a Federal depository institutions regulatory agency seeking, in its capacity as conservator, receiver, or liquidating agent for an insured depository institution, to recover a debt described in subsection (a)(2), (a)(4), (a)(6), or (a)(11) owed to such institution by an institution-affiliated party unless the receiver, conservator, or liquidating agent was appointed in time to reasonably comply, or for a Federal depository institutions regulatory agency acting in its corporate capacity as a successor to such receiver, conservator, or liquidating agent to reasonably comply, with subsection (a)(3)(B) as a creditor of such institution-affiliated party with respect to such debt. (d) If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust. (e) Any institution-affiliated party of a depository institution or insured credit union shall be considered to be acting in a fiduciary capacity with respect to the purposes of subsection (a)(4) or (11). -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2590; Pub. L. 96-56, Sec. 3, Aug. 14, 1979, 93 Stat. 387; Pub. L. 97-35, title XXIII, Sec. 2334(b), Aug. 13, 1981, 95 Stat. 863; Pub. L. 98-353, title III, Sec. 307, 371, 454, July 10, 1984, 98 Stat. 353, 364, 375; Pub. L. 99-554, title II, Sec. 257(n), 281, 283(j), Oct. 27, 1986, 100 Stat. 3115-3117; Pub. L. 101-581, Sec. 2(a), Nov. 15, 1990, 104 Stat. 2865; Pub. L. 101-647, title XXV, Sec. 2522(a), title XXXI, Sec. 3102(a), title XXXVI, Sec. 3621, Nov. 29, 1990, 104 Stat. 4865, 4916, 4964.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 523(a)(1) represents a compromise between the position taken in the House bill and the Senate amendment. Section 523(a)(2) likewise represents a compromise between the position taken in the House bill and the Senate amendment with respect to the false financial statement exception to discharge. In order to clarify that a 'renewal of credit' includes a 'refinancing of credit', explicit reference to a refinancing of credit is made in the preamble to section 523(a)(2). A renewal of credit or refinancing of credit that was obtained by a false financial statement within the terms of section 523(a)(2) is nondischargeable. However, each of the provisions of section 523(a)(2) must be proved. Thus, under section 523(a)(2)(A) a creditor must prove that the debt was obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition. Subparagraph (A) is intended to codify current case law e.g., Neal v. Clark, 95 U.S. 704 (1887) (24 L. Ed. 586), which interprets 'fraud' to mean actual or positive fraud rather than fraud implied in law. Subparagraph (A) is mutually exclusive from subparagraph (B). Subparagraph (B) pertains to the so-called false financial statement. In order for the debt to be nondischargeable, the creditor must prove that the debt was obtained by the use of a statement in writing (i) that is materially false; (ii) respecting the debtor's or an insider's financial condition; (iii) on which the creditor to whom the debtor is liable for obtaining money, property, services, or credit reasonably relied; (iv) that the debtor caused to be made or published with intent to deceive. Section 523(a)(2)(B)(iv) is not intended to change from present law since the statement that the debtor causes to be made or published with the intent to deceive automatically includes a statement that the debtor actually makes or publishes with an intent to deceive. Section 523(a)(2)(B) is explained in the House report. Under section 523(a)(2)(B)(i) a discharge is barred only as to that portion of a loan with respect to which a false financial statement is materially false. In many cases, a creditor is required by state law to refinance existing credit on which there has been no default. If the creditor does not forfeit remedies or otherwise rely to his detriment on a false financial statement with respect to existing credit, then an extension, renewal, or refinancing of such credit is nondischargeable only to the extent of the new money advanced; on the other hand, if an existing loan is in default or the creditor otherwise reasonably relies to his detriment on a false financial statement with regard to an existing loan, then the entire debt is nondischargeable under section 523(a)(2)(B). This codifies the reasoning expressed by the second circuit in In re Danns, 558 F.2d 114 (2d Cir. 1977). Section 523(a)(3) of the House amendment is derived from the Senate amendment. The provision is intended to overrule Birkett v. Columbia Bank, 195 U.S. 345 (1904) (25 S.Ct. 38, 49 L.Ed. 231, 12 Am.Bankr.Rep. 691). Section 523(a)(4) of the House amendment represents a compromise between the House bill and the Senate amendment. Section 523(a)(5) is a compromise between the House bill and the Senate amendment. The provision excepts from discharge a debt owed to a spouse, former spouse or child of the debtor, in connection with a separation agreement, divorce decree, or property settlement agreement, for alimony to, maintenance for, or support of such spouse or child but not to the extent that the debt is assigned to another entity. If the debtor has assumed an obligation of the debtor's spouse to a third party in connection with a separation agreement, property settlement agreement, or divorce proceeding, such debt is dischargeable to the extent that payment of the debt by the debtor is not actually in the nature of alimony, maintenance, or support of debtor's spouse, former spouse, or child. Section 523(a)(6) adopts the position taken in the House bill and rejects the alternative suggested in the Senate amendment. The phrase 'willful and malicious injury' covers a willful and malicious conversion. Section 523(a)(7) of the House amendment adopts the position taken in the Senate amendment and rejects the position taken in the House bill. A penalty relating to a tax cannot be nondischargeable unless the tax itself is nondischargeable. Section 523(a)(8) represents a compromise between the House bill and the Senate amendment regarding educational loans. This provision is broader than current law which is limited to federally insured loans. Only educational loans owing to a governmental unit or a nonprofit institution of higher education are made nondischargeable under this paragraph. Section 523(b) is new. The section represents a modification of similar provisions contained in the House bill and the Senate amendment. Section 523(c) of the House amendment adopts the position taken in the Senate amendment. Section 523(d) represents a compromise between the position taken in the House bill and the Senate amendment on the issue of attorneys' fees in false financial statement complaints to determine dischargeability. The provision contained in the House bill permitting the court to award damages is eliminated. The court must grant the debtor judgment or a reasonable attorneys' fee unless the granting of judgment would be clearly inequitable. Nondischargeable debts: The House amendment retains the basic categories of nondischargeable tax liabilities contained in both bills, but restricts the time limits on certain nondischargeable taxes. Under the amendment, nondischargeable taxes cover taxes entitled to priority under section 507(a)(6) of title 11 and, in the case of individual debtors under chapters 7, 11, or 13, tax liabilities with respect to which no required return had been filed or as to which a late return had been filed if the return became last due, including extensions, within 2 years before the date of the petition or became due after the petition or as to which the debtor made a fraudulent return, entry or invoice or fraudulently attempted to evade or defeat the tax. In the case of individuals in liquidation under chapter 7 or in reorganization under chapter 11 of title 11, section 1141(d)(2) incorporates by reference the exceptions to discharge continued in section 523. Different rules concerning the discharge of taxes where a partnership or corporation reorganizes under chapter 11, apply under section 1141. The House amendment also deletes the reduction rule contained in section 523(e) of the Senate amendment. Under that rule, the amount of an otherwise nondischargeable tax liability would be reduced by the amount which a governmental tax authority could have collected from the debtor's estate if it had filed a timely claim against the estate but which it did not collect because no such claim was filed. This provision is deleted in order not to effectively compel a tax authority to file claim against the estate in 'no asset' cases, along with a dischargeability petition. In no-asset cases, therefore, if the tax authority is not potentially penalized by failing to file a claim, the debtor in such cases will have a better opportunity to choose the prepayment forum, bankruptcy court or the Tax Court, in which to litigate his personal liability for a nondischargeable tax. The House amendment also adopts the Senate amendment provision limiting the nondischargeability of punitive tax penalties, that is, penalties other than those which represent collection of a principal amount of tax liability through the form of a 'penalty.' Under the House amendment, tax penalties which are basically punitive in nature are to be nondischargeable only if the penalty is computed by reference to a related tax liability which is nondischargeable or, if the amount of the penalty is not computed by reference to a tax liability, the transaction or event giving rise to the penalty occurred during the 3-year period ending on the date of the petition. SENATE REPORT NO. 95-989 This section specifies which of the debtor's debts are not discharged in a bankruptcy case, and certain procedures for effectuating the section. The provision in Bankruptcy Act Sec. 17c (section 35(c) of former title 11) granting the bankruptcy courts jurisdiction to determine dischargeability is deleted as unnecessary, in view of the comprehensive grant of jurisdiction prescribed in proposed 28 U.S.C. 1334(b), which is adequate to cover the full jurisdiction that the bankruptcy courts have today over dischargeability and related issues under Bankruptcy Act Sec. 17c. The Rules of Bankruptcy Procedure will specify, as they do today, who may request determinations of dischargeability, subject, of course, to proposed 11 U.S.C. 523(c), and when such a request may be made. Proposed 11 U.S.C. 350, providing for reopening of cases, provides one possible procedure for a determination of dischargeability and related issues after a case is closed. Subsection (a) lists nine kinds of debts excepted from discharge. Taxes that are excepted from discharge are set forth in paragraph (1). These include claims against the debtor which receive priority in the second, third and sixth categories (Sec. 507(a)(3)(B) and (c) and (6)). These categories include taxes for which the tax authority failed to file a claim against the estate or filed its claim late. Whether or not the taxing authority's claim is secured will also not affect the claim's nondischargeability if the tax liability in question is otherwise entitled to priority. Also included in the nondischargeable debts are taxes for which the debtor had not filed a required return as of the petition date, or for which a return had been filed beyond its last permitted due date (Sec. 523(a)(1)(B)). For this purpose, the date of the tax year to which the return relates is immaterial. The late return rule applies, however, only to the late returns filed within three years before the petition was filed, and to late returns filed after the petition in title 11 was filed. For this purpose, the taxable year in question need not be one or more of the three years immediately preceding the filing of the petition. Tax claims with respect to which the debtor filed a fraudulent return, entry or invoice, or fraudulently attempted to evade or defeat any tax (Sec. 523(a)(1)(C)) are included. The date of the taxable year with regard to which the fraud occurred is immaterial. Also included are tax payments due under an agreement for deferred payment of taxes, which a debtor had entered into with the Internal Revenue Service (or State or local tax authority) before the filing of the petition and which relate to a prepetition tax liability (Sec. 523(a)(1)(D)) are also nondischargeable. This classification applies only to tax claims which would have received priority under section 507(a) if the taxpayer had filed a title 11 petition on the date on which the deferred payment agreement was entered into. This rule also applies only to installment payments which become due during and after the commencement of the title 11 case. Payments which had become due within one year before the filing of the petition receive sixth priority, and will be nondischargeable under the general rule of section 523(a)(1)(A). The above categories of nondischargeability apply to customs duties as well as to taxes. Paragraph (2) provides that as under Bankruptcy Act Sec. 17a(2) (section 35(a)(2) of former title 11), a debt for obtaining money, property, services, or a refinancing extension or renewal of credit by false pretenses, a false representation, or actual fraud, or by use of a statement in writing respecting the debtor's financial condition that is materially false, on which the creditor reasonably relied, and which the debtor made or published with intent to deceive, is excepted from discharge. This provision is modified only slightly from current section 17a(2). First, 'actual fraud' is added as a ground for exception from discharge. Second, the creditor must not only have relied on a false statement in writing, but the reliance must have been reasonable. This codifies case law construing present section 17a(2). Third, the phrase 'in any manner whatsoever' that appears in current law after 'made or published' is deleted as unnecessary, the word 'published' is used in the same sense that it is used in defamation cases. Unscheduled debts are excepted from discharge under paragraph (3). The provision, derived from section 17a(3) (section 35(a)(3) of former title 11), follows current law, but clarifies some uncertainties generated by the case law construing 17a(3). The debt is excepted from discharge if it was not scheduled in time to permit timely action by the creditor to protect his rights, unless the creditor had notice or actual knowledge of the case. Paragraph (4) excepts debts for fraud incurred by the debtor while acting in a fiduciary capacity or for defalcation, embezzlement, or misappropriation. Paragraph (5) provides that debts for willful and malicious conversion or injury by the debtor to another entity or the property of another entity are nondischargeable. Under this paragraph 'willful' means deliberate or intentional. To the extent that Tinker v. Colwell, 139 U.S. 473 (1902), held that a less strict standard is intended, and to the extent that other cases have relied on Tinker to apply a 'reckless disregard' standard, they are overruled. Paragraph (6) excepts from discharge debts to a spouse, former spouse, or child of the debtor for alimony to, maintenance for, or support of the spouse or child. This language, in combination with the repeal of section 456(b) of the Social Security Act (42 U.S.C. 656(b)) by section 326 of the bill, will apply to make nondischargeable only alimony, maintenance, or support owed directly to a spouse or dependent. What constitutes alimony, maintenance, or support, will be determined under the bankruptcy law, not State law. Thus, cases such as In re Waller, 494 F.2d 447 (6th Cir. 1974), are overruled, and the result in cases such as Fife v. Fife, 1 Utah 2d 281, 265 P.2d 642 (1952) is followed. The proviso, however, makes nondischargeable any debts resulting from an agreement by the debtor to hold the debtor's spouse harmless on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support of the spouse, as determined under bankruptcy law considerations as to whether a particular agreement to pay money to a spouse is actually alimony or a property settlement. Paragraph (7) makes nondischargeable certain liabilities for penalties including tax penalties if the underlying tax with respect to which the penalty was imposed is also nondischargeable (sec. 523(a)(7)). These latter liabilities cover those which, but are penal in nature, as distinct from so-called 'pecuniary loss' penalties which, in the case of taxes, involve basically the collection of a tax under the label of a 'penalty.' This provision differs from the bill as introduced, which did not link the nondischarge of a tax penalty with the treatment of the underlying tax. The amended provision reflects the existing position of the Internal Revenue Service as to tax penalties imposed by the Internal Revenue Code (Rev.Rul. 68-574, 1968-2 C.B. 595). Paragraph (8) follows generally current law and excerpts from discharge student loans until such loans have been due and owing for five years. Such loans include direct student loans as well as insured and guaranteed loans. This provision is intended to be self-executing and the lender or institution is not required to file a complaint to determine the nondischargeability of any student loan. Paragraph (9) excepts from discharge debts that the debtor owed before a previous bankruptcy case concerning the debtor in which the debtor was denied a discharge other than on the basis of the six-year bar. Subsection (b) of this section permits discharge in a bankruptcy case of an unscheduled debt from a prior case. This provision is carried over from Bankruptcy Act Sec. 17b (section 35(b) of former title 11). The result dictated by the subsection would probably not be different if the subsection were not included. It is included nevertheless for clarity. Subsection (c) requires a creditor who is owed a debt that may be excepted from discharge under paragraph (2), (4), or (5), (false statements, defalcation or larceny misappropriation, or willful and malicious injury) to initiate proceedings in the bankruptcy court for an exception to discharge. If the creditor does not act, the debt is discharged. This provision does not change current law. Subsection (d) is new. It provides protection to a consumer debtor that dealt honestly with a creditor who sought to have a debt excepted from discharge on the ground of falsity in the incurring of the debt. The debtor may be awarded costs and a reasonable attorney's fee for the proceeding to determine the dischargeability of a debt under subsection (a)(2), if the court finds that the proceeding was frivolous or not brought by its creditor in good faith. The purpose of the provision is to discourage creditors from initiating proceedings to obtaining a false financial statement exception to discharge in the hope of obtaining a settlement from an honest debtor anxious to save attorney's fees. Such practices impair the debtor's fresh start and are contrary to the spirit of the bankruptcy laws. HOUSE REPORT NO. 95-595 Subsection (a) lists eight kinds of debts excepted from discharge. Taxes that are entitled to priority are excepted from discharge under paragraph (1). In addition, taxes with respect to which the debtor made a fraudulent return or willfully attempted to evade or defeat, or with respect to which a return (if required) was not filed or was not filed after the due date and after one year before the bankruptcy case are excepted from discharge. If the taxing authority's claim has been disallowed, then it would be barred by the more modern rules of collateral estoppel from reasserting that claim against the debtor after the case was closed. See Plumb, The Tax Recommendations of the Commission on the Bankruptcy Laws: Tax Procedures, 88 Harv.L.Rev. 1360, 1388 (1975). As under Bankruptcy Act Sec. 17a(2) (section 35(a)(2) of former title 11), debt for obtaining money, property, services, or an extension or renewal of credit by false pretenses, a false representation, or actual fraud, or by use of a statement in writing respecting the debtor's financial condition that is materially false, on which the creditor reasonably relied, and that the debtor made or published with intent to deceive, is excepted from discharge. This provision is modified only slightly from current section 17a(2). First, 'actual fraud' is added as a grounds for exception from discharge. Second, the creditor must not only have relied on a false statement in writing, the reliance must have been reasonable. This codifies case law construing this provision. Third, the phrase 'in any manner whatsoever' that appears in current law after 'made or published' is deleted as unnecessary. The word 'published' is used in the same sense that it is used in slander actions. Unscheduled debts are excepted from discharge under paragraph (3). The provision, derived from section 17a(3) (section 35(a)(3) of former title 11), follows current law, but clarifies some uncertainties generated by the case law construing 17a(3). The debt is excepted from discharge if it was not scheduled in time to permit timely action by the creditor to protect his rights, unless the creditor had notice or actual knowledge of the case. Paragraph (4) excepts debts for embezzlement or larceny. The deletion of willful and malicious conversion from Sec. 17a(2) of the Bankruptcy Act (section 35(a)(2) of former title 11) is not intended to effect a substantive change. The intent is to include in the category of non-dischargeable debts a conversion under which the debtor willfully and maliciously intends to borrow property for a short period of time with no intent to inflict injury but on which injury is in fact inflicted. Paragraph (5) excepts from discharge debts to a spouse, former spouse, or child of the debtor for alimony to, maintenance for, or support of, the spouse or child. This language, in combination with the repeal of section 456(b) of the Social Security Act (42 U.S.C. 656(b)) by section 327 of the bill, will apply to make nondischargeable only alimony, maintenance, or support owed directly to a spouse or dependent. See Hearings, pt. 2, at 942. What constitutes alimony, maintenance, or support, will be determined under the bankruptcy laws, not State law. Thus, cases such as In re Waller, 494 F.2d 447 (6th Cir. 1974); Hearings, pt. 3, at 1308-10, are overruled, and the result in cases such as Fife v. Fife, 1 Utah 2d 281, 265 P.2d 642 (1952) is followed. This provision will, however, make nondischargeable any debts resulting from an agreement by the debtor to hold the debtor's spouse harmless on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support of the spouse, as determined under bankruptcy law considerations that are similar to considerations of whether a particular agreement to pay money to a spouse is actually alimony or a property settlement. See Hearings, pt. 3, at 1287-1290. Paragraph (6) excepts debts for willful and malicious injury by the debtor to another person or to the property of another person. Under this paragraph, 'willful' means deliberate or intentional. To the extent that Tinker v. Colwell, 193 U.S. 473 (1902) (24 S.Ct. 505, 48 L.Ed. 754, 11 Am.Bankr.Rep. 568), held that a looser standard is intended, and to the extent that other cases have relied on Tinker to apply a 'reckless disregard' standard, they are overruled. Paragraph (7) excepts from discharge a debt for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, that is not compensation for actual pecuniary loss. Paragraph (8) (now (9)) excepts from discharge debts that the debtor owed before a previous bankruptcy case concerning the debtor in which the debtor was denied a discharge other than on the basis of the six-year bar. Subsection (d) is new. It provides protection to a consumer debtor that dealt honestly with a creditor who sought to have a debt excepted from discharge on grounds of falsity in the incurring of the debt. The debtor is entitled to costs of and a reasonable attorney's fee for the proceeding to determine the dischargeability of a debt under subsection (a)(2), if the creditor initiated the proceeding and the debt was determined to be dischargeable. The court is permitted to award any actual pecuniary loss that the debtor may have suffered as a result of the proceeding (such as loss of a day's pay). The purpose of the provision is to discourage creditors from initiating false financial statement exception to discharge actions in the hopes of obtaining a settlement from an honest debtor anxious to save attorney's fees. Such practices impair the debtor's fresh start. -REFTEXT- REFERENCES IN TEXT The Consumer Credit Protection Act, referred to in subsec. (a)(2)(C), is Pub. L. 90-321, May 29, 1968, 82 Stat. 146, as amended, which is classified principally to chapter 41 (Sec. 1601 et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see Short Title note set out under section 1601 of Title 15 and Tables. Section 402(a)(26) of the Social Security Act, referred to in subsec. (a)(5)(A), is classified to section 602(a)(26) of Title 42, The Public Health and Welfare. The Bankruptcy Act, referred to in subsecs. (a)(10) and (b), is act July 1, 1898, ch. 541, 30 Stat. 544, as amended, which was classified generally to former Title 11. Sections 14c and 17a of the Bankruptcy Act were classified to sections 32(c) and 35(a) of former Title 11. Section 439A of the Higher Education Act of 1965 (20 U.S.C. 1087-3), referred to in subsec. (b), was repealed by Pub. L. 95-598, title III, Sec. 317, Nov. 6, 1978, 92 Stat. 2678. Section 733(g) of the Public Health Service Act (42 U.S.C. 294f), referred to in subsec. (b), was repealed by Pub. L. 95-598, title III, Sec. 327, Nov. 6, 1978, 92 Stat. 2679. -MISC2- AMENDMENTS 1990 - Subsec. (a)(8). Pub. L. 101-647, Sec. 3621, substituted 'for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless' for 'for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution, unless' in introductory provisions and amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: 'such loan first became due before five years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or'. Subsec. (a)(9). Pub. L. 101-581 and Pub. L. 101-647, Sec. 3102(a), identically amended par. (9) generally. Prior to amendment, par. (9) read as follows: 'to any entity, to the extent that such debt arises from a judgment or consent decree entered in a court of record against the debtor wherein liability was incurred by such debtor as a result of the debtor's operation of a motor vehicle while legally intoxicated under the laws or regulations of any jurisdiction within the United States or its territories wherein such motor vehicle was operated and within which such liability was incurred; or'. Subsec. (a)(11), (12). Pub. L. 101-647, Sec. 2522(a)(1), added pars. (11) and (12). Subsec. (c). Pub. L. 101-647, Sec. 2522(a)(3), designated existing provisions as par. (1) and added par. (2). Subsec. (e). Pub. L. 101-647, Sec. 2522(a)(2), added subsec. (e). 1986 - Subsec. (a). Pub. L. 99-554, Sec. 257(n), inserted reference to sections 1228(a) and 1228(b) of this title. Subsec. (a)(1)(A). Pub. L. 99-554, Sec. 283(j)(1)(A), substituted '507(a)(7)' for '507(a)(6)'. Subsec. (a)(5). Pub. L. 99-554, Sec. 281, struck out the comma after 'decree' and inserted ', determination made in accordance with State or territorial law by a governmental unit,' after 'record'. Subsec. (a)(9), (10). Pub. L. 99-554, Sec. 283(j)(1)(B), redesignated par. (9) relating to debts incurred by persons driving while intoxicated, added by Pub. L. 98-353, as (10). Subsec. (b). Pub. L. 99-554, Sec. 283(j)(2), substituted 'Service' for 'Services'. 1984 - Subsec. (a)(2). Pub. L. 98-353, Sec. 454(a)(1), in provisions preceding subpar. (A), struck out 'obtaining' after 'for', and substituted 'refinancing of credit, to the extent obtained' for 'refinance of credit,'. Subsec. (a)(2)(A). Pub. L. 98-353, Sec. 307(a)(1), struck out 'or' at end. Subsec. (a)(2)(B). Pub. L. 98-353, Sec. 307(a)(2), inserted 'or' at end. Subsec. (a)(2)(B)(iii). Pub. L. 98-353, Sec. 454(a)(1)(A), struck out 'obtaining' before 'such'. Subsec. (a)(2)(C). Pub. L. 98-353, Sec. 307(a)(3), added subpar. (C). Subsec. (a)(5). Pub. L. 98-353, Sec. 454(b)(1), inserted 'or other order of a court of record' after 'divorce decree,' in provisions preceding subpar. (A). Subsec. (a)(5)(A). Pub. L. 98-353, Sec. 454(b)(2), inserted ', or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State'. Subsec. (a)(8). Pub. L. 98-353, Sec. 371(1), 454(a)(2), struck out 'of higher education' after 'a nonprofit institution of' and struck out 'or' at end. Subsec. (a)(9). Pub. L. 98-353, Sec. 371(2), added the par. (9) relating to debts incurred by persons driving while intoxicated. Subsec. (c). Pub. L. 98-353, Sec. 454(c), inserted 'of a kind' after 'debt'. Subsec. (d). Pub. L. 98-353, Sec. 307(b), substituted 'the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust' for 'the court shall grant judgment against such creditor and in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding to determine dischargeability, unless such granting of judgment would be clearly inequitable'. 1981 - Subsec. (a)(5)(A). Pub. L. 97-35 substituted 'law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act);' for 'law, or otherwise;'. 1979 - Subsec. (a)(8). Pub. L. 96-56 substituted 'for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution of higher education' for 'to a governmental unit, or a nonprofit institution of higher education, for an educational loan' in the provisions preceding subpar. (A) and inserted '(exclusive of any applicable suspension of the repayment period)' after 'before five years' in subpar. (A). EFFECTIVE DATE OF 1990 AMENDMENTS Section 3104 of title XXXI of Pub. L. 101-647 provided that: '(a) Effective Date. - This title and the amendments made by this title (amending this section and section 1328 of this title and enacting provisions set out as a note under section 101 of this title) shall take effect on the date of the enactment of this Act (Nov. 29, 1990). '(b) Application of Amendments. - The amendments made by this title (amending this section and section 1328 of this title) shall not apply with respect to cases commenced under title 11 of the United States Code before the date of the enactment of this Act.' Amendment by section 3621 of Pub. L. 101-647 effective 180 days after Nov. 29, 1990, see section 3631 of Pub. L. 101-647, set out as an Effective Date note under section 3001 of Title 28, Judiciary and Judicial Procedure. Section 4 of Pub. L. 101-581 provided that: '(a) Effective Date. - This Act and the amendments made by this Act (amending this section and section 1328 of this title and enacting provisions set out as a note under section 101 of this title) shall take effect on the date of the enactment of this Act (Nov. 15, 1990). '(b) Application of Amendments. - The amendments made by this Act (amending this section and section 1328 of this title) shall not apply with respect to cases commenced under title 11 of the United States Code before the date of the enactment of this Act.' EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by sections 281 and 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1981 AMENDMENT Amendment by Pub. L. 97-35 effective Aug. 13, 1981, see section 2334(c) of Pub. L. 97-35, set out as a note under section 656 of Title 42, The Public Health and Welfare. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 502, 507, 522, 524, 727, 1141, 1228, 1328 of this title; title 26 sections 6327, 7434. ------DocID 14736 Document 81 of 646------ -CITE- 11 USC Sec. 524 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER II -HEAD- Sec. 524. Effect of discharge -STATUTE- (a) A discharge in a case under this title - (1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727, 944, 1141, 1228, or 1328 of this title, whether or not discharge of such debt is waived; (2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived; and (3) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect or recover from, or offset against, property of the debtor of the kind specified in section 541(a)(2) of this title that is acquired after the commencement of the case, on account of any allowable community claim, except a community claim that is excepted from discharge under section 523, 1228(a)(1), or 1328(c)(1) (FOOTNOTE 1) of this title, or that would be so excepted, determined in accordance with the provisions of sections 523(c) and 523(d) of this title, in a case concerning the debtor's spouse commenced on the date of the filing of the petition in the case concerning the debtor, whether or not discharge of the debt based on such community claim is waived. (FOOTNOTE 1) See 1986 Amendment note below. (b) Subsection (a)(3) of this section does not apply if - (1)(A) the debtor's spouse is a debtor in a case under this title, or a bankrupt or a debtor in a case under the Bankruptcy Act, commenced within six years of the date of the filing of the petition in the case concerning the debtor; and (B) the court does not grant the debtor's spouse a discharge in such case concerning the debtor's spouse; or (2)(A) the court would not grant the debtor's spouse a discharge in a case under chapter 7 of this title concerning such spouse commenced on the date of the filing of the petition in the case concerning the debtor; and (B) a determination that the court would not so grant such discharge is made by the bankruptcy court within the time and in the manner provided for a determination under section 727 of this title of whether a debtor is granted a discharge. (c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if - (1) such agreement was made before the granting of the discharge under section 727, 1141, 1228, or 1328 of this title; (2) such agreement contains a clear and conspicuous statement which advises the debtor that the agreement may be rescinded at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim; (3) such agreement has been filed with the court and, if applicable, accompanied by a declaration or an affidavit of the attorney that represented the debtor during the course of negotiating an agreement under this subsection, which states that such agreement - (A) represents a fully informed and voluntary agreement by the debtor; and (B) does not impose an undue hardship on the debtor or a dependent of the debtor; (4) the debtor has not rescinded such agreement at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of recission (FOOTNOTE 2) to the holder of such claim; (FOOTNOTE 2) So in original. Probably should be 'rescission'. (5) the provisions of subsection (d) of this section have been complied with; and (6)(A) in a case concerning an individual who was not represented by an attorney during the course of negotiating an agreement under this subsection, the court approves such agreement as - (i) not imposing an undue hardship on the debtor or a dependent of the debtor; and (ii) in the best interest of the debtor. (B) Subparagraph (A) shall not apply to the extent that such debt is a consumer debt secured by real property. (d) In a case concerning an individual, when the court has determined whether to grant or not to grant a discharge under section 727, 1141, 1228, or 1328 of this title, the court may hold a hearing at which the debtor shall appear in person. At any such hearing, the court shall inform the debtor that a discharge has been granted or the reason why a discharge has not been granted. If a discharge has been granted and if the debtor desires to make an agreement of the kind specified in subsection (c) of this section, then the court shall hold a hearing at which the debtor shall appear in person and at such hearing the court shall - (1) inform the debtor - (A) that such an agreement is not required under this title, under nonbankruptcy law, or under any agreement not made in accordance with the provisions of subsection (c) of this section; and (B) of the legal effect and consequences of - (i) an agreement of the kind specified in subsection (c) of this section; and (ii) a default under such an agreement; (2) determine whether the agreement that the debtor desires to make complies with the requirements of subsection (c)(6) of this section, if the consideration for such agreement is based in whole or in part on a consumer debt that is not secured by real property of the debtor. (e) Except as provided in subsection (a)(3) of this section, discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt. (f) Nothing contained in subsection (c) or (d) of this section prevents a debtor from voluntarily repaying any debt. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2592; Pub. L. 98-353, title III, Sec. 308, 455, July 10, 1984, 98 Stat. 354, 376; Pub. L. 99-554, title II, Sec. 257(o), 282, 283(k), Oct. 27, 1986, 100 Stat. 3115-3117.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 524(a) of the House amendment represents a compromise between the House bill and the Senate amendment. Section 524(b) of the House amendment is new, and represents standards clarifying the operation of section 524(a)(3) with respect to community property. Sections 524(c) and (d) represent a compromise between the House bill and Senate amendment on the issue of reaffirmation of a debt discharged in bankruptcy. Every reaffirmation to be enforceable must be approved by the court, and any debtor may rescind a reaffirmation for 30 days from the time the reaffirmation becomes enforceable. If the debtor is an individual the court must advise the debtor of various effects of reaffirmation at a hearing. In addition, to any extent the debt is a consumer debt that is not secured by real property of the debtor reaffirmation is permitted only if the court approves the reaffirmation agreement, before granting a discharge under section 727, 1141, or 1328, as not imposing a hardship on the debtor or a dependent of the debtor and in the best interest of the debtor; alternatively, the court may approve an agreement entered into in good faith that is in settlement of litigation of a complaint to determine dischargeability or that is entered into in connection with redemption under section 722. The hearing on discharge under section 524(d) will be held whether or not the debtor desires to reaffirm any debts. SENATE REPORT NO. 95-989 Subsection (a) specifies that a discharge in a bankruptcy case voids any judgment to the extent that it is a determination of the personal liability of the debtor with respect to a prepetition debt, and operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, including telephone calls, letters, and personal contacts, to collect, recover, or offset any discharged debt as a personal liability of the debtor, or from property of the debtor, whether or not the debtor has waived discharge of the debt involved. The injunction is to give complete effect to the discharge and to eliminate any doubt concerning the effect of the discharge as a total prohibition on debt collection efforts. This paragraph has been expanded over a comparable provision in Bankruptcy Act Sec. 14f (section 32(f) of former title 11) to cover any act to collect, such as dunning by telephone or letter, or indirectly through friends, relatives, or employers, harassment, threats of repossession, and the like. The change is consonant with the new policy forbidding binding reaffirmation agreements under proposed 11 U.S.C. 524(b), and is intended to insure that once a debt is discharged, the debtor will not be pressured in any way to repay it. In effect, the discharge extinguishes the debt, and creditors may not attempt to avoid that. The language 'whether or not discharge of such debt is waived' is intended to prevent waiver of discharge of a particular debt from defeating the purposes of this section. It is directed at waiver of discharge of a particular debt, not waiver of discharge in toto as permitted under section 727(a)(9). Subsection (a) also codifies the split discharge for debtors in community property states. If community property was in the estate and community claims were discharged, the discharge is effective against community creditors of the nondebtor spouse as well as of the debtor spouse. Subsection (b) gives further effect to the discharge. It prohibits reaffirmation agreements after the commencement of the case with respect to any dischargeable debt. The prohibition extends to agreements the consideration for which in whole or in part is based on a dischargeable debt, and it applies whether or not discharge of the debt involved in the agreement has been waived. Thus, the prohibition on reaffirmation agreements extends to debts that are based on discharged debts. Thus, 'second generation' debts, which included all or a part of a discharged debt could not be included in any new agreement for new money. This subsection will not have any effect on reaffirmations of debts discharged under the Bankruptcy Act (former title 11). It will only apply to discharges granted if commenced under the new title 11 bankruptcy code. Subsection (c) grants an exception to the anti-reaffirmation provision. It permits reaffirmation in connection with the settlement of a proceeding to determine the dischargeability of the debt being reaffirmed, or in connection with a redemption agreement permitted under section 722. In either case, the reaffirmation agreement must be entered into in good faith and must be approved by the court. Subsection (d) provides the discharge of the debtor does not affect co-debtors or guarantors. -REFTEXT- REFERENCES IN TEXT The Bankruptcy Act, referred to in subsec. (b)(1), is act July 1, 1898, ch. 541, 30 Stat. 544, as amended, which was classified generally to former Title 11. -MISC2- AMENDMENTS 1986 - Subsec. (a)(1). Pub. L. 99-554, Sec. 257(o)(1), inserted reference to section 1228 of this title. Subsec. (a)(3). Pub. L. 99-554, Sec. 257(o)(2), which directed the substitution of ', 1228(a)(1), or 1328(a)(1)' for 'or 1328(a)(1)' was executed by substituting ', 1228(a)(1), or 1328(c)(1)' for 'or 1328(c)(1)' as the probable intent of Congress. Subsec. (c)(1). Pub. L. 99-554, Sec. 257(o)(1), inserted reference to section 1228 of this title. Subsec. (d). Pub. L. 99-554, Sec. 257(o)(1), inserted reference to section 1228 of this title. Pub. L. 99-554, Sec. 282, substituted 'shall' for 'may' before 'hold' in first sentence, inserted 'any' after 'At' in second sentence, and inserted 'the court shall hold a hearing at which the debtor shall appear in person and' after 'then' in third sentence. Subsec. (d)(2). Pub. L. 99-554, Sec. 283(k), substituted 'section' for 'subsection' after 'subsection (c)(6) of this'. 1984 - Subsec. (a)(2). Pub. L. 98-353, Sec. 308(a), 455, struck out 'or from property of the debtor,' before 'whether or not discharge', and substituted 'an act' for 'any act'. Subsec. (a)(3). Pub. L. 98-353, Sec. 455, substituted 'an act' for 'any act'. Subsec. (c)(2). Pub. L. 98-353, Sec. 308(b)(1), (3), added par. (2). Former par. (2), which related to situations where the debtor had not rescinded the agreement within 30 days after the agreement became enforceable, was struck out. Subsec. (c)(3), (4). Pub. L. 98-352, Sec. 308(b)(3), added pars. (3) and (4). Former pars. (3) and (4) redesignated (5) and (6), respectively. Subsec. (c)(5). Pub. L. 98-353, Sec. 308(b)(2), redesignated former par. (3) as (5). Subsec. (c)(6). Pub. L. 98-353, Sec. 308(b)(2), (4), redesignated former par. (4) as (6) and generally amended par. (6), as so redesignated, thereby striking out provisions relating to court approval of such agreements as are entered into in good faith and are in settlement of litigation under section 523 of this title or provide for redemption under section 722 of this title. Subsec. (d)(2). Pub. L. 98-353, Sec. 308(c), substituted 'subsection (c)(6)' for 'subsection (c)(4)'. Subsec. (f). Pub. L. 98-353, Sec. 308(d), added subsec. (f). EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by sections 282 and 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 108, 521, 901 of this title. ------DocID 14737 Document 82 of 646------ -CITE- 11 USC Sec. 525 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER II -HEAD- Sec. 525. Protection against discriminatory treatment -STATUTE- (a) Except as provided in the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499a-499s), the Packers and Stockyards Act, 1921 (7 U.S.C. 181-229), and section 1 of the Act entitled 'An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,' approved July 12, 1943 (57 Stat. 422; 7 U.S.C. 204), a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act. (b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt - (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2593; Pub. L. 98-353, title III, Sec. 309, July 10, 1984, 98 Stat. 354.) -MISC1- HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95-989 This section is additional debtor protection. It codifies the result of Perez v. Campbell, 402 U.S. 637 (1971), which held that a State would frustrate the Congressional policy of a fresh start for a debtor if it were permitted to refuse to renew a drivers license because a tort judgment resulting from an automobile accident had been unpaid as a result of a discharge in bankruptcy. Notwithstanding any other laws, section 525 prohibits a governmental unit from denying, revoking, suspending, or refusing to renew a license, permit, charter, franchise, or other similar grant to, from conditioning such a grant to, from discrimination with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor or that is or has been associated with a debtor. The prohibition extends only to discrimination or other action based solely on the basis of the bankruptcy, on the basis of insolvency before or during bankruptcy prior to a determination of discharge, or on the basis of nonpayment of a debt discharged in the bankruptcy case (the Perez situation). It does not prohibit consideration of other factors, such as future financial responsibility or ability, and does not prohibit imposition of requirements such as net capital rules, if applied nondiscriminatorily. In addition, the section is not exhaustive. The enumeration of various forms of discrimination against former bankrupts is not intended to permit other forms of discrimination. The courts have been developing the Perez rule. This section permits further development to prohibit actions by governmental or quasi-governmental organizations that perform licensing functions, such as a State bar association or a medical society, or by other organizations that can seriously affect the debtors' livelihood or fresh start, such as exclusion from a union on the basis of discharge of a debt to the union's credit union. The effect of the section, and of further interpretations of the Perez rule, is to strengthen the anti-reaffirmation policy found in section 524(b). Discrimination based solely on nonpayment could encourage reaffirmations, contrary to the expressed policy. The section is not so broad as a comparable section proposed by the Bankruptcy Commission, S. 236, 94th Cong., 1st Sess. Sec. 4-508 (1975), which would have extended the prohibition to any discrimination, even by private parties. Nevertheless, it is not limiting either, as noted. The courts will continue to mark the contours of the anti-discrimination provision in pursuit of sound bankruptcy policy. -REFTEXT- REFERENCES IN TEXT The Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499a-499s), referred to in subsec. (a), is act June 10, 1930, ch. 436, 46 Stat. 531, as amended, which is classified generally to chapter 20A (Sec. 499a et seq.) of Title 7, Agriculture. For complete classification of this Act to the Code, see section 499r of Title 7 and Tables. The Packers and Stockyards Act, 1921 (7 U.S.C. 181-229), referred to in subsec. (a), is act Aug. 15, 1921, ch. 64, 42 Stat. 159, as amended, which is classified generally to chapter 9 (Sec. 181 et seq.) of Title 7. For complete classification of this Act to the Code, see section 181 of Title 7 and Tables. The Bankruptcy Act, referred to in subsecs. (a) and (b), is act July 1, 1898, ch. 541, 30 Stat. 544, as amended, which was classified generally to former Title 11. -MISC2- AMENDMENTS 1984 - Pub. L. 98-353 designated existing provisions as subsec. (a), inserted 'the' before 'Perishable', and added subsec. (b). EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. ------DocID 14738 Document 83 of 646------ -CITE- 11 USC SUBCHAPTER III -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- SUBCHAPTER III - THE ESTATE ------DocID 14739 Document 84 of 646------ -CITE- 11 USC Sec. 541 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 541. Property of the estate -STATUTE- (a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held: (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case. (2) All interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is - (A) under the sole, equal, or joint management and control of the debtor; or (B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor's spouse, to the extent that such interest is so liable. (3) Any interest in property that the trustee recovers under section 329(b), 363(n), 543, 550, 553, or 723 of this title. (4) Any interest in property preserved for the benefit of or ordered transferred to the estate under section 510(c) or 551 of this title. (5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date - (A) by bequest, devise, or inheritance; (B) as a result of a property settlement agreement with the debtor's spouse, or of an interlocutory or final divorce decree; or (C) as a beneficiary of a life insurance policy or of a death benefit plan. (6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case. (7) Any interest in property that the estate acquires after the commencement of the case. (b) Property of the estate does not include - (1) any power that the debtor may exercise solely for the benefit of an entity other than the debtor; (2) any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease before the commencement of the case under this title, and ceases to include any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease during the case; or (3) any eligibility of the debtor to participate in programs authorized under the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.; 42 U.S.C. 2751 et seq.), or any accreditation status or State licensure of the debtor as an educational institution. (c)(1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law - (A) that restricts or conditions transfer of such interest by the debtor; or (B) that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under this title, or on the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement, and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor's interest in property. (2) A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title. (d) Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2594; Pub. L. 98-353, title III, Sec. 363(a), 456, July 10, 1984, 98 Stat. 363, 376; Pub. L. 101-508, title III, Sec. 3007(a)(2), Nov. 5, 1990, 104 Stat. 1388-28.) -STATAMEND- AMENDMENT OF SECTION For termination of amendment by section 3008 of Pub. L. 101-508, see Termination Date of 1990 Amendment note below. -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 541(a)(7) is new. The provision clarifies that any interest in property that the estate acquires after the commencement of the case is property of the estate; for example, if the estate enters into a contract, after the commencement of the case, such a contract would be property of the estate. The addition of this provision by the House amendment merely clarifies that section 541(a) is an all-embracing definition which includes charges on property, such as liens held by the debtor on property of a third party, or beneficial rights and interests that the debtor may have in property of another. However, only the debtor's interest in such property becomes property of the estate. If the debtor holds bare legal title or holds property in trust for another, only those rights which the debtor would have otherwise had emanating from such interest pass to the estate under section 541. Neither this section nor section 545 will affect various statutory provisions that give a creditor a lien that is valid both inside and outside bankruptcy against a bona fide purchaser of property from the debtor, or that creates a trust fund for the benefit of creditors meeting similar criteria. See Packers and Stockyards Act Sec. 206, 7 U.S.C. 196 (1976). Section 541(c)(2) follows the position taken in the House bill and rejects the position taken in the Senate amendment with respect to income limitations on a spend-thrift trust. Section 541(d) of the House amendment is derived from section 541(e) of the Senate amendment and reiterates the general principle that where the debtor holds bare legal title without any equitable interest, that the estate acquires bare legal title without any equitable interest in the property. The purpose of section 541(d) as applied to the secondary mortgage market is identical to the purpose of section 541(e) of the Senate amendment and section 541(d) will accomplish the same result as would have been accomplished by section 541(e). Even if a mortgage seller retains for purposes of servicing legal title to mortgages or interests in mortgages sold in the secondary mortgage market, the trustee would be required by section 541(d) to turn over the mortgages or interests in mortgages to the purchaser of those mortgages. The seller of mortgages in the secondary mortgage market will often retain the original mortgage notes and related documents and the seller will not endorse the notes to reflect the sale to the purchaser. Similarly, the purchaser will often not record the purchaser's ownership of the mortgages or interests in mortgages under State recording statutes. These facts are irrelevant and the seller's retention of the mortgage documents and the purchaser's decision not to record do not change the trustee's obligation to turn the mortgages or interests in mortgages over to the purchaser. The application of section 541(d) to secondary mortgage market transactions will not be affected by the terms of the servicing agreement between the mortgage servicer and the purchaser of the mortgages. Under section 541(d), the trustee is required to recognize the purchaser's title to the mortgages or interests in mortgages and to turn this property over to the purchaser. It makes no difference whether the servicer and the purchaser characterize their relationship as one of trust, agency, or independent contractor. The purpose of section 541(d) as applied to the secondary mortgage market is therefore to make certain that secondary mortgage market sales as they are currently structured are not subject to challenge by bankruptcy trustees and that purchasers of mortgages will be able to obtain the mortgages or interests in mortgages which they have purchased from trustees without the trustees asserting that a sale of mortgages is a loan from the purchaser to the seller. Thus, as section 541(a)(1) clearly states, the estate is comprised of all legal or equitable interests of the debtor in property as of the commencement of the case. To the extent such an interest is limited in the hands of the debtor, it is equally limited in the hands of the estate except to the extent that defenses which are personal against the debtor are not effective against the estate. Property of the estate: The Senate amendment provided that property of the estate does not include amounts held by the debtor as trustee and any taxes withheld or collected from others before the commencement of the case. The House amendment removes these two provisions. As to property held by the debtor as a trustee, the House amendment provides that property of the estate will include whatever interest the debtor held in the property at the commencement of the case. Thus, where the debtor held only legal title to the property and the beneficial interest in that property belongs to another, such as exists in the case of property held in trust, the property of the estate includes the legal title, but not the beneficial interest in the property. As to withheld taxes, the House amendment deletes the rule in the Senate bill as unnecessary since property of the estate does not include the beneficial interest in property held by the debtor as a trustee. Under the Internal Revenue Code of 1954 (section 7501) (26 U.S.C. 7501), the amounts of withheld taxes are held to be a special fund in trust for the United States. Where the Internal Revenue Service can demonstrate that the amounts of taxes withheld are still in the possession of the debtor at the commencement of the case, then if a trust is created, those amounts are not property of the estate. Compare In re Shakesteers Coffee Shops, 546 F.2d 821 (9th Cir. 1976) with In re Glynn Wholesale Building Materials, Inc. (S.D. Ga. 1978) and In re Progress Tech Colleges, Inc., 42 Aftr 2d 78-5573 (S.D. Ohio 1977). Where it is not possible for the Internal Revenue Service to demonstrate that the amounts of taxes withheld are still in the possession of the debtor at the commencement of the case, present law generally includes amounts of withheld taxes as property of the estate. See, e.g., United States v. Randall, 401 U.S. 513 (1973) (91 S. Ct. 991, 28 L.Ed.2d 273) and In re Tamasha Town and Country Club, 483 F.2d 1377 (9th Cir. 1973). Nonetheless, a serious problem exists where 'trust fund taxes' withheld from others are held to be property of the estate where the withheld amounts are commingled with other assets of the debtor. The courts should permit the use of reasonable assumptions under which the Internal Revenue Service, and other tax authorities, can demonstrate that amounts of withheld taxes are still in the possession of the debtor at the commencement of the case. For example, where the debtor had commingled that amount of withheld taxes in his general checking account, it might be reasonable to assume that any remaining amounts in that account on the commencement of the case are the withheld taxes. In addition, Congress may consider future amendments to the Internal Revenue Code (title 26) making clear that amounts of withheld taxes are held by the debtor in a trust relationship and, consequently, that such amounts are not property of the estate. SENATE REPORT NO. 95-989 This section defines property of the estate, and specifies what property becomes property of the estate. The commencement of a bankruptcy case creates an estate. Under paragraph (1) of subsection (a), the estate is comprised of all legal or equitable interest of the debtor in property, wherever located, as of the commencement of the case. The scope of this paragraph is broad. It includes all kinds of property, including tangible or intangible property, causes of action (see Bankruptcy Act Sec. 70a(6) (section 110(a)(6) of former title 11)), and all other forms of property currently specified in section 70a of the Bankruptcy Act Sec. 70a (section 110(a) of former title 11), as well as property recovered by the trustee under section 542 of proposed title 11, if the property recovered was merely out of the possession of the debtor, yet remained 'property of the debtor.' The debtor's interest in property also includes 'title' to property, which is an interest, just as are a possessory interest, or lease-hold interest, for example. The result of Segal v. Rochelle, 382 U.S. 375 (1966), is followed, and the right to a refund is property of the estate. Though this paragraph will include choses in action and claims by the debtor against others, it is not intended to expand the debtor's rights against others more than they exist at the commencement of the case. For example, if the debtor has a claim that is barred at the time of the commencement of the case by the statute of limitations, then the trustee would not be able to pursue that claim, because he too would be barred. He could take no greater rights than the debtor himself had. But see proposed 11 U.S.C. 108, which would permit the trustee a tolling of the statute of limitations if it had not run before the date of the filing of the petition. Paragraph (1) has the effect of overruling Lockwood v. Exchange Bank, 190 U.S. 294 (1903), because it includes as property of the estate all property of the debtor, even that needed for a fresh start. After the property comes into the estate, then the debtor is permitted to exempt it under proposed 11 U.S.C. 522, and the court will have jurisdiction to determine what property may be exempted and what remains as property of the estate. The broad jurisdictional grant in proposed 28 U.S.C. 1334 would have the effect of overruling Lockwood independently of the change made by this provision. Paragraph (1) also has the effect of overruling Lines v. Frederick, 400 U.S. 18 (1970). Situations occasionally arise where property ostensibly belonging to the debtor will actually not be property of the debtor, but will be held in trust for another. For example, if the debtor has incurred medical bills that were covered by insurance, and the insurance company had sent the payment of the bills to the debtor before the debtor had paid the bill for which the payment was reimbursement, the payment would actually be held in a constructive trust for the person to whom the bill was owed. This section and proposed 11 U.S.C. 545 also will not affect various statutory provisions that give a creditor of the debtor a lien that is valid outside as well as inside bankruptcy, or that creates a trust fund for the benefit of a creditor of the debtor. See Packers and Stockyards Act Sec. 206, 7 U.S.C. 196. Bankruptcy Act Sec. 8 (section 26 of former title 11) has been deleted as unnecessary. Once the estate is created, no interests in property of the estate remain in the debtor. Consequently, if the debtor dies during the case, only property exempted from property of the estate or acquired by the debtor after the commencement of the case and not included as property of the estate will be available to the representative of the debtor's probate estate. The bankruptcy proceeding will continue in rem with respect to property of the state, and the discharge will apply in personam to relieve the debtor, and thus his probate representative, of liability for dischargeable debts. The estate also includes the interests of the debtor and the debtor's spouse in community property, subject to certain limitations; property that the trustee recovers under the avoiding powers; property that the debtor acquires by bequest, devise, inheritance, a property settlement agreement with the debtor's spouse, or as the beneficiary of a life insurance policy within 180 days after the petition; and proceeds, product, offspring, rents, and profits of or from property of the estate, except such as are earning from services performed by an individual debtor after the commencement of the case. Proceeds here is not used in a confining sense, as defined in the Uniform Commercial Code, but is intended to be a broad term to encompass all proceeds of property of the estate. The conversion in form of property of the estate does not change its character as property of the estate. Subsection (b) excludes from property of the estate any power, such as a power of appointment, that the debtor may exercise solely for the benefit of an entity other than the debtor. This changes present law which excludes powers solely benefiting other persons but not other entities. Subsection (c) invalidates restrictions on the transfer of property of the debtor, in order that all of the interests of the debtor in property will become property of the estate. The provisions invalidated are those that restrict or condition transfer of the debtor's interest, and those that are conditioned on the insolvency or financial condition of the debtor, on the commencement of a bankruptcy case, or on the appointment of a custodian of the debtor's property. Paragraph (2) of subsection (c), however, preserves restrictions on a transfer of a spendthrift trust that the restriction is enforceable nonbankruptcy law to the extent of the income reasonably necessary for the support of a debtor and his dependents. Subsection (d) (now (e)), derived from section 70c of the Bankruptcy Act (section 110(c) of former title 11), gives the estate the benefit of all defenses available to the debtor as against an entity other than the estate, including such defenses as statutes of limitations, statutes of frauds, usury, and other personal defenses, and makes waiver by the debtor after the commencement of the case ineffective to bind the estate. Section 541(e) (now (d)) confirms the current status under the Bankruptcy Act (former title 11) of bona fide secondary mortgage market transactions as the purchase and sale of assets. Mortgages or interests in mortgages sold in the secondary market should not be considered as part of the debtor's estate. To permit the efficient servicing of mortgages or interests in mortgages the seller often retains the original mortgage notes and related documents, and the purchaser records under State recording statutes the purchaser's ownership of the mortgages or interests in mortgages purchased. Section 541(e) makes clear that the seller's retention of the mortgage documents and the purchaser's decision not to record do not impair the asset sale character of secondary mortgage market transactions. The committee notes that in secondary mortgage market transactions the parties may characterize their relationship as one of trust, agency, or independent contractor. The characterization adopted by the parties should not affect the statutes in bankruptcy on bona fide secondary mortgage market purchases and sales. -REFTEXT- REFERENCES IN TEXT The Higher Education Act of 1965, referred to in subsec. (b)(3), is Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended, which is classified principally to chapter 28 (Sec. 1001 et seq.) of Title 20, Education. For complete classification of this Act to the Code, see Short Title note set out under section 1001 of Title 20 and Tables. -MISC2- AMENDMENTS 1990 - Subsec. (b)(3). Pub. L. 101-508, Sec. 3007(a)(2), 3008, temporarily added par. (3). See Termination Date of 1990 Amendment note below. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 456(a)(1), (2), struck out 'under' after 'under' and inserted 'and by whomever held' after 'located'. Subsec. (a)(3). Pub. L. 98-353, Sec. 456(a)(3), inserted '329(b), 363(n),'. Subsec. (a)(5). Pub. L. 98-353, Sec. 456(a)(4), substituted 'Any' for 'An'. Subsec. (a)(6). Pub. L. 98-353, Sec. 456(a)(5), substituted 'or profits' for 'and profits'. Subsec. (b). Pub. L. 98-353, Sec. 363(a), amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: 'Property of the estate does not include any power that the debtor may only exercise solely for the benefit of an entity other than the debtor.' Subsec. (c)(1). Pub. L. 98-353, Sec. 456(b)(1), inserted 'in an agreement, transfer, instrument, or applicable nonbankruptcy law'. Subsec. (c)(1)(B). Pub. L. 98-353, Sec. 456(b)(2), substituted 'taking' for 'the taking', and inserted 'before such commencement' after 'custodian'. Subsec. (d). Pub. L. 98-353, Sec. 456(c), inserted '(1) or (2)' after '(a)'. Subsec. (e). Pub. L. 98-353, Sec. 456(d), struck out subsec. (e) which read as follows: 'The estate shall have the benefit of any defense available to the debtor as against an entity other than the estate, including statutes of limitation, statutes of frauds, usury, and other personal defenses. A waiver of any such defense by the debtor after the commencement of the case does not bind the estate.' TERMINATION DATE OF 1990 AMENDMENT Amendment by Pub. L. 101-508 to cease to be effective Oct. 1, 1996, see section 3008 of Pub. L. 101-508, set out in an Effective and Termination Dates of 1990 Amendment note under section 362 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 101, 365, 522, 524, 726, 728, 1207, 1306 of this title; title 28 section 1409. ------DocID 14740 Document 85 of 646------ -CITE- 11 USC Sec. 542 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 542. Turnover of property to the estate -STATUTE- (a) Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate. (b) Except as provided in subsection (c) or (d) of this section, an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee, except to the extent that such debt may be offset under section 553 of this title against a claim against the debtor. (c) Except as provided in section 362(a)(7) of this title, an entity that has neither actual notice nor actual knowledge of the commencement of the case concerning the debtor may transfer property of the estate, or pay a debt owing to the debtor, in good faith and other than in the manner specified in subsection (d) of this section, to an entity other than the trustee, with the same effect as to the entity making such transfer or payment as if the case under this title concerning the debtor had not been commenced. (d) A life insurance company may transfer property of the estate or property of the debtor to such company in good faith, with the same effect with respect to such company as if the case under this title concerning the debtor had not been commenced, if such transfer is to pay a premium or to carry out a nonforfeiture insurance option, and is required to be made automatically, under a life insurance contract with such company that was entered into before the date of the filing of the petition and that is property of the estate. (e) Subject to any applicable privilege, after notice and a hearing, the court may order an attorney, accountant, or other person that holds recorded information, including books, documents, records, and papers, relating to the debtor's property or financial affairs, to to (FOOTNOTE 1) turn over or disclose such recorded information to the trustee. (FOOTNOTE 1) So in original. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2595; Pub. L. 98-353, title III, Sec. 457, July 10, 1984, 98 Stat. 376.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 542(a) of the House amendment modifies similar provisions contained in the House bill and the Senate amendment treating with turnover of property to the estate. The section makes clear that any entity, other than a custodian, is required to deliver property of the estate to the trustee or debtor in possession whenever such property is acquired by the entity during the case, if the trustee or debtor in possession may use, sell, or lease the property under section 363, or if the debtor may exempt the property under section 522, unless the property is of inconsequential value or benefit to the estate. This section is not intended to require an entity to deliver property to the trustee if such entity has obtained an order of the court authorizing the entity to retain possession, custody or control of the property. The House amendment adopts section 542(c) of the House bill in preference to a similar provision contained in section 542(c) of the Senate amendment. Protection afforded by section 542(c) applies only to the transferor or payor and not to a transferee or payee receiving a transfer or payment, as the case may be. Such transferee or payee is treated under section 549 and section 550 of title 11. The extent to which the attorney client privilege is valid against the trustee is unclear under current law and is left to be determined by the courts on a case by case basis. SENATE REPORT NO. 95-989 Subsection (a) of this section requires anyone holding property of the estate on the date of the filing of the petition, or property that the trustee may use, sell, or lease under section 363, to deliver it to the trustee. The subsection also requires an accounting. The holder of property of the estate is excused from the turnover requirement of this subsection if the property held is of inconsequential value to the estate. However, this provision must be read in conjunction with the remainder of the subsection, so that if the property is of inconsequential monetary value, yet has a significant use value for the estate, the holder of the property would not be excused from turnover. Subsection (b) requires an entity that owes money to the debtor as of the date of the petition, or that holds money payable on demand or payable on order, to pay the money to the order of the trustee. An exception is made to the extent that the entity has a valid right of setoff, as recognized by section 553. Subsection (c) provides an exception to subsections (a) and (b). It protects an entity that has neither actual notice nor actual knowledge of the case and that transfers, in good faith, property that is deliverable or payable to the trustee to someone other than to the estate or on order of the estate. This subsection codifies the result of Bank of Marin v. England, 385 U.S. 99 (1966), but does not go so far as to permit bank setoff in violation of the automatic stay, proposed 11 U.S.C. 362(a)(7), even if the bank offsetting the debtor's balance has no knowledge of the case. Subsection (d) protects life insurance companies that are required by contract to make automatic premium loans from property that might otherwise be property of the estate. Subsection (e) requires an attorney, accountant, or other professional that holds recorded information relating to the debtor's property or financial affairs, to surrender it to the trustee. This duty is subject to any applicable claim of privilege, such as attorney-client privilege. It is a new provision that deprives accountants and attorneys of the leverage that they have today, under State law lien provisions, to receive payment in full ahead of other creditors when the information they hold is necessary to the administration of the estate. AMENDMENTS 1984 - Subsec. (e). Pub. L. 98-353 inserted 'to turn over or' before 'disclose'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 349, 502, 522, 549 of this title. ------DocID 14741 Document 86 of 646------ -CITE- 11 USC Sec. 543 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 543. Turnover of property by a custodian -STATUTE- (a) A custodian with knowledge of the commencement of a case under this title concerning the debtor may not make any disbursement from, or take any action in the administration of, property of the debtor, proceeds, product, offspring, rents, or profits of such property, or property of the estate, in the possession, custody, or control of such custodian, except such action as is necessary to preserve such property. (b) A custodian shall - (1) deliver to the trustee any property of the debtor held by or transferred to such custodian, or proceeds, product, offspring, rents, or profits of such property, that is in such custodian's possession, custody, or control on the date that such custodian acquires knowledge of the commencement of the case; and (2) file an accounting of any property of the debtor, or proceeds, product, offspring, rents, or profits of such property, that, at any time, came into the possession, custody, or control of such custodian. (c) The court, after notice and a hearing, shall - (1) protect all entities to which a custodian has become obligated with respect to such property or proceeds, product, offspring, rents, or profits of such property; (2) provide for the payment of reasonable compensation for services rendered and costs and expenses incurred by such custodian; and (3) surcharge such custodian, other than an assignee for the benefit of the debtor's creditors that was appointed or took possession more than 120 days before the date of the filing of the petition, for any improper or excessive disbursement, other than a disbursement that has been made in accordance with applicable law or that has been approved, after notice and a hearing, by a court of competent jurisdiction before the commencement of the case under this title. (d) After notice and hearing, the bankruptcy court - (1) may excuse compliance with subsection (a), (b), or (c) of this section, if the interests of creditors and, if the debtor is not insolvent, of equity security holders would be better served by permitting a custodian to continue in possession, custody, or control of such property, and (2) shall excuse compliance with subsections (a) and (b)(1) of this section if the custodian is an assignee for the benefit of the debtor's creditors that was appointed or took possession more than 120 days before the date of the filing of the petition, unless compliance with such subsections is necessary to prevent fraud or injustice. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2595; Pub. L. 98-353, title III, Sec. 458, July 10, 1984, 98 Stat. 376.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 543(a) is a modification of similar provisions contained in the House bill and the Senate amendment. The provision clarifies that a custodian may always act as is necessary to preserve property of the debtor. Section 543(c)(3) excepts from surcharge a custodian that is an assignee for the benefit of creditors, who was appointed or took possession before 120 days before the date of the filing of the petition, whichever is later. The provision also prevents a custodian from being surcharged in connection with payments made in accordance with applicable law. SENATE REPORT NO. 95-989 This section requires a custodian appointed before the bankruptcy case to deliver to the trustee and to account for property that has come into his possession, custody, or control as a custodian. 'Property of the debtor' in section (a) includes property that was property of the debtor at the time the custodian took the property, but the title to which passed to the custodian. The section requires the court to protect any obligations incurred by the custodian, provide for the payment of reasonable compensation for services rendered and costs and expenses incurred by the custodian, and to surcharge the custodian for any improper or excessive disbursement, unless it has been approved by a court of competent jurisdiction. Subsection (d) reinforces the general abstention policy in section 305 by permitting the bankruptcy court to authorize the custodianship to proceed notwithstanding this section. AMENDMENTS 1984 - Subsec. (a). Pub. L. 98-353, Sec. 458(a), inserted ', product, offspring, rents, or profits' after 'proceeds'. Subsec. (b)(1). Pub. L. 98-353, Sec. 458(b)(1), inserted 'held by or' after 'debtor', and ', product, offspring, rents, or profits' after 'proceeds'. Subsec. (b)(2). Pub. L. 98-353, Sec. 458(b)(2), inserted ', product, offspring, rents, or profits' after 'proceeds'. Subsec. (c)(1). Pub. L. 98-353, Sec. 458(c)(1), inserted 'or proceeds, product, offspring, rents, or profits of such property' after 'property'. Subsec. (c)(3). Pub. L. 98-353, Sec. 458(c)(2), inserted 'that has been' before 'approved'. Subsec. (d). Pub. L. 98-353, Sec. 458(d), designated existing provisions as par. (1) and added par. (2). EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 349, 502, 503, 522, 541, 726 of this title. ------DocID 14742 Document 87 of 646------ -CITE- 11 USC Sec. 544 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 544. Trustee as lien creditor and as successor to certain creditors and purchasers -STATUTE- (a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by - (1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists; (2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; or (3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists. (b) 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. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2596; Pub. L. 98-353, title III, Sec. 459, July 10, 1984, 98 Stat. 377.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 544(a)(3) modifies similar provisions contained in the House bill and Senate amendment so as not to require a creditor to perform the impossible in order to perfect his interest. Both the lien creditor test in section 544(a)(1), and the bona fide purchaser test in section 544(a)(3) should not require a transferee to perfect a transfer against an entity with respect to which applicable law does not permit perfection. The avoiding powers under section 544(a)(1), (2), and (3) are new. In particular, section 544(a)(1) overrules Pacific Finance Corp. v. Edwards, 309 F.2d 224 (9th Cir. 1962), and In re Federals, Inc., 553 F.2d 509 (6th Cir. 1977), insofar as those cases held that the trustee did not have the status of a creditor who extended credit immediately prior to the commencement of the case. The House amendment deletes section 544(c) of the House bill. SENATE REPORT NO. 95-989 Subsection (a) is the 'strong arm clause' of current law, now found in Bankruptcy Act Sec. 70c (section 110(c) of former title 11). It gives the trustee the rights of a creditor on a simple contract with a judicial lien on the property of the debtor as of the date of the petition; of a creditor with a writ of execution against the property of the debtor unsatisfied as of the date of the petition; and a bona fide purchaser of the real property of the debtor as of the date of the petition. 'Simple contract' as used here is derived from Bankruptcy Act Sec. 60a(4) (section 96(a)(4) of former title 11). The third status, that of a bona fide purchaser of real property, is new. Subsection (b) is derived from current section 70e (section 110(e) of former title 11). It gives the trustee the rights of actual unsecured creditors under applicable law to void transfers. It follows Moore v. Bay, 284 U.S. 4 (1931), and overrules those cases that hold section 70e gives the trustee the rights of secured creditors. AMENDMENTS 1984 - Subsec. (a)(1). Pub. L. 98-353, Sec. 459(1), inserted 'such' after 'obtained'. Subsec. (a)(2). Pub. L. 98-353, Sec. 459(2), substituted '; or' for '; and'. Subsec. (a)(3). Pub. L. 98-353, Sec. 459(3), inserted ', other than fixtures,' after 'property', and 'and has perfected such transfer' after 'purchaser' the second place it appeared. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 303, 349, 502, 522, 546, 548, 550, 551, 552, 749, 764, 901, 926 of this title; title 28 section 1409. ------DocID 14743 Document 88 of 646------ -CITE- 11 USC Sec. 545 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 545. Statutory liens -STATUTE- The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien - (1) first becomes effective against the debtor - (A) when a case under this title concerning the debtor is commenced; (B) when an insolvency proceeding other than under this title concerning the debtor is commenced; (C) when a custodian is appointed or authorized to take or takes possession; (D) when the debtor becomes insolvent; (E) when the debtor's financial condition fails to meet a specified standard; or (F) at the time of an execution against property of the debtor levied at the instance of an entity other than the holder of such statutory lien; (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; (3) is for rent; or (4) is a lien of distress for rent. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2597; Pub. L. 98-353, title III, Sec. 460, July 10, 1984, 98 Stat. 377.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 545 of the House amendment modifies similar provisions contained in the House bill and Senate amendment to make clear that a statutory lien may be avoided under section 545 only to the extent the lien violates the perfection standards of section 545. Thus a Federal tax lien is invalid under section 545(2) with respect to property specified in sections 6323(b) and (c) of the Internal Revenue Code of 1954 (title 26). As a result of this modification, section 545(b) of the Senate amendment is deleted as unnecessary. Statutory liens: The House amendment retains the provision of section 545(2) of the House bill giving the trustee in a bankruptcy case the same power which a bona fide purchaser has to take over certain kinds of personal property despite the existence of a tax lien covering that property. The amendment thus retains present law, and deletes section 545(b) of the Senate amendment which would have no longer allowed the trustee to step into the shoes of a bona fide purchaser for this purpose. SENATE REPORT NO. 95-989 This section permits the trustee to avoid the fixing of certain statutory liens. It is derived from subsections 67b and 67c of present law (section 107(b) and (c) of former title 11). Liens that first become effective on the bankruptcy or insolvency of the debtor are voidable by the trustee. Liens that are not perfected or enforceable on the date of the petition against a bona fide purchaser are voidable. If a transferee is able to perfect under section 546(a) and that perfection relates back to an earlier date, then in spite of the filing of the bankruptcy petition, the trustee would not be able to defeat the lien, because the lien would be perfected and enforceable against a bona fide purchaser that purchased the property on the date of the filing of the petition. Finally, a lien for rent or of distress for rent is voidable, whether the lien is a statutory lien or a common law lien of distress for rent. See proposed 11 U.S.C. 101(37); Bankruptcy Act Sec. 67(c)(1)(C). The trustee may avoid a lien under this section even if the lien has been enforced by sale before the commencement of the case. To that extent, Bankruptcy Act Sec. 67c(5) is not followed. Subsection (b) limits the trustee's power to avoid tax liens under Federal, state, or local law. For example, under Sec. 6323 of the Internal Revenue Code (Title 26). Once public notice of a tax lien has been filed, the Government is generally entitled to priority over subsequent lienholders. However, certain purchasers who acquire an interest in certain specific kinds of personal property will take free of an existing filed tax lien attaching to such property. Among the specific kinds of personal property which a purchaser can acquire free of an existing tax lien (unless the buyer knows of the existence of the lien) are stocks and securities, motor vehicles, inventory, and certain household goods. Under the present Bankruptcy Act (Sec. 67(c)(1)) (section 107(c)(1) of former title 11), the trustee may be viewed as a bona fide purchaser, so that he can take over any such designated items free of tax liens even if the tax authority has perfected its lien. However, the reasons for enabling a bona fide purchaser to take these kinds of assets free of an unfiled tax lien, that is, to encourage free movement of these assets in general commerce, do not apply to a trustee in a title 11 case, who is not in the same position as an ordinary bona fide purchaser as to such property. The bill accordingly adds a new subsection (b) to sec. 545 providing, in effect, that a trustee in bankruptcy does not have the right under this section to take otherwise specially treated items of personal property free of a tax lien filed before the filing of the petition. AMENDMENTS 1984 - Par. (1)(A). Pub. L. 98-353, Sec. 460(1), struck out 'is' after 'is'. Par. (1)(C). Pub. L. 98-353, Sec. 460(2), substituted 'appointed or authorized to take' for 'apponted'. Par. (2). Pub. L. 98-353, Sec. 460(3), substituted 'at the time of the commencement of the case' for 'on the date of the filing of the petition' in two places. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 303, 349, 502, 522, 546, 547, 548, 550, 551, 552, 749, 764, 901, 926 of this title; title 26 sections 6327, 7434. ------DocID 14744 Document 89 of 646------ -CITE- 11 USC Sec. 546 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 546. Limitations on avoiding powers -STATUTE- (a) An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of - (1) two years after the appointment of a trustee under section 702, 1104, 1163, 1302, or 1202 of this title; or (2) the time the case is closed or dismissed. (b) The rights and powers of a trustee under sections 544, 545, and 549 of this title are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection. If such law requires seizure of such property or commencement of an action to accomplish such perfection, and such property has not been seized or such action has not been commenced before the date of the filing of the petition, such interest in such property shall be perfected by notice within the time fixed by such law for such seizure or commencement. (c) Except as provided in subsection (d) of this section, the rights and powers of a trustee under sections 544(a), 545, 547, and 549 of this title are subject to any statutory or common-law right of a seller of goods that has sold goods to the debtor, in the ordinary course of such seller's business, to reclaim such goods if the debtor has received such goods while insolvent, but - (1) such a seller may not reclaim any such goods unless such seller demands in writing reclamation of such goods before ten days after receipt of such goods by the debtor; and (2) the court may deny reclamation to a seller with such a right of reclamation that has made such a demand only if the court - (A) grants the claim of such a seller priority as a claim of a kind specified in section 503(b) of this title; or (B) secures such claim by a lien. (d) In the case of a seller who is a producer of grain sold to a grain storage facility, owned or operated by the debtor, in the ordinary course of such seller's business (as such terms are defined in section 557 of this title) or in the case of a United States fisherman who has caught fish sold to a fish processing facility owned or operated by the debtor in the ordinary course of such fisherman's business, the rights and powers of the trustee under sections 544(a), 545, 547, and 549 of this title are subject to any statutory or common law right of such producer or fisherman to reclaim such grain or fish if the debtor has received such grain or fish while insolvent, but - (1) such producer or fisherman may not reclaim any grain or fish unless such producer or fisherman demands, in writing, reclamation of such grain or fish before ten days after receipt thereof by the debtor; and (2) the court may deny reclamation to such a producer or fisherman with a right of reclamation that has made such a demand only if the court secures such claim by a lien. (e) Notwithstanding sections 544, 545, 547, 548(a)(2), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 101(34), 741(5), or 761(15) of this title, or settlement payment, as defined in section 101(35) or 741(8) 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) of this title. (f) Notwithstanding sections 544, 545, 547, 548(a)(2), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 741(5) or 761(15) of this title, or settlement payment, as defined in section 741(8) 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) of this title. (g) Notwithstanding sections 544, 545, 547, 548(a)(2) 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) of this title. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2597; Pub. L. 97-222, Sec. 4, July 27, 1982, 96 Stat. 236; Pub. L. 98-353, title III, Sec. 351, 393, 461, July 10, 1984, 98 Stat. 358, 365, 377; Pub. L. 99-554, title II, Sec. 257(d), 283(l), Oct. 27, 1986, 100 Stat. 3114, 3117; Pub. L. 101-311, title I, Sec. 103, title II, Sec. 203, June 25, 1990, 104 Stat. 268, 269.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 546(a) of the House amendment is derived from section 546(c) of the Senate amendment. Section 546(c) of the House amendment is derived from section 546(b) of the Senate amendment. It applies to receipt of goods on credit as well as by cash sales. The section clarifies that a demand for reclamation must be made in writing anytime before 10 days after receipt of the goods by the debtor. The section also permits the court to grant the reclaiming creditor a lien or an administrative expense in lieu of turning over the property. SENATE REPORT NO. 95-989 The trustee's rights and powers under certain of the avoiding powers are limited by section 546. First, if an interest holder against whom the trustee would have rights still has, under applicable nonbankruptcy law, and as of the date of the petition, the opportunity to perfect his lien against an intervening interest holder, then he may perfect his interest against the trustee. If applicable law requires seizure for perfection, then perfection is by notice to the trustee instead. The rights granted to a creditor under this subsection prevail over the trustee only if the transferee has perfected the transfer in accordance with applicable law, and that perfection relates back to a date that is before the commencement of the case. The phrase 'generally applicable law' relates to those provisions of applicable law that apply both in bankruptcy cases and outside of bankruptcy cases. For example, many State laws, under the Uniform Commercial Code, permit perfection of a purchase-money security interest to relate back to defeat an earlier levy by another creditor if the former was perfected within ten days of delivery of the property. U.C.C. Sec. 9-301(2). Such perfection would then be able to defeat an intervening hypothetical judicial lien creditor on the date of the filing of the petition. The purpose of the subsection is to protect, in spite of the surprise intervention of a bankruptcy petition, those whom State law protects by allowing them to perfect their liens or interests as of an effective date that is earlier than the date of perfection. It is not designed to give the States an opportunity to enact disguised priorities in the form of liens that apply only in bankruptcy cases. Subsection (b) (now (c)) specifies that the trustee's rights and powers under the strong arm clause, the successor to creditors provision, the preference section, and the postpetition transaction section are all subject to any statutory or common-law right of a seller, in the ordinary course of business, of goods to the debtor to reclaim the goods if the debtor received the goods on credit while insolvent. The seller must demand reclamation within ten days after receipt of the goods by the debtor. As under nonbankruptcy law, the right is subject to any superior rights of secured creditors. The purpose of the provision is to recognize, in part, the validity of section 2-702 of the Uniform Commercial Code, which has generated much litigation, confusion, and divergent decisions in different circuits. The right is subject, however, to the power of the court to deny reclamation and protect the seller by granting him a priority as an administrative expense for his claim arising out of the sale of the goods. Subsection (c) (now (a)) adds a statute of limitations to the use by the trustee of the avoiding powers. The limitation is two years after his appointment, or the time the case is closed or dismissed, whichever occurs later. AMENDMENTS 1990 - Subsec. (e). Pub. L. 101-311, Sec. 203, inserted reference to sections 101(34) and 101(35) of this title. Subsec. (g). Pub. L. 101-311, Sec. 103, added subsec. (g). 1986 - Subsec. (a)(1). Pub. L. 99-554, Sec. 257(d), inserted reference to section 1202 of this title. Subsec. (e). Pub. L. 99-554, Sec. 283(l), inserted a comma after 'stockbroker'. 1984 - Subsec. (a)(1). Pub. L. 98-353, Sec. 461(a), substituted '; or' for '; and'. Subsec. (b). Pub. L. 98-353, Sec. 461(b), substituted 'a trustee under sections 544, 545, and' for 'the trustee under sections 544, 545, or'. Subsec. (c). Pub. L. 98-353, Sec. 351(1), 461(c)(1)-(4), substituted 'Except as provided in subsection (d) of this section, the' for 'The', substituted 'a trustee' for 'the trustee', struck out 'right' before 'or common-law', inserted 'of goods that has sold goods to the debtor' after 'seller', and struck out 'of goods to the debtor' after 'business,'. Subsec. (c)(2). Pub. L. 98-353, Sec. 461(c)(5)(A), inserted 'the' after 'if' in provisions preceding subpar. (A). Subsec. (c)(2)(A). Pub. L. 98-353, Sec. 461(c)(5)(B), substituted 'a claim of a kind specified in section 503(b) of this title' for 'an administrative expense'. Subsec. (d). Pub. L. 98-353, Sec. 351(3), added subsec. (d). Former subsec. (d) redesignated (e). Subsec. (e). Pub. L. 98-353, Sec. 351(2), 461(d), redesignated former subsec. (d) as (e) and inserted 'financial institution' after 'stockbroker'. Subsec. (f). Pub. L. 98-353, Sec. 393, added subsec. (f). 1982 - Subsec. (d). Pub. L. 97-222 added subsec. (d). EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 257 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 283 of Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 362, 901 of this title. ------DocID 14745 Document 90 of 646------ -CITE- 11 USC Sec. 547 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 547. Preferences -STATUTE- (a) In this section - (1) 'inventory' means personal property leased or furnished, held for sale or lease, or to be furnished under a contract for service, raw materials, work in process, or materials used or consumed in a business, including farm products such as crops or livestock, held for sale or lease; (2) 'new value' means money or money's worth in goods, services, or new credit, or release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, including proceeds of such property, but does not include an obligation substituted for an existing obligation; (3) 'receivable' means right to payment, whether or not such right has been earned by performance; and (4) a debt for a tax is incurred on the day when such tax is last payable without penalty, including any extension. (b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property - (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; (4) made - (A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and (5) that enables such creditor to receive more than such creditor would receive if - (A) the case were a case under chapter 7 of this title; (B) the transfer had not been made; and (C) such creditor received payment of such debt to the extent provided by the provisions of this title. (c) The trustee may not avoid under this section a transfer - (1) to the extent that such transfer was - (A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and (B) in fact a substantially contemporaneous exchange; (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; (3) that creates a security interest in property acquired by the debtor - (A) to the extent such security interest secures new value that was - (i) given at or after the signing of a security agreement that contains a description of such property as collateral; (ii) given by or on behalf of the secured party under such agreement; (iii) given to enable the debtor to acquire such property; and (iv) in fact used by the debtor to acquire such property; and (B) that is perfected on or before 10 days after the debtor receives possession of such property; (4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor - (A) not secured by an otherwise unavoidable security interest; and (B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor; (5) that creates a perfected security interest in inventory or a receivable or the proceeds of either, except to the extent that the aggregate of all such transfers to the transferee caused a reduction, as of the date of the filing of the petition and to the prejudice of other creditors holding unsecured claims, of any amount by which the debt secured by such security interest exceeded the value of all security interests for such debt on the later of - (A)(i) with respect to a transfer to which subsection (b)(4)(A) of this section applies, 90 days before the date of the filing of the petition; or (ii) with respect to a transfer to which subsection (b)(4)(B) of this section applies, one year before the date of the filing of the petition; or (B) the date on which new value was first given under the security agreement creating such security interest; (6) that is the fixing of a statutory lien that is not avoidable under section 545 of this title; or (7) 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. (d) The trustee may avoid a transfer of an interest in property of the debtor transferred to or for the benefit of a surety to secure reimbursement of such a surety that furnished a bond or other obligation to dissolve a judicial lien that would have been avoidable by the trustee under subsection (b) of this section. The liability of such surety under such bond or obligation shall be discharged to the extent of the value of such property recovered by the trustee or the amount paid to the trustee. (e)(1) For the purposes of this section - (A) a transfer of real property other than fixtures, but including the interest of a seller or purchaser under a contract for the sale of real property, is perfected when a bona fide purchaser of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee; and (B) a transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee. (2) For the purposes of this section, except as provided in paragraph (3) of this subsection, a transfer is made - (A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time; (B) at the time such transfer is perfected, if such transfer is perfected after such 10 days; or (C) immediately before the date of the filing of the petition, if such transfer is not perfected at the later of - (i) the commencement of the case; or (ii) 10 days after such transfer takes effect between the transferor and the transferee. (3) For the purposes of this section, a transfer is not made until the debtor has acquired rights in the property transferred. (f) For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition. (g) For the purposes of this section, the trustee has the burden of proving the avoidability of a transfer under subsection (b) of this section, and the creditor or party in interest against whom recovery or avoidance is sought has the burden of proving the nonavoidability of a transfer under subsection (c) of this section. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2597; Pub. L. 98-353, title III, Sec. 310, 462, July 10, 1984, 98 Stat. 355, 377; Pub. L. 99-554, title II, Sec. 283(m), Oct. 27, 1986, 100 Stat. 3117.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS No limitation is provided for payments to commodity brokers as in section 766 of the Senate amendment other than the amendment to section 548 of title 11. Section 547(c)(2) protects most payments. Section 547(b)(2) of the House amendment adopts a provision contained in the House bill and rejects an alternative contained in the Senate amendment relating to the avoidance of a preferential transfer that is payment of a tax claim owing to a governmental unit. As provided, section 106(c) of the House amendment overrules contrary language in the House report with the result that the Government is subject to avoidance of preferential transfers. Contrary to language contained in the House report, payment of a debt by means of a check is equivalent to a cash payment, unless the check is dishonored. Payment is considered to be made when the check is delivered for purposes of sections 547(c)(1) and (2). Section 547(c)(6) of the House bill is deleted and is treated in a different fashion in section 553 of the House amendment. Section 547(c)(6) represents a modification of a similar provision contained in the House bill and Senate amendment. The exception relating to satisfaction of a statutory lien is deleted. The exception for a lien created under title 11 is deleted since such a lien is a statutory lien that will not be avoidable in a subsequent bankruptcy. Section 547(e)(1)(B) is adopted from the House bill and Senate amendment without change. It is intended that the simple contract test used in this section will be applied as under section 544(a)(1) not to require a creditor to perfect against a creditor on a simple contract in the event applicable law makes such perfection impossible. For example, a purchaser from a debtor at an improperly noticed bulk sale may take subject to the rights of a creditor on a simple contract of the debtor for 1 year after the bulk sale. Since the purchaser cannot perfect against such a creditor on a simple contract, he should not be held responsible for failing to do the impossible. In the event the debtor goes into bankruptcy within a short time after the bulk sale, the trustee should not be able to use the avoiding powers under section 544(a)(1) or 547 merely because State law has made some transfers of personal property subject to the rights of a creditor on a simple contract to acquire a judicial lien with no opportunity to perfect against such a creditor. Preferences: The House amendment deletes from the category of transfers on account of antecedent debts which may be avoided under the preference rules, section 547(b)(2), the exception in the Senate amendment for taxes owed to governmental authorities. However, for purposes of the 'ordinary course' exception to the preference rules contained in section 547(c)(2), the House amendment specifies that the 45-day period referred to in section 547(c)(2)(B) is to begin running, in the case of taxes from the last due date, including extensions, of the return with respect to which the tax payment was made. SENATE REPORT NO. 95-989 This section is a substantial modification of present law. It modernizes the preference provisions and brings them more into conformity with commercial practice and the Uniform Commercial Code. Subsection (a) contains three definitions. Inventory, new value, and receivable are defined in their ordinary senses, but are defined to avoid any confusion or uncertainty surrounding the terms. Subsection (b) is the operative provision of the section. It authorizes the trustee to avoid a transfer if five conditions are met. These are the five elements of a preference action. First, the transfer must be to or for the benefit of a creditor. Second, the transfer must be for or on account of an antecedent debt owed by the debtor before the transfer was made. Third, the transfer must have been made when the debtor was insolvent. Fourth, the transfer must have been made during the 90 days immediately preceding the commencement of the case. If the transfer was to an insider, the trustee may avoid the transfer if it was made during the period that begins one year before the filing of the petition and ends 90 days before the filing, if the insider to whom the transfer was made had reasonable cause to believe the debtor was insolvent at the time the transfer was made. Finally, the transfer must enable the creditor to whom or for whose benefit it was made to receive a greater percentage of his claim than he would receive under the distributive provisions of the bankruptcy code. Specifically, the creditor must receive more than he would if the case were a liquidation case, if the transfer had not been made, and if the creditor received payment of the debt to the extent provided by the provisions of the code. The phrasing of the final element changes the application of the greater percentage test from that employed under current law. Under this language, the court must focus on the relative distribution between classes as well as the amount that will be received by the members of the class of which the creditor is a member. The language also requires the court to focus on the allowability of the claim for which the preference was made. If the claim would have been entirely disallowed, for example, then the test of paragraph (5) will be met, because the creditor would have received nothing under the distributive provisions of the bankruptcy code. The trustee may avoid a transfer of a lien under this section even if the lien has been enforced by sale before the commencement of the case, Subsection (b)(2) of this section in effect exempts from the preference rules payments by the debtor of tax liabilities, regardless of their priority status. Subsection (c) contains exceptions to the trustee's avoiding power. If a creditor can qualify under any one of the exceptions, then he is protected to that extent. If he can qualify under several, he is protected by each to the extent that he can qualify under each. The first exception is for a transfer that was intended by all parties to be a contemporaneous exchange for new value, and was in fact substantially contemporaneous. Normally, a check is a credit transaction. However, for the purposes of this paragraph, a transfer involving a check is considered to be 'intended to be contemporaneous', and if the check is presented for payment in the normal course of affairs, which the Uniform Commercial Code specifies as 30 days, U.C.C. Sec. 3-503(2)(a), that will amount to a transfer that is 'in fact substantially contemporaneous.' The second exception protects transfers in the ordinary course of business (or of financial affairs, where a business is not involved) transfers. For the case of a consumer, the paragraph uses the phrase 'financial affairs' to include such nonbusiness activities as payment of monthly utility bills. If the debt on account of which the transfer was made was incurred in the ordinary course of both the debtor and the transferee, if the transfer was made not later than 45 days after the debt was incurred, if the transfer itself was made in the ordinary course of both the debtor and the transferee, and if the transfer was made according to ordinary business terms, then the transfer is protected. The purpose of this exception is to leave undisturbed normal financial relations, because it does not detract from the general policy of the preference section to discourage unusual action by either the debtor or his creditors during the debtor's slide into bankruptcy. The third exception is for enabling loans in connection with which the debtor acquires the property that the loan enabled him to purchase after the loan is actually made. The fourth exception codifies the net result rule in section 60c of current law (section 96(c) of former title 11). If the creditor and the debtor have more than one exchange during the 90-day period, the exchanges are netted out according to the formula in paragraph (4). Any new value that the creditor advances must be unsecured in order for it to qualify under this exception. Paragraph (5) codifies the improvement in position test, and thereby overrules such cases as DuBay v. Williams, 417 F.2d 1277 (C.A.9, 1966), and Grain Merchants of Indiana, Inc. v. Union Bank and Savings Co., 408 F.2d 209 (C.A.7, 1969). A creditor with a security interest in a floating mass, such as inventory or accounts receivable, is subject to preference attack to the extent he improves his position during the 90-day period before bankruptcy. The test is a two-point test, and requires determination of the secured creditor's position 90 days before the petition and on the date of the petition. If new value was first given after 90 days before the case, the date on which it was first given substitutes for the 90-day point. Paragraph (6) excepts statutory liens validated under section 545 from preference attack. It also protects transfers in satisfaction of such liens, and the fixing of a lien under section 365(j), which protects a vendee whose contract to purchase real property from the debtor is rejected. Subsection (d), derived from section 67a of the Bankruptcy Act (section 107(a) of former title 11), permits the trustee to avoid a transfer to reimburse a surety that posts a bond to dissolve a judicial lien that would have been avoidable under this section. The second sentence protects the surety from double liability. Subsection (e) determines when a transfer is made for the purposes of the preference section. Paragraph (1) defines when a transfer is perfected. For real property, a transfer is perfected when it is valid against a bona fide purchaser. For personal property and fixtures, a transfer is perfected when it is valid against a creditor on a simple contract that obtains a judicial lien after the transfer is perfected. 'Simple contract' as used here is derived from Bankruptcy Act Sec. 60a(4) (section 96(a)(4) of former title 11). Paragraph (2) specifies that a transfer is made when it takes effect between the transferor and the transferee if it is perfected at or within 10 days after that time. Otherwise, it is made when the transfer is perfected. If it is not perfected before the commencement of the case, it is made immediately before the commencement of the case. Paragraph (3) specifies that a transfer is not made until the debtor has acquired rights in the property transferred. This provision, more than any other in the section, overrules DuBay and Grain Merchants, and in combination with subsection (b)(2), overrules In re King-Porter Co., 446 F.2d 722 (5th Cir. 1971). Subsection (e) is designed to reach the different results under the 1962 version of Article 9 of the U.C.C. and under the 1972 version because different actions are required under each version in order to make a security agreement effective between the parties. Subsection (f) creates a presumption of insolvency for the 90 days preceding the bankruptcy case. The presumption is as defined in Rule 301 of the Federal Rules of Evidence, made applicable in bankruptcy cases by sections 224 and 225 of the bill. The presumption requires the party against whom the presumption exists to come forward with some evidence to rebut the presumption, but the burden of proof remains on the party in whose favor the presumption exists. AMENDMENTS 1986 - Subsec. (b)(4)(B). Pub. L. 99-554 inserted 'and' after the semicolon. 1984 - Subsec. (a)(2). Pub. L. 98-353, Sec. 462(a)(1), inserted 'including proceeds of such property,' after 'law,'. Subsec. (a)(4). Pub. L. 98-353, Sec. 462(a)(2), struck out ', without penalty' after 'any extension', and inserted 'without penalty' after 'payable'. Subsec. (b). Pub. L. 98-353, Sec. 462(b)(1), substituted 'of an interest of the debtor in property' for 'of property of the debtor' in provisions preceding par. (1). Subsec. (b)(4)(B). Pub. L. 98-353, Sec. 462(b)(2), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: 'between 90 days and one year before the date of the filing of the petition, if such creditor, at the time of such transfer - '(i) was an insider; and '(ii) had reasonable cause to believe the debtor was insolvent at the time of such transfer; and'. Subsec. (c)(2)(A). Pub. L. 98-353, Sec. 462(d)(1), inserted 'by the debtor' after 'incurred'. Subsec. (c)(2)(B) to (D). Pub. L. 98-353, Sec. 462(c), struck out subpar. (B) which read as follows: 'made not later than 45 days after such debt was incurred;' and redesignated subpars. (C) and (D) as (B) and (C), respectively. Subsec. (c)(3). Pub. L. 98-353, Sec. 462(d)(2), substituted 'that creates' for 'of'. Subsec. (c)(3)(B). Pub. L. 98-353, Sec. 462(d)(3), inserted 'on or' after 'perfected', and substituted 'the debtor receives possession of such property' for 'such security interest attaches'. Subsec. (c)(5). Pub. L. 98-353, Sec. 462(d)(4), substituted 'that creates' for 'of', and 'all security interests' for 'all security interest'. Subsec. (c)(5)(A)(ii). Pub. L. 98-353, Sec. 462(d)(5), substituted 'or' for 'and'. Subsec. (c)(7). Pub. L. 98-353, Sec. 310(3), added par. (7). Subsec. (d). Pub. L. 98-353, Sec. 462(e), substituted 'The' for 'A' before 'trustee may avoid', inserted 'an interest in' after 'transfer of', inserted 'to or for the benefit of a surety' after 'transferred', and inserted 'such' after 'reimbursement of'. Subsec. (e)(2)(C)(i). Pub. L. 98-353, Sec. 462(f), substituted 'or' for 'and'. Subsec. (g). Pub. L. 98-353, Sec. 462(g), added subsec. (g). EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 109, 303, 349, 362, 502, 522, 546, 548, 550, 551, 552, 749, 764, 901, 926 of this title. ------DocID 14746 Document 91 of 646------ -CITE- 11 USC Sec. 548 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 548. Fraudulent transfers and obligations -STATUTE- (a) 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 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) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (B)(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 engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; or (iii) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured. (b) The trustee of a partnership debtor may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, to a general partner in the debtor, if the debtor was insolvent on the date such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation. (c) Except to the extent that a transfer or obligation voidable under this section is voidable under section 544, 545, or 547 of this title, a transferee or obligee of such a transfer or obligation that takes for value and in good faith has a lien on or may retain any interest transferred or may enforce any obligation incurred, as the case may be, to the extent that such transferee or obligee gave value to the debtor in exchange for such transfer or obligation. (d)(1) For the purposes of this section, a transfer is made when such transfer is so perfected that a bona fide purchaser from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest in the property transferred that is superior to the interest in such property of the transferee, but if such transfer is not so perfected before the commencement of the case, such transfer is made immediately before the date of the filing of the petition. (2) In this section - (A) 'value' means property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor; (B) a commodity broker, forward contract merchant, stockbroker, financial institution, or securities clearing agency that receives a margin payment, as defined in section 101(34), 741(5) or 761(15) of this title, or settlement payment, as defined in section 101(35) or 741(8) of this title, takes for value to the extent of such payment; (C) a repo participant that receives a margin payment, as defined in section 741(5) or 761(15) of this title, or settlement payment, as defined in section 741(8) of this title, in connection with a repurchase agreement, takes for value to the extent of such payment; and (D) a swap participant that receives a transfer in connection with a swap agreement takes for value to the extent of such transfer. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2600; Pub. L. 97-222, Sec. 5, July 27, 1982, 96 Stat. 236; Pub. L. 98-353, title III, Sec. 394, 463, July 10, 1984, 98 Stat. 365, 378; Pub. L. 99-554, title II, Sec. 283(n), Oct. 27, 1986, 100 Stat. 3117; Pub. L. 101-311, title I, Sec. 104, title II, Sec. 204, June 25, 1990, 104 Stat. 268, 269.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 548(d)(2) is modified to reflect general application of a provision contained in section 766 of the Senate amendment with respect to commodity brokers. In particular, section 548(d)(2)(B) of the House amendment makes clear that a commodity broker who receives a margin payment is considered to receive the margin payment in return for 'value' for purposes of section 548. SENATE REPORT NO. 95-989 This section is derived in large part from section 67d of the Bankruptcy Act (section 107(d) of former title 11). It permits the trustee to avoid transfers by the debtor in fraud of his creditors. Its history dates from the statute of 13 Eliz. c. 5 (1570). The trustee may avoid fraudulent transfers or obligations if made with actual intent to hinder, delay, or defraud a past or future creditor. Transfers made for less than a reasonably equivalent consideration are also vulnerable if the debtor was or thereby becomes insolvent, was engaged in business with an unreasonably small capital, or intended to incur debts that would be beyond his ability to repay. The trustee of a partnership debtor may avoid any transfer of partnership property to a partner in the debtor if the debtor was or thereby became insolvent. If a transferee's only liability to the trustee is under this section, and if he takes for value and in good faith, then subsection (c) grants him a lien on the property transferred, or other similar protection. Subsection (d) specifies that for the purposes of fraudulent transfer section, a transfer is made when it is valid against a subsequent bona fide purchaser. If not made before the commencement of the case, it is considered made immediately before then. Subsection (d) also defines 'value' to mean property, or the satisfaction or securing of a present or antecedent debt, but does not include an unperformed promise to furnish support to the debtor or a relative of the debtor. AMENDMENTS 1990 - Subsec. (d)(2)(B). Pub. L. 101-311, Sec. 204, inserted reference to sections 101(34) and 101(35) of this title. Subsec. (d)(2)(D). Pub. L. 101-311, Sec. 104, added subpar. (D). 1986 - Subsec. (d)(2)(B). Pub. L. 99-554 substituted ', financial institution' for 'financial institution,'. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 463(a)(1), substituted 'if the debtor voluntarily or involuntarily' for 'if the debtor' in provisions preceding par. (1). Subsec. (a)(1). Pub. L. 98-353, Sec. 463(a)(2), substituted 'was made' for 'occurred'. Subsec. (a)(2)(B)(ii). Pub. L. 98-353, Sec. 463(a)(3), inserted 'or a transaction' after 'engaged in business'. Subsec. (c). Pub. L. 98-353, Sec. 463(b), inserted 'or may retain' after 'lien on' and struck out ', may retain any lien transferred,' before 'or may enforce any obligation incurred'. Subsec. (d)(1). Pub. L. 98-353, Sec. 463(c)(1), substituted 'is so' for 'becomes so far', 'applicable law permits such transfer to be' for 'such transfer could have been', and 'is made' for 'occurs'. Subsec. (d)(2)(B). Pub. L. 98-353, Sec. 463(c)(2), inserted 'financial institution,' after 'stockbroker'. Subsec. (d)(2)(C). Pub. L. 98-353, Sec. 394(2), added subpar. (C). 1982 - Subsec. (d)(2)(B). Pub. L. 97-222 substituted 'a commodity broker, forward contract merchant, stockbroker, or securities clearing agency that receives a margin payment, as defined in section 741(5) or 761(15) of this title, or settlement payment, as defined in section 741(8) of this title, takes for value to extent of such payment' for 'a commodity broker or forward contract merchant that receives a margin payment, as defined in section 761(15) of this title, takes for value'. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 303, 349, 502, 522, 546, 550, 551, 552, 749, 764, 901, 926 of this title. ------DocID 14747 Document 92 of 646------ -CITE- 11 USC Sec. 549 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 549. Postpetition transactions -STATUTE- (a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate - (1) that occurs after the commencement of the case; and (2)(A) that is authorized only under section 303(f) or 542(c) of this title; or (B) that is not authorized under this title or by the court. (b) In an involuntary case, a transfer made after the commencement of such case but before the order for relief to the extent any value, including services, but not including satisfaction or securing of a debt that arose before the commencement of the case, is given after the commencement of the case in exchange for such transfer, notwithstanding any notice or knowledge of the case that the transferee has. (c) The trustee may not avoid under subsection (a) of this section a transfer of real property to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value unless a copy or notice of the petition was filed, where a transfer of such real property may be recorded to perfect such transfer, before such transfer is so perfected that a bona fide purchaser of such property, against whom applicable law permits such transfer to be perfected, could not acquire an interest that is superior to the interest of such good faith purchaser. A good faith purchaser without knowledge of the commencement of the case and for less than present fair equivalent value has a lien on the property transferred to the extent of any present value given, unless a copy or notice of the petition was so filed before such transfer was so perfected. (d) An action or proceeding under this section may not be commenced after the earlier of - (1) two years after the date of the transfer sought to be avoided; or (2) the time the case is closed or dismissed. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2601; Pub. L. 98-353, title III, Sec. 464, July 10, 1984, 98 Stat. 379; Pub. L. 99-554, title II, Sec. 283(o), Oct. 27, 1986, 100 Stat. 3117.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 549 of the House amendment has been redrafted in order to incorporate sections 342(b) and (c) of the Senate amendment. Those sections have been consolidated and redrafted in section 549(c) of the House amendment. Section 549(d) of the House amendment adopts a provision contained in section 549(c) of the Senate amendment. SENATE REPORT NO. 95-989 This section modifies section 70d of current law (section 110(d) of former title 11). It permits the trustee to avoid transfers of property that occur after the commencement of the case. The transfer must either have been unauthorized, or authorized under a section that protects only the transferor. Subsection (b) protects 'involuntary gap' transferees to the extent of any value (including services, but not including satisfaction of a debt that arose before the commencement of the case), given after commencement in exchange for the transfer. Notice or knowledge of the transferee is irrelevant in determining whether he is protected under this provision. AMENDMENTS 1986 - Subsec. (b). Pub. L. 99-554 substituted 'made' for 'that occurs', and 'to the extent' for 'is valid against the trustee to the extent of', and inserted 'is' before 'given'. 1984 - Subsec. (a). Pub. L. 98-353, Sec. 464(a)(1), (2), substituted '(b) or (c)' for '(b) and (c)' in provisions preceding par. (1) and inserted 'only' between 'authorized' and 'under' in par. (2)(A). In the original of Pub. L. 98-353, subsec. (a)(2) of section 464 thereof ended with a period but was followed by pars. (3), (4), and (5). Such pars. (3), (4), and (5) purported to amend subsec. (a) of this section in ways not susceptible of execution. In a predecessor bill (S. 445), these pars. (3), (4), and (5) formed a part of a subsec. (b) of section 361 thereof which amended subsec. (b) of this section. Such subsec. (b) of section 361 of S. 445 was not carried into Pub. L. 98-353, Sec. 464. Subsec. (c). Pub. L. 98-353, Sec. 464(c), amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: 'The trustee may not avoid under subsection (a) of this section a transfer, to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value or to a purchaser at a judicial sale, of real property located other than in the county in which the case is commenced, unless a copy of the petition was filed in the office where conveyances of real property in such county are recorded before such transfer was so far perfected that a bona fide purchaser of such property against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of such good faith or judicial sale purchaser. A good faith purchaser, without knowledge of the commencement of the case and for less than present fair equivalent value, of real property located other than in the county in which the case is commenced, under a transfer that the trustee may avoid under this section, has a lien on the property transferred to the extent of any present value given, unless a copy of the petition was so filed before such transfer was so perfected.' Subsec. (d)(1). Pub. L. 98-353, Sec. 464(d), substituted 'or' for 'and'. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 303, 349, 502, 522, 546, 550, 551, 749, 764, 901, 926 of this title. ------DocID 14748 Document 93 of 646------ -CITE- 11 USC Sec. 550 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 550. Liability of transferee of avoided transfer -STATUTE- (a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from - (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee. (b) The trustee may not recover under section (a)(2) of this section from - (1) a transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided; or (2) any immediate or mediate good faith transferee of such transferee. (c) The trustee is entitled to only a single satisfaction under subsection (a) of this section. (d)(1) A good faith transferee from whom the trustee may recover under subsection (a) of this section has a lien on the property recovered to secure the lesser of - (A) the cost, to such transferee, of any improvement made after the transfer, less the amount of any profit realized by or accruing to such transferee from such property; and (B) any increase in the value of such property as a result of such improvement, of the property transferred. (2) In this subsection, 'improvement' includes - (A) physical additions or changes to the property transferred; (B) repairs to such property; (C) payment of any tax on such property; (D) payment of any debt secured by a lien on such property that is superior or equal to the rights of the trustee; and (E) preservation of such property. (e) An action or proceeding under this section may not be commenced after the earlier of - (1) one year after the avoidance of the transfer on account of which recovery under this section is sought; or (2) the time the case is closed or dismissed. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2601; Pub. L. 98-353, title III, Sec. 465, July 10, 1984, 98 Stat. 379.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 550(a)(1) of the House amendment has been modified in order to permit recovery from an entity for whose benefit an avoided transfer is made in addition to a recovery from the initial transferee of the transfer. Section 550(c) would still apply, and the trustee is entitled only to a single satisfaction. The liability of a transferee under section 550(a) applies only 'to the extent that a transfer is avoided'. This means that liability is not imposed on a transferee to the extent that a transferee is protected under a provision such as section 548(c) which grants a good faith transferee for value of a transfer that is avoided only as a fraudulent transfer, a lien on the property transferred to the extent of value given. Section 550(b) of the House amendment is modified to indicate that value includes satisfaction or securing of a present antecedent debt. This means that the trustee may not recover under subsection (a)(2) from a subsequent transferee that takes for 'value', provided the subsequent transferee also takes in good faith and without knowledge of the transfer avoided. Section 550(e) of the House amendment is derived from section 550(e) of the Senate amendment. SENATE REPORT NO. 95-989 Section 550 prescribes the liability of a transferee of an avoided transfer, and enunciates the separation between the concepts of avoiding a transfer and recovering from the transferee. Subsection (a) permits the trustee to recover from the initial transferee of an avoided transfer or from any immediate or mediate transferee of the initial transferee. The words 'to the extent that' in the lead in to this subsection are designed to incorporate the protection of transferees found in proposed 11 U.S.C. 549(b) and 548(c). Subsection (b) limits the liability of an immediate or mediate transferee of the initial transferee if such secondary transferee takes for value, in good faith and without knowledge of the voidability of the transfer. An immediate or mediate good faith transferee of a protected secondary transferee is also shielded from liability. This subsection is limited to the trustee's right to recover from subsequent transferees under subsection (a)(2). It does not limit the trustee's rights against the initial transferee under subsection (a)(1). The phrase 'good faith' in this paragraph is intended to prevent a transferee from whom the trustee could recover from transferring the recoverable property to an innocent transferee, and receiving a retransfer from him, that is, 'washing' the transaction through an innocent third party. In order for the transferee to be excepted from liability under this paragraph, he himself must be a good faith transferee. Subsection (c) is a further limitation on recovery. It specifies that the trustee is entitled to only one satisfactory, under subsection (a), even if more than one transferee is liable. Subsection (d) protects good faith transferees, either initial or subsequent, to the extent of the lesser of the cost of any improvement the transferee makes in the transferred property and the increase in value of the property as a result of the improvement. Paragraph (2) of the subsection defines improvement to include physical additions or changes to the property, repairs, payment of taxes on the property, payment of a debt secured by a lien on the property, discharge of a lien on the property, and preservation of the property. Subsection (e) establishes a statute of limitations on avoidance by the Trustee. The limitation is one year after the avoidance of the transfer or the time the case is closed or dismissed, whichever is earlier. AMENDMENTS 1984 - Subsec. (a). Pub. L. 98-353, Sec. 465(a), substituted '549, 553(b), or 724(a) of this title' for '549, or 724(a) of this title'. Subsec. (d)(1)(A). Pub. L. 98-353, Sec. 465(b)(1), inserted 'or accruing to' after 'by'. Subsec. (d)(1)(B). Pub. L. 98-353, Sec. 465(b)(2), substituted 'the value of such property' for 'value'. Subsec. (d)(2)(D). Pub. L. 98-353, Sec. 465(b)(3), substituted 'payment of any debt secured by a lien on such property that is superior or equal to the rights of the trustee; and' for 'payment of any debt secured by a lien on such property.' Subsec. (d)(2)(E), (F). Pub. L. 98-353, Sec. 465(b)(3), (4), struck out subpar. (E) 'discharge of any lien against such property that is superior or equal to the rights of the trustee; and' and redesignated subpar. (F) as (E). Subsec. (e)(1). Pub. L. 98-353, Sec. 465(c), substituted 'or' for 'and'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 349, 502, 522, 541, 901, 926 of this title. ------DocID 14749 Document 94 of 646------ -CITE- 11 USC Sec. 551 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 551. Automatic preservation of avoided transfer -STATUTE- Any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or any lien void under section 506(d) of this title, is preserved for the benefit of the estate but only with respect to property of the estate. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2602.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 551 is adopted from the House bill and the alternative in the Senate amendment is rejected. The section is clarified to indicate that a transfer avoided or a lien that is void is preserved for the benefit of the estate, but only with respect to property of the estate. This prevents the trustee from asserting an avoided tax lien against after acquired property of the debtor. SENATE REPORT NO. 95-989 This section is a change from present law. It specifies that any avoided transfer is automatically preserved for the benefit of the estate. Under current law, the court must determine whether or not the transfer should be preserved. The operation of the section is automatic, unlike current law, even though preservation may not benefit the estate in every instance. A preserved lien may be abandoned by the trustee under proposed 11 U.S.C. 554 if the preservation does not benefit the estate. The section as a whole prevents junior lienors from improving their position at the expense of the estate when a senior lien is avoided. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 522, 541, 901 of this title. ------DocID 14750 Document 95 of 646------ -CITE- 11 USC Sec. 552 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 552. Postpetition effect of security interest -STATUTE- (a) Except as provided in subsection (b) of this section, property acquired by the estate or by the debtor after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case. (b) 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, offspring, rents, or profits of such property, then such security interest extends to such proceeds, product, offspring, rents, 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. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2602; Pub. L. 98-353, title III, Sec. 466, July 10, 1984, 98 Stat. 380.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 552(a) is derived from the House bill and the alternative provision in the Senate amendment is rejected. Section 552(b) represents a compromise between the House bill and the Senate amendment. Proceeds coverage, but not after acquired property clauses, are valid under title 11. The provision allows the court to consider the equities in each case. In the course of such consideration the court may evaluate any expenditures by the estate relating to proceeds and any related improvement in position of the secured party. Although this section grants a secured party a security interest in proceeds, product, offspring, rents, or profits, the section is explicitly subject to other sections of title 11. For example, the trustee or debtor in possession may use, sell, or lease proceeds, product, offspring, rents or profits under section 363. SENATE REPORT NO. 95-989 Under the Uniform Commercial Code, article 9, creditors may take security interests in after-acquired property. Section 552 governs the effect of such a prepetition security interest in postpetition property. It applies to all security interests as defined in section 101(37) of the bankruptcy code, not only to U.C.C. security interests. As a general rule, if a security agreement is entered into before the commencement of the case, then property that the estate acquires is not subject to the security interest created by a provision in the security agreement extending the security interest to after-acquired property. Subsection (b) provides an important exception consistent with the Uniform Commercial Code. If the security agreement extends to proceeds, product, offspring, rents, or profits of the property in question, then the proceeds would continue to be subject to the security interest pursuant to the terms of the security agreement and provisions of applicable law, except to the extent that where the estate acquires the proceeds at the expense of other creditors holding unsecured claims, the expenditure resulted in an improvement in the position of the secured party. The exception covers the situation where raw materials, for example, are converted into inventory, or inventory into accounts, at some expense to the estate, thus depleting the fund available for general unsecured creditors, but is limited to the benefit inuring to the secured party thereby. Situations in which the estate incurs expense in simply protecting collateral are governed by 11 U.S.C. 506(c). In ordinary circumstances, the risk of loss in continued operations will remain with the estate. HOUSE REPORT NO. 95-595 Under the Uniform Commercial Code, Article 9, creditors may take security interests in after-acquired property. This section governs the effect of such a prepetition security interest in postpetition property. It applies to all security interests as defined in section 101 of the bankruptcy code, not only to U.C.C. security interests. As a general rule, if a security agreement is entered into before the case, then property that the estate acquires is not subject to the security interest created by the security agreement. Subsection (b) provides the only exception. If the security agreement extends to proceeds, product, offspring, rents, or profits of property that the debtor had before the commencement of the case, then the proceeds, etc., continue to be subject to the security interest, except to the extent that the estate acquired the proceeds to the prejudice of other creditors holding unsecured claims. 'Extends to' as used here would include an automatically arising security interest in proceeds, as permitted under the 1972 version of the Uniform Commercial Code, as well as an interest in proceeds specifically designated, as required under the 1962 Code or similar statutes covering property not covered by the Code. 'Prejudice' is not intended to be a broad term here, but is designed to cover the situation where the estate expends funds that result in an increase in the value of collateral. The exception is to cover the situation where raw materials, for example, are converted into inventory, or inventory into accounts, at some expense to the estate, thus depleting the fund available for general unsecured creditors. The term 'proceeds' is not limited to the technical definition of that term in the U.C.C., but covers any property into which property subject to the security interest is converted. AMENDMENTS 1984 - Subsec. (b). Pub. L. 98-353 inserted '522,' after '506(c),', substituted 'an entity entered' for 'a secured party enter', and substituted 'except to any extent' for 'except to the extent'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 363, 901, 928 of this title; title 26 section 1398. ------DocID 14751 Document 96 of 646------ -CITE- 11 USC Sec. 553 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 553. Setoff -STATUTE- (a) Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that - (1) the claim of such creditor against the debtor is disallowed other than under section 502(b)(3) of this title; (FOOTNOTE 1) (FOOTNOTE 1) See References in Text note below. (2) such claim was transferred, by an entity other than the debtor, to such creditor - (A) after the commencement of the case; or (B)(i) after 90 days before the date of the filing of the petition; and (ii) while the debtor was insolvent; or (3) the debt owed to the debtor by such creditor was incurred by such creditor - (A) after 90 days before the date of the filing of the petition; (B) while the debtor was insolvent; and (C) for the purpose of obtaining a right of setoff against the debtor. (b)(1) Except with respect to a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(14),, (FOOTNOTE 2) 365(h)(2), or 365(i)(2) of this title, if a creditor offsets a mutual debt owing to the debtor against a claim against the debtor on or within 90 days before the date of the filing of the petition, then the trustee may recover from such creditor the amount so offset to the extent that any insufficiency on the date of such setoff is less than the insufficiency on the later of - (FOOTNOTE 2) So in original. (A) 90 days before the date of the filing of the petition; and (B) the first date during the 90 days immediately preceding the date of the filing of the petition on which there is an insufficiency. (2) In this subsection, 'insufficiency' means amount, if any, by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim. (c) For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2602; Pub. L. 98-353, title III, Sec. 395, 467, July 10, 1984, 98 Stat. 365, 380; Pub. L. 101-311, title I, Sec. 105, June 25, 1990, 104 Stat. 268.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 553 of the House amendment is derived from a similar provision contained in the Senate amendment, but is modified to clarify application of a two-point test with respect to setoffs. SENATE REPORT NO. 95-989 This section preserves, with some changes, the right of setoff in bankruptcy cases now found in section 68 of the Bankruptcy Act (section 108 of former title 11). One exception to the right is the automatic stay, discussed in connection with proposed 11 U.S.C. 362. Another is the right of the trustee to use property under section 363 that is subject to a right of setoff. The section states that the right of setoff is unaffected by the bankruptcy code except to the extent that the creditor's claim is disallowed, the creditor acquired (other than from the debtor) the claim during the 90 days preceding the case while the debtor was insolvent, the debt being offset was incurred for the purpose of obtaining a right of setoff, while the debtor was insolvent and during the 90-day prebankruptcy period, or the creditor improved his position in the 90-day period (similar to the improvement in position test found in the preference section 547(c)(5)). Only the last exception is an addition to current law. As under section 547(f), the debtor is presumed to have been insolvent during the 90 days before the case. -REFTEXT- REFERENCES IN TEXT Section 502(b) of this title, referred to in subsec. (a)(1), was amended by Pub. L. 98-353, title III, Sec. 445(b)(4), July 10, 1984, 98 Stat. 373, by repealing par. (3) and redesignating pars. (4) to (9) as (3) to (8), respectively. -MISC2- AMENDMENTS 1990 - Subsec. (b)(1). Pub. L. 101-311 substituted '362(b)(7), 362(b)(14),' for '362(b)(7),'. 1984 - Subsec. (b)(1). Pub. L. 98-353 inserted ', 362(b)(7),' after '362(b)(6)', and substituted ', 365(h)(2), or 365(i)(2)' for 'or 365(h)(1)'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 349, 502, 506, 522, 541, 542, 546, 550, 901 of this title; title 15 section 78eee. ------DocID 14752 Document 97 of 646------ -CITE- 11 USC Sec. 554 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 554. Abandonment of property of the estate -STATUTE- (a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. (b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. (c) Unless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title. (d) Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate. -SOURCE- (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2603; Pub. L. 98-353, title III, Sec. 468, July 10, 1984, 98 Stat. 380; Pub. L. 99-554, title II, Sec. 283(p), Oct. 27, 1986, 100 Stat. 3118.) -MISC1- HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 554(b) is new and permits a party in interest to request the court to order the trustee to abandon property of the estate that is burdensome to the estate or that is of inconsequential value to the estate. SENATE REPORT NO. 95-989 Under this section the court may authorize the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate. Abandonment may be to any party with a possessory interest in the property abandoned. In order to aid administration of the case, subsection (b) deems the court to have authorized abandonment of any property that is scheduled under section 521(1) and that is not administered before the case is closed. That property is deemed abandoned to the debtor. Subsection (c) specifies that if property is neither abandoned nor administered it remains property of the estate. AMENDMENTS 1986 - Subsec. (c). Pub. L. 99-554 substituted '521(1)' for '521(a)(1)'. 1984 - Subsecs. (a), (b). Pub. L. 98-353, Sec. 468(a), inserted 'and benefit' after 'value'. Subsec. (c). Pub. L. 98-353, Sec. 468(b), amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: 'Unless the court orders otherwise, any property that is scheduled under section 521(1) of this title and that is not administered before a case is closed under section 350 of this title is deemed abandoned.' Subsec. (d). Pub. L. 98-353, Sec. 468(c), struck out 'section (a) or (b) of' after 'not abandoned under'. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 557, 722 of this title. ------DocID 14753 Document 98 of 646------ -CITE- 11 USC Sec. 555 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 555. Contractual right to liquidate a securities contract -STATUTE- The exercise of a contractual right of a stockbroker, financial institution, or securities clearing agency to cause the liquidation of a securities contract, as defined in section 741(7), because of a condition of the kind specified in section 365(e)(1) of this title shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by order of a court or administrative agency in any proceeding under this title unless such order is authorized under the provisions of the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) or any statute administered by the Securities and Exchange Commission. As used in this section, the term 'contractual right' includes a right set forth in a rule or bylaw of a national securities exchange, a national securities association, or a securities clearing agency. -SOURCE- (Added Pub. L. 97-222, Sec. 6(a), July 27, 1982, 96 Stat. 236, and amended Pub. L. 98-353, title III, Sec. 469, July 10, 1984, 98 Stat. 380.) -REFTEXT- REFERENCES IN TEXT The Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.), referred to in text, is Pub. L. 91-598, Dec. 30, 1970, 84 Stat. 1636, as amended, which is classified generally to chapter 2B-1 (Sec. 78aaa et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 78aaa of Title 15 and Tables. -MISC2- AMENDMENTS 1984 - Pub. L. 98-353 inserted ', financial institution,' after 'stockbroker'. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as a note under section 101 of this title. ------DocID 14754 Document 99 of 646------ -CITE- 11 USC Sec. 556 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 556. Contractual right to liquidate a commodities contract or forward contract -STATUTE- The contractual right of a commodity broker or forward contract merchant to cause the liquidation of a commodity contract, as defined in section 761(4), or forward contract because of a condition of the kind specified in section 365(e)(1) of this title, and the right to a variation or maintenance margin payment received from a trustee with respect to open commodity contracts or forward contracts, shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by the order of a court in any proceeding under this title. As used in this section, the term 'contractual right' includes a right set forth in a rule or bylaw of a clearing organization or contract market or in a resolution of the governing board thereof and a right, whether or not evidenced in writing, arising under common law, under law merchant or by reason of normal business practice. -SOURCE- (Added Pub. L. 97-222, Sec. 6(a), July 27, 1982, 96 Stat. 236, and amended Pub. L. 101-311, title II, Sec. 205, June 25, 1990, 104 Stat. 270.) -MISC1- AMENDMENTS 1990 - Pub. L. 101-311 inserted before period at end 'and a right, whether or not evidenced in writing, arising under common law, under law merchant or by reason of normal business practice'. ------DocID 14755 Document 100 of 646------ -CITE- 11 USC Sec. 557 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 557. Expedited determination of interests in, and abandonment or other disposition of grain assets -STATUTE- (a) This section applies only in a case concerning a debtor that owns or operates a grain storage facility and only with respect to grain and the proceeds of grain. This section does not affect the application of any other section of this title to property other than grain and proceeds of grain. (b) In this section - (1) 'grain' means wheat, corn, flaxseed, grain sorghum, barley, oats, rye, soybeans, other dry edible beans, or rice; (2) 'grain storage facility' means a site or physical structure regularly used to store grain for producers, or to store grain acquired from producers for resale; and (3) 'producer' means an entity which engages in the growing of grain. (c)(1) Notwithstanding sections 362, 363, 365, and 554 of this title, on the court's own motion the court may, and on the request of the trustee or an entity that claims an interest in grain or the proceeds of grain the court shall, expedite the procedures for the determination of interests in and the disposition of grain and the proceeds of grain, by shortening to the greatest extent feasible such time periods as are otherwise applicable for such procedures and by establishing, by order, a timetable having a duration of not to exceed 120 days for the completion of the applicable procedure specified in subsection (d) of this section. Such time periods and such timetable may be modified by the court, for cause, in accordance with subsection (f) of this section. (2) The court shall determine the extent to which such time periods shall be shortened, based upon - (A) any need of an entity claiming an interest in such grain or the proceeds of grain for a prompt determination of such interest; (B) any need of such entity for a prompt disposition of such grain; (C) the market for such grain; (D) the conditions under which such grain is stored; (E) the costs of continued storage or disposition of such grain; (F) the orderly administration of the estate; (G) the appropriate opportunity for an entity to assert an interest in such grain; and (H) such other considerations as are relevant to the need to expedite such procedures in the case. (d) The procedures that may be expedited under subsection (c) of this section include - (1) the filing of and response to - (A) a claim of ownership; (B) a proof of claim; (C) a request for abandonment; (D) a request for relief from the stay of action against property under section 362(a) of this title; (E) a request for determination of secured status; (F) a request for determination of whether such grain or the proceeds of grain - (i) is property of the estate; (ii) must be turned over to the estate; or (iii) may be used, sold, or leased; and (G) any other request for determination of an interest in such grain or the proceeds of grain; (2) the disposition of such grain or the proceeds of grain, before or after determination of interests in such grain or the proceeds of grain, by way of - (A) sale of such grain; (B) abandonment; (C) distribution; or (D) such other method as is equitable in the case; (3) subject to sections 701, 702, 703, 1104, 1202, and 1302 of this title, the appointment of a trustee or examiner and the retention and compensation of any professional person required to assist with respect to matters relevant to the determination of interests in or disposition of such grain or the proceeds of grain; and (4) the determination of any dispute concerning a matter specified in paragraph (1), (2), or (3) of this subsection. (e)(1) Any governmental unit that has regulatory jurisdiction over the operation or liquidation of the debtor or the debtor's business shall be given notice of any request made or order entered under subsection (c) of this section. (2) Any such governmental unit may raise, and may appear and be heard on, any issue relating to grain or the proceeds of grain in a case in which a request is made, or an order is entered, under subsection (c) of this section. (3) The trustee shall consult with such governmental unit before taking any action relating to the disposition of grain in the possession, custody, or control of the debtor or the estate. (f) The court may extend the period for final disposition of grain or the proceeds of grain under this section beyond 120 days if the court finds that - (1) the interests of justice so require in light of the complexity of the case; and (2) the interests of those claimants entitled to distribution of grain or the proceeds of grain will not be materially injured by such additional delay. (g) Unless an order establishing an expedited procedure under subsection (c) of this section, or determining any interest in or approving any disposition of grain or the proceeds of grain, is stayed pending appeal - (1) the reversal or modification of such order on appeal does not affect the validity of any procedure, determination, or disposition that occurs before such reversal or modification, whether or not any entity knew of the pendency of the appeal; and (2) neither the court nor the trustee may delay, due to the appeal of such order, any proceeding in the case in which such order is issued. (h)(1) The trustee may recover from grain and the proceeds of grain the reasonable and necessary costs and expenses allowable under section 503(b) of this title attributable to preserving or disposing of grain or the proceeds of grain, but may not recover from such grain or the proceeds of grain any other costs or expenses. (2) Notwithstanding section 326(a) of this title, the dollar amounts of money specified in such section include the value, as of the date of disposition, of any grain that the trustee distributes in kind. (i) In all cases where the quantity of a specific type of grain held by a debtor operating a grain storage facility exceeds ten thousand bushels, such grain shall be sold by the trustee and the assets thereof distributed in accordance with the provisions of this section. -SOURCE- (Added Pub. L. 98-353, title III, Sec. 352(a), July 10, 1984, 98 Stat. 359, and amended Pub. L. 99-554, title II, Sec. 257(p), Oct. 27, 1986, 100 Stat. 3115.) -MISC1- AMENDMENTS 1986 - Subsec. (d)(3). Pub. L. 99-554 inserted reference to section 1202 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99-554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE Section effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as an Effective Date of 1984 Amendment note under section 101 of this title. -SECREF- SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 507, 546, 901 of this title. ------DocID 14756 Document 101 of 646------ -CITE- 11 USC Sec. 558 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 558. Defenses of the estate -STATUTE- The estate shall have the benefit of any defense available to the debtor as against any entity other than the estate, including statutes of limitation, statutes of frauds, usury, and other personal defenses. A waiver of any such defense by the debtor after the commencement of the case does not bind the estate. -SOURCE- (Added Pub. L. 98-353, title III, Sec. 470(a), July 10, 1984, 98 Stat. 380.) -MISC1- EFFECTIVE DATE Section effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as an Effective Date of 1984 Amendment note under section 101 of this title. ------DocID 14757 Document 102 of 646------ -CITE- 11 USC Sec. 559 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 559. Contractual right to liquidate a repurchase agreement -STATUTE- The exercise of a contractual right of a repo participant to cause the liquidation of a repurchase agreement because of a condition of the kind specified in section 365(e)(1) of this title shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by order of a court or administrative agency in any proceeding under this title, unless, where the debtor is a stockbroker or securities clearing agency, such order is authorized under the provisions of the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) or any statute administered by the Securities and Exchange Commission. In the event that a repo participant liquidates one or more repurchase agreements with a debtor and under the terms of one or more such agreements has agreed to deliver assets subject to repurchase agreements to the debtor, any excess of the market prices received on liquidation of such assets (or if any such assets are not disposed of on the date of liquidation of such repurchase agreements, at the prices available at the time of liquidation of such repurchase agreements from a generally recognized source or the most recent closing bid quotation from such a source) over the sum of the stated repurchase prices and all expenses in connection with the liquidation of such repurchase agreements shall be deemed property of the estate, subject to the available rights of setoff. As used in this section, the term 'contractual right' includes a right set forth in a rule or bylaw, applicable to each party to the repurchase agreement, of a national securities exchange, a national securities association, or a securities clearing agency, and a right, whether or not evidenced in writing, arising under common law, under law merchant or by reason of normal business practice. -SOURCE- (Added Pub. L. 98-353, title III, Sec. 396(a), July 10, 1984, 98 Stat. 366.) -REFTEXT- REFERENCES IN TEXT The Securities Investor Protection Act of 1970, referred to in text, is Pub. L. 91-598, Dec. 30, 1970, 84 Stat. 1636, as amended, which is classified generally to chapter 2B-1 (Sec. 78aaa et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 78aaa of Title 15 and Tables. -MISC2- EFFECTIVE DATE Section effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out as an Effective Date of 1984 Amendment note under section 101 of this title. ------DocID 14758 Document 103 of 646------ -CITE- 11 USC Sec. 560 -EXPCITE- TITLE 11 CHAPTER 5 SUBCHAPTER III -HEAD- Sec. 560. Contractual right to terminate a swap agreement -STATUTE- The exercise of any contractual right of any swap participant to cause the termination of a swap agreement because of a condition of the kind specified in section 365(e)(1) of this title or to offset or net out any termination values or payment amounts arising under or in connection with any swap agreement shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by order of a court or administrative agency in any proceeding under this title. As used in this section, the term 'contractual right' includes a right, whether or not evidenced in writing, arising under common law, under law merchant, or by reason o