" ! HOUSE OF REPRESENTATIVES 109TH CONGRESS

1st Session 

REPT. 109–31 

Part 1 

Union Calendar No. 14 

BANKRUPTCY ABUSE PREVENTION AND 

CONSUMER PROTECTION ACT OF 2005 

R E P O R T 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

TO ACCOMPANY

S. 256 

together with 

DISSENTING, ADDITIONAL DISSENTING, AND 

ADDITIONAL MINORITY VIEWS 

APRIL 8, 2005.—Committed to the Committee of the Whole House on the 

State of the Union and ordered to be printed 


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1 

20–436 

" ! HOUSE OF REPRESENTATIVES 109TH CONGRESS

1st Session 

REPT. 109–31 

2005

Part 1 

Union Calendar No. 14 

BANKRUPTCY ABUSE PREVENTION AND 

CONSUMER PROTECTION ACT OF 2005 

R E P O R T 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

TO ACCOMPANY

S. 256 

together with 

DISSENTING, ADDITIONAL DISSENTING, AND 

ADDITIONAL MINORITY VIEWS 

APRIL 8, 2005.—Committed to the Committee of the Whole House on the 

State of the Union and ordered to be printed 


seneagle
Union Calendar No. 14 

109TH CONGRESS REPT. 109–31 " ! HOUSE OF REPRESENTATIVES 1st Session Part 1 

BANKRUPTCY ABUSE PREVENTION AND 

CONSUMER PROTECTION ACT OF 2005 

APRIL 8, 2005.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. SENSENBRENNER, from the Committee on the Judiciary, 

submitted the following 

R E P O R T 

together with 

DISSENTING VIEWS, ADDITIONAL DISSENTING VIEWS, 

AND ADDITIONAL MINORITY VIEWS 

[To accompany S. 256] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on the Judiciary, to whom was referred the bill 

(S. 256) to amend title 11 of the United States Code, and for other 

purposes, having considered the same, reports favorably thereon 

without amendment and recommends that the bill do pass. 

CONTENTS 

Page 

Purpose and Summary ............................................................................................ 2 

Background and Need for the Legislation ............................................................. 3 

Hearings ................................................................................................................... 22 

Committee Consideration ........................................................................................ 22 

Votes of the Committee ........................................................................................... 22 

Committee Oversight Findings ............................................................................... 33 

New Budget Authority and Tax Expenditures ...................................................... 33 

Congressional Budget Office Cost Estimate .......................................................... 33 

Performance Goals and Objectives ......................................................................... 47 

Constitutional Authority Statement ...................................................................... 47 

Section-by-Section Analysis and Discussion .......................................................... 47 

Changes in Existing Law Made by the Bill, as Reported ..................................... 155 

Committee Jurisdiction Letters .............................................................................. 370 

Markup Transcript .................................................................................................. 373 

2 

1 As one academic explained: 

[S]hoplifting is wrong; bankruptcy is also a moral act. Bankruptcy is a moral as well 

as an economic act. There is a conscious decision not to keep one’s promises. It is a 

decision not to reciprocate a benefit received, a good deed done on the promise that you 

will reciprocate. Promise-keeping and reciprocity are the foundation of an economy and 

healthy civil society. 

Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and Administrative Law 

of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the 

Courts of the Senate Comm. on the Judiciary, 106th Cong. 98 (1999) (statement of Prof. Todd 

Zywicki). 

Dissenting Views ..................................................................................................... 537 

Additional Dissenting Views ................................................................................... 591 

Additional Minority Views ...................................................................................... 597 

PURPOSE AND SUMMARY

S. 256, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,’’ is a comprehensive package of reform measures 

pertaining to both consumer and business bankruptcy cases. The 

purpose of the bill is to improve bankruptcy law and practice by 

restoring personal responsibility and integrity in the bankruptcy 

system and ensure that the system is fair for both debtors and 

creditors. 

With respect to the interests of creditors, the proposed reforms 

respond to many of the factors contributing to the increase in consumer bankruptcy filings, such as lack of personal financial accountability,1 the proliferation of serial filings, and the absence of 

effective oversight to eliminate abuse in the system. The heart of 

the bill’s consumer bankruptcy reforms consists of the implementation of an income/expense screening mechanism (‘‘needs-based 

bankruptcy relief’’ or ‘‘means testing’’), which is intended to ensure 

that debtors repay creditors the maximum they can afford. S. 256 

also establishes new eligibility standards for consumer bankruptcy 

relief and includes provisions intended to deter serial and abusive 

bankruptcy filings. It substantially augments the responsibilities of 

those charged with administering consumer bankruptcy cases as 

well as those who counsel debtors with respect to obtaining such 

relief. In addition, the bill caps the amount of homestead equity a 

debtor may shield from creditors, under certain circumstances. 

S. 256 also includes various consumer protection reforms. The 

bill penalizes a creditor who unreasonably refuses to negotiate a 

pre-bankruptcy debt repayment plan with a debtor. It strengthens 

the disclosure requirements for reaffirmation agreements (agreements by which debtors obligate themselves to repay otherwise dischargeable debts) so that debtors will be better informed about 

their rights and responsibilities. The legislation requires certain 

monthly credit card billing statements to include specified explanatory statements regarding the increased amount of interest and repayment time associated with making minimum payments. The bill 

requires certain home equity loan and credit card solicitations to 

include enhanced consumer disclosures. It also prohibits a creditor 

from terminating an open end consumer credit plan simply because 

the consumer has not incurred finance charges on the account. S. 

256 allows debtors to shelter from the claims of creditors certain 

education IRA plans and retirement pension funds. It requires 

debtors to receive credit counseling before they can be eligible for 

bankruptcy relief so that they will make an informed choice about 

bankruptcy, its alternatives, and consequences. The bill also reVerDate Aug 04 2004 01:45 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00006 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
3 

2Letter from Alan Greenspan, Chairman, Federal Reserve Board, to F. James Sensenbrenner, 

Jr., Chairman, Committee on the Judiciary (Sept. 3, 2002) (on file with the Subcommittee on 

Commercial and Administrative Law). 3On March 19, 2003, the House passed H.R. 975, the ‘‘Bankruptcy Abuse Prevention and Consumer Prevention Act of 2003,’’ by a vote of 315 to 113. 149 CONG. REC. H2099–00 (daily ed. 

Mar. 19, 2003). Thereafter, the House, on January 28, 2004, passed S. 1920, as amended, the 

text of which was substituted with the text of H.R. 975, as passed by the House, by a vote of 

265 to 99. 150 CONG. REC. H218–19 (daily ed. Jan. 28, 2004). 4 H.R. Rep. No. 107–617 (2002). The modifications consisted of the deletion of two provisions, 

one dealing with unlawful protest activities and the other authorizing additional bankruptcy 

judgeships. The text of the conference report, as modified, was introduced as H.R. 5545, the 

‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2003.’’ H.R. 5545, 107th Cong. 

(2002). In turn, the text of H.R. 5545 was substituted as an amendment to H.R. 333. The House, 

thereafter, passed H.R. 333, as amended. 148 CONG. REC. H8876–77 (daily ed. Nov. 14, 2002). 5Press Release, Administrative Office of the U.S. Courts, Record Breaking Bankruptcy Filings 

Reported in Calendar Year 2002, at 1 (Feb. 14, 2003) (noting that ‘‘[b]ankruptcy filings continue 

to break historic records’’). 

quires debtors, after they have filed for bankruptcy, to participate 

in financial management instructional courses so they can hopefully avoid future financial distress. 

With respect to business bankruptcy, S. 256 includes several significant provisions intended to heighten administrative scrutiny 

and judicial oversight of small business bankruptcy cases, which 

often are the least likely to reorganize successfully. In addition, it 

contains provisions designed to reduce systemic risk in the financial marketplace, the enactment of which Federal Reserve Board 

Chairman Alan Greenspan described as being ‘‘extremely important.’’ 2 The bill includes heightened protections for family farmers 

facing financial distress and allows family fishermen to qualify for 

a specialized form of bankruptcy relief currently available only to 

family farmers. The bill also includes provisions concerning 

transnational insolvencies, bankrupt health care providers, the 

treatment of tax claims, and data collection. In response to the exponential increase in bankruptcy filings, the bill authorizes the creation of 28 additional bankruptcy judgeships. 

BACKGROUND AND NEED FOR THE LEGISLATION

On February 1, 2005, Senator Charles Grassley (R-IA) (for himself and seven original cosponsors) introduced S. 256, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.’’

Thereafter, F. James Sensenbrenner, Jr., Chairman of the House 

Committee on the Judiciary, (for himself and 60 original cosponsors) introduced legislation (H.R. 685) identical to S. 256 on February 9, 2005. 

S. 256, as introduced, is substantively identical to legislation that 

the House passed in the prior Congress on two separate occasions 

with overwhelming bipartisan support.3 It is also substantively 

similar to a modified version of a bankruptcy reform conference report that the House passed in the 107th Congress by a vote of 244 

to 116.4

FACTORS SUPPORTING BANKRUPTCY REFORM

Representing the most comprehensive set of reforms in more 

than 25 years, S. 256’s consumer bankruptcy provisions respond to 

several factors. First, the recent escalation of consumer bankruptcy 

filings does not appear to be just a temporary event, but part of 

a generally consistent upward trend.5 In 1998, for example, bankruptcy filings exceeded one million for the first time in our nation’s 

4 

6See Press Release, Administrative Office of the U.S. Courts, Bankruptcy Filings Down in Fiscal Year 2004, at 1 (Dec. 3, 2004) (noting that ‘‘[d]espite the drop in filings, bankruptcies remain 

at historic highs, well above the 1.5 million record first set in 2002’’); Becky Yerak, Bankrupt 

Filings in E. Mich. Skyrocket; High Debt, Slow Economy Spur 22% Increase in 2002, Biggest 

Jump in the United States, THE DETROIT NEWS, Feb. 24, 2003, at 1A (noting that in the Eastern 

District of Michigan alone, bankruptcy filings for 2002 increased by 22 percent over the prior 

year). 7See, e.g., Becky Yerak, Bankrupt Filings in E. Mich. Skyrocket; High Debt, Slow Economy 

Spur 22% Increase in 2002, Biggest Jump in the United States, THE DETROIT NEWS, Feb. 24, 

2003, at 1A (noting that ‘‘[t]he stigma of filing for bankruptcy continues to abate while, at the 

same time, lenders impose few if any credit restrictions’’). 8See, e.g., Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 

256 Before the Senate Comm. on the Judiciary, 109th Cong. (2005) (statement of Prof. Elizabeth 

Warren). 9 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before 

the Senate Comm. on the Judiciary, 109th Cong. (2005) (prepared statement of Prof. Todd 

Zywicki). 10 Bankruptcy Reform Act of 1998 (Pt. I): Hearings on H.R. 3150 Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 105th Cong. 147 (1998) 

(statement of Mark Lauritano, Senior Vice President, WEFA, Inc.). 11 Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and Administrative 

Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and 

the Courts of the Senate Comm. on the Judiciary, 106th Cong. 26 (1999) (statement of Dean 

Sheaffer on behalf of the National Retail Federation). 12 Bankruptcy Reform Act of 1998 (Pt. I): Hearings on H.R. 3150 Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 105th Cong. 147 (1998) 

(statement of Mark Lauritano, Senior Vice President, WEFA, Inc.). 

history. Over the past decade, the number of bankruptcy filings has 

nearly doubled to more than 1.6 million cases filed in fiscal year 

2004.6 As a result, there is a growing perception that bankruptcy 

relief may be too readily available and is sometimes used as a first 

resort, rather than a last resort.7 Despite the view of opponents of 

bankruptcy reform that abuse in the system is not widespread and 

that most bankruptcy filings result from causes beyond debtors’ control, such as family illness, job loss or disruption, or divorce,8

the Committee concluded that reforms were nevertheless necessary. 

Second, there are significant losses asserted to be associated with 

bankruptcy filings. As one witness explained during the Senate Judiciary Committee’s hearing on S. 256 earlier this year: 

Like all other business expenses, when creditors are unable to 

collect debts because of bankruptcy, some of those losses are 

inevitably passed on to responsible Americans who live up to 

their financial obligations. Every phone bill, electric bill, mortgage, furniture purchase, medical bill, and car loan contains an 

implicit bankruptcy ‘‘tax’’ that the rest of us pay to subsidize 

those who do not pay their bills. Exactly how much of these 

bankruptcy losses is passed on from lenders to consumer borrowers is unclear, but economics tells us that at least some of 

it is. We all pay for bankruptcy abuse in higher down payments, higher interest rates, and higher costs for goods and 

services.9

According to some analyses, the increase in consumer bankruptcy 

filings has adverse financial consequences for our nation’s economy. 

For instance, it was estimated that in 1997 alone more than $44 

billion of debt was discharged by debtors who filed for bankruptcy 

relief,10 a figure when amortized on a yearly basis amounts to a 

loss of at least $110 million every day.11 These losses, according to 

one estimate, translate into a $400 annual ‘‘tax’’ on every household in our nation.12 In 2003, the Nilson Report (a credit industry 

newsletter) announced that issuers of proprietary and general purVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00008 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
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13 Bankruptcy Losses on Cards, THE NILSON REPORT, Jan. 2003, at 1. 14 John K. McKechnie, III, Letter to Editor, Credit Union J. 6 (June 24, 2002); see William 

R. Mapother, Counseling Could Overturn Losses, CREDIT UNION MAG. 34 (Dec. 2002) (quoting 

CUNA President Dan Mica). 15 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th Cong. (2005) (prepared statement of Kenneth 

Beine). 16 Antonia G. Darling & Mark A. Redmiles, Protecting the Integrity of the System: the Civil 

Enforcement Initiative, AM. BANKR. INSTITUTE J. 12 (Sept. 2002). 17 J. Christopher Marshall, Civil Enforcement: An Early Report, JOURNAL OF THE NAT’L ASS’N

OF BANKR. TRUSTEES (NABTALK) 39 (Fall 2002). 18See, e.g., Bankruptcy Reform Act of 1999 (Pt. II): Hearing on H.R. 833 Before the Subcomm. 

on Commercial and Administrative Law of the House Comm. on the Judiciary, 106th Cong. 298 

(1999) (statement of Thomas S. Neubig, Ernst & Young LLP—Policy Economics and Quantitative Analysis Group, concluding that ‘‘large numbers of 1997 U.S. chapter 7 filers have the 

ability to repay large portions of their debts’’); id. at 228–29 (statement of Michael E. Staten, 

Credit Research Center, concluding that ‘‘about 25 percent of chapter 7 debtors could have repaid at least 30 percent of their non-housing debts over a 5-year repayment plan, after accounting for monthly expenses and housing payments’’ and that ‘‘[a]bout 5 percent of chapter 7 filers 

appeared capable of repaying all of their non-housing debt over a 5-year plan,’’ although these 

‘‘calculations assumed income would remain unchanged relative to expenses over the 5 years’’); 

Marianne B. Culhane & Michaela M. White, Taking the New Consumer Bankruptcy Model for 

a Test Drive: Means-Testing Real Chapter 7 Debtors, 7 AM. BANKR. L. J. 27, 31 (1999) (concluding that 3.6% of sampled debtors ‘‘emerged as apparent can-pays’’). 19 Robert C. Furr & Marc P. Barmat, 11 U.S.C. Section 707(b)—The U.S. Trustee’s Weapon 

Against Abuse, NAT’L ASS’N BANKR. TRUSTEES (NABTALK) 11, 14 (Winter 2002–03). 

pose credit cards ‘‘lost $18.9 billion in 2002 from consumer bankruptcy filings,’’ an increase of 15.1 percent over the prior year.13

The Credit Union National Association (CUNA) reported that credit unions, as of 2002, lost ‘‘nearly $3 billion from bankruptcies’’

since Congress began its consideration of bankruptcy reform legislation in 1998.14 CUNA estimates that over 40% of all credit union 

losses in 2004 will be bankruptcy-related, and those losses will 

total approximately $900 million.15

A third factor motivating comprehensive reform is that the 

present bankruptcy system has loopholes and incentives that allow 

and—sometimes—even encourage opportunistic personal filings 

and abuse. A civil enforcement initiative undertaken in 2002 by the 

United States Trustee Program (a component of the Justice Department charged with administrative oversight of bankruptcy cases) 

has ‘‘consistently identified’’ such problems as ‘‘debtor misconduct 

and abuse, misconduct by attorneys and other professionals, problems associated with bankruptcy petition preparers, and instances 

where a debtor’s discharge should be challenged.’’ 16 According to 

the United States Trustee Program, ‘‘Abuse of the system is more 

widespread than many would have estimated.’’ 17 Such abuse ultimately hurts consumers as well as creditors. 

A fourth factor relates to the fact that some bankruptcy debtors 

are able to repay a significant portion of their debts, according to 

several studies.18 Current law, however, has no clear mandate requiring these debtors to repay their debts. Accordingly, ‘‘[w]hile 

there is a universal agreement among the courts that an individual 

debtor’s ability to repay his or her debts from future earnings is, 

at the very least, a factor in determining whether substantial 

abuse would occur in a chapter 7 case, there are differences among 

the courts as to the extent to which they rely on a debtor’s ability 

to repay.’’ 19

6 

20 Comprehensive bankruptcy reform legislation (H.R. 2500, the ‘‘Responsible Borrower Protection Bankruptcy Act’’) was first formally introduced in the House on September 18, 1997. H.R. 

2500, 105th Cong. (1997). 21 144 CONG. REC. H4442 (daily ed. June 10, 1998) (vote on final passage of H.R. 3150 was 

306 to 118); 144 CONG. REC. H10239–40 (daily ed. Oct. 9, 1998) (vote on final passage of the 

conference report on H.R. 3150 was 300 to 125). 22 145 CONG. REC. H2771 (daily ed. May 5, 1999). 23 H.R. REP. NO. 106–970 (2000). 24 146 CONG. REC. H9840 (daily ed. Oct. 12, 2000). 25 146 CONG. REC. S11730 (daily ed. Dec. 7, 2000). 26 147 CONG. REC. H600–01 (daily ed. Mar. 1, 2001). 27See supra note 3. 28 149 CONG. REC. H2099–00 (daily ed. Mar. 19, 2003);150 Cong. Rec. H218–19 (daily ed. Jan. 

28, 2004). 29 144 CONG. REC. S10767 (daily ed. Sept. 23, 1998). 30 146 CONG. REC. S255 (daily ed. Feb. 2, 2000). 31 146 CONG. REC. S11730 (daily ed. Dec. 7, 2000). 32 147 CONG. REC. S2379 (daily ed. Mar. 15, 2001). 33 151 CONG. REC. S2474 (daily ed. Mar. 10, 2005). 

PRIOR CONGRESSIONAL CONSIDERATION OF BANKRUPTCY REFORM

Proposed reforms to bankruptcy law and practice have been 

under consideration by Congress for nearly eight years 20 and have 

generally enjoyed broad support from the business community, 

banking and financial services industries as well as other groups 

such as family farmers and child support enforcement agencies. In 

Congress, support for bankruptcy reform legislation has likewise 

been overwhelming, bipartisan and bicameral. 

Since the 105th Congress, the House has passed bankruptcy reform legislation on eight separate occasions. In the 105th Congress, 

for example, the House passed both H.R. 3150, the ‘‘Bankruptcy 

Reform Act of 1998,’’ and the conference report on that bill by vetoproof margins.21 In the 106th Congress, the House passed H.R. 

833, the successor to H.R. 3150, by a veto-proof margin of 313 to 

108 22 and agreed to the conference report 23 by voice vote.24 Although the Senate subsequently passed this legislation by a vote 

of 70 to 28,25 President Clinton pocket-vetoed it. In the 107th Congress, the House again registered its overwhelming support for 

bankruptcy reform on two more occasions. On March 1, 2001, the 

House passed H.R. 333, the ‘‘Bankruptcy Abuse Prevention and 

Consumer Protection Act,’’ by a vote of 306 to 108.26 The House 

thereafter passed a modified version of the conference report on 

H.R. 333, as previously noted.27 In the last Congress, the House 

passed H.R. 975, the ‘‘Bankruptcy Abuse Prevention and Consumer 

Protection Act of 2003,’’ by a vote of 315 to 113 and S. 1920, which 

consisted of the text of H.R. 975, as passed by the House, by a vote 

of 265 to 99.28

Likewise, the Senate has on numerous occasions expressed 

strong bipartisan support for bankruptcy reform legislation. In the 

105th Congress, the Senate passed bankruptcy reform legislation 

by a vote of 97 to 1.29 In the 106th Congress, the Senate passed 

similar legislation by a vote of 83 to 14 30 and a subsequent conference report by a vote of 70 to 28.31 In the 107th Congress, the 

Senate passed a bankruptcy reform bill by a vote of 82 to 16.32

Last month, the Senate passed S. 256, as amended, by a vote of 

74 to 25.33

The Committee and the Subcommittee on Commercial and Administrative Law (Subcommittee), beginning in the 105th Congress, 

have held a total of 18 days of hearings on the operation of the 

7 

34The dates and subject matters of these hearings are as follows: 

April 16, 1997: 

Hearing on the operation of the bankruptcy system and status report from the National Bankruptcy Review Commission. 

April 30, 1997: 

Hearing on H.R. 764, the ‘‘Bankruptcy Amendments of 1997,’’ and H.R. 120, the ‘‘Bankruptcy 

Law Technical Corrections Act of 1997.’’

October 9, 1997: 

Hearing on H.R. 2592, the ‘‘Private Trustee Reform Act of 1997’’ and review of post-confirmation fees in chapter 11 cases. 

November 13, 1997: 

Hearing on the Report of the National Bankruptcy Review Commission. 

February 12, 1998: 

Hearing on H.R. 2604, the ‘‘Religious Liberty and Charitable Donation Protection Act of 1997.’’

March 10–11, 18–19, 1998: 

Hearings on H.R. 3150, the ‘‘Bankruptcy Reform Act of 1998,’’ H.R. 3146, the ‘‘Consumer 

Lenders and Borrowers Bankruptcy Accountability Act of 1998,’’ and H.R. 2500, the ‘‘Responsible Borrower Protection Bankruptcy Act.’’

March 11–12, 18–19, 1999: 

Hearings on H.R. 833, the ‘‘Bankruptcy Reform Act of 1999.’’

November 2, 1999: 

Joint oversight hearing on additional bankruptcy judgeship needs. 

April 11, 2000: 

Oversight hearing on the limits on regulatory powers under the Bankruptcy Code. 

February 7–8, 2001: 

Hearings on H.R. 333, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 

2001.’’

March 4, 2003: 

Hearing on H.R. 975, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 

2003’’ and the need for bankruptcy reform. 35The Subcommittee on Administrative Oversight and the Courts of the Senate Committee 

on the Judiciary conducted the following hearings: 

April 11, 1997: 

Hearing on the increase in personal bankruptcies and the crisis in consumer credit. 

August 1, 1997: 

Hearing to review the negative impact of bankruptcy on educational funding. 

August 8, 1997: 

Hearing regarding bankruptcy laws for family farmers. 

September 22, 1997: 

Hearing on the Bankruptcy Code’s effect on religious freedom and a review of the need for 

additional bankruptcy judgeships. 

October 21, 1997: 

Hearing to review the recommendations of the National Bankruptcy Review Commission. 

December 7, 1997: 

Hearing regarding international bankruptcy laws. 

March 11, 1998: 

Hearing on S. 1301, ‘‘The Consumer Bankruptcy Reform Act: Seeking Fair and Practical Solutions to the Consumer Bankruptcy Crisis.’’

May 19, 1998: 

Hearing to review business bankruptcy issues. 

March 11, 1999: 

Continued 

bankruptcy system and the need for reform.34 Eleven of these hearings were devoted solely to consideration of S. 256’s predecessors, 

H.R. 3150 (105th Congress), H.R. 833 (106th Congress), H.R. 333 

(107th Congress), and H.R. 975 (108th Congress). Over the course 

of these hearings, nearly 130 witnesses, representing nearly every 

major constituency in the bankruptcy community, testified. With 

regard to H.R. 833 alone, testimony was received from 69 witnesses, representing 23 organizations, with additional material 

submitted by other groups. 

The Senate likewise has held numerous hearings on the subject 

of bankruptcy reform and related issues. Since the 105th Congress, 

the Senate has held eleven hearings, including a hearing held earlier this year on S. 256.35 In fact, the inaugural hearing on H.R. 

8 

Hearing on H.R. 833, the ‘‘Bankruptcy Reform Act of 1999,’’ held jointly with the Subcommittee on Commercial and Administrative Law of the House Committee on the Judiciary. 

November 2, 1999: 

Oversight hearing on additional bankruptcy judgeship needs held jointly with the Subcommittee on Commercial and Administrative Law of the House Committee on the Judiciary. 

February 10, 2005: 

Hearing on S. 256, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.’’ 36 Representatives on behalf of the Commercial Law League of America, CUNA, MBNA America Bank, N.A., National Retail Federation, and the National Consumer Law Center also testified. Some of the nation’s leading jurists and academics presented testimony as well. Bankruptcy 

Reform: Hearing Before the Subcomm. on Commercial and Administrative Law of the House 

Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the 

Senate Comm. on the Judiciary, 106th Cong. (1999). 37Senators testifying at the hearing included Charles Grassley (R-IA), Joseph Biden (D-DE) 

and Christopher Dodd (D-CT). House Members included Jim Moran (D-VA), Pete Sessions (RTX) and Nick Smith (R-MI). Id. 38 H.R. REP. NO. 107–617 (2002). Signatories on behalf of the House included: F. James Sensenbrenner, Jr. (R-WI), Henry Hyde (R-IL), George Gekas (R-PA), Lamar Smith (R-TX), Steve 

Chabot (R-OH), Bob Barr (R-GA), Rick Boucher (D-VA), Michael Oxley (R-OH), Spencer Bachus 

(R-AL), Billy Tauzin (R-LA), Joe Barton (R-TX), John Boehner (R-OH), and Michael Castle (RDE). Signatories on behalf of the Senate included: Patrick Leahy (D-VT), Joe Biden (D-DE), 

Charles Schumer (D-NY), Orrin Hatch (R-UT), Chuck Grassley (R-IA), Jon Kyl (R-AZ), Mike 

DeWine (R-OH), Jeff Sessions (R-AL), and Mitch McConnell (R-KY). 39 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 109th Cong. (2005). 

833 during the 106th Congress was held jointly by the Subcommittee together with the Senate Subcommittee on Administrative Oversight and the Courts on March 11, 1999,36 marking the 

first time in more than 60 years that a bicameral hearing was held 

on the subject of bankruptcy reform.37

It is also important to note that bankruptcy reform legislation is 

the product of extensive bipartisan and bicameral negotiation and 

compromise. For example, conferees during the 106th Congress 

spent nearly seven months engaged in an informal conference to 

reconcile differences between the House and Senate passed 

versions of bankruptcy reform legislation. In the 107th Congress, 

conferees formally met on three occasions and ultimately agreed— after an 11-month period of negotiations—to a bipartisan conference report.38

On February 10, 2005, the Senate Committee on the Judiciary 

held a hearing on S. 256 that provided an opportunity to review 

the reasons why the current bankruptcy system needs reform and 

how this legislation would implement those reforms.39 Testimony 

was received from eight witnesses, including: Kenneth Beine on behalf of CUNA; Maria Vullo, a partner with the New York law firm 

of Paul, Weiss, Rifkind, Wharton & Garrison LLP; Malcom Bennett 

on behalf of the National Multi Housing Council/National Apartment Association; Philip Strauss on behalf of the National Child 

Support Enforcement Association; Dave McCall on behalf of the 

United Steel Workers of America, AFL-CIO; R. Michael Stewart 

Menzies, Sr. on behalf of the Independent Community Bankers of 

America; Prof. Elizabeth Warren, Leo Gottlieb Professor of Law at 

Harvard Law School; and Prof. Todd J. Zywicki, Visiting Professor 

of Law at Georgetown University Law Center. 

Among the matters considered at the hearing were: (1) the adequacy of the current bankruptcy system with respect to the detection of fraud and abuse; (2) how abuse and fraud in the current 

bankruptcy system impact on American businesses and our nation’s citizens generally; (3) whether the legislation adversely impacts individuals deserving of bankruptcy relief; (4) whether the 

9 

proposed reforms would assist those who are charged with administrative oversight of bankruptcy cases and law enforcement matters; 

and (5) whether, given current economic circumstances, the need 

for comprehensive bankruptcy reform still exists. 

On February 17, 2005, the Senate Judiciary Committee marked 

up S. 256 and ordered the bill, as amended, to be favorably reported by a vote of 12 to 5. Over the course of the markup, five 

amendments were passed. These amendments consisted of the following: 

1. an amendment by Senator Edward Kennedy (D-MA) clarifying that a debtor’s reasonably necessary expenses for 

health insurance, disability insurance, and health savings 

accounts for the debtor and for the debtor’s spouse and dependents are allowed expenses under the bill’s needs-based 

test; 

2. an amendment by Senator Kennedy limiting retention bonuses, severance pay, and other payments to insiders of the 

debtor, under certain circumstances; 

3. an amendment by Senator Russell Feingold (D-WI) increasing the monetary threshold with respect to the venue of a 

proceeding to recover a consumer debt; 

4. an amendment by Senator Patrick Leahy (D-VT) clarifying 

that a debt based on a Federal or state securities law violation is nondischargeable; and 

5. an amendment by Senator Kennedy requiring the United 

States trustee to apply to the court for the appointment of 

a chapter 11 trustee if there are reasonable grounds to suspect fraud, under certain circumstances. 

On March 10, 2005, the Senate passed S. 256, as amended, by 

a vote of 74 to 25. Nearly 130 amendments were filed. Of the 

amendments that were offered, 24 failed, 24 were withdrawn, eight 

were passed either by vote or unanimous consent. The amendments 

that were accepted consisted of the following: 

1. an amendment by Senator Jeff Sessions (R-AL) clarifying 

that the special circumstances exception to the bill’s needsbased test includes a debtor with a serious medical condition or a debtor on active duty in the military to the extent 

these factors justify adjustment to income or expenses as 

well as clarifying the safe harbor from the needs-based test 

with respect to veterans; 

2. an amendment by Senator Leahy restricting public access to 

certain personal information regarding an individual contained in bankruptcy case files to the extent the court finds 

that disclosure of such information would create undue risk 

of identity theft or other unlawful injury to such individual 

or the individual’s property; 

3. an amendment by Senator Arlen Specter (R-PA) increasing 

the filing fees for chapter 7 and chapter 11 bankruptcy 

cases, reducing the filing fees for chapter 13, and adjusting 

the allocation of such fees among various governmental entities; 

10 

40This amendment is similar to legislation considered by the House in the 108th Congress. 

H.R. 1529, 108th Cong. (2003). The bill was ordered favorably reported without amendment by 

the House Judiciary Committee, H.R. REP. NO. 108–110 (2003), and passed by voice vote by the 

House. 149 CONG. REC. H5104 (daily ed. June 10, 2003). The principal difference between this 

legislation and section 332 of the Act is that the bill would have permitted the court to expunge 

the case upon dismissal of the fraudulent involuntary petition. 41 Under the Bankruptcy Code, only an individual may obtain a chapter 7 discharge. Thus, 

a corporation is not eligible to receive a discharge under chapter 7. 11 U.S.C. § 727(a)(1). 

4. an amendment by Senator Feingold providing for the automatic periodic adjustment for inflation of certain monetary 

amounts specified in the Bankruptcy Code; 

5. an amendment by Senator Feingold authorizing a court to: 

(a) seal all public records pertaining to a fraudulent involuntary bankruptcy petition, under certain circumstances, (b) 

prohibit any consumer reporting agency from issuing any 

consumer report containing any reference to such petition; 

and (c) expunge all records pertaining to such petition upon 

the expiration of the statute of limitations for the crimes associated with the filing of a fraudulent involuntary bankruptcy petition. It also amends the Federal criminal statute 

to make it a criminal offense to file a fraudulent involuntary 

bankruptcy petition; 40

6. an amendment by Senator Feingold creating an exception to 

the bill’s mandatory consumer credit counseling and financial management training requirements for a debtor who is 

unable to complete these requirements because of incapacity, disability, or active duty in a military combat zone; 

7. an amendment by Senator Richard Durbin (D-IL) creating 

an exception from the bill’s needs-based test for a disabled 

veteran whose indebtedness occurred primarily during a period when the individual was on active duty or performing 

a homeland defense activity; and 

8. an amendment by Senator James Talent (R-MO) authorizing a bankruptcy trustee to avoid any transfer of property 

by a debtor to a self-settled trust made within ten years 

preceding the filing of the debtor’s bankruptcy case if the 

debtor is a beneficiary of such trust and the debtor made 

such transfer with actual intent to hinder, delay, or defraud 

a creditor. 

HIGHLIGHTS OF BANKRUPTCY REFORMS

Consumer Creditor Bankruptcy Protections. 

Needs-Based Reforms. Chapter 7 is a form of bankruptcy relief 

by which an individual debtor receives an immediate unconditional 

discharge of personal liability for certain debts in exchange for relinquishing his or her nonexempt assets to a bankruptcy trustee for 

liquidation and distribution to creditors.41 This ‘‘unconditional discharge’’ in chapter 7 contrasts with the ‘‘conditional discharge’’ provisions of chapter 13, under which a debtor commits to repay some 

portion of his or her financial obligations in exchange for retaining 

nonexempt assets and receiving a broader discharge of debt than 

is available under chapter 7. Allowing consumer debtors in financial distress to choose voluntarily an ‘‘unconditional discharge’’ has 

11 

42 Bankruptcy Act of 1898, 30 Stat. 544 (1898) (repealed 1978). The rationale of an unconditional discharge was explained by Congress more than 100 years ago: 

[W]hen an honest man is hopelessly down financially, nothing is gained for the public 

by keeping him down, but, on the contrary, the public good will be promoted by having 

his assets distributed ratably as far as they will go among his creditors and letting him 

start anew. 

H.R. REP. NO. 55–65, at 43 (1897). 43President’s Special Message to the Congress on Reform of Judicial Procedure, 69 Pub. Papers 83, 90 (Feb. 29, 1932). 44 Chandler Act of 1938, 52 Stat. 840 (1938). 45See, e.g., REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES— JULY 1973, H.R. DOC. NO. 93 137, pt. I, at 158 (1973) (observing that ‘‘proposals have been made 

to Congress from time to time that a debtor able to obtain relief under chapter XIII [predecessor 

of chapter 13] should be denied relief in straight bankruptcy’’). 46 Hearings on H.R. 1057 and H.R. 5771 Before the Subcomm. No. 4 of the House Comm. on 

the Judiciary, 90th Cong. (1967). 47See, e.g., REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES— JULY 1973, H.R. DOC. NO. 93–137, pt. I, at 159 (1973). 48Pub. L. No. 95–598, 92 Stat. 2549 (1978). 49 H.R. REP. NO. 95–595, at 120 (1977) (observing that ‘‘[t]he thirteenth amendment prohibits 

involuntary servitude’’ and suggesting that ‘‘a mandatory chapter 13, by forcing an individual 

to work for creditors, would violate this prohibition’’). 50 Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98–353, § 312, 98 

Stat. 333, 335 (1984). 51 11 U.S.C. § 707(b). 

been a part of American bankruptcy law since the enactment of the 

Bankruptcy Act of 1898.42

The concept of needs-based bankruptcy relief has long been debated in the United States. President Herbert Hoover, for instance, 

recommended to Congress in 1932, ‘‘The discretion of the courts in 

granting or refusing discharges should be broadened, and they 

should be authorized to postpone discharges for a time and require 

bankrupts, during the period of suspension, to make some satisfaction out of after-acquired property as a condition to the granting 

of a full discharge.’’ 43 In 1938, chapter XIII (the predecessor to 

chapter 13 of the Bankruptcy Code) was enacted as a purely voluntary form of bankruptcy relief that allowed a debtor to propose 

a plan to repay creditors out of future earnings.44

Over the ensuing years, there continued to be repeated expressions of support for and opposition to means-testing bankruptcy reform.45 In 1967, various organizations testifying before Congress in 

support of such reform included the American Bar Association, the 

American Bankers Association, the Chamber of Commerce of the 

United States, CUNA, the National Federation of Independent 

Businesses, and the American Industrial Bankers Association.46

The Commission on the Bankruptcy Laws of the United States, 

while supporting the concept that repayment plans should be ‘‘fostered,’’ nevertheless concluded in 1973 that ‘‘forced participation by 

a debtor in a plan requiring contributions out of future income has 

so little prospect for success that it should not be adopted as a feature of the bankruptcy system.’’ 47 The Bankruptcy Reform Act of 

1978 48 retained the principle that a debtor’s decision to choose relief premised on repayment to creditors should be ‘‘completely voluntary.’’ 49

Although the Bankruptcy Code as originally enacted in 1978 provided that a chapter 7 case could only be dismissed for ‘‘cause,’’ the 

Code was amended in 1984 to permit the court to dismiss a chapter 

7 case for ‘‘substantial abuse.’’ 50 This provision, codified in section 

707(b) of the Bankruptcy Code,51 was added ‘‘as part of a package 

of consumer credit amendments designed to reduce perceived 

12 

52 6 LAWRENCE P. KING ET AL., COLLIER ON BANKRUPTCY § 707.LH[2], at 707–30 (15th ed. rev. 

2002). 53 Id. at § 707.04. 54 Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, 

Pub. L. No. 99–554, § 219, 100 Stat. 3088, 3101 (1986). 55 11 U.S.C. § 707(b). 56See, e.g., David White, Disorder in the Court: Section 707(b) of the Bankruptcy Code, 1995– 96 ANN. SURVEY OF BANKR. L. 333, 355 (1996) (noting that the courts ‘‘have taken divergent 

views in an attempt to define the term’’ and have resorted to ‘‘a variety of methods’’ in applying 

it to specific cases); Robert C. Furr & Marc P. Barmat, 11 U.S.C. Section 707(b)—The U.S. 

Trustee’s Weapon Against Abuse, NAT’L ASS’N BANKR. TRUSTEES (NABTALK) 11, 14 (Winter 

2002–03). 57See, e.g., Zolg v. Kelly (In re Kelly), 841 F.2d 908, 913–14 (9th Cir. 1988) (observing that 

the ‘‘principal factor to be considered in determining substantial abuse is the debtor’s ability to 

repay debts for which a discharge is sought’’). 58See, e.g., In re Braley, 103 B.R. 758 (Bankr. E.D. Va. 1989), aff’d, 110 B.R. 211 (E.D. Va. 

1990). Notwithstanding the fact that the debtors in Braley had disposable monthly income of 

nearly $2,700, the bankruptcy court did not dismiss the case for substantial abuse. Id. at 760. 

The court concluded, ‘‘Based upon this legislative history, we are persuaded that no future income tests exists [sic] in 707(b) and if it did, as a finding of fact, the Braley family has insufficient future income to merit barring the door in light of the circumstances of this Navy family.’’ Id. at 762. 

59Section 707(b) of the Bankruptcy Code mandates that ‘‘[t]here shall be a presumption in 

favor of granting the relief requested by the debtor.’’ 11 U.S.C. § 707(b). 

abuses in the use of chapter 7.’’ 52 It was intended to respond ‘‘to 

concerns that some debtors who could easily pay their creditors 

might resort to chapter 7 to avoid their obligations.’’ 53 In 1986, section 707(b) was further amended to allow a United States trustee 

(a Department of Justice official) to move for dismissal.54

The utility of section 707(b) is limited for several reasons. Under 

current law, neither the court nor the United States trustee is required to file a motion to dismiss a chapter 7 case for substantial 

abuse under section 707(b). In addition, other parties in interest, 

such as chapter 7 trustees and creditors, are prohibited from filing 

such motions. In fact, section 707(b) specifies that a motion under 

that provision may not even be made ‘‘at the request or suggestion 

of any party in interest.’’ 55 The standard for dismissal—substantial 

abuse—is inherently vague, which has lead to its disparate interpretation and application by the bankruptcy bench.56 Some courts, 

for example, hold that a debtor’s ability to repay a significant portion of his or her debts out of future income constitutes substantial 

abuse and therefore is cause for dismissal; 57 others do not.58 A further reason militating against filing section 707(b) motions is that 

the Bankruptcy Code codifies a presumption that favors granting 

a debtor a discharge.59

Over the course of its hearings since the 105th Congress, the 

Committee received testimony explaining that if needs-based reforms and other measures were implemented, the rate of repayment to creditors would increase as more debtors were shifted into 

chapter 13 (a form of bankruptcy relief where the debtor commits 

to repay a portion or all of his debts in exchange for receiving a 

broad discharge of debt) as opposed to chapter 7 (a form of bankruptcy relief where the debtor receives an immediate discharge of 

personal liability on certain debts in exchange for turning over his 

or her nonexempt assets to the bankruptcy trustee for distribution 

to creditors). 

Needs-based reforms would amend section 707(b) of the Bankruptcy Code to permit a court, on its own motion, or on motion of 

the United States trustee, private trustee, bankruptcy administrator, or other party in interest (including a creditor), to dismiss 

a chapter 7 case for abuse if it was filed by an individual debtor 

13 

60Section 102(b) of the bill defines ‘‘current monthly income’’ as the average monthly income 

from all sources that the debtor receives (or, in a joint case, the debtor and the debtor’s spouse 

receive), without regard to whether it is taxable income, in the six-month period preceding the 

bankruptcy filing. It includes any amount paid on a regular basis by any entity (other than the 

debtor or, in a joint case, the debtor and the debtor’s spouse) to the household expenses of the 

debtor or the debtor’s dependents and, in a joint case, the debtor’s spouse, if not otherwise a 

dependent. It excludes Social Security Act benefits and payments to victims of war crimes or 

crimes against humanity on account of their status as victims of such crimes. It also excludes 

payments to victims of international terrorism or domestic terrorism (as defined in 18 U.S.C. 

§ 2331) on account of their status as victims of such terrorism. 

61 Under section 102(a), a debtor’s monthly expenses may also include: 

• an additional five percent of the food and clothing expense allowances under the Internal Revenue Service National Standards expenses category, if demonstrated to be reasonable and necessary; 

• the debtor’s average monthly payments on account of secured debts, including any additional 

payments to secured creditors that a chapter 13 debtor must make to retain possession of a 

debtor’s primary residence, motor vehicle, or other property necessary for the support of the 

debtor and the debtor’s dependents that collateralizes such debts; 

• claims and expenses entitled to priority under section 507 of the Bankruptcy Code, such as 

child support and alimony; 

• the continuation of actual expenses paid by the debtor that are reasonable and necessary for 

the care and support of an elderly, chronically ill, or disabled household member or member 

of the debtor’s immediate family who is otherwise unable to pay such expenses; 

• housing and utility expenses in excess of those specified by the Internal Revenue Service, 

under certain circumstances; 

• the actual administrative expenses (including reasonable attorneys’ fees) of administering a 

chapter 13 plan for the district in which the debtor resides up to ten percent of projected plan 

payments, as determined under schedules issued by the Executive Office for United States 

Trustees; and 

• the actual expenses for each dependent child under the age of 18 years up to $1,500 per year 

per child to attend a private elementary or secondary school, under certain circumstances. 

62 INTERNAL REVENUE SERVICE, INTERNAL REVENUE MANUAL—Financial Analysis Handbook 

pt. 5.15.1 (rev. May 1, 2004). 

whose debts are primarily consumer debts. Alternatively, the chapter 7 case could be converted to a case under chapter 11 or chapter 

13 on consent of the debtor. 

In addition, these reforms contemplate replacing the current 

law’s presumption in favor of the debtor with a mandatory presumption of abuse that would arise under certain conditions. As 

amended, section 707(b) of the Bankruptcy Code would require a 

court to presume that abuse exists if the amount of the debtor’s remaining income, after certain expenses and other specified 

amounts are deducted from the debtor’s current monthly income (a 

defined term) 60 when multiplied by 60, exceeds the lower of the following: (1) 25 percent of the debtor’s nonpriority unsecured claims, 

or $6000 (whichever is greater); or (2) $10,000. Section 102 mandates that the debtor’s expenses include reasonably necessary expenditures for health insurance, disability insurance, and health 

savings accounts for the debtor, the debtor’s spouse, and dependents of the debtor. In addition, the debtor’s expenses must include 

those incurred to maintain the safety of the debtor and the debtor’s 

family from family violence as identified in section 309 of the Family Violence Prevention and Services Act or other applicable law. In 

addition to other specified expenses,61 the debtor’s monthly expenses—exclusive of any payments for debts (unless otherwise permitted)—must be the applicable monthly amounts set forth in the 

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14 

63The Internal Revenue Manual defines the term ‘‘necessary expenses’’ as expenses: 

that are necessary to provide for a taxpayer’s and his or her family’s health and welfare 

and/or production of income. The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family need to live. 

Id. at pt. 5.15.1.7. 

64The Internal Revenue Manual’s ‘‘National Standards’’ establish standards for five types of 

expenses: food (includes all meals, home and away), housekeeping supplies (includes laundry 

and cleaning supplies; other household products such as cleaning and toilet tissue, paper towels 

and napkins; lawn and garden supplies; postage and stationary), apparel and services (includes 

shoes and clothing, laundry and dry cleaning, and shoe repair), personal care products and services (includes hair care products, haircuts, oral hygiene products, electric personal care appliances), and miscellaneous (a discretionary allowance of $100 for one person and $25 for each 

additional person in a taxpayer’s family). Except for miscellaneous expenses, these expense 

standards are derived from Bureau of Labor Statistics Consumer Expenditure Survey and are 

stratified by income and household size. Id. at pt. 5.15.1.8. 65 ‘‘Local Standards,’’ under the Internal Revenue Manual, establish expense standards for 

housing (e.g., mortgage or rent, property taxes, interest, parking, necessary maintenance and 

repair, homeowner’s or renter’s insurance, and homeowner dues and condominium fees) and 

transportation expenditures (e.g., vehicle insurance, vehicle payment, maintenance, fuel, state 

and local registration, parking fees, tolls, driver’s license fees, and public transportation). Utilities (e.g., gas, electricity, water, fuel, oil, bottled gas, wood and other fuels, trash and garbage 

collection, septic cleaning, and telephone) are included under the housing expense category. 

Housing standards are established for each county within a state. Transportation standards are 

determined on a regional basis. Id. at pt. 5.15.1.9. 66The Internal Revenue Manual does not establish monetary amounts with regard to necessary expenses that it characterizes as ‘‘Other Expenses.’’ Rather, it provides a non-exclusive 

list of these expenses, that must otherwise satisfy the ‘‘necessary expense test,’’ described in 

note 63 supra. The list includes expenditures for certain accounting and legal fees, child care, 

dependent care for an elderly or disabled person, health care, taxes, court-ordered payments, 

life insurance, involuntary deductions (e.g., union dues, uniforms, work shoes), charitable contributions, and certain education expenses. Id. at pt. 5.15.1.10. 67The debtor must itemize and provide documentation of each additional expense or income 

adjustment as well as explain the special circumstances that make such expense or income adjustment reasonable and necessary. In addition, the debtor must attest under oath to the accuracy of any information provided to demonstrate that such additional expenses or adjustments 

to income are required. 68Fed. R. Bankr. P. 9011. This rule is the bankruptcy analog to Federal Rule of Civil Procedure 11, which authorizes a court to impose sanctions against an attorney or party who comessary Expenses 63 under the National 64 and Local Standards 65

categories and the debtor’s actual monthly expenditures for items 

categorized as Other Necessary Expenses.66

The means test permits the mandatory presumption of abuse to 

be rebutted only if: (1) the debtor demonstrates special circumstances justifying any additional expense or adjustment to the 

debtor’s current monthly income for which there is no reasonable 

alternative; and (2) such additional expense or income adjustment 

caused the debtor’s current monthly income (reduced by various 

amounts) when multiplied by 60 to be less than the lesser of either: 

(i) 25 percent of the debtor’s nonpriority unsecured claims, or $6,000 (whichever is greater), or (ii) $10,000.67 Special circumstances include such factors as whether the debtor has a serious medical condition or is on active duty in the Armed Services 

to the extent these factors justify adjustment to income or expenses. 

Where the mandatory presumption of abuse does not apply or 

has been rebutted, the court, in order to determine whether the 

granting of relief under chapter 7 would constitute an abuse, must 

consider: (1) whether the debtor filed the chapter 7 case in bad 

faith; or (2) whether the totality of circumstances of the debtor’s financial situation (including whether the debtor seeks to reject a 

personal services contract and the financial need for such rejection) 

demonstrates abuse. 

Should a court grant a section 707(b) motion made by a trustee 

and find that the action of the debtor’s counsel in filing the chapter 

7 case violated Federal Rule of Bankruptcy Procedure 9011,68 S. 

15 

mences a frivolous actions or files other inappropriate documents in violation of this Rule’s re- quirements. 69Section 102(a) of S. 256 specifies that the signature of an attorney on a bankruptcy petition, 

pleading, or written motion constitutes a certification that the attorney has: (1) performed a reasonable investigation into the circumstances giving rise to such petition, pleading or motion; and 

(2) determined that the document is well grounded in fact and warranted by existing law or 

a good faith argument for the extension, modification, or reversal of existing law; and does not 

constitute an abuse under section 707(b)(1) of the Bankruptcy Code. Pursuant to section 102(a), 

the signature of an attorney on a bankruptcy petition constitutes a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such 

petition is incorrect. 70 In a case that is not a joint case, current monthly income of the debtor’s spouse is not 

considered if the debtor and the debtor’s spouse are separated under applicable nonbankruptcy 

law or the debtor and the debtor’s spouse are living separate and apart (other than for the purpose of evading this provision) and the debtor files a statement under penalty of perjury containing certain specified information. 

256 authorizes the court to order the attorney to reimburse the 

trustee for all reasonable costs in prosecuting the motion, including 

reasonable attorneys’ fees. In addition, the court may assess an appropriate civil penalty.69

Two types of ‘‘safe harbors’’ apply to the means test. One provides that only a judge, United States trustee, bankruptcy administrator, or private trustee may file a motion to dismiss a chapter 7 

case under section 707(b) of the Bankruptcy Code if the debtor’s income (or in a joint case, the income of debtor and the debtor’s 

spouse) does not exceed the state median family income for a family of equal or lesser size (adjusted for larger sized families), or the 

state median family income for one earner in the case of a one-person household. The second safe harbor provides that no motion 

under section 707(b)(2) (dismissal based on a chapter 7 debtor’s 

ability to repay) may be filed by a judge, United States trustee, 

bankruptcy administrator, private trustee, or other party in interest if the debtor (including the circumstance where the debtor is a 

veteran) and the debtor’s spouse combined have income that does 

not exceed the state median family income for a family of equal or 

lesser size (adjusted for larger sized families), or the state median 

family income for one earner in the case of a one-person household.70 In addition, the bill includes a safe harbor from the bill’s 

needs-based test for a disabled veteran whose indebtedness occurred primarily during a period when the individual was on active 

duty (as defined in 10 U.S.C. § 101(d)(1)) or performing a homeland 

defense activity (as defined in 32 U.S.C. § 901(1)). 

Other Reforms Dealing with Abuse. S. 256 contains various reforms tailored to remedy certain types of fraud and abuse within 

the present bankruptcy system. For example, the bill substantially 

limits a debtor’s ability to file successive bankruptcy cases. It also 

addresses abusive practices by consumer debtors who, for example, 

knowingly load up with credit card purchases or recklessly obtain 

cash advances and then file for bankruptcy relief. In addition, S. 

256 prevents the discharge of debts based on fraud, embezzlement, 

and malicious injury in a chapter 13 case. Other abuse reforms include a provision authorizing the court to dismiss a chapter 7 case 

filed by an individual debtor convicted of a crime of violence or a 

drug trafficking crime on motion of the victim, under certain circumstances. And, the court, as a condition of confirming a chapter 

13 plan, must find that the debtor filed the chapter 13 case in good 

faith. 

The bill also restricts the so-called ‘‘mansion loophole.’’ Under 

current bankruptcy law, debtors living in certain states can shield 

16 

71See 11 U.S.C. § 522(b)(2)(2)(A). 72 If the debtor owns the homestead for less than 40 months, the provision imposes a $125,000 

homestead cap. In effect, this provision overrides state exemption law authorizing a homestead 

exemption in excess of this amount and allows such law to control if it authorizes a homestead 

exemption in a lesser amount. 73 11 U.S.C. § 507(a)(7). 

from their creditors virtually all of the equity in their homes. In 

light of this, some debtors actually relocate to these states just to 

take advantage of their ‘‘mansion loophole’’ laws. S. 256 closes this 

loophole for abuse by requiring a debtor to be a domiciliary in the 

state for at least two years before he or she can claim that state’s 

homestead exemption; the current requirement can be as little as 

91 days.71 The bill further reduces the opportunity for abuse by requiring a debtor to own the homestead for at least 40 months before he or she can use state exemption law; current law imposes 

no such requirement.72 S. 256 prevents securities law violators and 

others who have engaged in criminal conduct from shielding their 

homestead assets from those whom they have defrauded or injured. 

If a debtor was convicted of a felony, violated a securities law, or 

committed a criminal act, intentional tort, or engaged in reckless 

misconduct that caused serious physical injury or death, the bill 

overrides state homestead exemption law and caps the debtor’s 

homestead exemption at $125,000. To the extent a debtor’s homestead exemption was obtained through the fraudulent conversion of 

nonexempt assets (e.g., cash) during the ten-year period preceding 

the filing of the bankruptcy case, S. 256 requires such exemption 

to be reduced by the amount attributable to the debtor’s fraud. 

S. 256 also authorizes a trustee to avoid any transfer of property 

that a debtor made to a self-settled trust (of which the debtor is 

a beneficiary) within the ten-year period preceding the filing of the 

debtor’s bankruptcy case if the debtor made the transfer with actual intent to hinder, delay, or defraud a creditor of the debtor. 

Protections for Creditors—In General. S. 256 includes provisions 

intended to provide greater protections for creditors, while ensuring 

that the claims of those creditors entitled to priority treatment, 

such as spousal and child support claimants, are not adversely impacted. These include provisions: (1) ensuring that creditors receive 

proper and timely notice of important events and proceedings in a 

bankruptcy case; (2) prohibiting abusive serial filings and extending the period between successive discharges; and (3) implementing 

various provisions designed to improve the accuracy of the information contained in debtors’ schedules, statements of financial affairs. 

They also clarify that creditors holding consumer debts may participate without counsel at the section 341 meeting of creditors 

(which provides an opportunity for creditors to examine the debtor 

under oath). 

Enforcement of Family Support Obligations. S. 256 accords domestic and child support claimants a broad spectrum of special protections. The legislation creates a uniform and expanded definition 

of domestic support obligations to include debts that accrue both 

before or after a bankruptcy case is filed. It gives the highest payment priority for these debts (current law only accords them a seventh-level priority),73 with allowance for the payment of trustee administrative expenses, under certain conditions. In addition, the 

bill mandates that a debtor must be current on postpetition domestic support obligations to confirm a chapter 11, chapter 12 (family 

17 

74 Redemption is a method by which a chapter 7 debtor can retain certain types of personal 

property by paying the holder of a lien on such property the allowed amount of the holder’s secured lien. 11 U.S.C. § 722. 

farmer) or chapter 13 plan of reorganization. To facilitate the domestic support collection efforts by governmental units, the legislation creates various exceptions to automatic stay provisions of the 

Bankruptcy Code (which enjoin many forms of creditor collection 

activities). It also broadens the categories of nondischargeable family support obligations with the result that these debts will not be 

extinguished at the end of the bankruptcy process. The legislation, 

in addition, mandates that spousal and child support claimants as 

well as state child support agencies receive specified information 

and notices relevant to pending bankruptcy cases. 

Protections for Secured Creditors. S. 256’s protections for secured 

creditors include a prohibition against bifurcating a secured debt 

incurred within the 910-day period preceding the filing of a bankruptcy case if the debt is secured by a purchase money security interest in a motor vehicle acquired for the debtor’s personal use. 

Where the collateral consists of any other type of property having 

value, S. 256 prohibits bifurcation of specified secured debts if incurred during the one-year period preceding the filing of the bankruptcy case. The bill clarifies current law to specify that the value 

of a claim secured by personal property is the replacement value 

of such property without deduction for the secured creditor’s costs 

of sale or marketing. In addition, the bill terminates the automatic 

stay with respect to personal property if the debtor does not timely 

reaffirm the underlying obligation or redeem the property.74 S. 256 

also specifies that a secured claimant retains its lien in a chapter 

13 case until the underlying debt is paid or the debtor receives a 

discharge. 

Protections for Lessors. With respect to the interests of lessors, 

S. 256 requires chapter 13 debtors to remain current on their personal property leases and to provide proof of adequate insurance. 

The bill specifies that a lessor may condition assumption of a personal property lease on cure of any outstanding default and it provides that a lessor is not required to permit such assumption. The 

bill also addresses a problem faced by thousands of large and small 

residential landlords across the nation whose tenants file for bankruptcy relief solely for the purpose of staying pending eviction proceedings so that they can live ‘‘rent free.’’

Consumer Debtor Bankruptcy Protections. The bill’s consumer 

protections include provisions strengthening professionalism standards for attorneys and others who assist consumer debtors with 

their bankruptcy cases. S. 256 mandates that certain services and 

specified notices be given to consumers by professionals and others 

who provide bankruptcy assistance. To ensure compliance with 

these provisions, the bill institutes various enforcement mechanisms. 

In addition, S. 256 amends the Truth in Lending Act to require 

certain credit card solicitations, monthly billing statements, and related materials to include important disclosures and explanatory 

statements regarding introductory interest rates and minimum 

payments, among other matters. These additional disclosures are 

intended to give debtors important information to enable them to 

better manage their financial affairs. 

18 

75 Under current law, for example, a bankruptcy filing may be reported on a consumer’s credit 

report for ten years. 15 U.S.C. § 1681c (2002). 

S. 256 contains provisions to help debtors better understand 

their rights and obligations with respect to reaffirmation agreements. To enforce these protections, the bill requires the Attorney 

General to designate a United States Attorney for each judicial district and a FBI agent for each field office to have primary law enforcement responsibility regarding abusive reaffirmation practices, 

among other matters. 

The legislation also expands a debtor’s ability to exempt certain 

tax-qualified retirement accounts and pensions. It creates a new 

provision that allows a consumer debtor to exempt certain education IRAs and state tuition plans for his or her child’s postsecondary education from the claims of creditors. 

Most importantly, S. 256 requires debtors to participate in credit 

counseling programs before filing for bankruptcy relief (unless special circumstances do not permit such participation). The legislation’s credit counseling provisions are intended to give consumers 

in financial distress an opportunity to learn about the consequences 

of bankruptcy—such as the potentially devastating effect it can 

have on their credit rating 75—before they decide to file for bankruptcy relief. The bill also requires debtors, after they file for bankruptcy relief, to receive financial management training that will 

provide them with guidance about how to manage their finances, 

so that they can avoid future financial difficulties. The mandatory 

credit counseling and financial management training requirements 

do not apply if the debtor is unable to complete these requirements 

because of incapacity or disability, or because he or she is on active 

duty in a military combat zone. 

Other debtor protections include expanded notice requirements 

for consumers. Under the bill, individuals with primarily consumer 

debts must receive notice of alternatives to bankruptcy relief before 

they file for bankruptcy and it requires them to be informed of 

other matters pertaining to the integrity of the bankruptcy system. 

The legislation also permits certain filing fees and related charges 

to be waived, in appropriate cases, for individuals who lack the 

ability to pay these costs. 

Highlights of Business Bankruptcy Reforms. 

S. 256 contains a comprehensive set of reforms pertinent to business bankruptcies. They include provisions addressing the special 

problems presented by small business bankruptcies and single 

asset real estate debtors as well as provisions dealing with business bankruptcy cases in general. S. 256 establishes a new form of 

bankruptcy relief for transnational insolvencies intended to promote international comity and greater certainty. It also includes 

provisions concerning the treatment of certain financial contracts 

under the banking laws as well as under the Bankruptcy Code. S. 

256 responds to the special needs of family farmers by making 

chapter 12 of the Bankruptcy Code (a form of bankruptcy relief 

available only to eligible family farmers) permanent. For the first 

time, it also allows certain family fishermen to qualify for chapter 

12 relief. 

19 

76See generally REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, at 303–706 (Oct. 

20, 1997). 

Protections Against Excessive Payments To a Debtor’s Insiders 

and Fraud by a Debtor’s Management. S. 256 significantly restricts 

a corporate debtor’s ability to pay bonuses, severance payments, 

and other payments to insiders of the debtor after the bankruptcy 

case is filed and requires the court to approve any such payment. 

In addition, it requires the United States trustee to apply for the 

appointment of a trustee if there are reasonable grounds to suspect 

that current members of a chapter 11 debtor’s governing body, 

chief executive officer, chief financial officer, or members of the 

debtor’s governing body who selected the debtor’s chief executive officer or chief financial officer participated in actual fraud, dishonesty, or criminal conduct in the management of the debtor or the 

debtor’s public financial reporting. 

Protections for Employees. S. 256 provides heightened protections 

for employees. It requires certain back pay awards granted as a result of a debtor’s violation of Federal or state law to receive one of 

the highest payment priorities in a bankruptcy case. In addition, 

the bill streamlines the appointment of an ERISA administrator for 

an employee benefit plan, under certain circumstances, to minimize 

the disruption that results when an employer files for bankruptcy 

relief. S. 256 also increases the monetary cap on wage and employee benefit claims entitled to priority under the Bankruptcy 

Code from $4,650 to $10,000 and lengthens the reachback period 

for wage claims from 90 days to 180 days. The bill amends the 

Bankruptcy Code to facilitate the recovery of avoidable transfers 

and excessive pre- and post-petition compensation, such as bonuses, paid to insiders of a debtor. In addition, S. 256 limits the 

ability of chapter 11 debtors to unilaterally terminate retiree benefit plans on the eve of bankruptcy. 

Small Business/Single Asset Real Estate Debtors. S. 256 includes 

provisions with respect to small business and single asset real estate debtors largely derived from recommendations of the National 

Bankruptcy Review Commission.76

Most chapter 11 cases are filed by small business debtors. Although the Bankruptcy Code envisions that creditors should play 

a major role in the oversight of chapter 11 cases, this often does 

not occur with respect to small business debtors. The main reason 

is that creditors in these smaller cases do not have claims large 

enough to warrant the time and money to participate actively in 

these cases. The resulting lack of creditor oversight creates a greater need for the United States trustee to monitor these cases closely. 

Nevertheless, the monitoring of these debtors by United States 

trustees varies throughout the nation. S. 256 addresses the special 

problems presented by small business cases by instituting a variety 

of time frames and enforcement mechanisms designed to weed out 

small business debtors who are not likely to reorganize. It also requires these cases to be more actively monitored by United States 

trustees and the bankruptcy courts. 

With regard to the Bankruptcy Code’s treatment of single asset 

real estate debtors, S. 256 makes several amendments. First, it 

eliminates the monetary cap from the single asset real estate debtor definition. Second, it makes these debtors subject to the bill’s 

20 

77 In addition to the Bankruptcy Code, the bill amends the Federal Deposit Insurance Act, the 

Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal Reserve Act, and the Securities Investor Protection Act of 1971. 78The report on H.R. 4393, a bill substantially similar to title IX of S. 256 that was introduced 

in the 105th Congress, explained as follows: 

Systemic risk is the risk that the failure of a firm or disruption of a market or settlement system will cause widespread difficulties at other firms, in other market segments 

or in the financial system as a whole. If participants in certain financial activities are 

unable to enforce their rights to terminate financial contracts with an insolvent entity 

in a timely manner, or to offset or net their various contractual obligations, the resulting uncertainty and potential lack of liquidity could increase the risk of an inter-market 

disruption. 

H.R. REP. NO. 105–688, pt. 1, at 2 (1998). 79The Working Group’s members included representatives from the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Securities and Exchange Commission, and the Department of the Treasury, including the Office of the Comptroller of the Currency. Id. at 1. 80 REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, at 351–70 (Oct. 20, 1997). 

small business reforms. Third, S. 256 amends the automatic stay 

provisions by permitting a single asset real estate debtor to make 

requisite interest payments out of rents or other proceeds generated by the real property. 

Financial Contracts. S. 256 contains a series of provisions pertaining to the treatment of certain financial transactions under the 

Bankruptcy Code and relevant banking laws.77 These provisions 

are intended to reduce ‘‘systemic risk’’ in the banking system and 

financial marketplace.78 To minimize the risk of disruption when 

parties to these transactions become bankrupt or insolvent, the bill 

amends provisions of the banking and investment laws, as well as 

the Bankruptcy Code, to allow the expeditious termination or netting of certain types of financial transactions. Many of these provisions are derived from recommendations issued by the President’s 

Working Group on Financial Markets 79 and revisions espoused by 

the financial industry. 

Family Farmers and Family Fishermen. S. 256 helps small family farmers facing financial distress. While current bankruptcy law 

has a specialized form of bankruptcy relief—chapter 12—that is 

specifically designed for family farmers, its benefits for farmers are 

limited because of its restrictive eligibility requirements. S. 256 responds to this problem in several key respects: it more than doubles the debt eligibility limit and requires it to be periodically adjusted for inflation; it lowers the requisite percentage of a farmer’s 

income that must be derived from farming operations; and it gives 

farmers more flexibility with respect to how certain creditors can 

be repaid. As a result, many more deserving family farmers facing 

financial hard times will be able to avail themselves of chapter 12. 

In addition, S. 256 makes chapter 12 a permanent component of 

the bankruptcy laws and extends the benefits of this form of bankruptcy relief to family fishermen. 

Transnational Insolvencies. In response to the increasing 

globalization of business enterprises and operations, S. 256 establishes a separate chapter under the Bankruptcy Code devoted to 

transnational insolvencies. These provisions are intended to provide greater legal certainty for trade and investment as well as to 

provide for the fair and efficient administration of these cases. 

They reflect consensus recommendations of the National Bankruptcy Review Commission.80

21 

81 Id. at 793–803. 82Districts authorized additional bankruptcy judgeships under S. 256 include the following: 

Eastern District of California (one), Central District of California (three), Delaware (four), 

Southern District of Florida (two), Southern District of Georgia (one), Maryland (three), Eastern 

District of Michigan (one), Southern District of Mississippi (one), New Jersey (one), Nevada 

(one), Eastern District of New York (one), Northern District of New York (one), Southern District of New York (one), Eastern District of North Carolina (one), Eastern District of Pennsylvania (one), Middle District of Pennsylvania (one), Puerto Rico (one), South Carolina (one), 

Western District of Tennessee (one), Eastern District of Virginia (one). 

Protections for Small Business Owners. Under current bankruptcy law, a business can be sued by a bankruptcy trustee and 

forced to pay back—as a preferential transfer—monies previously 

paid to it by a firm that later files for bankruptcy protection. S. 256 

contains provisions making it easier—particularly for small businesses—to defend against these suits. These provisions largely reflect recommendations of the National Bankruptcy Review Commission.81

Health Care Providers. S. 256 adds a provision to the Bankruptcy 

Code intended to give patients of bankrupt health care providers 

various protections. These include provisions specifying requirements for the disposal of patient records so that a patient’s privacy 

and the confidentiality of such records when they are in the custody of a health care business in bankruptcy are protected. In addition, the bill includes a provision according administrative expense 

priority to the actual, necessary costs and expenses of closing a 

health care business (including the disposal of patient records or 

transferral of patients) incurred by a trustee, Federal agency, or a 

department or state agency. If warranted, it also authorizes the 

court to order the appointment of an ombudsman to monitor the 

quality of patient care and to represent the interests of the patients. Other provisions include the requirement that a bankruptcy 

trustee use all reasonable and best efforts to transfer patients from 

a health care business that is being closed to an appropriate alternative facility that meets certain specified criteria. 

Other Provisions Having General Impact. 

Privacy Protections. Under current law, nearly every item of information filed in a bankruptcy case is made available to the public. S. 256 restricts public access to certain personal information 

pertaining to an individual contained a bankruptcy case file to the 

extent the court finds that disclosure of such information would 

create undue risk of identity theft or other unlawful injury to the 

individual or the individual’s property. In addition, the bill prohibits the disclosure of the names of the debtor’s minor children 

and requires such information to be kept in a nonpublic record, 

which can be made available for inspection only by the court and 

certain other designated entities. Further, S. 256 prohibits the sale 

of customers’ personally identifiable information by a business 

debtor unless certain conditions are satisfied. 

Additional Bankruptcy Judgeships. S. 256 authorizes 28 additional bankruptcy judgeships on a temporary basis and extends 

three currently existing temporary judgeships.82 This provision responds to the 59 percent increase in the caseload of bankruptcy 

22 

83Press Release, Administrative Office of the U.S. Courts, Record Breaking Bankruptcy Filings Reported in Calendar Year 2002 (Feb. 14, 2003) (noting that ‘‘no new bankruptcy judgeships have been created since 1992’’). 

judges since 1992, reported by the Administrative Office of the 

United States Courts.83

Miscellaneous Provisions. Under current law, an appeal from a 

bankruptcy court decision must be heard by a Federal district court 

or bankruptcy appellate panel before it may be heard by a Federal 

court of appeals. S. 256 authorizes a direct appeal from a bankruptcy court decision to the court of appeals, under certain circumstances. Other general provisions include allowing attorneys to 

share compensation with bona fide public service attorney referral 

programs, and mandating that a bankruptcy court conduct scheduling conferences in a bankruptcy case if necessary to further its 

expeditious and economical resolution. In addition, the bill requires 

the United States Trustee Program to compile various statistics regarding chapter 7, 11 and 13 cases and to make these data available to the public. S. 256 also permits a court to seal all public 

records pertaining to a fraudulent involuntary bankruptcy petition, 

under certain circumstances, and to prohibit a consumer reporting 

agency from issuing a consumer report containing any reference to 

such petition. 

HEARINGS

The Committee on the Judiciary held no hearings on S. 256. 

COMMITTEE CONSIDERATION

On March 16, 2005, the Committee met in open session and ordered favorably reported the bill S. 256 without an amendment by 

a recorded vote of 22 to 13, a quorum being present. 

VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the Committee notes that the following 

roll call votes occurred during the Committee’s consideration of S. 

256. 

1. An amendment by Mr. Conyers disallowing: (a) claims resulting from an assignment of a debtor’s right to receive military pay, 

or military pension or disability benefits; (b) certain claims owed by 

a servicemember or a dependent of a servicemember that are either 

secured or conditioned upon a personal check held for future deposit or electronic access to a bank account; or (3) claims owed by 

a servicemember or dependent of a servicemember requiring the 

payment of interest and other charges in excess of 36 percent. The 

amendment also allows the discharge of certain debts based on the 

debtor’s right to receive military pay, or military pension or disability benefits. Defeated 15 to 20. 

ROLLCALL NO. 1 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

23 

ROLLCALL NO. 1—Continued 

Ayes Nays Present 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ........................................................................................................... X 

Mr. Hostettler .................................................................................................... X 

Mr. Green ..........................................................................................................

Mr. Keller ........................................................................................................... X 

Mr. Issa ............................................................................................................. X 

Mr. Flake ........................................................................................................... X 

Mr. Pence .......................................................................................................... X 

Mr. Forbes ......................................................................................................... X 

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

Mr. Berman ....................................................................................................... X 

Mr. Boucher .......................................................................................................

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren ....................................................................................................... X 

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................ X 

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler .........................................................................................................

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ...................................................................................................... X 

Mr. Smith .......................................................................................................... X 

Mr. Van Hollen .................................................................................................. X 

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 15 20 

2. An amendment by Mr. Watt and Mr. Delahunt disallowing a 

claim for a debt based on an extension of credit on which the annual rate of interest in excess of 50 percent was imposed or in excess of a limit on allowable interest under applicable nonbankruptcy law. Defeated 9 to 15. 

ROLLCALL NO. 2 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................

Mr. Inglis ...........................................................................................................

Mr. Hostettler .................................................................................................... X 

Mr. Green .......................................................................................................... X 

24 

ROLLCALL NO. 2—Continued 

Ayes Nays Present 

Mr. Keller ...........................................................................................................

Mr. Issa ............................................................................................................. X 

Mr. Flake ...........................................................................................................

Mr. Pence ..........................................................................................................

Mr. Forbes .........................................................................................................

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

Mr. Berman .......................................................................................................

Mr. Boucher .......................................................................................................

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler .........................................................................................................

Mr. Weiner .........................................................................................................

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ...................................................................................................... X 

Mr. Smith (Washington) ....................................................................................

Mr. Van Hollen ..................................................................................................

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 9 15 

3. An amendment by Mr. Watt amending section 102 of the bill 

to permit a debtor to claim as an expense, in addition to elementary and secondary school educational expenses, the actual tuition 

costs per each child (exclusive of room and board) to attend a postsecondary education institution, and certain other educational programs. Defeated 10 to 17. 

ROLLCALL NO. 3 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) .............................................................................................

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ...........................................................................................................

Mr. Hostettler .................................................................................................... X 

Mr. Green .......................................................................................................... X 

Mr. Keller ........................................................................................................... X 

Mr. Issa ............................................................................................................. X 

Mr. Flake ...........................................................................................................

Mr. Pence ..........................................................................................................

Mr. Forbes .........................................................................................................

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

25 

ROLLCALL NO. 3—Continued 

Ayes Nays Present 

Mr. Conyers ....................................................................................................... X 

Mr. Berman .......................................................................................................

Mr. Boucher ....................................................................................................... X 

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler .........................................................................................................

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ...................................................................................................... X 

Mr. Smith (Washington) ....................................................................................

Mr. Van Hollen ..................................................................................................

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 10 17 

4. An amendment by Mr. Nadler amending sections 404, 411, 

417, 436, 437, and 438 of the bill to permit the court, under specified circumstances, to extend certain time periods specified therein. 

Defeated 13 to 18. 

ROLLCALL NO. 4 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ........................................................................................................... X 

Mr. Hostettler .................................................................................................... X 

Mr. Green .......................................................................................................... X 

Mr. Keller ........................................................................................................... X 

Mr. Issa ............................................................................................................. X 

Mr. Flake ...........................................................................................................

Mr. Pence ..........................................................................................................

Mr. Forbes .........................................................................................................

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

Mr. Berman ....................................................................................................... X 

Mr. Boucher .......................................................................................................

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................

Ms. Waters ........................................................................................................ X 

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler ......................................................................................................... X 

26 

ROLLCALL NO. 4—Continued 

Ayes Nays Present 

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ...................................................................................................... X 

Mr. Smith (Washington) .................................................................................... X 

Mr. Van Hollen ..................................................................................................

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 13 18 

5. An amendment by Mr. Schiff amending section 102 of the bill 

to prohibit a judge, United States trustee, trustee, or other party 

in interest from dismissing a chapter 7 case on the basis of the 

debtor’s ability to repay if the debtor is an identity theft victim, 

under certain circumstances. Defeated 13 to 15. 

ROLLCALL NO. 5 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ........................................................................................................... X 

Mr. Hostettler ....................................................................................................

Mr. Green .......................................................................................................... X 

Mr. Keller ...........................................................................................................

Mr. Issa .............................................................................................................

Mr. Flake ...........................................................................................................

Mr. Pence ..........................................................................................................

Mr. Forbes .........................................................................................................

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

Mr. Berman ....................................................................................................... X 

Mr. Boucher .......................................................................................................

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................

Ms. Waters ........................................................................................................ X 

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler .........................................................................................................

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ...................................................................................................... X 

Mr. Smith (Washington) .................................................................................... X 

Mr. Van Hollen .................................................................................................. X 

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 13 15 

27 

6. An amendment by Mr. Delahunt amending Bankruptcy Code 

section 548 to authorize a trustee to avoid a transfer of an interest 

of a debtor made within the ten-year period preceding the bankruptcy filing to an asset protection trust if the amount of the transfer or aggregate amount of all transfers during such period exceeds 

$125,000, with certain exceptions. Defeated 10 to 15. 

ROLLCALL NO. 6 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) .............................................................................................

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................

Mr. Inglis ...........................................................................................................

Mr. Hostettler .................................................................................................... X 

Mr. Green ..........................................................................................................

Mr. Keller ........................................................................................................... X 

Mr. Issa .............................................................................................................

Mr. Flake ........................................................................................................... X 

Mr. Pence ..........................................................................................................

Mr. Forbes ......................................................................................................... X 

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ......................................................................................................

Mr. Conyers ....................................................................................................... X 

Mr. Berman ....................................................................................................... X 

Mr. Boucher ....................................................................................................... X 

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................ X 

Mr. Meehan .......................................................................................................

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler .........................................................................................................

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ......................................................................................................

Mr. Smith (Washington) ....................................................................................

Mr. Van Hollen ..................................................................................................

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 10 15 

7. An amendment by Mr. Berman and Mr. Meehan amending 

Bankruptcy Code section 522 to create a uniform Federal homestead exemption floor in the amount of $150,000 for a medically 

distressed debtor. Defeated 13 to 18. 

ROLLCALL NO. 7 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) .............................................................................................

28 

ROLLCALL NO. 7—Continued 

Ayes Nays Present 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

Mr. Chabot ........................................................................................................

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ........................................................................................................... X 

Mr. Hostettler .................................................................................................... X 

Mr. Green .......................................................................................................... X 

Mr. Keller ........................................................................................................... X 

Mr. Issa ............................................................................................................. X 

Mr. Flake ........................................................................................................... X 

Mr. Pence ..........................................................................................................

Mr. Forbes ......................................................................................................... X 

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ......................................................................................................

Mr. Conyers ....................................................................................................... X 

Mr. Berman ....................................................................................................... X 

Mr. Boucher ....................................................................................................... X 

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................ X 

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler ......................................................................................................... X 

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ......................................................................................................

Mr. Smith (Washington) ....................................................................................

Mr. Van Hollen .................................................................................................. X 

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 13 18 

8. An amendment by Mr. Nadler amending Bankruptcy Code 

section 523(a) to provide that a debt that results from any judgment, order, consent order, or decree entered in any Federal or 

state court or contained in any settlement agreement entered into 

by the debtor that arises from: (a) the violation of certain specified 

offenses under title 18 of the United States Code; (b) an offense 

under state law that would be a civil rights crime (as described in 

the preceding clause); (c) a violation under 42 U.S.C. § 1983; or (d) 

the intentional actions of a debtor that violate a valid court order 

enforcing a civil rights law described in (a) or (b). It also amends 

Bankruptcy Code section 523(a)(13) to include an order of restitution under the criminal law of a state. Defeated 11 to 17. 

ROLLCALL NO. 8 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

29 

ROLLCALL NO. 8—Continued 

Ayes Nays Present 

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ...........................................................................................................

Mr. Hostettler .................................................................................................... X 

Mr. Green .......................................................................................................... X 

Mr. Keller ...........................................................................................................

Mr. Issa .............................................................................................................

Mr. Flake ...........................................................................................................

Mr. Pence ..........................................................................................................

Mr. Forbes ......................................................................................................... X 

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

Mr. Berman ....................................................................................................... X 

Mr. Boucher ....................................................................................................... X 

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................

Ms. Waters ........................................................................................................ X 

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler ......................................................................................................... X 

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ......................................................................................................

Mr. Smith (Washington) ....................................................................................

Mr. Van Hollen ..................................................................................................

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 11 17 

9. An amendment by Mr. Meehan amending section 102 of the 

bill to provide that the needs-based requirements under Bankruptcy Code section 707(b)(2)(A) through (C) (as amended by section 102) shall not apply to, and the court may not dismiss or convert a chapter 7 case filed by, a debtor who is a disabled veteran 

based on any form of means testing, under certain specified circumstances. Defeated 12 to 19. 

ROLLCALL NO. 9 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte ....................................................................................................

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ........................................................................................................... X 

Mr. Hostettler .................................................................................................... X 

Mr. Green ..........................................................................................................

30 

ROLLCALL NO. 9—Continued 

Ayes Nays Present 

Mr. Keller ........................................................................................................... X 

Mr. Issa ............................................................................................................. X 

Mr. Flake ...........................................................................................................

Mr. Pence ..........................................................................................................

Mr. Forbes ......................................................................................................... X 

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

Mr. Berman ....................................................................................................... X 

Mr. Boucher ....................................................................................................... X 

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................ X 

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt .....................................................................................................

Mr. Wexler .........................................................................................................

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ...................................................................................................... X 

Mr. Smith (Washington) ....................................................................................

Mr. Van Hollen .................................................................................................. X 

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 12 19 

10. An amendment by Ms. Jackson Lee amending section 102 of 

the bill to increase the amount of actual expenses a chapter 7 debtor may claim under the provision’s needs-based test for certain 

educational costs for a debtor’s dependent child from $1,500 to $3,000. Defeated 12 to 21. 

ROLLCALL NO. 10 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte .................................................................................................... X 

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ........................................................................................................... X 

Mr. Hostettler ....................................................................................................

Mr. Green .......................................................................................................... X 

Mr. Keller ........................................................................................................... X 

Mr. Issa ............................................................................................................. X 

Mr. Flake ...........................................................................................................

Mr. Pence .......................................................................................................... X 

Mr. Forbes ......................................................................................................... X 

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

31 

ROLLCALL NO. 10—Continued 

Ayes Nays Present 

Mr. Berman ....................................................................................................... X 

Mr. Boucher ....................................................................................................... X 

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................ X 

Mr. Meehan .......................................................................................................

Mr. Delahunt .....................................................................................................

Mr. Wexler .........................................................................................................

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ...................................................................................................... X 

Mr. Smith (Was1hington) .................................................................................. X 

Mr. Van Hollen .................................................................................................. X 

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 12 21 

11. Three en bloc amendments by Ms. Jackson Lee as follows: (a) 

amending Bankruptcy Code section 523(a) to provide that a debt 

arising from certain sex offenses in which the victim was an individual who had not attained the age of 17 years is nondischargeable; (b) amending Bankruptcy Code section 523(a) to provide that 

a debt arising from a judicial, administrative, or other action related to the consumption or consumer purchase of a tobacco product that is based in whole or in part on false pretenses, a false representation, or actual fraud is nondischargeable; and (c) amending 

section 708 of the bill to provide that the confirmation of a chapter 

11 plan under Bankruptcy Code section 1141 does not discharge a 

debtor that is corporation from a debt specified in Bankruptcy Code 

section 523(a)(9). Defeated 9 to 20. 

ROLLCALL NO. 11 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte .................................................................................................... X 

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ........................................................................................................... X 

Mr. Hostettler ....................................................................................................

Mr. Green ..........................................................................................................

Mr. Keller ........................................................................................................... X 

Mr. Issa ............................................................................................................. X 

Mr. Flake ...........................................................................................................

Mr. Pence .......................................................................................................... X 

Mr. Forbes ......................................................................................................... X 

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

32 

ROLLCALL NO. 11—Continued 

Ayes Nays Present 

Mr. Berman ....................................................................................................... X 

Mr. Boucher ....................................................................................................... X 

Mr. Nadler .........................................................................................................

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................ X 

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt .....................................................................................................

Mr. Wexler .........................................................................................................

Mr. Weiner ......................................................................................................... X 

Mr. Schiff ..........................................................................................................

Ms. Sa ́nchez ......................................................................................................

Mr. Smith (Washington) ....................................................................................

Mr. Van Hollen .................................................................................................. X 

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 9 20 

12. Motion to report S. 256 favorably. Passed 22 to 13. 

ROLLCALL NO. 12 

Ayes Nays Present 

Mr. Hyde ............................................................................................................

Mr. Coble ........................................................................................................... X 

Mr. Smith (Texas) ............................................................................................. X 

Mr. Gallegly ....................................................................................................... X 

Mr. Goodlatte .................................................................................................... X 

Mr. Chabot ........................................................................................................ X 

Mr. Lungren ....................................................................................................... X 

Mr. Jenkins ........................................................................................................ X 

Mr. Cannon ....................................................................................................... X 

Mr. Bachus ........................................................................................................ X 

Mr. Inglis ........................................................................................................... X 

Mr. Hostettler ....................................................................................................

Mr. Green .......................................................................................................... X 

Mr. Keller ........................................................................................................... X 

Mr. Issa ............................................................................................................. X 

Mr. Flake ........................................................................................................... X 

Mr. Pence .......................................................................................................... X 

Mr. Forbes ......................................................................................................... X 

Mr. King ............................................................................................................ X 

Mr. Feeney ......................................................................................................... X 

Mr. Franks ......................................................................................................... X 

Mr. Gohmert ...................................................................................................... X 

Mr. Conyers ....................................................................................................... X 

Mr. Berman ....................................................................................................... X 

Mr. Boucher ....................................................................................................... X 

Mr. Nadler ......................................................................................................... X 

Mr. Scott ........................................................................................................... X 

Mr. Watt ............................................................................................................ X 

Ms. Lofgren .......................................................................................................

Ms. Jackson Lee ................................................................................................ X 

Ms. Waters ........................................................................................................ X 

Mr. Meehan ....................................................................................................... X 

Mr. Delahunt ..................................................................................................... X 

Mr. Wexler .........................................................................................................

Mr. Weiner ......................................................................................................... X 

Mr. Schiff .......................................................................................................... X 

Ms. Sa ́nchez ...................................................................................................... X 

Mr. Smith (Washington) ....................................................................................

33 

ROLLCALL NO. 12—Continued 

Ayes Nays Present 

Mr. Van Hollen .................................................................................................. X 

Mr. Sensenbrenner, Chairman .......................................................................... X 

Total ................................................................................................ 22 13 

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of Rule XIII of the Rules of the 

House of Representatives, the Committee reports that the findings 

and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of Rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report. 

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

In compliance with clause 3(c)(2) of Rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of budget authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 3(c)(3) of Rule XIII of the Rules of the 

House of Representatives, the Committee sets forth, with respect to 

the bill, S. 256, the following estimate and comparison prepared by 

the Director of the Congressional Budget Office under section 402 

of the Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, April 4, 2005. 

Hon. F. JAMES SENSENBRENNER, Jr., Chairman, 

Committee on the Judiciary, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 256, the ‘‘Bankruptcy Abuse 

Prevention and Consumer Protection Act of 2005,’’ as reported by 

the House Committee on the Judiciary. This version of S. 256 is 

identical to the legislation as passed by the Senate on March 10, 

2005. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contacts are Gregory Waring (for 

Federal spending), who can be reached at 226–2860, Annabelle 

Bartsch (for Federal revenues), who can be reached at 226–2720, 

Melissa Merrell (for the State and local impact), who can be 

reached at 225–3220, and Paige Piper/Bach (for the private-sector 

impact), who can be reached at 226–2940. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN. 

Enclosure 

34 

cc: Honorable John Conyers, Jr. 

Ranking Member 

S. 256—Bankruptcy Abuse Prevention and Consumer Protection Act 

of 2005. 

SUMMARY

CBO estimates that implementing S. 256 would result in gross 

discretionary costs of $392 million over the 2006–2010 period, primarily to pay for increased responsibilities of the United States 

Trustees (U.S. Trustees), assuming appropriation of the necessary 

amounts. At the same time, the act would increase the fees charged 

for filing certain bankruptcy cases and would change how some of 

these fees are currently recorded in the budget during the first 5 

years after enactment. We estimate that implementing the act 

would increase the amount of bankruptcy fees that are treated as 

an offset to appropriations by $75 million over the 5-year period, 

resulting in an estimated net increase in discretionary spending of 

approximately $318 million over this period. 

In addition, CBO estimates that enacting S. 256 would increase 

revenues by about $60 million over the 2006–2010 period and by 

about $140 million over the 2006–2015 period primarily because of 

provisions that temporarily amend the Treasury’s allocation of filing fees. Finally, enactment of S. 256 would authorize additional 

judgeships, and we estimate that the mandatory pay and benefits 

for those positions would cost $26 million over the next 5 years and 

$45 million over the 2006–2015 period. 

On balance and assuming appropriation of the necessary 

amounts to implement the act, CBO estimates that its enactment 

would increase budget deficits by about $280 million over the 

2006–2010 period. 

S. 256 contains two intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA), but CBO estimates 

that the costs would be insignificant and would not exceed the 

threshold established in UMRA ($62 million in 2005, adjusted annually for inflation). Overall, CBO expects that enacting this bill 

would benefit State and local governments by enhancing their ability to collect outstanding obligations in bankruptcy cases. 

S. 256 would impose private-sector mandates, as defined in 

UMRA, on bankruptcy attorneys, creditors, bankruptcy petition 

preparers, debt-relief agencies, consumer reporting agencies, and 

credit and charge-card companies. CBO estimates that the direct 

costs of those mandates would exceed the annual threshold established by UMRA ($123 million in 2005, adjusted annually for inflation). 

MAJOR PROVISIONS

In addition to establishing means-testing for determining eligibility for chapter 7 bankruptcy relief, S. 256 would: 

• Require the Executive Office for the U.S. Trustees to establish a test program to educate debtors on financial management; 

• Authorize 28 new temporary judgeships and extend four existing judgeships; 

35 

• Permit courts to waive chapter 7 filing fees and other fees 

for debtors who could not pay such fees in installments; 

• Require that at least one of every 250 bankruptcy cases 

under chapter 13 or chapter 7 be audited by an independent 

certified public accountant; 

• Require the Administrative Office of the United States 

Courts (AOUSC) to receive and maintain tax returns for certain chapter 7 and chapter 13 debtors; 

• Require the AOUSC and the U.S. Trustees to collect and 

publish certain statistics on bankruptcy cases; and 

• Increase chapter 7 and chapter 11 bankruptcy filing fees, decrease chapter 13 filing fees, and change the budgetary 

treatment of such fees over a specified period of time. 

Other provisions would make various changes affecting the bankruptcy provisions for municipalities and the treatment of tax liabilities in bankruptcy cases. 

ESTIMATED COST TO THE FEDERAL GOVERNMENT

As shown in Table 1, CBO estimates that implementing S. 256 

would result in a net increase in discretionary spending of about 

$318 million over the 2006–2010 period, subject to future appropriation actions. In addition, we estimate that mandatory spending 

for the salaries and benefits of bankruptcy judges would increase 

by less than $100,000 in 2005 and by $26 million over the 2006–

2010 period. Enacting the legislation’s provisions for adjusting filing fees would increase revenues by about $60 million over the 

next 5 years. The costs of this legislation fall within budget function 750 (administration of justice). 

36 

TABLE 1. ESTIMATED BUDGETARY EFFECTS OF S. 256 

By Fiscal Year, in Millions of Dollars 

2005 2006 2007 2008 2009 2010 

CHANGES IN SPENDING SUBJECT TO APPROPRIATION 

Means-Testing (Section 102) 

Estimated Authorization Level 0 16 24 39 39 36 

Estimated Outlays 0 14 23 39 39 36 

Studies by U.S. Trustees, GAO, and SBA (Sections 103, 230, and 443) 

Estimated Authorization Level 0 1 * 0 0 0 

Estimated Outlays 0 1 * 0 0 0 

Debtor Financial Management Training (Section 105) 

Estimated Authorization Level 0 3 1 0 0 0 

Estimated Outlays 0 2 1 * 0 0 

Credit Counseling Certification (Section 106) 

Estimated Authorization Level 0 4 7 8 8 7 

Estimated Outlays 0 4 6 8 8 7 

Maintenance of Tax Returns (Section 315) 

Estimated Authorization Level 0 2 2 2 2 2 

Estimated Outlays 0 2 2 2 2 2 

Changes in Bankruptcy Filing Fees (Sections 325 and 418) 

Estimated Authorization Level 0 –46 –49 6 7 7 

Estimated Outlays 0 –46 –49 6 7 7 

U.S. Trustee Site Visits (Section 439) 

Estimated Authorization Level 0 3 3 3 3 3 

Estimated Outlays 0 3 3 3 3 3 

Compiling and Publishing Data (Sections 601–602) 

Estimated Authorization Level 0 1 7 8 8 8 

Estimated Outlays 0 1 7 8 8 8 

Audit Procedures (Section 603) 

Estimated Authorization Level 0 0 16 17 17 16 

Estimated Outlays 0 0 16 17 17 16 

Additional Judgeships—Support Costs (Section 1223) 

Estimated Authorization Level * 8 17 17 18 18 

Estimated Outlays * 7 16 17 18 18 

FTC Toll-Free Hotline (Section 1301) 

Estimated Authorization Level 0 2 1 1 1 1 

Estimated Outlays 0 2 1 1 1 1 

Total Discretionary Changes 

Estimated Authorization Level * –6 29 101 103 98 

Estimated Outlays * –10 26 101 103 98 

CHANGES IN DIRECT SPENDING 

Additional Judgeships (Section 1223) 

Estimated Budget Authority * 3 6 6 6 6 

Estimated Outlays * 3 5 6 6 6 

CHANGES IN REVENUES 

Changes in Revenue from Filing Fees 

Estimated Revenues 0 –6 –12 30 24 24 

NOTES: GAO = Government Accountability Office; SBA = Small Business Administration; FTC = Federal Trade Commission. 

* = less than $500,000. 

BASIS OF ESTIMATE

For this estimate, CBO assumes that S. 256 will be enacted by 

July 2005 and that the amounts necessary to implement the act 

will be appropriated for each fiscal year. Many of the act’s new provisions would be effective 180 days after enactment. However, a 

37 

few provisions would be effective 18 months after enactment. CBO 

assumes those provisions would take effect in fiscal year 2007. 

Spending Subject to Appropriation 

Most of the estimated increases in discretionary spending under 

S. 256 would be required to fund the additional workload that 

would be imposed on the U.S. Trustees. Those increases would be 

partially offset for fiscal years 2006 and 2007 by changes in bankruptcy filing fees that would be recorded as offsetting collections 

under the act. CBO estimates that implementing S. 256 would result in a net increase in discretionary costs of about $318 million 

over the 2006–2010 period, with most of the increase falling after 

2007. 

Means-Testing (Section 102). This section would establish a 

system of means-testing for determining a debtor’s eligibility for relief under chapter 7. Under the proposed means test, if the amount 

of debtor income remaining after certain expenses and other specified amounts are deducted from the debtor’s current monthly income exceeds the threshold specified in section 102, then the debtor 

would be presumed ineligible for chapter 7 relief. A debtor who 

could not demonstrate ‘‘special circumstances,’’ which would cause 

the expected disposable income to fall below the threshold, could 

file under other chapters of the bankruptcy code. 

Although the private trustees would be responsible for conducting the initial review of a debtor’s income and expenses and filing the majority of motions for dismissal or conversion, CBO expects that the workload of the U.S. Trustees would increase under 

the means-testing provision. The U. S. Trustees would provide increased oversight of the work performed by the private trustees, 

file additional motions for dismissal or conversion, and take part in 

additional litigation that is expected to occur as the courts and 

debtors debate allowable expenses and other related issues. Although CBO cannot predict the amount of such litigation, we expect that, during the first few years following enactment of the act, 

the amount of litigation could be significant as parties test the new 

law’s standards. In subsequent years, litigation could begin to subside as precedents are established. Based on information from the 

U.S. Trustees, CBO estimates that the U.S. Trustees would require 

200 additional attorneys, paralegals, and analysts to address the 

increased workload. As a result, CBO estimates that implementing 

this provision would cost about $150 million over the 2006–2010 

period, assuming appropriation of the necessary funds. 

Studies by the U.S. Trustees, Government Accountability 

Office (GAO), and Small Business Administration (SBA) 

(Sections 103, 205, 230, and 443). Section 103 would require the 

U.S. Trustees to conduct a study regarding the use of Internal Revenue Service expense standards for determining a debtor’s current 

monthly expenses and the impact of those standards on debtors 

and bankruptcy courts. Section 230 would require GAO to conduct 

a study regarding the feasibility of requiring trustees to provide the 

Office of Child Support Enforcement information about outstanding 

child support obligations of debtors. Section 205 would require 

GAO to conduct a study on the treatment of consumers by creditors 

with respect to reaffirmation agreements. Section 443 would require the Administrator of SBA, in consultation with the Attorney 

38 

General, the U.S. Trustees, and the AOUSC, to conduct a study on 

small business bankruptcy issues. Based on information from the 

U.S. Trustees, GAO, and SBA, CBO estimates that completing the 

necessary studies would cost about $1 million in 2006 and less 

than $500,000 in 2007, subject to the availability of appropriated 

funds. 

Debtor Financial Management Test Training Program 

(Section 105). This section would require the U.S. Trustees to establish a test training program to educate debtors on financial 

management. The test training program would be authorized for 

six judicial districts over an 18-month period. Based on information 

from the U.S. Trustees, CBO estimates that about 90,000 debtors 

would participate if such a program were administered by the U.S. 

Trustees in fiscal years 2006 and 2007. At a projected cost of about 

$40 per debtor, CBO estimates that implementing this provision 

would cost nearly $4 million over the 2006–2007 period. 

Credit Counseling Certification (Section 106). This section 

would require the U.S. Trustees to certify, on an annual basis, that 

certain credit counseling services could provide adequate services 

to potential debtors. Based on information from the U.S. Trustees, 

CBO estimates that the U.S. Trustees would require additional attorneys and analysts to handle the greater workload associated 

with certification. CBO estimates that implementing this provision 

would cost $33 million over the 2006–2010 period. 

Maintenance of Tax Returns (Section 315). This section 

would authorize the AOUSC to receive and retain debtors’ tax returns for the year prior to the commencement of the bankruptcy for 

chapter 7 and chapter 13 filings. Such collection and storage of tax 

returns would commence only at the request of a creditor. Based 

on information from the AOUSC, CBO expects that creditors will 

request tax information in about 25 percent of such cases. CBO estimates that implementing section 315 would cost $10 million over 

the 2006–2010 period to store and provide access to about two million tax returns. 

Changes in Bankruptcy Filing Fees (Sections 325 and 418). 

Section 325 would increase chapter 7 and chapter 11 bankruptcy 

filing fees, decrease the chapter 13 filing fee, and change the distribution of such fees during the first 5 years after enactment. Considering the expected reduction in the use of chapter 7 because of 

means-testing and a provision in section 418 that would allow fee 

waivers, CBO estimates that implementing the new fee structure 

and changes in fee classifications would result in a net increase in 

offsetting collections totaling $75 million over the 2006–2010 period. 

Current Law Filing Fees. Under current law, the filing fee for 

chapter 7 and chapter 13 is $155 and is divided between the U.S. 

Trustee System Fund (recorded as an offsetting collection), the 

AOUSC (recorded as an offsetting receipt), the private trustee assigned to the case, and the remainder is recorded as a governmental receipt (i.e., revenue). The filing fee for chapter 11 relief is 

currently set at $800 and is divided between the U.S. Trustee System Fund and the AOUSC, and the remainder is also recorded as 

a governmental receipt. Section 325 would change the filing fees for 

chapters 7, 13, and 11 to $200, $1,000, and $150, respectively. 

39 

Distribution of Filing Fees. During the first 2 years after enactment, the S. 256 would allow the U.S. Trustee System Fund to retain (as an offset to appropriations) a larger portion of the currentlaw chapter 7, 13, and 11 filing fees. At the same time, the act 

would temporarily reduce for 2 years the percentage of current-law 

filing fees allocated to the AOUSC, and, because current law sets 

the private trustee’s portion of the filing fee at a flat amount ($45), 

no portion of the current-law filing fees would be recorded as governmental receipts during fiscal years 2006 and 2007. After 2 

years, the distribution of the filing fees under S. 256 would revert 

to the distribution formula in current law. 

Under S. 256, the general fund of the Treasury would receive any 

increase in bankruptcy filing fees due to enactment of the legislation over the 2006–2010 period. Beginning in 2011, the full amount 

of the proposed fees would be allocated according to the formula 

specified in current law. Of the $200 fee for chapter 7 filers, about 

$55 would be recorded as an offsetting collection to the appropriation for the U.S. Trustees System Fund, and almost $68 would be 

recorded as an offsetting receipt and spent without further appropriation by the AOUSC. The private trustee assigned to the case 

would receive $45 and the remainder of the fee would be recorded 

as a governmental receipt. Of the $150 fee for a chapter 13 case, 

the U.S. Trustee System Fund would receive about $41, and the 

AOUSC would receive almost $51 per case to spend without further 

appropriation. Finally, of the $1,000 fee per chapter 11 case, the 

U.S. Trustee System Fund would receive $500, the AOUSC would 

receive $250, and the remainder of the fee would be recorded as a 

governmental receipt. 

Fee Waivers. Section 418 would permit a bankruptcy court or district court to waive the chapter 7 filing fee and other fees for a 

debtor who is unable to pay such fees in installments. Based on information from the AOUSC, CBO expects that, in fiscal year 2006, 

chapter 7 filing fees would be waived for about 3.5 percent of all 

chapter 7 filers and that the percentage waived would gradually increase to about 10 percent by fiscal year 2009. 

U.S. Trustee Site Visits in Chapter 11 Cases (Section 439). 

This section would expand the responsibilities of the U.S. Trustees 

in small business bankruptcy cases to include site visits to inspect 

the debtor’s premises, review records, and verify that the debtor 

has filed tax returns. Based on information from the U.S. Trustees, 

CBO estimates that implementing section 439 would require about 

20 additional analysts to conduct over 2,300 site visits each year. 

CBO estimates that implementing this provision would cost about 

$15 million over the 2006–2010 period for the salaries, benefits, 

and travel expenses associated with those additional personnel. 

Compilation and Publication of Bankruptcy Data and Statistics (Sections 601–602). Beginning 18 months after enactment, 

the act would require the AOUSC to collect data on chapter 7, 

chapter 11, and chapter 13 cases and the U.S. Trustees to make 

such information available to the public. CBO estimates that it 

would cost about $32 million over the 2006–2010 period to meet 

these requirements. Of the total estimated cost, about $25 million 

would be required for additional legal clerks, analysts, and data 

base support. The remainder would be incurred by the U.S. TrustVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00043 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
40 

ees for compiling data and providing Internet access to records pertaining to bankruptcy cases. 

Audit Procedures (Section 603). Beginning 18 months after 

enactment, S. 256 would require that at least one out of every 250 

bankruptcy cases under chapter 7 and chapter 13, plus other selected cases under those chapters, be audited by an independent 

certified public accountant. Based on information from the U.S. 

Trustees, CBO estimates that less than 1 percent of about 1.6 million cases a year would be subject to potential audits. Each audit 

would cost roughly $1,000 (in 2005 dollars). CBO also expects that 

the U.S. Trustees would need about 10 additional analysts and attorneys to support the follow-up work associated with the audits. 

We estimate that implementing this provision would cost $66 million over the 2006–2010 period. 

Additional Judgeships—Support Costs (Section 1223). This 

provision would extend four temporary bankruptcy judgeships and 

authorize 28 new temporary bankruptcy judgeships. Based on information from the AOUSC, CBO assumes that about half of the 

28 new positions would be filled by the beginning of fiscal year 

2006 and the rest would be filled by the start of fiscal year 2007. 

Also, we anticipate that all four temporary judgeships would be 

filled by fiscal year 2007. We expect that discretionary expenditures for support costs associated with each judgeship would average about $500,000 annually (in 2005 dollars). CBO estimates that 

the administrative support of additional bankruptcy judges would 

cost less than $200,000 in fiscal year 2005 and $76 million over the 

2006–2010 period. (Salaries and benefits for the judges are classified as mandatory spending, and those costs are described below.) 

Federal Trade Commission Toll-Free Hotline (Section 

1301). This section would require the Federal Trade Commission 

(FTC) to operate a toll-free number for consumers to calculate how 

long it would take to pay off a credit card debt if they were to make 

only the minimum monthly payments. Based on information from 

the FTC about the demand for similar services, CBO expects that 

the FTC would receive about 20,000 calls each month. CBO estimates that the equipment and personnel necessary to serve this 

volume of inquires would cost $2 million in 2006 and $6 million 

over the 2006–2010 period, subject to appropriation of the necessary amounts. 

Direct Spending and Revenues 

By adding additional judgeships and changing the budgetary 

classification of bankruptcy filing fees, CBO estimates that enacting S. 256 would increase direct spending by about $45 million over 

the 2006–2015 period and increase revenues by approximately $140 

million over the 2006–2015 period as shown in Table 2. 

41 

TABLE 2. ESTIMATED CHANGES IN DIRECT SPENDING AND REVENUES UNDER S. 256 

By Fiscal Year, in Millions of Dollars 

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

CHANGES IN DIRECT SPENDING 

Additional Judgeships (Section 1223) 

Estimated Budget Authority * 3 6 6 6 6 6 5 3 3 2 

Estimated Outlays * 3 5 6 6 6 6 5 3 3 2 

CHANGES IN REVENUES 

Changes in Revenue from Filing Fees 

Estimated Revenues 0 –6 –12 30 24 24 16 16 16 16 16 

NOTE: * = less than $500,000. 

Additional Judgeships (Section 1223). CBO estimates that 

enacting the means-testing provision (section 102) would impose 

some additional workload on the courts. Section 128 would authorize 28 new temporary bankruptcy judgeships and extend four existing temporary judgeships. Based on information from the AOUSC 

and other bankruptcy experts, CBO expects that the increase in 

the number of bankruptcy judges would be sufficient to meet the 

increased workload. Assuming that the salary and benefits of a 

bankruptcy judge would average about $177,000 a year (in 2005 

dollars), CBO estimates that the mandatory costs associated with 

the salaries and benefits of those additional judgeships would be 

less than $100,000 in fiscal year 2005, about $26 million over the 

2006–2010 period, and about $45 million over the 2006–2015 period. 

Changes in Bankruptcy Filing Fees (Sections 102, 325, and 

418). Section 325 would increase the fees charged for filing bankruptcy cases and change the classification of where bankruptcy filing fees are recorded in the budget. Under current law, filing fees 

are divided between the U.S. Trustee System Fund, the AOUSC, 

the private trustee assigned to the case, and the remainder are recorded as governmental receipts (i.e., revenues). The percentage of 

the fees allocated to those different parts of the budget varies by 

chapter. 

During the first 5 years of the new fee structure proposed in S. 

256, the increase in the chapter 7, chapter 11, and chapter 13 filing 

fees above the amounts expected to be collected under current law 

would be recorded as revenues. During the first 2 years after enactment of S. 256, however, the portion of the fees charged under current law for chapters 7, 13, and 11 that are now recorded as revenues would be recorded as offsetting collections or offsetting receipts. The allocation of those fees would return to the same allocation as under current law after 2 years. In sum, CBO estimates 

that enacting S. 256 would increase revenues by about $60 million 

over the 2006–2010 period and by about $144 million over the 

2006–2015 period. (The change in offsetting receipts would be 

matched by additional spending, resulting in no net change in direct spending.) 

Tax Provisions (Title VII). Title VII of S. 256 would alter several provisions related to tax claims. It would alter the treatment 

of certain tax liens, disallow the discharge of taxes resulting from 

fraudulent tax returns under chapter 11 or chapter 13 of the bankruptcy code, require periodic cash payments of priority tax claims, 

and specify the rate of interest on tax claims. Title VII also would 

42 

change the status of assessment periods for tax claims and would 

alter various administrative requirements. Based on information 

from the Internal Revenue Service and the Joint Committee on 

Taxation, CBO estimates that these provisions would increase revenues, but that any increase would be negligible. 

ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

S. 256 contains intergovernmental mandates as defined in 

UMRA, but CBO estimates that any resulting costs would not be 

significant and would not exceed the threshold established in 

UMRA ($62 million in 2005, adjusted annually for inflation). Overall, CBO expects that enacting this act would benefit State and 

local governments by enhancing their ability to collect outstanding 

obligations in bankruptcy cases. 

Mandates 

Section 227 of the act would preempt State laws governing contracts between a debt relief agency and a debtor but only to the extent that those State laws are inconsistent with the Federal requirements set forth in S. 256. Such preemptions are mandates as 

defined in UMRA. Because the preemption would not require 

States to take any action, CBO estimates that the costs to comply 

with this mandate would not be significant. 

Section 719 would require State and local income tax procedures 

to conform to the Internal Revenue Code with regard to dividing 

tax liabilities and responsibilities between the estate and the debtor, the tax consequences of partnerships and transfers of property, 

and the taxable period of the debtor. CBO estimates that this provision would increase costs for the administration of State and local 

tax laws but would not require State and local tax rates to conform 

to the Federal rates. Such administrative costs would not be significant and would likely be offset by increased collections by State 

and local governments. 

Other Impacts 

The changes to bankruptcy law in the act would affect State and 

local governments primarily as creditors and holders of claims 

against debtors for taxes or child support payments. In addition, it 

would change some of the State statutes that govern which of a 

debtor’s assets are protected from creditors in a bankruptcy proceeding. 

According to the Federation of Tax Administrators, while total 

bankruptcy filings have increased in the last decade, the proportion 

of claims collected by States from taxpayers in bankruptcy has remained relatively constant—about 5 percent of claims owed. CBO 

cannot predict how much more money might be collected under this 

legislation; however, we think that it is likely that State and local 

governments would collect a greater share of future claims than 

they would under current law. 

Domestic Support Obligations. S. 256 would enhance a 

State’s ability to collect domestic support obligations, including 

child support. Domestic support obligations owed to State or local 

governments would be given priority over all other claims except 

those same obligations owed to individuals. The act would make 

those debts nondischargeable (not able to be written-off at the end 

43 

of bankruptcy). The act also would require that filers under chapter 

11 and 13 cases pay domestic support obligations owed to government agencies or individuals in order to receive a discharge of outstanding debts. In addition, under S. 256, the automatic stay that 

is triggered by filing bankruptcy would not apply to domestic support obligations owed by debtors or withheld from regular income 

as it currently does. The act also would require bankruptcy trustees to notify individuals with domestic support claims of their right 

to use the services of a State child support enforcement agency and 

to notify the agency that it has done so. The last known address 

of the debtor would be a part of the notification. 

Exemptions. Although bankruptcy is regulated according to 

Federal statute, States are allowed to provide debtors with certain 

exemptions for property, insurance, and other items that are different from those allowed under the Federal bankruptcy code. (Exempt property remains in possession of the debtor and is not available to pay off creditors.) In some States debtors can choose the 

Federal or State exemption; other States require a debtor to use 

only the State exemptions. The act would reduce the value of a 

debtor’s homestead exemption under certain circumstances. It also 

would place a monetary cap on the value of certain property that 

the debtor may claim as exempt under State or local law. The act 

would exempt certain types of retirement and education savings as 

well as contributions to specified employee benefit plans. 

These exemption standards would apply regardless of the State 

policy on exemptions. The new property-value limitations could 

make more money available to creditors in some cases, while the 

exemptions on some retirement, education, and other savings generally would make less money available. 

Time Limits on Tax Collection. Under some circumstances, a 

tax claim can qualify for priority status, making it more likely that 

a State or local government can collect the debt. However, this status is granted only if a tax is assessed within a specific period of 

time from the date of the bankruptcy filing. If that filing is subsequently dismissed and a new filing is made, the tax claim may lose 

its priority status. The act would make adjustments to this provision, allowing more time to pass in some circumstances, thus increasing the likelihood that State or local tax claims would maintain their priority status. 

Taxes and Administrative Expenses. Under current law, certain expenses and the priority of claims reduce the funds that 

would otherwise be available to pay tax liens on property. The act 

would increase the priority of those liens in certain circumstances 

against certain expenses and claims, thereby making it more likely 

that funds would remain available to cover tax obligations. The act 

would allow State and local governments to claim administrative 

expenses for costs incurred by closing a health care business. The 

act would provide for a more uniform interest rate on all tax claims 

and administrative expenses, determined in accordance with applicable nonbankruptcy law rather than at the discretion of a bankruptcy judge. 

Tax Return Filing. A number of provisions in the act would require debtors to have filed tax returns before a bankruptcy case 

may continue. Those provisions would help States identify potential 

44 

claims in bankruptcy cases where they may be owed delinquent 

taxes. 

Priority of Payments. In some circumstances under current 

law, debtors have borrowed money or incurred some new obligation 

that is dischargeable (able to be written-off at the end of bankruptcy) to pay for an obligation that would not be dischargeable. S. 

256 would give the new debt the same priority as the underlying 

debt. If the underlying debt had a priority higher than that of 

State or local tax liabilities, State and local governments could lose 

access to some funds. However, it is possible that the underlying 

debt could be for a tax claim, in which case, the taxing authority 

would face no loss. Because it is unclear what types of nondischargeable debts are covered by new debt and the degree to 

which this new provision would discourage such activity, CBO can 

estimate neither the direction nor the magnitude of the provision’s 

impact on States and localities. 

Municipal Bankruptcy. Title V would clarify regulations governing municipal bankruptcy actions and allow municipalities that 

have filed for bankruptcy to liquidate certain financial contracts. 

Fuel Tax Claims. Under current law, all States owed fuel tax 

under the International Fuel Tax Agreement must file separate 

claims against debtors under the bankruptcy code. A provision in 

title VII would allow a State designated under the agreement to 

file a single claim on behalf of all States owed the fuel taxes. That 

provision would simplify the filing process. 

Single Asset Cases. Title XII includes a provision that would 

allow expedited bankruptcy proceedings in certain cases where the 

debtor’s principal asset is some form of real estate. Enacting this 

provision could benefit State and local governments to the extent 

that real property is returned to productive tax rolls earlier. 

ESTIMATED IMPACT ON THE PRIVATE SECTOR

S. 256 would establish means-testing of individual debtors for determining eligibility for relief under chapter 7 of the bankruptcy 

code. Under UMRA, duties arising from participation in voluntary 

Federal programs are not mandates. The bankruptcy process is 

largely voluntary for debtors, and debtor-initiated bankruptcies are 

equivalent to participation in a voluntary Federal program. Consequently, new duties imposed by the act on individuals who file 

as debtors do not meet the definition of private-sector mandates, 

and additional cost for debtors would not be counted as direct costs 

for purposes of UMRA. 

Mandates 

S. 256 would impose private-sector mandates on bankruptcy attorneys, creditors, preparers of bankruptcy petitions, debt-relief 

agencies, consumer reporting agencies, and credit and charge-card 

companies. Under the act: 

• Consumer bankruptcy attorneys would have to make reasonable inquires to confirm that the information in documents 

they submit to the court or to the bankruptcy trustee is wellgrounded in fact; 

45 

• Creditors would have to make disclosures in their agreements with debtors and provide certain notices to the courts 

and debtors; 

• Preparers of bankruptcy petitions and debt-relief agencies 

would also have to provide certain notices to debtors; 

• Federal bankruptcy judges would have the authority to prohibit consumer reporting agencies from issuing a report containing any information relating to certain involuntary bankruptcy petitions the court has dismissed; and 

• Credit and charge-card companies would have to disclose 

specified information in monthly billing statements, introductory rate offers for new accounts, Internet-based solicitations, credit extensions secured by a dwelling, and for late 

payment deadlines and penalties. 

In addition, the act would prohibit credit and charge-card companies from terminating a consumer credit account before its expiration date because the consumer has not incurred finance charges. 

CBO estimates that the direct costs of the mandates in the act 

would exceed the annual threshold established by UMRA ($123 

million in 2005, adjusted annually for inflation). 

Requirements For Attorneys. Section 102 of the act would 

make bankruptcy attorneys liable for misleading statements and 

inaccuracies in schedules and documents submitted to the court or 

to the trustee. To avoid sanctions and potential civil penalties, attorneys would need to verify the information given to them by their 

clients regarding the list of creditors, assets and liabilities, and income and expenditures. Completing a reasonable investigation of 

debtors’ financial affairs and, for chapter 7 cases, computing debtor 

eligibility, would require attorneys to expend additional effort. Information from the American Bar Association indicates that this 

requirement would increase attorney costs by $150 to $500 per 

case. Based on the 1.6 million projected filings under chapter 7 (liquidation) and chapter 13 (rehabilitation), CBO estimates that the 

direct cost of complying with this mandate would be between $240 

million and $800 million in fiscal year 2007, the first full year of 

implementation, and would remain in that range through fiscal 

year 2010. CBO expects that some of the additional costs incurred 

by attorneys would most likely be passed on to their clients. 

Notice and Disclosure Requirements. The act would require 

certain notices to be disclosed as part of the bankruptcy process. 

Section 203 would require a creditor with an unsecured consumer 

debt seeking a reaffirmation agreement with a debtor to provide 

certain disclosures. The agreement reaffirms the debt discharged in 

bankruptcy between a holder of a claim and the debtor. Those disclosures must be made clearly and conspicuously in writing and include certain advisories and explanations. The required disclosures 

could be incorporated into existing standard reaffirmation agreements. Section 221 would require preparers of bankruptcy petitions 

who are not attorneys to give debtors written notice explaining that 

the preparer may not provide legal advice. Section 228 would require a debt-relief agency providing bankruptcy assistance to give 

certain written notices to those assisted and to execute written contracts. The act also would require such agencies also to supply certain advisories and explanations regarding the bankruptcy process. 

46 

Most attorneys and debt-relief counselors currently provide similar 

information, and CBO estimates that the direct costs of complying 

with those mandates would be small. 

S. 256 also would require credit lenders to provide additional disclosures to consumers. It would require credit and charge-card companies to include certain disclosures in billing statements with respect to various open-end credit plans regarding the disadvantages 

of making only the minimum payment. Other disclosures would be 

required to be included in application and solicitation materials involving introductory rate offers, Internet-based credit card solicitations, credit extensions secured by a dwelling, and for late payment 

deadlines and penalties. Based on information from credit lenders, 

CBO estimates that the incremental costs of complying with the 

additional disclosure requirements would not be substantial. 

Prohibition on Consumer Reporting Agencies. Section 332 

would give Federal bankruptcy judges the authority to prohibit 

consumer reporting agencies from issuing a report containing any 

information relating certain involuntary bankruptcy petitions the 

court has dismissed. In the event that the court uses such authority, the duty to comply with the prohibition would be considered a 

private-sector mandate under UMRA. According to industry representatives, the current practice of consumer reporting agencies is 

to not report any information when a court dismisses an involuntary bankruptcy petition. Therefore, CBO estimates that the cost of 

complying with such a mandate would be minimal if any. 

Requirement for Closing Credit Accounts. In addition, S. 

256 would prohibit termination of a credit account before its expiration date because the consumer has not incurred finance charges. 

According to industry representatives, credit and charge-card companies do not close accounts based solely on the fact that a consumer has not incurred any finance charges. Thus, CBO expects 

there would be no direct cost to comply with this prohibition. 

Other Impacts on the Private Sector 

S. 256 also contains many provisions that would benefit creditors. Most significant for creditors are provisions that are expected 

to shift some debtors from chapter 7 to chapter 13 bankruptcy proceedings and provisions that would expand the types of debts that 

would be nondischargeable. By expanding the types of debts that 

are nondischargeable, some creditors would continue to receive 

payments on debts that would be discharged under current law. 

Means-testing in the bankruptcy system would likely result in 

more individuals being required to seek relief under chapter 13 

rather than chapter 7. Because chapter 13 requires debtors to develop a plan to repay creditors over a specified period, the total 

pool of funds available for distribution for creditors would likely increase. As long as the likelihood of repayment by debtors and the 

pool of funds increases by an amount greater than the cost to creditors of administering the new bankruptcy code, creditors would be 

made better off under the act. 

PREVIOUS CBO ESTIMATE

On February 28, 2005, CBO transmitted a cost estimate for S. 

256 as ordered reported by the Senate Committee on the Judiciary 

on February 17, 2005. The House Committee on the Judiciary apVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00050 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
47 

proved the same version of S. 256 as passed by the Senate on 

March 10, 2005. The Senate-passed version of the legislation and 

the version ordered reported by the Senate Judiciary Committee 

have different provisions regarding the distribution of bankruptcy 

filing fees. Our cost estimates reflect those differences. 

The private-sector mandates and cost estimates in the two 

versions of S. 256 are identical, except for the mandate in section 

332 of the House Judiciary version. That mandate, prohibiting consumer reporting agencies from issuing a report containing any information relating to certain involuntary bankruptcy petitions the 

court has dismissed, was not in the previous version. CBO estimates that the aggregate cost of mandates in each version of S. 256 

would exceed UMRA’s annual threshold for private-sector mandates. 

ESTIMATE PREPARED BY: 

Federal Spending: Gregory Waring (226–2860) 

Federal Revenues: Annabelle Bartsch (226–2720) 

Impact on State, Local, and Tribal Governments: Melissa Merrell 

(225–3220) 

Impact on the Private Sector: Paige Piper/Bach (226–2940) 

ESTIMATE APPROVED BY: 

Peter H. Fontaine 

Deputy Assistant Director for Budget Analysis 

PERFORMANCE GOALS AND OBJECTIVES

The Committee states that pursuant to clause 3(c)(4) of Rule XIII 

of the Rules of the House of Representatives, S. 256 is intended to 

improve the bankruptcy system by deterring abuse, setting enhanced standards for bankruptcy professionals, and streamlining 

case administration. It authorizes the appointment of 28 temporary 

bankruptcy judgeships to address the 59 percent increase in the 

caseload of bankruptcy judges since 1992, when additional bankruptcy judgeships were last authorized. 

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the House 

of Representatives, the Committee finds the authority for this legislation in Article I, Section 8, Clauses 3 and 4 of the Constitution. 

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

Sec. 1. Short Title; References; Table of Contents. The short title of 

this measure is the Bankruptcy Abuse Prevention and Consumer 

Protection Act of 2005 ( the ‘‘Act’’). 

TITLE I. NEEDS-BASED BANKRUPTCY

Sec. 101. Conversion. Under current law, section 706(c) of the 

Bankruptcy Code provides that a court may not convert a chapter 

7 case unless the debtor requests such conversion. Section 101 of 

the Act amends this provision to allow a chapter 7 case to be converted to a case under chapter 12 or chapter 13 on request or consent of the debtor. 

48 

Section 102. Dismissal or Conversion. Section 102 implements 

needs-based debt relief, the legislation’s principal consumer bankruptcy reform. Under section 707(b) of the Bankruptcy Code, a 

chapter 7 case filed by a debtor who is an individual may be dismissed for substantial abuse only on motion of the court or the 

United States trustee. It specifically prohibits such dismissal at the 

suggestion of any party in interest. 

Section 102 of the Act revises current law in several significant 

respects. First, it amends section 707(b) of the Bankruptcy Code to 

permit—in addition to the court and the United States trustee—a 

trustee, bankruptcy administrator, or a party in interest to seek 

dismissal or conversion of a chapter 7 case to one under chapter 

11 or 13 on consent of the debtor, under certain circumstances. In 

addition, section 102 of the Act changes the current standard for 

dismissal from ‘‘substantial abuse’’ to ‘‘abuse.’’ Section 102 of the 

Act also amends Bankruptcy Code section 707(b) to mandate a presumption of abuse if the debtor’s current monthly income (reduced 

by certain specified amounts) when multiplied by 60 is not less 

than the lesser of 25 percent of the debtor’s nonpriority unsecured claims or $6,000 (whichever is greater), or $10,000. 

To determine whether the presumption of abuse applies under 

section 707(b) of the Bankruptcy Code, section 102(a) of the Act 

specifies certain monthly expense amounts that are to be deducted 

from the debtor’s ‘‘current monthly income’’ (a defined term). These 

expense items include: 

• the applicable monthly expenses for the debtor as well as for 

the debtor’s dependents and spouse in a joint case (if the 

spouse is not otherwise a dependent) specified under the Internal Revenue Service’s National Standards (with provision 

for an additional five percent for food and clothing if the 

debtor can demonstrate that such additional amount is reasonable and necessary) and the IRS Local Standards; 

• the actual monthly expenses for the debtor, the debtor’s dependents, and the debtor’s spouse in a joint case (if the 

spouse is not otherwise a dependent) for the categories specified by the Internal Revenue Service as Other Necessary Expenses; 

• reasonably necessary expenses incurred to maintain the safety of the debtor and the debtor’s family from family violence 

as specified in section 309 of the Family Violence Prevention 

and Services Act or other applicable Federal law, with provision for the confidentiality of these expenses; 

• reasonably necessary expenses for health insurance, disability insurance, and health savings account expenditures 

for the debtor, the debtor’s spouse, and dependents of the 

debtor; 

• the debtor’s average monthly payments on account of secured debts and priority claims as explained below; and 

• if the debtor is eligible to be a debtor under chapter 13, the 

actual administrative expenses of administering a chapter 13 

plan for the district in which the debtor resides, up to 10 

percent of projected plan payments, as determined under 

schedules issued by the Executive Office for United States 

Trustees. 

49 

With respect to secured debts, Section 102(a)(2)(C) of the Act 

specifies that the debtor’s average monthly payments on account of 

secured debts is calculated as the sum of the following divided by 

60: (1) all amounts scheduled as contractually due to secured creditors for each month of the 60-month period following filing of the 

case; and (2) any additional payments necessary, in filing a plan 

under chapter 13, to maintain possession of the debtor’s primary 

residence, motor vehicle or other property necessary for the support 

of the debtor and the debtor’s dependents, that serves as collateral 

for secured debts. 

With respect to priority claims, section 102(a)(2)(C) of the Act 

specifies that the debtor’s expenses for payment of such claims (including child support and alimony claims) is calculated as the total 

of such debts divided by 60. 

The provision permits a debtor, if applicable, to deduct from current monthly income the continuation of actual expenses paid by 

the debtor that are reasonable and necessary for the care and support of an elderly, chronically ill, or disabled household member or 

member of the debtor’s immediate family (providing such individual is unable to pay for these expenses). 

Under section 102, a debtor may also deduct the actual expenses 

for each dependent child of a debtor to attend a private or public 

elementary or secondary school up to $1,500 per child if the debtor: 

(1) documents such expenses, and (2) provides a detailed explanation of why such expenses are reasonable and necessary. In addition, the debtor must explain why such expenses are not already 

accounted for under any of the Internal Revenue Service National 

and Local Standards, and Other Expenses categories. 

Other expenses that a debtor may claim include additional housing and utilities allowances based on the debtor’s actual home energy expenses if the debtor documents such expenses and demonstrates that they are reasonable and necessary. 

While the Act replaces the current law’s presumption in favor of 

granting relief requested by a chapter 7 debtor with a presumption 

of abuse (if applicable under the income and expense analysis previously described), it does provide that this presumption may be rebutted under certain circumstances. Section 102(a)(2)(C) of the Act 

amends Bankruptcy Code section 707(b) to provide that the presumption of abuse may be rebutted only if: (1) the debtor demonstrates special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the 

extent such special circumstances justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative; and (2) the additional expenses or adjustments 

cause the product of the debtor’s current monthly income (reduced 

by the specified expenses) when multiplied by 60 to be less than 

the lesser of 25 percent of the debtor’s nonpriority unsecured 

claims, or $6,000 (whichever is greater); or $10,000. In addition, 

the debtor must itemize and document each additional expense or 

income adjustment as well as provide a detailed explanation of the 

special circumstances that make such expense or adjustment necessary and reasonable. Further, the debtor must attest under oath 

to the accuracy of any information provided to demonstrate that 

such additional expense or adjustment to income is required. 

50 

To implement these needs-based reforms, the Act requires the 

debtor to file, as part of the schedules of current income and current expenditures, a statement of current monthly income. This 

statement must show: (1) the calculations that determine whether 

a presumption of abuse arises under section 707(b) (as amended), 

and (2) how each amount is calculated. 

An exception to the needs-based test applies with respect to a 

debtor who is a disabled veteran whose indebtedness occurred primarily during a period when the individual was on active duty (as 

defined in 10 U.S.C. § 101(d)(1)) or performing a homeland defense 

activity (as defined in 32 U.S.C. § 901(1)). 

In a case where the presumption of abuse does not apply or has 

been rebutted, section 102(a)(2)(C) of the Act amends Bankruptcy 

Code section 707(b) to require a court to consider whether: (1) the 

debtor filed the chapter 7 case in bad faith; or (2) the totality of 

the circumstances of the debtor’s financial situation demonstrates 

abuse, including whether the debtor wants to reject a personal 

services contract and the debtor’s financial need for such rejection. 

Under section 102(a)(2)(C) of the Act, a court may on its own initiative or on motion of a party in interest in accordance with rule 

9011 of the Federal Rules of Bankruptcy Procedure, order a debtor’s attorney to reimburse the trustee for all reasonable costs incurred in prosecuting a section 707(b) motion if: (1) a trustee files 

such motion; (2) the motion is granted; and (3) the court finds that 

the action of the debtor’s attorney in filing the case under chapter 

7 violated rule 9011. If the court determines that the debtor’s attorney violated rule 9011, it may on its own initiative or on motion 

of a party in interest in accordance with such rule, order the assessment of an appropriate civil penalty against debtor’s counsel 

and the payment of such penalty to the trustee, United States 

trustee, or bankruptcy administrator. This provision clarifies that 

a motion for costs or the imposition of a civil penalty must be made 

by a party in interest or by the court itself in accordance with rule 

9011. 

Section 102(a)(2)(C) of the Act provides that the signature of an 

attorney on a petition, pleading or written motion shall constitute 

a certification that the attorney has: (1) performed a reasonable investigation into the circumstances that gave rise to such document; 

and (2) determined that such document is well-grounded in fact 

and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and does not constitute an abuse under section 707(b)(1). In addition, such attorney’s signature on the petition constitutes a certification that the 

attorney has no knowledge after an inquiry that the information in 

the schedules filed with the petition is incorrect. 

Section 102(a)(2)(C) of the Act amends section 707(b) of the 

Bankruptcy Code to permit a court on its own initiative or motion 

by a party in interest in accordance with rule 9011 of the Federal 

Rules of Bankruptcy Procedure to award a debtor reasonable costs 

(including reasonable attorneys’ fees) in contesting a section 707(b) 

motion filed by a party in interest (other than a trustee, United 

States trustee or bankruptcy administrator) if the court: (1) does 

not grant the section 707(b) motion; and (2) finds that either the 

movant violated rule 9011, or the attorney (if any) who filed the 

motion did not comply with section 707(b)(4)(C) and such was made 

51 

solely for the purpose of coercing a debtor into waiving a right 

guaranteed under the Bankruptcy Code to such debtor. An exception applies with respect to a movant that is a ‘‘small business’’ with a claim in an aggregate amount of less than $1,000. A small 

business, for purposes of this provision, is defined as an unincorporated business, partnership, corporation, association or organization that engages in commercial or business activities and employs 

less than 25 full-time employees. The number of employees of a 

wholly owned subsidiary includes the employees of the parent and 

any other subsidiary corporation of the parent. Section 102(a)(2)(C) 

of the Act clarifies that the motion for costs must be made by a 

party in interest or by the court. The use of the phraseology in this 

provision, ‘‘in accordance with rule 9011 of the Federal Rules of 

Bankruptcy Procedure,’’ is intended to indicate that the procedures 

for the motion of a party in interest or a court acting on its own 

initiative are the procedures outlined in rule 9011(c). 

The Act includes two ‘‘safe harbors’’ with respect to its needsbased reforms. One safe harbor allows only a judge, United States 

trustee, or bankruptcy administrator to file a section 707(b) motion 

(based on the debtor’s ability to repay, bad faith, or the totality of 

the circumstances) if the chapter 7 debtor’s current monthly income 

(or in a joint case, the income of the debtor and the debtor’s spouse) 

falls below the state median family income for a family of equal or 

lesser size (adjusted for larger sized families), or the state median 

family income for one earner in the case of a one-person household. 

The Act’s second safe harbor only pertains to a motion under section 707(b)(2), that is, a motion to dismiss based on a debtor’s ability to repay. It does not allow a judge, United States trustee, bankruptcy administrator or party in interest to file such motion if the 

income of the debtor (including a veteran, as that term is defined 

in 38 U.S.C. § 101) and the debtor’s spouse is less than certain 

monetary thresholds. This provision does not consider the nonfiling 

spouse’s income if the debtor and the debtor’s spouse are separated 

under applicable nonbankruptcy law, or the debtor and the debtor’s 

spouse are living separate and apart, other than for the purpose of 

evading section 707(b)(2). The debtor must file a statement under 

penalty of perjury specifying that he or she meets one of these criteria. In addition, the statement must disclose the aggregate (or 

best estimate) of the amount of any cash or money payments received from the debtor’s spouse attributed to the debtor’s current 

monthly income. 

Section 102(b) of the Act amends section 101 of the Bankruptcy 

Code to define ‘‘current monthly income’’ as the average monthly 

income that the debtor receives (or in a joint case, the debtor and 

debtor’s spouse receive) from all sources, without regard to whether 

it is taxable income, in a specified six-month period preceding the 

filing of the bankruptcy case. The Act specifies that the six-month 

period is determined as ending on the last day of the calendar 

month immediately preceding the filing of the bankruptcy case, if 

the debtor files the statement of current income required by Bankruptcy Code section 521. If the debtor does not file such schedule, 

the court determines the date on which current income is calculated. 

‘‘Current monthly income’’ includes any amount paid by any entity other than the debtor (or, in a joint case, the debtor and the 

52 

debtor’s spouse if not otherwise a dependent) on a regular basis for 

the household expenses of the debtor or the debtor’s dependents 

(and, the debtor’s spouse in a joint case, if not otherwise a dependent). It excludes Social Security Act benefits and payments to victims of war crimes or crimes against humanity on account of their 

status as victims of such crimes. In addition, the Act provides that 

current monthly income does not include payments to victims of 

international or domestic terrorism as defined in section 2331 of 

title 18 of the United States Code on account of their status as victims of such terrorism. 

Section 102(c) of the Act amends section 704 of the Bankruptcy 

Code to require the United States trustee or bankruptcy administrator in a chapter 7 case where the debtor is an individual to: (1) 

review all materials filed by the debtor; and (2) file a statement 

with the court (within ten days following the meeting of creditors 

held pursuant to section 341 of the Bankruptcy Code) as to whether or not the debtor’s case should be presumed to be an abuse 

under section 707(b). The court must provide a copy of such statement to all creditors within five days after its filing. Within 30 

days of the filing of such statement, the United States trustee or 

bankruptcy administrator must file either: (1) a motion under section 707(b); or (2) a statement setting forth the reasons why such 

motion is not appropriate in any case where the debtor’s filing 

should be presumed to be an abuse and the debtor’s current monthly income exceeds certain monetary thresholds. 

In a chapter 7 case where the presumption of abuse applies 

under section 707(b), section 102(d) of the Act amends Bankruptcy 

Code section 342 to require the clerk to provide written notice to 

all creditors within ten days after commencement of the case stating that the presumption of abuse applies in such case. 

Section 102(e) of the Act provides that nothing in the Bankruptcy 

Code limits the ability of a creditor to give information to a judge 

(except for information communicated ex parte, unless otherwise 

permitted by applicable law), United States trustee, bankruptcy administrator, or trustee. 

Section 102(f) of the Act adds a provision to Bankruptcy Code 

section 707 to permit the court to dismiss a chapter 7 case filed by 

a debtor who is an individual on motion by a victim of a crime of 

violence (as defined in section 16 of title 18 of the United States 

Code) or a drug trafficking crime (as defined in section 924(c)(2) of 

title 18 of the United States Code). The case may be dismissed if 

the debtor was convicted of such crime and dismissal is in the best 

interest of the victim, unless the debtor establishes by a preponderance of the evidence that the filing of the case is necessary to satisfy a claim for a domestic support obligation. 

Section 102(g) of the Act amends section 1325(a) of the Bankruptcy Code to require the court, as a condition of confirming a 

chapter 13 plan, to find that the debtor’s action in filing the case 

was in good faith. 

Section 102(h) of the Act amends section 1325(b)(1) of the Bankruptcy Code to specify that the court must find, in confirming a 

chapter 13 plan to which there has been an objection, that the 

debtor’s disposable income will be paid to unsecured creditors. It 

also amends section 1325(b)(2)’s definition of disposable income. As 

defined under this provision, the term means income received by 

53 

the debtor (other than child support payments, foster care payments, or certain disability payments for a dependent child) less 

amounts reasonably necessary to be expended for: (1) the maintenance or support of the debtor or the debtor’s dependent; (2) a domestic support obligation that first becomes due after the case is 

filed; (3) charitable contributions (as defined in Bankruptcy Code 

section 548(d)(3)) to a qualified religious or charitable entity or organization (as defined in Bankruptcy Code section 548(d)(4)) in an 

amount that does not exceed 15 percent of the debtor’s gross income for the year in which the contributions are made; and (4) if 

the debtor is engaged in business, the payment of expenditures 

necessary for the continuation, preservation, and operation of the 

business. Section 1325(b)(3) provides that the amounts reasonably 

necessary to be expended under section 1325(b)(2) are determined 

in accordance with section 707(b)(2)(A) and (B) if the debtor’s income exceeds certain monetary thresholds. 

Section 102(i) of the Act amends Bankruptcy Code section 

1329(a) to require the amounts paid under a confirmed chapter 13 

plan to be reduced by the actual amount expended by the debtor 

to purchase health insurance for the debtor and the debtor’s dependents (if those dependents do not otherwise have such insurance) if the debtor documents the cost of such insurance and demonstrates such expense is reasonable and necessary, and the 

amount is not otherwise allowed for purposes of determining disposable income under section 1325(b). If the debtor previously paid 

for health insurance, the debtor must demonstrate that the amount 

is not materially greater than the amount the debtor previously 

paid. If the debtor did not previously have such insurance, the 

amount may not be not materially larger than the reasonable cost 

that would be incurred by a debtor with similar characteristics. 

Upon request of any party in interest, the debtor must file proof 

that a health insurance policy was purchased. 

Section 102(j) of the Act amends section 104 of the Bankruptcy 

Code to provide for the periodic adjustment of monetary amounts 

specified in sections 707(b) and 1325(b)(3) of the Bankruptcy Code, 

as amended by this Act. 

Section 102(k) adds to section 101 of the Bankruptcy Code a definition of ‘‘median family income.’’

Sec. 103. Sense of Congress and Study. Section 103(a) of the Act expresses the sense of Congress that the Secretary of the Treasury 

has the authority to alter the Internal Revenue Service expense 

standards to set guidelines for repayment plans as needed to accommodate their use under section 707(b) of the Bankruptcy Code, 

as amended. Section 103(b) requires the Executive Office for 

United States Trustees to submit a report within two years from 

the date of the Act’s enactment regarding the utilization of the Internal Revenue Service expense standards for determining the current monthly expenses of a debtor under section 707(b) and the impact that the application of these standards has had on debtors and 

the bankruptcy courts. The report may include recommendations 

for amendments to the Bankruptcy Code that are consistent with 

the report’s findings. 

Sec. 104. Notice of Alternatives. Section 104 of the Act amends section 342(b) of the Bankruptcy Code to require the clerk, before the 

54 

commencement of a bankruptcy case by an individual whose debts 

are primarily consumer debts, to supply such individual with a 

written notice containing: (1) a brief description of chapters 7, 11, 

12, and 13 and the general purpose, benefits, and costs of proceeding under each of these chapters; (2) the types of services 

available from credit counseling agencies; (3) a statement advising 

that a person who knowingly and fraudulently conceals assets or 

makes a false oath or statement under penalty of perjury in connection with a bankruptcy case shall be subject to fine, imprisonment, or both; and (4) a statement warning that all information 

supplied by a debtor in connection with the case is subject to examination by the Attorney General. 

Sec. 105. Debtor Financial Management Training Test Program. 

Section 105 of the Act requires the Director of the Executive Office 

for United States Trustees to: (1) consult with a wide range of debtor education experts who operate financial management education 

programs; and (2) develop a financial management training curriculum and materials that can be used to teach individual debtors 

how to manage their finances better. The Director must select six 

judicial districts to test the effectiveness of the financial management training curriculum and materials for an 18-month period beginning not later than 270 days after the Act’s enactment date. For 

these six districts, the curricula and materials must be used as the 

instructional personal financial management course required under 

Bankruptcy Code section 111. Over the period of the study, the Director must evaluate the effectiveness of the curriculum and materials as well as consider a sample of existing consumer education 

programs (such as those described in the Report of the National 

Bankruptcy Review Commission) that are representative of consumer education programs sponsored by the credit industry, chapter 13 trustees, and consumer counseling groups. Not later than 

three months after concluding such evaluation, the Director must 

submit to Congress a report with findings regarding the effectiveness and cost of the curricula, materials, and programs. 

Sec. 106. Credit Counseling. Section 106(a) of the Act amends section 109 of the Bankruptcy Code to require an individual—as a 

condition of eligibility for bankruptcy relief—to receive credit counseling within the 180-day period preceding the filing of a bankruptcy case by such individual. The credit counseling must be provided by an approved nonprofit budget and credit counseling agency consisting of either an individual or group briefing (which may 

be conducted telephonically or via the Internet) that outlined opportunities for available credit counseling and assisted the individual in performing a budget analysis. This requirement does not 

apply to a debtor who resides in a district where the United States 

trustee or bankruptcy administrator has determined that approved 

nonprofit budget and credit counseling agencies in that district are 

not reasonably able to provide adequate services to such individuals. Although such determination must be reviewed annually, the 

United States trustee or bankruptcy administrator may disapprove 

a nonprofit budget and credit counseling agency at any time. 

A debtor may be temporarily exempted from this requirement if 

he or she submits to the court a certification that: (1) describes exigent circumstances meriting a waiver of this requirement; (2) 

55 

states that the debtor requested credit counseling services from an 

approved nonprofit budget and credit counseling agency, but was 

unable to obtain such services within the five-day period beginning 

on the date the debtor made the request; and (3) is satisfactory to 

the court. This exemption terminates when the debtor meets the 

requirements for credit counseling participation, but not longer 

than 30 days after the case is filed, unless the court, for cause, extends this period up to an additional 15 days. 

In addition, the mandatory credit counseling requirement does 

not apply to a debtor whom the court determines, after notice and 

a hearing, is unable to complete this requirement because of incapacity, disability, or active military duty in a military combat zone. 

Incapacity, under this provision, means the debtor is impaired by 

reason of mental illness or mental deficiency so that the debtor is 

incapable of realizing and making rational decisions with respect 

to his or her financial responsibilities. Disability, under this provision, means the debtor is so physically impaired as to be unable, 

after reasonable effort, to receive credit counseling whether by participating in person, or via telephone or Internet briefing. 

Section 106(b) of the Act amends section 727(a) of the Bankruptcy Code to deny a discharge to a chapter 7 debtor who fails to 

complete a personal financial management instructional course. 

This provision, however, does not apply if the debtor resides in a 

district where the United States trustee or bankruptcy administrator has determined that the approved instructional courses in 

that district are not adequate. Such determination must be reviewed annually by the United States trustee or bankruptcy administrator. In addition, it does not apply to a debtor whom the 

court determines, after notice and a hearing, is unable to complete 

this requirement because of incapacity, disability, or active military 

duty in a military combat zone. 

Section 106(c) of the Act amends section 1328 of the Bankruptcy 

Code to deny a discharge to a chapter 13 debtor who fails to complete a personal financial management instructional course. This 

requirement does not apply if the debtor resides in a district where 

the United States trustee or bankruptcy administrator has determined that the approved instructional courses in that district are 

not adequate. Such determination must be reviewed annually by 

the United States trustee or bankruptcy administrator. In addition, 

it does not apply to a debtor whom the court determines, after notice and a hearing, is unable to complete this requirement because 

of incapacity, disability, or active military duty in a military combat zone. 

Section 106(d) of the Act amends section 521 of the Bankruptcy 

Code to require a debtor who is an individual to file with the court: 

(1) a certificate from an approved nonprofit budget and credit counseling agency describing the services it provided the debtor pursuant to section 109(h); and (2) a copy of the repayment plan, if any, 

that was developed by the agency pursuant to section 109(h). 

Section 106(e) of the Act adds section 111 to the Bankruptcy 

Code requiring the clerk to maintain a publicly available list of approved: (1) credit counseling agencies that provide the services described in section 109(h) of the Bankruptcy Code; and (2) personal 

financial management instructional courses. Section 106(e) further 

provides that the United States trustee or bankruptcy adminisVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00059 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
56 

trator may only approve an agency or course provider under this 

provision pursuant to certain specified criteria. These include, for 

example, if a fee is charged for such services by the agency or 

course provider, the fee must be reasonable and such services must 

be provided without regard to ability to pay the fee. If such agency 

or provider course is approved, the approval may only be for a probationary period of up to six months. At the conclusion of the probationary period, the United States trustee or bankruptcy administrator may only approve such agency or instructional course for an 

additional one-year period and, thereafter for successive one-year 

periods, which has demonstrated during such period that it met the 

standards set forth in this provision and can satisfy such standards 

in the future. 

Within 30 days after any final decision occurring after the expiration of the initial probationary period or after any subsequent period, an interested person may seek judicial review of such decision 

in the appropriate United States district court. In addition, the district court, at any time, may investigate the qualifications of a 

credit counseling agency and request the production of documents 

to ensure the agency’s integrity and effectiveness. The district court 

may remove a credit counseling agency that does not meet the 

specified qualifications from the approved list. The United States 

trustee or bankruptcy administrator must notify the clerk that a 

credit counseling agency or instructional course is no longer approved and the clerk must remove such entity from the approved 

list. 

Section 106(e) prohibits a credit counseling agency from providing information to a credit reporting agency as to whether an 

individual debtor has received or sought personal financial management instruction. A credit counseling agency that willfully or 

negligently fails to comply with any requirement under the Bankruptcy Code with respect to a debtor shall be liable to the debtor 

for damages in an amount equal to: (1) actual damages sustained 

by the debtor as a result of the violation; and (2) any court costs 

or reasonable attorneys’ fees incurred in an action to recover such 

damages. 

Section 106(f) of the Act amends section 362 of the Bankruptcy 

Code to provide that if a chapter 7, 11, or 13 case is dismissed due 

to the creation of a debt repayment plan, the presumption that a 

case was not filed in good faith under section 362(c)(3) shall not 

apply to any subsequent bankruptcy case commenced by the debtor. It also provides that the court, on request of a party in interest, 

must issue an order under section 362(c) confirming that the automatic stay has terminated. 

Sec. 107. Schedules of Reasonable and Necessary Expenses. For purposes of section 707(b) of the Bankruptcy Code, section 107 of the 

Act requires the Director of the Executive Office for United States 

Trustees to issue schedules of reasonable and necessary administrative expenses (including reasonable attorneys’ fees) relating to 

the administration of a chapter 13 plan for each judicial district not 

later than 180 days after the date of enactment of the Act. 

57 

TITLE II. ENHANCED CONSUMER PROTECTION

Subtitle A. Penalties for Abusive Creditor Practices 

Sec. 201. Promotion of Alternative Dispute Resolution. Subsection 

(a) of section 201 of the Act amends section 502 of the Bankruptcy 

Code to permit the court, after a hearing on motion of the debtor, 

to reduce a claim based in whole on an unsecured consumer debt 

by up to 20 percent if: (1) the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment 

schedule proposed by an approved credit counseling agency on behalf of the debtor; (2) the debtor’s offer was made at least 60 days 

before the filing of the case; (3) the offer provided for payment of 

at least 60 percent of the debt over a period not exceeding the 

loan’s repayment period or a reasonable extension thereof; and (4) 

no part of the debt is nondischargeable. The debtor has the burden 

of proving by clear and convincing evidence that: (1) the creditor 

unreasonably refused to consider the debtor’s proposal; and (2) the 

proposed alternative repayment schedule was made prior to the expiration of the 60-day period. Section 201(b) amends section 547 of 

the Bankruptcy Code to prohibit the avoidance as a preferential 

transfer a payment by a debtor to a creditor pursuant to an alternative repayment plan created by an approved credit counseling 

agency. 

Sec. 202. Effect of Discharge. Section 202 of the Act amends section 

524 of the Bankruptcy Code in two respects. First, it provides that 

the willful failure of a creditor to credit payments received under 

a confirmed chapter 11, 12, or 13 plan constitutes a violation of the 

discharge injunction if the creditor’s action to collect and failure to 

credit payments in the manner required by the plan caused material injury to the debtor. This provision does not apply if the order 

confirming the plan is revoked, the plan is in default, or the creditor has not received payments required to be made under the plan 

in the manner prescribed by the plan. Second, section 202 amends 

section 524 of the Bankruptcy Code to provide that the discharge 

injunction does not apply to a creditor having a claim secured by 

an interest in real property that is the debtor’s principal residence 

if the creditor communicates with the debtor in the ordinary course 

of business between the creditor and the debtor and such communication is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of the pursuit of in rem 

relief to enforce the lien. 

Sec. 203. Discouraging Abuse of Reaffirmation Agreement Practices. 

Section 203 of the Act effectuates a comprehensive overhaul of the 

law applicable to reaffirmation agreements. Subsection (a) amends 

section 524 of the Bankruptcy Code to mandate that certain specified disclosures be provided to a debtor at or before the time he or 

she signs a reaffirmation agreement. These specified disclosures, 

which are the only disclosures required in connection with a reaffirmation agreement, must be in writing and be made clearly and 

conspicuously. In addition, the disclosure must include certain 

advisories and explanations. At the election of the creditor, the disclosure statement may include a repayment schedule. If the debtor 

is represented by counsel, section 203(a) mandates that the attorney file a certification stating that the agreement represents a fully 

58 

informed and voluntary agreement by the debtor, that the agreement does not impose an undue hardship on the debtor or any dependent of the debtor, and that the attorney fully advised the debtor of the legal effect and consequences of such agreement as well 

as of any default thereunder. In those instances where the presumption of undue hardship applies, the attorney must also certify 

that the debtor is able to make the payments required under the 

reaffirmation agreement. Further, the debtor must submit a statement setting forth the debtor’s monthly income and actual current 

monthly expenditures. If the debtor is represented by counsel and 

the debt being reaffirmed is owed to a credit union, a modified 

version of this statement must be used. 

Notwithstanding any other provision of the Bankruptcy Code, 

section 203(a) permits a creditor to accept payments from a debtor: 

(1) before and after the filing of a reaffirmation agreement with the 

court; or (2) pursuant to a reaffirmation agreement that the creditor believes in good faith to be effective. It further provides that 

the requirements specified in subsections (c)(2) and (k) of section 

524 are satisfied if the disclosures required by these provisions are 

given in good faith. 

Where the amount of the scheduled payments due on the reaffirmed debt (as disclosed in the debtor’s statement) exceeds the 

debtor’s available income, it is presumed for 60 days from the date 

on which the reaffirmation agreement is filed with the court that 

the agreement presents an undue hardship. The court must review 

such presumption, which can be rebutted by the debtor by a written statement explaining the additional sources of funds that would 

enable the debtor to make the required payments on the reaffirmed 

debt. If the presumption is not rebutted to the satisfaction of the 

court, the court may disapprove the reaffirmation agreement. No 

reaffirmation agreement may be disapproved without notice and 

hearing to the debtor and creditor. The hearing must be concluded 

before the entry of the debtor’s discharge. The requirements set 

forth in this paragraph do not apply to reaffirmation agreements 

if the creditor is a credit union. 

Section 203(b) amends title 18 of the United States Code to require the Attorney General to designate a United States Attorney 

for each judicial district and to appoint a Federal Bureau of Investigation agent for each field office to have primary law enforcement 

responsibilities for violations of sections 152 and 157 of title 18 

with respect to abusive reaffirmation agreements and materially 

fraudulent statements in bankruptcy schedules that are intentionally false or misleading. In addition, section 203(b) provides 

that the designated United States Attorney has primary responsibility with respect to bankruptcy investigations under section 3057 

of title 18. Section 203(b) further provides that the bankruptcy 

courts must establish procedures for referring any case in which a 

materially fraudulent bankruptcy schedule has been filed. 

Sec. 204. Preservation of Claims and Defenses Upon Sale of Predatory Loans. Section 204 of the Act adds a provision to section 363 

of the Bankruptcy Code with respect to sales of any interest in a 

consumer transaction that is subject to the Truth in Lending Act 

or any interest in a consumer credit contract (as defined in section 

433.1 of title 16 of the Code of Federal Regulations). It provides 

that the purchaser of such interest remains subject to all claims 

59 

and defenses that are related to such assets to the same extent as 

that person would be subject to if the sale was not conducted under 

section 363. 

Sec. 205. GAO Study and Report on Reaffirmation Agreement Process. Section 205 of the Act directs the Comptroller General of the 

United States to report to Congress on how consumers are treated 

in connection with the reaffirmation agreement process. This report 

must include: (1) the policies and activities of creditors with respect 

to reaffirmation agreements; and (2) whether such consumers are 

fully, fairly, and consistently informed of their rights under the 

Bankruptcy Code. The report, which must be completed not later 

than 18 months after the date of enactment of this Act, may include recommendations for legislation to address any abusive or coercive tactics found in connection with the reaffirmation process. 

Subtitle B. Priority Child Support 

Sec. 211. Definition of Domestic Support Obligation. Section 211 of 

the Act amends section 101 of the Bankruptcy Code to define a domestic support obligation as a debt that accrues before, on, or after 

the date of the order for relief and that it includes interest that accrues pursuant to applicable nonbankruptcy law. As defined in the 

Act, the term includes a debt owed to or recoverable by: (1) a 

spouse, former spouse, or child of the debtor, or such child’s parent, 

legal guardian, or responsible relative; or (2) a governmental unit. 

To qualify as a domestic support obligation, the debt must be in the 

nature of alimony, maintenance, or support (including assistance 

provided by a governmental unit), without regard to whether such 

debt is expressly so designated. It must be established or subject 

to establishment before, on, or after the date of the order of relief 

pursuant to: (1) a separation agreement, divorce decree, or property 

settlement agreement; (2) an order of a court of record; or (3) a determination made in accordance with applicable nonbankruptcy 

law by a governmental unit. It does not apply to a debt assigned 

to a nongovernmental entity, unless it was assigned voluntarily by 

the spouse, former spouse, child, or parent solely for the purpose 

of collecting the debt. 

Sec. 212. Priorities for Claims for Domestic Support Obligations. 

Section 212 of the Act amends section 507(a) of the Bankruptcy 

Code to accord first priority in payment to allowed unsecured 

claims for domestic support obligations that, as of the petition date, 

are owed to or recoverable by a spouse, former spouse, or child of 

the debtor, or the parent, legal guardian, or responsible relative of 

such child, without regard to whether such claim is filed by the 

claimant or by a governmental unit on behalf of such claimant, on 

the condition that funds received by such unit under this provision 

be applied and distributed in accordance with nonbankruptcy law. 

Subject to these claims, section 212 accords the same payment priority to allowed unsecured claims for domestic support obligations 

that, as of the petition date, were assigned by a spouse, former 

spouse, child of the debtor, or such child’s parent, legal guardian, 

or responsible relative to a governmental unit (unless the claimant 

assigned the claim voluntarily for the purpose of collecting the 

debt), or are owed directly to or recoverable by a governmental unit 

under applicable nonbankruptcy law, on the condition that funds 

60 

received by such unit under this provision be applied and distributed in accordance with nonbankruptcy law. Where a trustee administers assets that may be available for payment of domestic 

support obligations under section 507(a)(1) (as amended), administrative expenses of the trustee allowed under section 503(b)(1)(A), 

(2) and (6) of the Bankruptcy Code must be paid before such claims 

to the extent the trustee administers assets that are otherwise 

available for the payment of these claims. 

Sec. 213. Requirements To Obtain Confirmation and Discharge in 

Cases Involving Domestic Support Obligations. With respect to 

chapter 11 cases, section 213(1) adds a condition for confirmation 

of a plan. It amends section 1129(a) of the Bankruptcy Code to provide that if a chapter 11 debtor is required by judicial or administrative order or statute to pay a domestic support obligation, then 

the debtor must pay all amounts payable under such order or statute that became payable postpetition as a prerequisite for confirmation. 

With respect to chapter 12 cases, section 213(2) of the Act 

amends section 1208(c) of the Bankruptcy Code to provide that the 

failure of a debtor to pay any domestic support obligation that first 

becomes payable postpetition is cause for conversion or dismissal of 

the case. Section 213(3) amends Bankruptcy Code section 1222(a) 

to permit a chapter 12 debtor to propose a plan paying less than 

full payment of all amounts owed for a claim entitled to priority 

under Bankruptcy Code section 507(a)(1)(B) if all of the debtor’s 

projected disposable income for a five-year period is applied to 

make payments under the plan. Section 213(4) of the Act amends 

Bankruptcy Code section 1222(b) to permit a chapter 12 debtor to 

propose a plan that pays postpetition interest on claims that are 

nondischargeable under Section 1228(a), but only to the extent that 

the debtor has disposable income available to pay such interest 

after payment of all allowed claims in full. Section 213(5) amends 

Bankruptcy Code section 1225(a) to provide that if a chapter 12 

debtor is required by judicial or administrative order or statute to 

pay a domestic support obligation, then the debtor must pay such 

obligations pursuant to such order or statute that became payable 

postpetition as a condition of confirmation. Section 213(6) amends 

Bankruptcy Code section 1228(a) to condition the granting of a 

chapter 12 discharge upon the debtor’s payment of certain 

postpetition domestic support obligations. 

With respect to chapter 13 cases, section 213(7) of the Act 

amends Bankruptcy Code section 1307(c) to provide that the failure 

of a debtor to pay any domestic support obligation that first becomes payable postpetition is cause for conversion or dismissal of 

the debtor’s case. Section 213(8) amends Bankruptcy Code section 

1322(a) to permit a chapter 13 debtor to propose a plan paying less 

than the full amount of a claim entitled to priority under Bankruptcy Code section 507(a)(1)(B) if the plan provides that all of the 

debtor’s projected disposable income over a five-year period will be 

applied to make payments under the plan. Section 213(9) amends 

Bankruptcy Code section 1322(b) to permit a chapter 13 debtor to 

propose a plan that pays postpetition interest on nondischargeable 

debts under section 1328(a), but only to the extent that the debtor 

has disposable income available to pay such interest after payment 

in full of all allowed claims. Section 213(10) amends Bankruptcy 

61 

Code section 1325(a) to provide that if a chapter 13 debtor is required by judicial or administrative order or statute to pay a domestic support obligation, then the debtor must pay all such obligations pursuant to such order or statute that became payable 

postpetition as a condition of confirmation. Section 213(11) amends 

Bankruptcy Code section 1328(a) to condition the granting of a 

chapter 13 discharge on the debtor’s payment of certain 

postpetition domestic support obligations. 

Sec. 214. Exceptions To Automatic Stay in Domestic Support Proceedings. Under current law, section 362(b)(2) of the Bankruptcy 

Code excepts from the automatic stay the commencement or continuation of an action or proceeding: (1) for the establishment of 

paternity; or (2) the establishment or modification of an order for 

alimony, maintenance or support. It also permits the collection of 

such obligations from property that is not property of the estate. 

Section 214 makes several revisions to Bankruptcy Code section 

362(b)(2). First, it replaces the reference to ‘‘alimony, maintenance 

or support’’ with ‘‘domestic support obligations.’’ Second, it adds to 

section 362(b)(2) actions or proceedings concerning: (1) child custody or visitation; (2) the dissolution of a marriage (except to the 

extent such proceeding seeks division of property that is property 

of the estate); and (3) domestic violence. Third, it permits the withholding of income that is property of the estate or property of the 

debtor for payment of a domestic support obligation under a judicial or administrative order as well as the withholding, suspension, 

or restriction of a driver’s license, or a professional, occupational or 

recreational license under state law, pursuant to section 466(a)(16) 

of the Social Security Act. Fourth, it authorizes the reporting of 

overdue support owed by a parent to any consumer reporting agency pursuant to section 466(a)(7) of the Social Security Act. Fifth, it 

permits the interception of tax refunds as authorized by sections 

464 and 466(a)(3) of the Social Security Act or analogous state law. 

Sixth, it allows medical obligations, as specified under title IV of 

the Social Security Act, to be enforced notwithstanding the automatic stay. 

Sec. 215. Nondischargeability of Certain Debts for Alimony, Maintenance, and Support. Section 215 of the Act amends Bankruptcy 

Code section 523(a)(5) to provide that a ‘‘domestic support obligation’’ (as defined in section 211 of the Act) is nondischargeable and 

eliminates Bankruptcy Code section 523(a)(18). Section 215(2) 

amends Bankruptcy Code section 523(c) to delete the reference to 

section 523(a)(15) in that provision. Section 215(3) amends section 

523(a)(15) to provide that obligations to a spouse, former spouse, or 

a child of the debtor (not otherwise described in section 523(a)(5)) 

incurred in connection with a divorce or separation or related action are nondischargeable irrespective of the debtor’s inability to 

pay such debts. 

Sec. 216. Continued Liability of Property. Section 216(1) of the Act 

amends section 522(c) of the Bankruptcy Code to make exempt 

property liable for nondischargeable domestic support obligations 

notwithstanding any contrary provision of applicable nonbankruptcy law. Section 216(2) and (3) make conforming amendments 

to sections 522(f)(1)(A) and 522(g)(2) of the Bankruptcy Code. 

62 

Sec. 217. Protection of Domestic Support Claims Against Preferential Transfer Motions. Section 217 of the Act makes a conforming amendment to Bankruptcy Code section 547(c)(7) to provide that a bona fide payment of a debt for a domestic support obligation may not be avoided as a preferential transfer. 

Sec. 218. Disposable Income Defined. Section 218 of the Act amends 

section 1225(b)(2)(A) of the Bankruptcy Code to provide that disposable income in a chapter 12 case does not include payments for 

postpetition domestic support obligations. 

Sec. 219. Collection of Child Support. Section 219 amends sections 

704, 1106, 1202, and 1302 of the Bankruptcy Code to require trustees in chapter 7, 11, 12, and 13 cases to provide certain notices to 

child support claimants and governmental enforcement agencies. In 

addition, the Act conforms internal statutory cross references to 

Bankruptcy Code section 523(a)(14A) and deletes the reference to 

Bankruptcy Code section 523(a)(14) with respect to chapter 13, as 

this provision is inapplicable to that chapter. 

Section 219(a) requires a chapter 7 trustee to provide written notice to a domestic support claimant of the right to use the services 

of a state child support enforcement agency established under sections 464 and 466 of the Social Security Act in the state where the 

claimant resides for assistance in collecting child support during 

and after the bankruptcy case. The notice must include the agency’s address and telephone number as well as explain the claimant’s right to payment under the applicable chapter of the Bankruptcy Code. In addition, the trustee must provide written notice 

to the claimant and the agency of such claim and include the name, 

address, and telephone number of the child support claimant. At 

the time the debtor is granted a discharge, the trustee must notify 

both the child support claimant and the agency that the debtor was 

granted a discharge as well as supply them with the debtor’s last 

known address, the last known name and address of the debtor’s 

employer, and the name of each creditor holding a debt that is not 

discharged under section 523(a)(2), (4) or (14A) or holding a debt 

that was reaffirmed pursuant to Bankruptcy Code section 524. A 

claimant or agency may request the debtor’s last known address 

from a creditor holding a debt that is not discharged under section 

523(a)(2), (4) or (14A) or that is reaffirmed pursuant to section 524 

of the Bankruptcy Code. A creditor who discloses such information, 

however, is not liable to the debtor or any other person by reason 

of such disclosure. Subsections (b), (c), and (d) of section 219 of the 

Act impose comparable requirements for chapter 11, 12, and 13 

trustees. 

Sec. 220. Nondischargeability of Certain Educational Benefits and 

Loans. Section 220 of the Act amends section 523(a)(8) of the Bankruptcy Code to provide that a debt for a qualified education loan 

(as defined in section 221(e)(1) of the Internal Revenue Code) is 

nondischargeable, unless excepting such debt from discharge would 

impose an undue hardship on the debtor and the debtor’s dependents. 

Subtitle C. Other Consumer Protections 

Sec. 221. Amendments To Discourage Abusive Bankruptcy Filings. 

Section 221 of the Act makes a series of amendments to section 110 

63 

of the Bankruptcy Code. First, section 221 clarifies that the definition of a bankruptcy petition preparer does not include an attorney 

for a debtor or an employee of an attorney under the direct supervision of such attorney. Second, it amends subsections (b) and (c) 

of section 110 to provide that if a bankruptcy petition preparer is 

not an individual, then an officer, principal, responsible person, or 

partner of the preparer must sign certain documents filed in connection with the bankruptcy case as well as state the person’s 

name and address on such documents. Third, it requires a bankruptcy petition preparer to give the debtor written notice (as prescribed by the Judicial Conference of the United States) explaining 

that the preparer is not an attorney and may not practice law or 

give legal advice. The notice may include examples of legal advice 

that a preparer may not provide. Such notice must be signed by the 

preparer under penalty of perjury and the debtor and be filed with 

any document for filing. Fourth, the petition preparer is prohibited 

from giving legal advice, including with respect to certain specified 

items. Fifth, it permits the Supreme Court to promulgate rules or 

the Judicial Conference of the United States to issue guidelines for 

setting the maximum fees that a bankruptcy petition preparer may 

charge for services. Sixth, section 221 requires the preparer to notify the debtor of such maximum fees. Seventh, it specifies that the 

bankruptcy petition preparer must certify that it complied with 

this notification requirement. Eighth, it requires the court to order 

the turnover of any fees in excess of the value of the services rendered by the preparer within the 12-month period preceding the 

bankruptcy filing. Ninth, section 221 provides that all fees charged 

by a preparer may be forfeited if the preparer fails to comply with 

certain requirements specified in Bankruptcy Code section 110, as 

amended by this provision. Tenth, it allows a debtor to exempt fees 

recovered under this provision pursuant to Bankruptcy Code section 522(b). Eleventh, it specifically authorizes the court to enjoin 

a bankruptcy petition preparer who has violated a court order 

issued under section 110. Twelfth, it generally revises section 110’s 

penalty provisions and requires such penalties to be paid into a 

special fund of the United States trustee for the purpose of funding 

the enforcement of section 110 on a national basis. With respect to 

Bankruptcy Administrator districts, the funds are to be deposited 

as offsetting receipts pursuant to section 1931 of title 28 of the 

United States Code. 

Sec. 222. Sense of Congress. Section 222 of the Act expresses the 

sense of Congress that the states should develop personal finance 

curricula for use in elementary and secondary schools. 

Sec. 223. Additional Amendments to Title 11, United States Code. 

Section 223 of the Act amends section 507(a) of the Bankruptcy 

Code to accord a tenth-level priority to claims for death or personal 

injuries resulting from the debtor’s operation of a motor vehicle or 

vessel while intoxicated. 

Sec. 224. Protection of Retirement Savings in Bankruptcy. The intent of section 224 is to expand the protection for tax-favored retirement plans or arrangements that may not be already protected 

under Bankruptcy Code section 541(c)(2) pursuant to Patterson v. 

64 

84 504 U.S. 753 (1992). 

Shumate,84 or other state or Federal law. Subsection (a) of section 

224 of the Act amends section 522 of the Bankruptcy Code to permit a debtor to exempt certain retirement funds to the extent those 

monies are in a fund or account that is exempt from taxation under 

section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code and that have received a favorable determination pursuant to Internal Revenue Code section 7805 that is in effect as of 

the date of the commencement of the case. If the retirement monies 

are in a retirement fund that has not received a favorable determination, those monies are exempt if the debtor demonstrates that 

no prior unfavorable determination has been made by a court or 

the Internal Revenue Service, and the retirement fund is in substantial compliance with the applicable requirements of the Internal Revenue Code. If the retirement fund fails to be in substantial 

compliance with applicable requirements of the Internal Revenue 

Code, the debtor may claim the retirement funds as exempt if he 

or she is not materially responsible for such failure. This section 

also applies to certain direct transfers and rollover distributions. In 

addition, this provision ensures that the specified retirement funds 

are exempt under state as well as Federal law. 

Section 224(b) amends section 362(b) of the Bankruptcy Code to 

except from the automatic stay the withholding of income from a 

debtor’s wages pursuant to an agreement authorizing such withholding for the benefit of a pension, profit-sharing, stock bonus, or 

other employer-sponsored plan established under Internal Revenue 

Code section 401, 403, 408, 408A, 414, 457, or 501(c) to the extent 

that the amounts withheld are used solely to repay a loan from a 

plan as authorized by section 408(b)(1) of the Employee Retirement 

Income Security Act of 1974 or subject to Internal Revenue Code 

section 72(p) or with respect to a loan from certain thrift savings 

plans. Section 224(b) further provides that this exception may not 

be used to cause any loan made under a governmental plan under 

section 414(d) or a contract or account under section 403(b) of the 

Internal Revenue Code to be construed to be a claim or debt within 

the meaning of the Bankruptcy Code. 

Section 224(c) amends Bankruptcy Code section 523(a) to except 

from discharge any amount owed by the debtor to a pension, profitsharing, stock bonus, or other plan established under Internal Revenue Code section 401, 403, 408, 408A, 414, 457, or 501(c) under 

a loan authorized under section 408(b)(1) of the Employee Retirement Income Security Act of 1974 or subject to Internal Revenue 

Code section 72(p) or with respect to a loan from certain thrift savings plans. Section 224(c) further provides that this exception to 

discharge may not be used to cause any loan made under a governmental plan under section 414(d) or a contract or account under 

section 403(b) of the Internal Revenue Code to be construed to be 

a claim or debt within the meaning of the Bankruptcy Code. 

Section 224(d) amends Bankruptcy Code section 1322 to provide 

that a chapter 13 plan may not materially alter the terms of a loan 

described in section 362(b)(19) and that any amounts required to 

repay such loan shall not constitute ‘‘disposable income’’ under section 1325 of the Bankruptcy Code. 

65 

Section 224(e) amends section 522 of the Bankruptcy Code to impose a $1 million cap (periodically adjusted pursuant to section 104 

of the Bankruptcy Code to reflect changes in the Consumer Price 

Index) on the value of the debtor’s interest in an individual retirement account established under either section 408 or 408A of the 

Internal Revenue Code (other than a simplified employee pension 

account under section 408(k) or a simple retirement account under 

section 408(p) of the Internal Revenue Code) that a debtor may 

claim as exempt property. This limit applies without regard to 

amounts attributable to rollover contributions made pursuant to 

section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), or 403(b)(8) of the Internal Revenue Code and earnings thereon. The cap may be increased if required in the interests of justice. 

Sec. 225. Protection of Education Savings in Bankruptcy. Subsection (a) of section 225 of the Act amends section 541 of the 

Bankruptcy Code to provide that funds placed not later than 365 

days before the filing of the bankruptcy case in an education individual retirement account are not property of the estate if certain 

criteria are met. First, the designated beneficiary of such account 

must be a child, stepchild, grandchild or step-grandchild of the 

debtor for the taxable year during which funds were placed in the 

account. A legally adopted child or a foster child, under certain circumstances, may also qualify as a designated beneficiary. Second, 

such funds may not be pledged or promised to an entity in connection with any extension of credit and they may not be excess contributions (as described in section 4973(e) of the Internal Revenue 

Code). Funds deposited between 720 days and 365 days before the 

filing date are protected to the extent they do not exceed $5,000. 

Similar criteria apply with respect to funds used to purchase a tuition credit or certificate or to funds contributed to a qualified state 

tuition plan under section 529(b)(1)(A) of the Internal Revenue 

Code. Section 225(b) amends Bankruptcy Code section 521 to require a debtor to file with the court a record of any interest that 

the debtor has in an education individual retirement account or 

qualified state tuition program. 

Sec. 226. Definitions. Subsection (a) of section 226 of the Act 

amends section 101 of the Bankruptcy Code to add certain definitions with respect to debt relief agencies. Section 226(a)(1) defines 

an ‘‘assisted person’’ as a person whose debts consist primarily of 

consumer debts and whose nonexempt assets are less than 

$150,000. Section 226(a)(2) defines ‘‘bankruptcy assistance’’ as any 

goods or services sold or otherwise provided to an assisted person 

with the express or implied purpose of giving information, advice, 

or counsel; preparing documents for filing; or attending a meeting 

of creditors pursuant to section 341; appearing in a case or proceeding on behalf of a person; or providing legal representation in 

a case or proceeding under the Bankruptcy Code. Section 226(a)(3) 

defines a ‘‘debt relief agency’’ as any person (including a bankruptcy petition preparer) who provides bankruptcy assistance to an 

assisted person in return for the payment of money or other valuable consideration. The definition specifically excludes certain entities. First, it does not apply to a person who is an officer, director, 

employee, or agent of a person who provides bankruptcy assistance 

or of a bankruptcy petition preparer. Second, it is not applicable to 

66 

a nonprofit organization exemption from taxation under section 

501(c)(3) of the Internal Revenue Code. Third, it is inapplicable to 

a creditor who assisted such person to the extent the assistance 

pertained to the restructuring of any debt owed by the person to 

the creditor. Fourth, the definition does not apply to a depository 

institution (as defined in section 3 of the Federal Deposit Insurance 

Act), or any Federal or state credit union (as defined in section 101 

of the Federal Credit Union Act), as well as any affiliate or subsidiary of such depository institution or credit union. Fifth, an author, publisher, distributor, or seller of works subject to copyright 

protection under title 17 of the United States Code when acting in 

such capacity is not within the ambit of this definition. 

Section 226(b) amends section 104(B)(1) of the Bankruptcy Code 

to permit the monetary amount set forth in the definition of an ‘‘assisted person’’ to be automatically adjusted to reflect the change in 

the Consumer Price Index. 

Sec. 227. Restrictions on Debt Relief Agencies. Section 227 of the 

Act creates a new provision in the Bankruptcy Code intended to 

proscribe certain activities of a debt relief agency. It prohibits such 

agency from: (1) failing to perform any service that it informed an 

assisted person it would provide; (2) advising an assisted person to 

make an untrue and misleading statement (or that upon the exercise of reasonable care, should have been known to be untrue or 

misleading) in a document filed in a bankruptcy case; (3) misrepresenting the services it provides and the benefits and risks of bankruptcy; and (4) advising an assisted person or prospective assisted 

person to incur additional debt in contemplation of filing for bankruptcy relief or for the purpose of paying fees for services rendered 

by an attorney or petition preparer in connection with the bankruptcy case. Any waiver by an assisted person of the protections 

under this provision are unenforceable, except against a debt relief 

agency. 

In addition, section 227 imposes penalties for the violation of section 526, 527 or 528 of the Bankruptcy Code. First, any contract 

between a debt relief agency and an assisted person that does not 

comply with these provisions is void and may not be enforced by 

any state or Federal court or by any person, except an assisted person. Second, a debt relief agency is liable to an assisted person, 

under certain circumstances, for any fees or charges paid by such 

person to the agency, actual damages, and reasonable attorneys’

fees and costs. The chief law enforcement officer of a state who has 

reason to believe that a person has violated or is violating section 

526 may seek to have such violation enjoined and recover actual 

damages. Third, section 227 provides that the United States district court has concurrent jurisdiction of certain actions under section 526. Fourth, section 227 provides that sections 526, 527 and 

528 preempt inconsistent state law. In addition, it provides that 

these provisions do not limit or curtail the authority of a Federal 

court, a state, or a subdivision or instrumentality of a state, to determine and enforce qualifications for the practice of law before the 

Federal court or under the laws of that state. 

Sec. 228. Disclosures. Section 228 of the Act requires a debt relief 

agency to provide certain specified written notices to an assisted 

person. These include the notice required under section 342(b)(1) 

67 

(as amended by this Act) as well as a notice advising that: (1) all 

information the assisted person provides in connection with the 

case must be complete, accurate and truthful; (2) all assets and liabilities must be completely and accurately disclosed in the documents filed to commence the case, including the replacement value 

of each asset (if required) after reasonable inquiry to establish such 

value; (3) current monthly income, monthly expenses and, in a 

chapter 13 case, disposable income, must be stated after reasonable 

inquiry; and (4) the information an assisted person provides may 

be audited and that the failure to provide such information may result in dismissal of the case or other sanction including, in some 

instances, criminal sanctions. In addition, the agency must supply 

certain specified advisories and explanations regarding the bankruptcy process. Further, this provision requires the agency to advise an assisted person (to the extent permitted under nonbankruptcy law) concerning asset valuation, the calculation of disposable income, and the determination of exempt property. 

Sec. 229. Requirements for Debt Relief Agencies. Section 229 adds 

a provision to the Bankruptcy Code requiring a debt relief agency— not later than five business days after the first date on which it 

provides any bankruptcy assistance services to an assisted person 

(but prior to such assisted person’s bankruptcy petition being 

filed)—to execute a written contract with the assisted person. The 

contract must specify clearly and conspicuously the services the 

agency will provide, the basis on which fees will be charged for 

such services, and the terms of payment. The assisted person must 

be given a copy of the fully executed and completed. The debt relief 

agency must include certain specified mandatory statements in any 

advertisement of bankruptcy assistance services or regarding the 

benefits of bankruptcy that is directed to the general public whether through the general media, seminars, specific mailings, telephonic or electronic messages, or otherwise. 

Sec. 230. GAO Study. Section 230 of the Act directs the Comptroller General of the United States to study and prepare a report 

on the feasibility, efficacy and cost of requiring trustees to supply 

certain specified information about a debtor’s bankruptcy case to 

the Office of Child Support Enforcement for the purpose of determining whether a debtor has outstanding child support obligations. 

Sec. 231. Protection of Personally Identifiable Information. Section 

231 of the Act clarifies that it applies to personally identifiable information and does not preempt applicable nonbankruptcy law. In 

addition, the provision specifies that court approval must be preceded by the appointment of a privacy ombudsman to effectuate the 

intent of this provision. 

Subsection (a) amends Bankruptcy Code section 363(b)(1) to provide that if a debtor, in connection with offering a product or service, discloses to an individual a policy prohibiting the transfer of 

personally identifiable information to persons unaffiliated with the 

debtor, and the policy is in effect at the time of the bankruptcy filing, then the trustee may not sell or lease such information unless 

either of the following conditions is satisfied: (1) the sale is consistent with such policy; or (2) the court, after appointment of a 

consumer privacy ombudsman (pursuant to section 332 of the 

Bankruptcy Code, as amended) and notice and hearing, the court 

68 

approves the sale or lease upon due consideration of the facts, circumstances, and conditions of the sale or lease. 

Section 231(b) amends Bankruptcy Code section 101 to add a definition of ‘‘personally identifiable information.’’ The term applies to 

information provided by an individual to the debtor in connection 

with obtaining a product or service from the debtor primarily for 

personal, family, or household purposes. It includes the individual’s: (1) first name or initial and last name (whether given at 

birth or adoption or legally changed); (2) physical home address; (3) 

electronic address, including an e-mail address; (4) home telephone 

number; (5) Social Security account number; or (vi) credit card account number. The term also includes information if it is identified 

in connection with the above items: (1) an individual’s birth date, 

birth or adoption certificate number, or place of birth; or (2) any 

other information concerning an identified individual that, if disclosed, will result in the physical or electronic contacting or identification of that person. 

Sec. 232. Consumer Privacy Ombudsman. Section 232 implements 

the preceding provision of the Act with respect to the appointment 

and responsibilities of a consumer privacy ombudsman. It provides 

that if a hearing is required under section 363(b)(1)(B) (as amended), the court must order the United States trustee to appoint a 

disinterested person to serve as the consumer privacy ombudsman 

and to provide timely notice of the hearing to such person. It permits the ombudsman to appear and be heard at such hearing. The 

ombudsman must provide the court with information to assist its 

consideration of the facts, circumstances and conditions of the proposed sale or lease of personally identifiable information. The information may include a presentation of the debtor’s privacy policy, 

potential losses or gains of privacy to consumers if the sale or lease 

is approved, potential costs or benefits to consumers if the sale or 

lease is approved, and possible alternatives that would mitigate potential privacy losses or costs to consumers. Section 232 prohibits 

the ombudsman from disclosing any personally identifiable information obtained in the case by such individual. In addition, the 

provision amends Bankruptcy Code section 330(a)(1) to permit an 

ombudsman to be compensated. 

Sec. 233. Prohibition on Disclosure of Name of Minor Children. Section 233 of the Act adds a new provision to the Bankruptcy Code 

(section 112) specifying that a debtor may be required to provide 

information regarding his or her minor child in connection with the 

bankruptcy case, but such debtor may not be required to disclose 

the child’s name in the public records. It provides, however, that 

the debtor may be required to disclose this information in a nonpublic record maintained by the court, which may be available for 

inspection by the United States trustee, trustee or an auditor, if 

any. Section 233 prohibits the court, United States trustee, trustee, 

or auditor from disclosing such minor child’s name. 

Sec. 234. Protection of Personal Information. Bankruptcy Code section 107, with certain exceptions, provides that all papers filed in 

a bankruptcy case are public records. Exceptions include trade secrets, confidential research, and scandalous or defamatory matter. 

Section 234(a) adds a new provision to section 107 that permits a 

bankruptcy court to prohibit the disclosure of certain types of inforVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00072 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
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85PUB. L. NO. 104–134, § 804(b) (1996). 

mation concerning an individual to the extent the court finds that 

disclosure of such information would create undue risk of identity 

theft or other unlawful injury to the individual or the individual’s 

property. The protected information includes any means of identification as defined in 18 U.S.C. § 1028(d) that is contained in a document filed in a bankruptcy case. The bankruptcy court must provide access to information protected under this new provision to an 

entity acting pursuant to the police or regulatory power of a domestic governmental unit upon ex parte application demonstrating 

cause. The provision also provides that the United States trustee, 

bankruptcy administrator, trustee, and any auditor serving pursuant to section 586(f) of title 28 of the United States Code shall have 

access to all information contained in a bankruptcy case and that 

such persons shall not disclose information specifically protected by 

the court. Section 234(b) amends Bankruptcy Code section 342(c), 

which requires a debtor to disclose in any notice required by the 

debtor to be given to a creditor to include the debtor’s taxpayer 

identification number. Section 234(b) requires the debtor only to 

supply the last four digits of the taxpayer identification number. If, 

however, the notice concerns an amendment that adds a creditor 

to the schedules of assets or liabilities, the debtor must include the 

full taxpayer identification number in the notice sent to such creditor. The notice filed with the court must only include the last four 

digits of such notice. 

TITLE III. DISCOURAGING BANKRUPTCY ABUSE

Sec. 301. Technical Amendments. Section 301 of the Act makes a 

clarifying amendment to section 523(a)(17) of the Bankruptcy Code 

concerning the dischargeability of court fees incurred by prisoners. 

Section 523(a)(17) was added to the Bankruptcy Code by the Omnibus Consolidated Rescissions and Appropriations Act of 1996 85 to 

except from discharge the filing fees and related costs and expenses 

assessed by a court in a civil case or appeal. As the result of a 

drafting error, however, this provision might be construed to apply 

to filing fees, costs or expenses incurred by any debtor, not solely 

by those who are prisoners. The amendment eliminates this ambiguity and makes other conforming changes to narrow its application in accordance with its original intent. 

Sec. 302. Discouraging Bad Faith Repeat Filings. Section 302 of the 

Act amends section 362(c) of the Bankruptcy Code to terminate the 

automatic stay within 30 days in a chapter 7, 11, or 13 case filed 

by or against an individual if such individual was a debtor in a previously dismissed case pending within the preceding one-year period. The provision does not apply to a case refiled under a chapter 

other than chapter 7 after dismissal of the prior chapter 7 case 

pursuant to section 707(b) of the Bankruptcy Code. Upon motion of 

a party in interest, the court may continue the automatic stay after 

notice and a hearing completed prior to the expiration of the 30- 

day period if such party demonstrates that the latter case was filed 

in good faith as to the creditors who are stayed by the filing. 

For purposes of this provision, a case is presumptively not filed 

in good faith as to all creditors (but such presumption may be rebutted by clear and convincing evidence) if: (1) more than one 

70 

bankruptcy case under chapter 7, 11 or 13 was previously filed by 

the debtor within the preceding one-year period; (2) the prior chapter 7, 11, or 13 case was dismissed within the preceding year for 

the debtor’s failure to (a) file or amend without substantial excuse 

a document required under the Bankruptcy Code or court order, (b) 

provide adequate protection ordered by the court, or (c) perform the 

terms of a confirmed plan; or (3) there has been no substantial 

change in the debtor’s financial or personal affairs since the dismissal of the prior case, or there is no reason to conclude that the 

pending case will conclude either with a discharge (if a chapter 7 

case) or confirmation (if a chapter 11 or 13 case). In addition, section 302 provides that a case is presumptively deemed not to be 

filed in good faith as to any creditor who obtained relief from the 

automatic stay in the prior case or sought such relief in the prior 

case and such action was pending at the time of the prior case’s 

dismissal. The presumption may be rebutted by clear and convincing evidence. A similar presumption applies if two or more 

bankruptcy cases were pending in the one-year preceding the filing 

of the pending case. 

Sec. 303. Curbing Abusive Filings. Section 303 of the Act is intended to reduce abusive filings. Subsection (a) amends Bankruptcy 

Code section 362(d) to add a new ground for relief from the automatic stay. Under this provision, cause for relief from the automatic stay may be established for a creditor whose claim is secured 

by an interest in real property, if the court finds that the filing of 

the bankruptcy case was part of a scheme to delay, hinder and defraud creditors that involved either: (1) a transfer of all or part of 

an ownership interest in real property without such creditor’s consent or without court approval; or (2) multiple bankruptcy filings 

affecting the real property. If recorded in compliance with applicable state law governing notice of an interest in or a lien on real 

property, an order entered under this provision is binding in any 

other bankruptcy case for two years from the date of entry of such 

order. A debtor in a subsequent case may move for relief based 

upon changed circumstances or for good cause shown after notice 

and a hearing. Section 303(a) further provides that any federal, 

state or local governmental unit that accepts a notice of interest or 

a lien in real property, must accept a certified copy of an order entered under this provision. 

Section 303(b) amends Bankruptcy Code section 362(b) to except 

from the automatic stay an act to enforce any lien against or security interest in real property within two years following the entry 

of an order entered under section 362(d)(4). A debtor, in a subsequent case, may move for relief from such order based upon 

changed circumstances or for other good cause shown after notice 

and a hearing. Section 303(b) also provides that the automatic stay 

does not apply in a case where the debtor: (1) is ineligible to be a 

debtor in a bankruptcy case pursuant to section 109(g) of the Bankruptcy Code; or (2) filed the bankruptcy case in violation of an 

order issued in a prior bankruptcy case prohibiting the debtor from 

being a debtor in a subsequent bankruptcy case. 

Sec. 304. Debtor Retention of Personal Property Security. Section 

304(1) of the Act amends section 521(a) of the Bankruptcy Code to 

provide that an individual who is a chapter 7 debtor may not retain 

71 

possession of personal property securing, in whole or in part, a purchase money security interest unless the debtor, within 45 days 

after the first meeting of creditors, enters into a reaffirmation 

agreement with the creditor, or redeems the property. If the debtor 

fails to so act within the prescribed period, the property is not subject to the automatic stay and is no longer property of the estate. 

An exception applies if the court: (1) determines on motion of the 

trustee filed before the expiration of the 45-day period that the 

property has consequential value or would benefit the bankruptcy 

estate; (2) orders adequate protection of the creditor’s interest; and 

(3) directs the debtor to deliver any collateral in the debtor’s possession. Section 304(2) amends section 722 to clarify that a chapter 

7 debtor must pay the redemption value in full at the time of redemption. 

Sec. 305. Relief from the Automatic Stay When the Debtor Does Not 

Complete Intended Surrender of Consumer Debt Collateral. Paragraph (1) of section 305 of the Act amends Bankruptcy Code section 

362 to terminate the automatic stay with respect to personal property of the estate or of the debtor in a chapter 7, 11, or 13 case 

(where the debtor is an individual) that secures a claim (in whole 

or in part) or is subject to an unexpired lease if the debtor fails to: 

(1) file timely a statement of intention as required by section 

521(a)(2) of the Bankruptcy Code with respect to such property; or 

(2) indicate in such statement whether the property will be surrendered or retained, and if retained, whether the debtor will redeem 

the property or reaffirm the debt, or assume an unexpired lease, 

if the trustee does not. Likewise, the automatic stay is terminated 

if the debtor fails to take the action specified in the statement of 

intention in a timely manner, unless the statement specifies reaffirmation and the creditor refuses to enter into the reaffirmation 

agreement on the original contract terms. In addition to terminating the automatic stay, this provision renders such property to 

be no longer property of the estate. An exception pertains where 

the court determines, on the motion of the trustee made prior to 

the expiration of the applicable time period under section 521(a)(2), 

and after notice and a hearing, that such property is of consequential value or benefit to the estate, orders adequate protection of the 

creditor’s interest, and directs the debtor to deliver any collateral 

in the debtor’s possession. 

Section 305(2) amends section 521 of the Bankruptcy Code to 

make the requirement to file a statement of intention applicable to 

all secured debts, not just secured consumer debts. In addition, it 

requires the debtor to effectuate his or her stated intention within 

30 days from the first date set for the meeting of creditors. If the 

debtor fails to timely undertake certain specified actions with respect to property that a lessor or bailor owns and has leased, 

rented or bailed to the debtor or in which a creditor has a security 

interest (not otherwise avoidable under section 522(f), 544, 545, 

547, 548 or 549 of the Bankruptcy Code), then nothing in the 

Bankruptcy Code shall prevent or limit the operation of a provision 

in a lease or agreement that places the debtor in default by reason 

of the debtor’s bankruptcy or insolvency. 

Sec. 306. Giving Secured Creditors Fair Treatment in Chapter 13. 

Subsection (a) of section 306 of the Act amends Bankruptcy Code 

72 

section 1325(a)(5)(B)(i) to require—as a condition of confirmation—

that a chapter 13 plan provide that a secured creditor retain its 

lien until the earlier of when the underlying debt is paid or the 

debtor receives a discharge. If the case is dismissed or converted 

prior to completion of the plan, the secured creditor is entitled to 

retain its lien to the extent recognized under applicable nonbankruptcy law. 

Section 306(b) adds a new paragraph to section 1325(a) of the 

Bankruptcy Code specifying that Bankruptcy Code section 506 does 

not apply to a debt incurred within the two and one-half year period preceding the filing of the bankruptcy case if the debt is secured by a purchase money security interest in a motor vehicle acquired for the personal use of the debtor within 910 days preceding 

the filing of the petition. Where the collateral consists of any other 

type of property having value, section 306(b) provides that section 

506 of the Bankruptcy Code does not apply if the debt was incurred 

during the one-year period preceding the filing of the bankruptcy 

case. 

Section 306(c)(1) amends section 101 of the Bankruptcy Code to 

define the term ‘‘debtor’s principal residence’’ as a residential structure (including incidental property) without regard to whether or 

not such structure is attached to real property. The term includes 

an individual condominium or cooperative unit as well as a mobile 

or manufactured home, or a trailer. 

Section 306(c)(2) amends section 101 of the Bankruptcy Code to 

define the term ‘‘incidental property’’ as property commonly conveyed with a principal residence in the area where the real property is located. The term includes all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights 

or profits, water rights, escrow funds, and insurance proceeds. Further, the term encompasses all replacements and additions. 

Sec. 307. Domiciliary Requirements for Exemptions. Section 307 of 

the Act amends section 522(b)(2)(A) of the Bankruptcy Code to extend the time that a debtor must be domiciled in a state from 180 

days to 730 days before he or she may claim that state’s exemptions. If the debtor’s domicile has not been located in a single state 

for the 730-day period, then the state where the debtor was domiciled in the 180-day period preceding the 730-day period (or the 

longer portion of such 180-day period) controls. If the effect of this 

provision is to render the debtor ineligible for any exemption, the 

debtor may elect to exempt property of the kind described in the 

Federal exemption notwithstanding the state has opted out of the 

Federal exemption allowances. 

Sec. 308. Reduction of Homestead Exemption for Fraud. Section 308 

amends section 522 of the Bankruptcy Code to reduce the value of 

a debtor’s interest in the following property that may be claimed 

as exempt under certain circumstances: (i) real or personal property that the debtor or a dependent of the debtor uses as a residence, (ii) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, (iii) a burial plot, or (iv) 

real or personal property that the debtor or dependent of the debtor 

claims as a homestead. Where nonexempt property is converted to 

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duced to the extent such value was acquired with the intent to 

hinder, delay or defraud a creditor. 

Sec. 309. Protecting Secured Creditors in Chapter 13 Cases. Section 

309(a) of the Act amends Bankruptcy Code section 348(f)(1)(B) to 

provide that valuations of property and allowed secured claims in 

a chapter 13 case only apply if the case is subsequently converted 

to one under chapter 11 or 12. If the chapter 13 case is converted 

to one under chapter 7, then the creditor holding security as of the 

petition date shall continue to be secured unless its claim was paid 

in full as of the conversion date. In addition, unless a 

prebankruptcy default has been fully cured at the time of conversion, then the default in any bankruptcy proceeding shall have the 

effect given under applicable nonbankruptcy law. 

Section 309(b) amends section 365 of the Bankruptcy Code to 

provide that if a lease of personal property is rejected or not assumed by the trustee in a timely manner, such property is no 

longer property of the estate and the automatic stay under Bankruptcy Code section 362 with respect to such property is terminated. With regard to a chapter 7 case in which the debtor is an 

individual, the debtor may notify the creditor in writing of his or 

her desire to assume the lease. Upon being so notified, the creditor 

may, at its option, inform the debtor that it is willing to have the 

lease assumed and condition such assumption on cure of any outstanding default on terms set by the contract. If within 30 days 

after such notice the debtor gives written notice to the lessor that 

the lease is assumed, the debtor (not the bankruptcy estate) assumes the liability under the lease. Section 309(b) provides that 

the automatic stay of section 362 and the discharge injunction of 

section 524 are not violated if the creditor notifies the debtor and 

negotiates a cure under section 365(p)(2) (as amended). In a chapter 11 or 13 case where the debtor is an individual lessee with respect to a personal property lease and the lease is not assumed in 

the confirmed plan, the lease is deemed rejected as of the conclusion of the confirmation hearing. If the lease is rejected, the automatic stay under section 362 as well as the chapter 13 codebtor 

stay under section 1301 are automatically terminated with respect 

to such property. 

Section 309(c)(1) amends Bankruptcy Code section 1325(a)(5)(B) 

to require that periodic payments pursuant to a chapter 13 plan 

with respect to a secured claim be made in equal monthly installments. Where the claim is secured by personal property, the 

amount of such payments shall not be less than the amount sufficient to provide adequate protection to the holder of such claim. 

Section 309(c)(2) amends section 1326(a) of the Bankruptcy Code to 

require a chapter 13 debtor to commence making payments within 

30 days after the filing of the plan or the order for relief, whichever 

is earlier. The amount of such payment must be the amount proposed in the plan, scheduled in a personal property lease for that 

portion of the obligation that becomes due postpetition (which 

amount shall reduce the payment required to be made to such lessor pursuant to the plan), and provides adequate protection directly 

to a creditor holding an allowed claim secured by personal property 

to the extent the claim is attributable to the purchase of such property (which amount shall reduce the payment required to be made 

to such secured creditor pursuant to the plan). Payments made 

74 

pursuant to a plan must be retained by the chapter 13 trustee until 

confirmation or denial of confirmation. Section 309(c)(2) provides 

that if the plan is confirmed, the trustee must distribute payments 

received from the debtor as soon as practicable in accordance with 

the plan. If the plan is not confirmed, the trustee must return to 

the debtor payments not yet due and owing to creditors. Pending 

confirmation and subject to section 363, the court, after notice and 

a hearing, may modify the payments required under this provision. 

Section 309(c)(2) requires the debtor, within 60 days following the 

filing of the bankruptcy case, to provide reasonable evidence of any 

required insurance coverage with respect to the use or ownership 

of leased personal property or property securing, in whole or in 

part, a purchase money security interest. 

Sec. 310. Limitation on Luxury Goods. Section 310 amends section 

523(a)(2)(C) of the Bankruptcy Code. Under current law, consumer 

debts owed to a single creditor that, in the aggregate, exceed 

$1,075 for luxury goods or services incurred within 60 days before 

the commencement of the case are presumed to be nondischargeable. As amended, the presumption applies if the aggregate amount 

of consumer debts for luxury goods or services is more than $500 

for luxury goods or services incurred by an individual debtor within 

90 days before the order for relief. With respect to cash advances, 

current law provides that cash advances aggregating more than 

$1,075 that are extensions of consumer credit under an open-end 

credit plan obtained by an individual debtor within 60 days before 

the case is filed are presumed to be nondischargeable. As amended, 

section 523(a)(2)(C) presumes that cash advances aggregating more 

than $750 and that are incurred within 70 days are nondischargeable. The term, ‘‘luxury goods or services,’’ does not include goods 

or services reasonably necessary for the support or maintenance of 

the debtor or a dependent of the debtor. In addition, ‘‘an extension 

of consumer credit under an open-end credit plan’’ has the same 

meaning as this term has under the Consumer Credit Protection 

Act. 

Sec. 311. Automatic Stay. Section 311 of the Act amends section 

362(b) of the Bankruptcy Code to except from the automatic stay 

a judgment of eviction with respect to a residential leasehold under 

certain circumstances. It is the intent of this provision to create an 

exception to the automatic stay of section 362(a)(3) to permit the 

recovery of possession by rental housing providers of their property 

in certain circumstances where a judgment for possession has been 

obtained against a debtor/resident before the filing of the petition 

for bankruptcy. Section 311 is intended to apply to manufactured 

housing communities, where tenants own their own homes and pay 

monthly rent to community owners for the land upon which their 

home sits. Tenants who fail to pay rent for the land beneath their 

homes located in manufactured housing communities would no 

longer be able to avoid their rental obligations under the protection 

of the automatic stay. It is also the intent of this section to permit 

eviction actions based on illegal use of controlled substances or endangering property in certain circumstances. 

Section 311 gives tenants a reasonable amount of time after filing the petition to cure the default giving rise to the judgment for 

possession as long as there are circumstances in which applicable 

75 

86Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir.), cert. denied, 522 U.S. 966 

(1997). The bankruptcy trustee sought to avoid the lien created by the lenders’ deed of trust 

by asserting that the deed was an unauthorized, postpetition transfer under Bankruptcy Code 

section 549(a). The lenders claimed that the voluntary transfer to them was a transfer of real 

Continued 

nonbankruptcy law allows a default to be cured after a judgment 

has been obtained. Where nonbankruptcy law applicable in the jurisdiction does not permit a tenant to cure a monetary default after 

the judgment for possession has been obtained, the automatic stay 

of section 362(a)(3) does not operate to limit action by a rental 

housing provider to proceed with, or a marshal, sheriff, or similar 

local officer to execute, the judgment for possession. Where the 

debtor claims that applicable law permits a tenant to cure after the 

judgment for possession has been obtained, the automatic stay operates only where the debtor files a certification with the bankruptcy petition asserting that applicable law permits such action 

and that the debtor or an adult dependent of the debtor has paid 

to the court all rent that will come due during the 30 days following the filing of the petition. If, within thirty days following the 

filing of the petition, the debtor or an adult dependent of the debtor 

certifies that the entire monetary default that gave rise to the judgment for possession has been cured, the automatic stay remains in 

effect. If a lessor has filed or wishes to file an eviction action based 

on the use of illegal controlled substances or property 

endangerment, the section allows the lessor in certain cases to file 

a certification of such circumstance with the court and obtain an 

exception to the stay. 

For both the judgment based on monetary default and the controlled substance or endangerment exceptions, the section provides 

an opportunity for challenge by either the lessor or the tenant to 

certifications filed by the other party and a timely hearing for the 

court to resolve any disputed facts and rule on the factual or legal 

sufficiency of the certifications. Where the court finds for the lessor, 

the clerk shall immediately serve upon the parties a copy of the 

court’s order confirming that an exception to the automatic stay is 

applicable. Where the court finds for the tenant, the stay shall remain in effect. It is the intent of this section that the clerk’s certified copy of the docket or order shall be sufficient evidence that 

the exception under paragraph 22 or paragraph 23 is applicable for 

a marshal, sheriff, or similar local officer to proceed immediately 

to execute the judgment for possession if applicable law otherwise 

permits such action, or for an eviction action for use of illegal controlled substances or property endangerment to proceed. This section does not provide any new right to either landlords or tenants 

relating to evictions or defenses to eviction under otherwise applicable law. 

Section 311 also excepts from the automatic stay a transfer that 

is not avoidable under Bankruptcy Code section 544 and that is not 

avoidable under Bankruptcy Code section 549. This amendment responds to a 1997 Ninth Circuit case in which two purchase money 

lenders (without knowledge that the debtor had recently filed an 

undisclosed chapter 11 case that was later converted to chapter 7), 

funded the debtor’s acquisition of an apartment complex and recorded their purchase-money deed of trust immediately following 

recordation of the deed to the debtors.86

76 

property to good faith purchasers for value, which thereby excepted it, under Bankruptcy Code 

section 549(c) from avoidance. The bankruptcy court held that the postpetition recordation of 

the lenders’ deed of trust was without authorization under the Bankruptcy Code or by the court 

and was therefore avoidable under section 549(a) and that the lenders did not qualify under 

the section 549(c) exception as good faith purchasers of real property for value. The District 

Court subsequently affirmed the bankruptcy court’s ruling granting the trustee the authority 

to avoid the lenders’ lien. McConville v. David Margen and Lawton Associates (In re 

McConville), No. C 94–3308, 1994 U.S. Dist. LEXIS 18095 (N.D. Cal. Dec. 14, 1994). On appeal, 

the lower court’s decision in McConville was initially affirmed. Thompson v. Margen (In re 

McConville), 84 F.3d 340 (9th Cir. 1996). The Ninth Circuit, however, subsequently issued an 

amended opinion, also affirming the lower court, Thompson v. Margen (In re McConville), 97 

F.3d 316 (9th Cir. 1996), and finally issued an opinion withdrawing its prior opinion and deciding the case on other grounds. It held that by obtaining secured credit from the lenders after 

filing but before the appointment of a trustee, the debtors violated their fiduciary responsibility 

to their creditors. Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir. 1997). 

Sec. 312. Extension of Period Between Bankruptcy Discharges. Section 312 of the Act amends section 727(a)(8) of the Bankruptcy 

Code to extend the period before which a chapter 7 debtor may receive a subsequent chapter 7 discharge from six to eight years. It 

also amends section 1328 to prohibit the issuance of a discharge in 

a subsequent chapter 13 case if the debtor received a discharge in 

a prior chapter 7, 11, or 12 case within four years preceding the 

filing of the subsequent chapter 13 case. In addition, it prohibits 

the issuance of a discharge in a subsequent chapter 13 case if the 

debtor received a discharge in a chapter 13 case filed during the 

two-year period preceding the date of the filing of the subsequent 

chapter 13 case. 

Sec. 313. Definition of Household Goods and Antiques. Subsection 

(a) of section 313 of the Act amends section 522(f) of the Bankruptcy Code to codify a modified version of the Federal Trade Commission’s definition of ‘‘household goods’’ for purposes of the avoidance of a nonpossessory, nonpurchase money lien in such property. 

It also specifies various items that are expressly not household 

goods. Section 313 specifies a monetary threshold for the exclusions 

pertaining to electronic entertainment equipment, antiques, and 

jewelry. In addition, it provides that works of art are not household 

goods, unless by or of the debtor or by any relative of the debtor. 

Section 313(b) requires the Director of the Executive Office for 

United States Trustees to prepare a report containing findings with 

respect to the use of this definition. The report may include recommendations for amendments to the definition of ‘‘household 

goods’’ as codified in section 522(f)(4). 

Sec. 314. Debt Incurred To Pay Nondischargeable Debts. Subsection 

(a) of section 314 of the Act amends section 523(a) of the Bankruptcy Code to make a debt incurred to pay a nondischargeable tax 

owed to a governmental unit (other than a tax owed to the United 

States) nondischargeable. Section 314(b) amends section 1328(a) of 

the Bankruptcy Code to make the following additional debts nondischargeable in a chapter 13 case: (1) debts for money, property, 

services, or extensions of credit obtained through fraud or by a 

false statement in writing under section 523(a)(2)(A) and (B) of the 

Bankruptcy Code; (2) consumer debts owed to a single creditor that 

aggregate to more than $500 for luxury goods or services incurred 

by an individual debtor within 90 days before the filing of the 

bankruptcy case, and cash advances aggregating more than $750 

that are extensions of consumer credit obtained by a debtor under 

an open-end credit plan within 70 days before the order for relief 

under section 523(a)(2)(C) (as amended); (3) pursuant to section 

77 

523(a)(3) of the Bankruptcy Code, debts that require a timely request for a dischargeability determination, if the creditor lacks notice or does not have actual knowledge of the case in time to make 

such request; (4) debts resulting from fraud or defalcation by the 

debtor acting as a fiduciary under section 523(a)(4) of the Bankruptcy Code; and (5) debts for restitution or damages, awarded in 

a civil action against the debtor as a result of willful or malicious 

conduct by the debtor that caused personal injury to an individual 

or the death of an individual. 

Sec. 315. Giving Creditors Fair Notice in Chapters 7 and 13 Cases. 

Section 315 of the Act amends several provisions of the Bankruptcy 

Code. Subsection (a) amends Bankruptcy Code section 342(c) to delete the provision specifying that the failure of a notice to include 

certain information required to be given by a debtor to a creditor 

does not invalidate the notice’s legal effect. It adds a provision requiring a debtor to send any notice he or she must provide under 

the Bankruptcy Code to the address stated by the creditor and to 

include in such notice the current account number, if within 90 

days prior to the date that the debtor filed for bankruptcy relief the 

creditor in at least two communications sent to the debtor set forth 

such address and account number. If the creditor would be in violation of applicable nonbankruptcy law by sending any such communication during this time period, then the debtor must send the notice to the address provided by the creditor stated in the last two 

communications containing the creditor’s address and such notice 

shall include the current account number. Section 315(a) also permits a creditor in a chapter 7 or 13 case (where the debtor is an 

individual) to file with the court and serve on the debtor the address to be used to notify such creditor in that case. Five days after 

receipt of such notice, the court and the debtor, respectively, must 

use the address so specified to provide notice to such creditor. 

In addition, section 315(a) specifies that an entity may file a notice with the court stating an address to be used generally by all 

bankruptcy courts for chapter 7 and 13 cases, or by particular 

bankruptcy courts, as specified by such entity. This address must 

be used by the court to supply notice in such cases within 30 days 

following the filing of such notice where the entity is a creditor. Notice given other than as provided in section 342 is not effective 

until it has been brought to the creditor’s attention. If the creditor 

has designated a person or organizational subdivision to be responsible for receiving notices concerning bankruptcy cases and has established reasonable procedures so that these notices will be delivered to such person or subdivision, a notice will not be considered 

to have been brought to the attention of such creditor until it has 

been received by such person or subdivision. This provision also 

prohibits the imposition of any monetary penalty for violation of 

the automatic stay or for the failure to comply with the Bankruptcy 

Code sections 542 and 543 unless the creditor has received effective 

notice under section 342. 

Section 315(b) amends section 521 to specify additional duties of 

a debtor. This provision requires the debtor to file a certificate executed by the debtor’s attorney or bankruptcy petition preparer stating that the attorney or preparer supplied the debtor with the notice required under Bankruptcy Code section 342(b). If the debtor 

is not represented by counsel and did not use the services of a 

78 

bankruptcy petition preparer, then the debtor must sign a certificate stating that he or she obtained and read such notice. In addition, the debtor must file: (1) copies of all payment advices or other 

evidence of payment, if any, from any employer within 60 days preceding the bankruptcy filing; (2) a statement of the amount of 

monthly net income, itemized to show how such amount is calculated; and (3) a statement disclosing any reasonably anticipated 

increase in income or expenditures in the 12-month period following the date of filing. Upon request of a creditor, section 315(b) 

of the Act requires the court to make the petition, schedules, and 

statement of financial affairs of an individual who is a chapter 7 

or 13 debtor available to such creditor. 

In addition, section 315(b) requires such debtor to provide the 

trustee not later than seven days before the date first set for the 

meeting of creditors a copy of his or her Federal income tax return 

or transcript (at the election of the debtor) for the latest taxable period ending prior to the filing of the bankruptcy case for which a 

tax return was filed. Should the debtor fail to comply with this requirement, the case must be dismissed unless the debtor demonstrates that such failure was due to circumstances beyond the 

debtor’s control. Upon request, the debtor must provide a copy of 

the tax return or transcript to the requesting creditor at the time 

the debtor supplies the return or transcript to the trustee. A creditor in a chapter 13 case may, at any time, file a notice with the 

court requesting a copy of the plan. The court must supply a copy 

of the chapter 13 plan at a reasonable cost not later than 5 days 

after such request. In addition, the Act clarifies that this provision 

applies to Federal income tax returns. 

During the pendency of a chapter 7, 11 or 13 case, the debtor 

must file with the court, at the request of the judge, United States 

trustee, or any party in interest, at the time filed with the taxing 

authority, copies of any Federal income tax returns (or transcripts 

thereof) that were not filed for the three-year period preceding the 

date on which the order for relief was entered. In addition, the 

debtor must file copies of any amendments to such tax returns. 

In a chapter 13 case, the debtor must file a statement, under 

penalty of perjury, of income and expenditures in the preceding tax 

year and monthly income showing how the amounts were calculated. The statement must be filed on the date that is the later 

of 90 days after the close of the debtor’s tax year or one year after 

the order for relief, unless a plan has been confirmed. Thereafter, 

the statement must be filed on or before the date that is 45 days 

before the anniversary date of the plan’s confirmation, until the 

case is closed. The statement must disclose the amount and sources 

of the debtor’s income, the identity of any person responsible with 

the debtor for the support of the debtor’s dependents, the identity 

of any person who contributed to the debtor’s household expenses, 

and the amount of any such contributions. 

Section 315(b)(2) mandates that the tax returns, amendments 

thereto, and the statement of income and expenditures of an individual who is a chapter 7 or chapter 13 debtor be made available 

to the United States trustee or bankruptcy administrator, the 

trustee, and any party in interest for inspection and copying, subject to procedures established by the Director of the Administrative 

Office for United States Courts within 180 days from the date of 

79 

enactment of this Act. The procedures must safeguard the confidentiality of any tax information required under this provision and include restrictions on creditor access to such information. In addition, the Director must, within 540 days from the Act’s enactment 

date, prepare and submit to Congress a report that assesses the effectiveness of such procedures and, if appropriate, includes recommendations for legislation to further protect the confidentiality 

of such tax information and to impose penalties for its improper 

use. If requested by the United States trustee or trustee, the debtor 

must provide a document establishing the debtor’s identity, which 

may include a driver’s license, passport, or other document containing a photograph of the debtor, and such other personal identifying information relating to the debtor. 

Sec. 316. Dismissal for Failure To Timely File Schedules or Provide 

Required Information. Section 316 of the Act amends section 521 

of the Bankruptcy Code to provide that if an individual debtor in 

a voluntary chapter 7 or chapter 13 case fails to file all of the information required under section 521(a)(1) within 45 days of the date 

on which the case is filed, the case must be automatically dismissed, effective on the 46th day. The 45-day period may be extended for an additional 45-day period providing the debtor requests such extension prior to the expiration of the original 45-day 

period and the court finds justification for such extension. Upon request of a party in interest, the court must enter an order of dismissal within 5 days of such request. Section 316 provides that a 

court may decline to dismiss the case if: (1) the trustee files a motion before the stated time periods; (2) the court finds, after notice 

and a hearing, that the debtor in good faith attempted to file all 

the information required under section 521(a)(1)(B)(iv); and (3) the 

court finds that the best interests of creditors would be served by 

continued administration of the case. 

Sec. 317. Adequate Time To Prepare for Hearing on Confirmation 

of the Plan. Section 317 of the Act amends section 1324 of the 

Bankruptcy Code to require the chapter 13 confirmation hearing to 

be held not earlier than 20 days following the first date set for the 

meeting of creditors and not later than 45 days from this date, unless the court determines that it would be in the best interests of 

creditors and the estate to hold such hearing at an earlier date and 

there is no objection to such earlier date. 

Sec. 318. Chapter 13 Plans To Have a 5-Year Duration in Certain 

Cases. Paragraph (1) of section 318 of the Act amends Bankruptcy 

Code sections 1322(d) and 1325(b) to specify that a chapter 13 plan 

may not provide for payments over a period that is not less than 

five years if the current monthly income of the debtor and the debtor’s spouse combined exceeds certain monetary thresholds. If the 

current monthly income of the debtor and the debtor’s spouse fall 

below these thresholds, then the duration of the plan may not be 

longer than three years, unless the court, for cause, approves a 

longer period up to five years. The applicable commitment period 

may be less if the plan provides for payment in full of all allowed 

unsecured claims over a shorter period. Section 318(2), (3), and (4) 

make conforming amendments to sections 1325(b) and 1329(c) of 

the Bankruptcy Code. 

80 

Sec. 319. Sense of Congress Regarding Expansion of Rule 9011 of 

the Federal Rules of Bankruptcy Procedure. Section 319 of the Act 

expresses a sense of the Congress that Federal Rule of Bankruptcy 

Procedure 9011 be modified to require that all documents (including schedules), whether signed or unsigned, supplied to the court 

or the trustee by a debtor may be submitted only after the debtor 

or the debtor’s attorney has made reasonable inquiry to verify that 

the information contained in such documents is well-grounded in 

fact and warranted by existing law or a good faith argument for 

the extension, modification, or reversal of existing law. 

Sec. 320. Prompt Relief from Stay in Individual Cases. Section 320 

of the Act amends section 362(e) of the Bankruptcy Code to terminate the automatic stay in a chapter 7, 11, or 13 case of an individual debtor within 60 days following a request for relief from the 

stay, unless the bankruptcy court renders a final decision prior to 

the expiration of the 60-day time period, such period is extended 

pursuant to agreement of all parties in interest, or a specific extension of time is required for good cause as described in findings 

made by the court. 

Sec. 321. Chapter 11 Cases Filed by Individuals. Section 321(a) of 

the Act creates a new provision under chapter 11 of the Bankruptcy Code specifying that property of the estate of an individual 

debtor includes, in addition to that identified in section 541 of the 

Bankruptcy Code, all property of the kind described in section 541 

that the debtor acquires after commencement of the case, but before the case is closed, dismissed or converted to a case under chapter 7, 12, or 13 (whichever occurs first). In addition, it includes 

earnings from services performed by the debtor after commencement of the case, but before the case is closed, dismissed or converted to a case under chapter 7, 12, or 13. Except as provided in 

section 1104 of the Bankruptcy Code or the order confirming a 

chapter 11 plan, section 321(a) provides that the debtor remains in 

possession of all property of the estate. 

Section 321(b) amends Bankruptcy Code section 1123 to require 

the chapter 11 plan of an individual debtor to provide for the payment to creditors of all or such portion of the debtor’s earnings 

from personal services performed after commencement of the case 

or other future income that is necessary for the plan’s execution. 

Section 321(c) amends Bankruptcy Code section 1129(a) to include an additional requirement for confirmation in a chapter 11 

case of an individual debtor upon objection to confirmation by a 

holder of an allowed unsecured claim. In such instance, the value 

of property to be distributed under the plan on account of such 

claim, as of the plan’s effective date, must not be less than the 

amount of such claim; or be not less than the debtor’s projected disposable income (as defined in section 1325(b)(2)) to be received during the five-year period beginning on the date that the first payment is due under the plan or during the plan’s term, whichever 

is longer. Section 321(c) also amends section 1129(b)(2)(B)(ii) of the 

Bankruptcy Code to provide that an individual chapter 11 debtor 

may retain property included in the estate under section 1115 (as 

added by the Act), subject to section 1129(a)(14). 

Section 321(d)(1) amends Bankruptcy Code section 1141(d) to 

provide that a discharge under chapter 11 does not discharge a 

81 

debtor who is an individual from any debt excepted from discharge 

under Bankruptcy Code section 523. Section 321(d)(2) of the Act 

provides that in a chapter 11 individual debtor is not discharged 

until all plan payments have been made. The court may grant a 

hardship discharge if the value of property actually distributed 

under the plan—as of the plan’s effective date—is not less than the 

amount that would have been available for distribution if the case 

was liquidated under chapter 7 on such date, and modification of 

the plan is not practicable. 

Section 321(e) of the Act amends section 1127 to permit a plan 

in a chapter 11case of an individual debtor to be modified 

postconfirmation for the purpose of increasing or reducing the 

amount of payments, extending or reducing the time period for 

such payments, or altering the amount of distribution to a creditor 

whose claim is provided for by the plan. Such modification may be 

made at any time on request of the debtor, trustee, United States 

trustee, or holder of an allowed unsecured claim. The provision 

specifies that sections 1121 through 1129 apply to such modification. In addition, it provides that the modified plan shall become 

the confirmed plan only if: (1) there has been disclosure pursuant 

to section 1125 (as the court directs); (2) notice and a hearing; and 

(3) such modification is approved. 

Sec. 322. Limitations on Homestead Exemption. Section 322(a) 

amends section 522 of the Bankruptcy Code to impose an aggregate 

monetary limitation of $125,000, subject to Bankruptcy Code sections 544 and 548, on the value of property that the debtor may 

claim as exempt under State or local law pursuant to section 

522(b)(3)(A) under certain circumstances. The monetary cap applies 

if the debtor acquired such property within the 1,215-day period 

preceding the filing of the petition and the property consists of any 

of the following: (1) real or personal property of the debtor or that 

a dependent of the debtor uses as a residence; (2) an interest in a 

cooperative that owns property, which the debtor or the debtor’s dependent uses as a residence; (3) a burial plot for the debtor or the 

debtor’s dependent; or (4) real or personal property that the debtor 

or dependent of the debtor claims as a homestead. This limitation 

does not apply to a principal residence claimed as exempt by a family farmer. In addition, the limitation does not apply to any interest 

transferred from a debtor’s principal residence (which was acquired 

prior to the beginning of the specified time period) to the debtor’s 

current principal residence, if both the previous and current residences are located in the same State. 

Section 322(a) further amends section 522 to add a provision that 

does not allow a debtor to exempt any amount of an interest in 

property described in the preceding paragraph in excess of 

$125,000 if any of the following applies: 

1. The court determines, after notice and a hearing, that the 

debtor has been convicted of a felony (as defined in section 

3156 of title 18), which under the circumstance demonstrates that the filing of the case was an abuse of the provisions of the Bankruptcy Code; or 

2. debtor owes a debt arising from: 

a. any violation of the Federal securities laws defined in 

section 3(a)(47) of the Securities and Exchange Act of 

82 

1934, any state securities laws, or any regulation or 

order issued under Federal securities laws or state securities laws; 

b. fraud, deceit, or manipulation in a fiduciary capacity or 

in connection with the purchase or sale of any security 

registered under section 12 or 15(d) of the Securities Exchange Act of 1934, or under section 6 of the Securities 

Act of 1933; 

c. any civil remedy under section 1964 of title 18 of the 

United States Code; or 

d. any criminal act, intentional tort, or willful or reckless 

misconduct that caused serious physical injury or death 

to another individual in the preceding five years. 

An exception to the monetary limit applies to the extent the 

value of the homestead property is reasonably necessary for the 

support of the debtor and any dependent of the debtor. The monetary limitation set forth in section 322(a) is subject to automatic 

adjustment pursuant to section 104 of the Bankruptcy Code. 

Sec. 323. Excluding Employee Benefit Plan Participant Contributions and Other Property from the Estate. Section 323 of the Act 

amends section 541(b) of the Bankruptcy Code to exclude as property of the estate funds withheld or received by an employer from 

its employees’ wages for payment as contributions to specified employee retirement plans, deferred compensation plans, and tax-deferred annuities. Such contributions do not constitute disposable income as defined in section 1325(b)(2) of the Bankruptcy Code. Section 323 also excludes as property of the estate funds withheld by 

an employer from the wages of its employees for payment as contributions to health insurance plans regulated by State law. 

Sec. 324. Exclusive Jurisdiction in Matters Involving Bankruptcy 

Professionals. Section 324 of the Act amends section 1334 of title 

28 of the United State Code to give a district court exclusive jurisdiction of all claims or causes of action involving the construction 

of section 327 of the Bankruptcy Code or rules relating to disclosure requirements under such provision. 

Sec. 325. United States Trustee Program Filing Fee Increase. Section 325(a) of the Act amends section 1930(a) of title 28 of the 

United States Code to increase the chapter 7 filing fee from $155 

to $200 and decrease the chapter 13 filing fee from $155 to $150. 

It also increases the chapter 11 filing fee from $800 to $1,000. Subsection 325(b) amends section 589a of title 28 of the United States 

Code to reallocate the percentage of certain filing fees collected for 

the United States Trustee Fund. Subsection 325(c) amends section 

406(b) of the Judiciary Appropriations Act of 1990 to reallocate the 

percentage of certain filing fees collected under section 1930 of title 

28 of the United States Code to fund the operation and maintenance of the Federal court system. Section 325(d) provides that the 

amendments made by subsections (b) and (c) are effective for the 

two-year period beginning on the Act’s date of enactment. Section 

325(e)(1) mandates that the amount of fees collected under 28 

U.S.C. § 1930(a)(1) (chapter 7 filing fees) and 28 U.S.C. § 1930(a)(3) 

(chapter 11 filing fees) that is greater than the amount that would 

have been collected if these provisions were not amended by section 

83 

87Pub. L. No. 102–365, 106 Stat. 972 (1992). 

325 be allocated to the extent necessary to pay for the salaries and 

benefits of judges appointed pursuant to section 1223 of this Act. 

Section 325(e)(2) provides that any amount of fees in excess of that 

used to pay the salaries and benefits of judges appointed pursuant 

to section 1223 be deposited in the Treasury to the extent necessary to offset the decrease in governmental receipts resulting 

from the amendments made by section 325(b) (United States Trustee Fund) and section 325(c) (federal court system fund). 

Sec. 326. Sharing of Compensation. Section 326 amends Bankruptcy Code section 504 to create a limited exception to the prohibition against fee sharing. The provision allows the sharing of compensation with bona fide public service attorney referral programs 

that operate in accordance with non-federal law regulating attorney 

referral services and with rules of professional responsibility applicable to attorney acceptance of referrals. 

Sec. 327. Fair Valuation of Collateral. Section 327 of the Act 

amends section 506(a) of the Bankruptcy Code to provide that the 

value of an allowed claim secured by personal property that is an 

asset in an individual debtor’s chapter 7 or 13 case is determined 

based on the replacement value of such property as of the filing 

date of the bankruptcy case without deduction for selling or marketing costs. With respect to property acquired for personal, family, 

or household purposes, replacement value is the price a retail merchant would charge for property of that kind considering the age 

and condition of the property at the time its value is determined. 

Sec. 328. Defaults Based on Nonmonetary Obligations. Subsection 

(a)(1) of section 328 of the Act amends section 365(b) to provide 

that a trustee does not have to cure a default that is a breach of 

a provision (other than a penalty rate or penalty provision) relating 

to a default arising from any failure to perform a nonmonetary obligation under an unexpired lease of real property, if it is impossible for the trustee to cure the default by performing such nonmonetary act at and after the time of assumption. If the default 

arises from a failure to operate in accordance with a nonresidential 

real property lease, the default must be cured by performance at 

and after the time of assumption in accordance with the lease. Pecuniary losses resulting from such default must be compensated 

pursuant to section 365(b)(1). In addition, section 328(a)(1) amends 

section 365(b)(2)(D) to clarify that it applies to penalty provisions. 

Section 328(a)(2) through (4) make technical revisions to section 

365(c), (d) and (f) by deleting language that is no longer effective 

pursuant to the Rail Safety Enforcement and Review Act.87

Section 328(b) amends section 1124(2)(A) of the Bankruptcy Code 

to clarify that a claim is not impaired if section 365(b)(2) (as 

amended by this Act) expressly does not require a default with respect to such claim to be cured. In addition, it provides that any 

claim or interest that arises from the failure to perform a nonmonetary obligation (other than a default arising from the failure 

to operate a nonresidential real property lease subject to section 

365(b)(1)(A)), is impaired unless the holder of such claim or interest 

(other than the debtor or an insider) is compensated for any actual 

pecuniary loss incurred by the holder as a result of such failure. 

84 

88 11 U.S.C. § 107(a). 89 15 U.S.C. § 1681. 90 15 U.S.C. § 1681c(a)(1). 

Sec. 329. Clarification of Postpetition Wages and Benefits. Section 

329 amends Bankruptcy Code section 503(b)(1)(A) to accord administrative expense status to certain back pay awards. This provision 

applies to a back pay award attributable to any period of time occurring postpetition as a result of a violation of Federal or state 

law by the debtor pursuant to an action brought in a court or before the National Labor Relations Board, providing the bankruptcy 

court determines that the award will not substantially increase the 

probability of layoff or termination of current employees or of nonpayment of domestic support obligations. 

Sec. 330. Delay of Discharge During Pendency of Certain Proceedings. Section 330(a) of the Act amends section 727(a) of the 

Bankruptcy Code to require the court to withhold the entry of a 

debtor’s discharge order if the court, after notice and a hearing, 

finds that there is reasonable cause to believe that there is a pending proceeding in which the debtor may be found guilty of a felony 

of the kind described in Bankruptcy Code section 522(q)(1) or liable 

for a debt of the kind described in Bankruptcy Code section 

522(q)(2). Subsections (b), (c), and (d) make comparable revisions to 

the discharge provisions under chapter 11, 12, and 13, respectively. 

Sec. 331. Limitation on Retention Bonuses, Severance Pay, and Certain Other Payments. Section 331 amends Bankruptcy Code section 

503 to prohibit the allowance or payment of certain transfers or obligations, unless otherwise authorized by the court. It applies to 

transfers made to or obligations incurred for the benefit of an insider of the debtor for the purpose of inducing such person to remain with the debtor’s business, unless the court makes certain 

specified findings. In addition, it prohibits a severance payment to 

an insider of a debtor, unless it satisfies certain criteria. Further, 

it prohibits the payment of other transfers or obligations that are 

outside the ordinary course of business and not justified by the 

facts and circumstances of the case, including transfers made to, or 

obligations incurred for the benefit of, officers, mangers, or consultants hired after the date of the filing of the petition. 

Sec. 332. Fraudulent Involuntary Bankruptcy. Bankruptcy Code 

section 303 permits a creditor to force an individual or business 

into bankruptcy by filing an involuntary bankruptcy petition 

against such entity. Before an order for relief is entered in the 

case, the court must make certain findings that support granting 

such relief (e.g., the debtor is generally not paying debts as they 

become due; or a custodian was appointed within the 120-day period preceding the filing of the petition). If such findings are not 

made, the court may dismiss the case. As with most documents 

filed in connection with a bankruptcy case, the filing of an involuntary bankruptcy petition is a matter of public record and is open 

for examination by any entity.88 In addition, the Fair Credit Reporting Act 89 permits credit reporting agencies to note the involuntary bankruptcy filing on a person’s credit report for up to ten 

years.90 Although the Fair Credit Reporting Act permits a consumer to have his or her credit report revised to reflect the fact, 

for instance, that the involuntary bankruptcy case was dismissed 

85 

91See, e.g., 15 U.S.C. Sec. 1681i (2000); Letter from Ronald G. Isaac, Attorney, Federal Trade 

Commission—Division of Financial Practices/Bureau of Consumer Protection, to Anonymous 

(Nov. 5, 1999), available at http://www.ftc.gov/os/statutes/frca/anon.htm. 92See In re Kenealy, No. 02–26100–MDM (Bankr. E.D. Wis. May 21, 2002). Involuntary petitions ‘‘were filed against all but one of the County Board supervisors,’’ the county corporation 

counsel, county sheriff, clerk of courts, and county circuit judge. Jeff Cole, Paperwork Used for 

Revenge; Protester’s Bogus Bankruptcy Petitions Temporarily Disrupt Officials’ Credit, MIL- WAUKEE J. SENTINEL, June 6, 2002, at 1B. The protester also filed numerous liens in the amount of $15 million against these individuals as well. Jeff Cole, Man Charged with Filing False Documents; Town of Fredonia Protester’s Case is 5th Brought by State, MILWAUKEE J. SENTINEL, May 

21, 2002, at 1B. 93 Jeff Cole, Paperwork Used for Revenge; Protester’s Bogus Bankruptcy Petitions Temporarily 

Disrupt Officials’ Credit, MILWAUKEE J. SENTINEL, June 6, 2002, at 1B. 94 In re Kenealy, No. 02–26100–MDM (Bankr. E.D. Wis. May 21, 2002). 95 Roy Korte, Terrorism: A Law Enforcement Perspective, Anti-Defamation League (2002), 

available at http://www.adl.org/learn/columns/roy5%5korte.asp. 96 In re Kenealy, No. 02–26100–MDM (Bankr. E.D. Wis. May 21, 2002). 97 Jeff Cole, ‘‘Paper Terrorist’’ Gets Five Years in Prison, MILWAUKEE J. SENTINEL, Jan. 18, 

2003, at 1B. 

prior to the entry of an order for relief, the report may, nevertheless, still refer to the filing of the case.91

Unfortunately, tax protesters and other extremists, in addition to 

other forms of obstreperous litigation (such as filing false liens), are 

now resorting to filing fraudulent involuntary bankruptcy petitions 

against public officials and other innocent parties. In 2002, for example, one tax protester filed fraudulent involuntary bankruptcy 

petitions against 36 local public officials in Wisconsin,92 some of 

whom did not find out about the petitions until ‘‘they attempted to 

use a credit card or execute some other financial transaction.’’ 93

These fraudulent involuntary petition filings were subsequently 

dismissed by the bankruptcy court, which found that they were 

filed in bad faith without legal basis and were commenced ‘‘for the 

sole purpose of harassment of the named public officials.’’ 94 Nevertheless, ‘‘[d]espite the fact that the [fraudulent involuntary bankruptcy] petitions are often dismissed,’’ as one State assistant attorney general observed, ‘‘the filings continue to cause financial problems for the victims.’’ 95 The devastating effect of a fraudulent involuntary bankruptcy filing on an innocent person’s credit rating is 

illustrated by what occurred in Wisconsin and its aftermath. Although the bankruptcy court in dismissing these cases also directed 

all credit reporting agencies to expunge any record of these filings 

from the officials’ credit reports,96 the bankruptcy petition filings 

nevertheless ‘‘caused some officials’ credit cards to be canceled, almost caused the sale of one supervisor’s house to be stopped, and 

caused continuing credit problems for other officials.’’ 97

Section 332 responds to these concerns by permitting the court 

to seal and subsequently expunge all records pertaining to a fraudulent involuntary petition. Section 332(a) sets forth the short title 

of the section as the ‘‘Involuntary Bankruptcy Improvement Act of 

2005.’’ Section 332(b) amends Bankruptcy Code section 303 to permit the court, upon motion of the debtor, to seal all court records 

pertaining to an involuntary bankruptcy petition if: (1) the petition 

is false or contains any materially false, fictitious, or fraudulent 

statement; (2) the debtor is an individual; and (3) the court dismisses the petition. The provision further permits the court, if the 

debtor is an individual, to prohibit any consumer reporting agency 

from making any consumer report that contains any information 

relating to such petition or to the case commenced by the filing of 

such petition. It further provides that upon the expiration of the 

statute of limitations described in 18 U.S.C. § 3282 for a violation 

86 

98 H.R. 1529, 108th Cong. (2003). The bill was ordered favorably reported without amendment 

by the House Judiciary Committee, H.R. REP. NO. 108–110 (2003), and passed by voice vote by 

the House. 149 CONG. REC. H5104 (daily ed. June 10, 2003). The principal difference between 

this legislation and section 332 of the Act is that the bill would have permitted the court to 

expunge the case upon dismissal of the fraudulent involuntary petition. 

of 18 U.S.C. § 152 (concerning crimes for concealment of assets, 

false oaths and claims, and bribery) and 18 U.S.C. § 157 (bankruptcy fraud), the court may, upon motion of the debtor and for 

good cause, expunge any records pertaining to such petition. Section 332(c) amends section 157 of title 18 to make it a criminal offense to file a fraudulent involuntary bankruptcy petition. Section 

332 is similar to legislation considered by the House in the 108th 

Congress.98

TITLE IV. GENERAL AND SMALL BUSINESS BANKRUPTCY PROVISIONS

Subtitle A. General Business Bankruptcy Provisions 

Sec. 401. Adequate Protection for Investors. Subsection (a) of section 

401 of the Act amends section 101 of the Bankruptcy Code to define ‘‘securities self regulatory organization’’ as a securities association or national securities exchange registered with the Securities 

and Exchange Commission. Section 401(b) amends section 362 of 

the Bankruptcy Code to except from the automatic stay certain enforcement actions by a securities self regulatory organization. 

Sec. 402. Meetings of Creditors and Equity Security Holders. Section 402 amends section 341 of the Bankruptcy Code to permit a 

court, on request of a party in interest and after notice and a hearing, to order the United States trustee not to convene a meeting 

of creditors or equity security holders if a debtor has filed a plan 

for which the debtor solicited acceptances prior to the commencement of the case. 

Sec. 403. Protection of Refinance of Security Interest. Section 403 

amends section 547(e)(2) of the Bankruptcy Code to increase the 

perfection period from ten to 30 days for the purpose of determining whether a transfer is an avoidable preference. 

Sec. 404. Executory Contracts and Unexpired Leases. Subsection (a) 

of section 404 of the Act amends section 365(d)(4) of the Bankruptcy Code to establish a firm, bright line deadline by which an 

unexpired lease of nonresidential real property must be assumed or 

rejected. If such lease is not assumed or rejected by such deadline, 

then such lease shall be deemed rejected, and the trustee shall immediately surrender such property to the lessor. Section 404(a) permits a bankruptcy trustee to assume or reject a lease on a date 

which is the earlier of the date of confirmation of a plan or the date 

which is 120 days after the date of the order for relief. An extension of time may be granted, within the 120 day period, for an additional 90 days, for cause, upon motion of the trustee or lessor. 

Any subsequent extension can only be granted by the judge upon 

the prior written consent of the lessor either by the lessor’s motion 

for an extension or on motion of the trustee, provided that the 

trustee has the prior written approval of the lessor. This provision 

is designed to remove the bankruptcy judge’s discretion to grant extensions of the time for the retail debtor to decide whether to assume or reject a lease after a maximum possible period of 210 days 

from the time of entry of the order of relief. Beyond that maximum 

87 

period, the judge has no authority to grant further time unless the 

lessor has agreed in writing to the extension. 

Section 404(b) amends section 365(f)(1) to assure that section 

365(f) does not override any part of section 365(b). Thus, section 

404(b) makes a trustee’s authority to assign an executory contract 

or unexpired lease subject not only to section 365(c), but also to 

section 365(b), which is given full effect. Therefore, for example, assumption or assignment of a lease of real property in a shopping 

center must be subject to the provisions of the lease, such as use 

clauses. 

Sec. 405. Creditors and Equity Security Holders Committees. Subsection (a) of section 405 of the Act amends section 1102(a)(2) of 

the Bankruptcy Code to permit, after notice and a hearing, a court, 

on request of a party in interest, to order a change in a committee’s 

membership if necessary to ensure adequate representation of 

creditors or equity security holders in a chapter 11 case. It specifies 

that the court may direct the United States trustee to increase the 

membership of a committee for the purpose of including a small 

business concern if the court determines that such creditor’s claim 

is of the kind represented by the committee and that, in the aggregate, is disproportionately large when compared to the creditor’s 

annual gross revenue. 

Section 405(b) requires the committee to give creditors having 

claims of the kind represented by the committee access to information. In addition, the committee must solicit and receive comments 

from these creditors and, pursuant to court order, make additional 

reports or disclosures available to them. 

Sec. 406. Amendment to Section 546 of Title 11, United States Code. 

Section 406 of the Act corrects an erroneous subsection designation 

in section 546 of the Bankruptcy Code. It redesignates the second 

subsection (g) as subsection (i). In addition, section 406 amends 

section 546(i) (as redesignated) to subject that provision to the 

prior rights of security interest holders. Further, section 406 adds 

a new provision to section 546 that prohibits a trustee from avoiding a warehouse lien for storage, transportation, or other costs incidental to the storage and handling of goods. It specifies that this 

prohibition must be applied in a manner consistent with any applicable state statute that is similar to section 7–209 of the Uniform 

Commercial Code. 

Sec. 407. Amendments to Section 330(a) of Title 11, United States 

Code. Section 407 amends section 330(a)(3) of the Bankruptcy Code 

to clarify that this provision applies to examiners, chapter 11 trustees, and professional persons. This section also amends section 

330(a) to add a provision that requires a court, in determining the 

amount of reasonable compensation to award to a trustee, to treat 

such compensation as a commission pursuant to section 326 of the 

Bankruptcy Code. 

Sec. 408. Postpetition Disclosure and Solicitation. Section 408 

amends section 1125 of the Bankruptcy Code to permit an acceptance or rejection of a chapter 11 plan to be solicited from the holder 

of a claim or interest if the holder was solicited before the commencement of the case in a manner that complied with applicable 

nonbankruptcy law. 

88 

99 A consumer debt is defined as a ‘‘debt incurred by an individual primarily for a personal, 

family, or household purpose.’’ 11 U.S.C. § 101(8). 

Sec. 409. Preferences. Section 409 amends section 547(c)(2) of the 

Bankruptcy Code to provide that a trustee may not avoid a transfer 

to the extent such transfer was in payment of a debt incurred by 

the debtor in the ordinary course of the business or financial affairs 

of the debtor and the transferee and such transfer was made either: (1) in the ordinary course of the debtor’s and the transferee’s 

business or financial affairs; or (2) in accordance with ordinary 

business terms. Present law requires the recipient of a preferential 

transfer to establish both of these grounds in order to sustain a defense to a preferential transfer proceeding. In a case in which the 

debts are not primarily consumer debts, section 409 provides that 

a transfer may not be avoided if the aggregate amount of all property constituting or affected by the transfer is less than $5,000. 

Sec. 410. Venue of Certain Proceedings. Section 1409(b) of title 28 

of the United States Code provides that a proceeding to recover a 

money judgment of, or property worth less than, certain specified 

amounts must be commenced in the district where the defendant 

resides. Section 410 amends section 1409(b) to provide that a proceeding to recover a debt (excluding a consumer debt) against a 

noninsider of the debtor that is less than $10,000 must be commenced in the district where the defendant resides. In addition, 

section 410 increases the $5,000 threshold for a consumer debt 99

to $15,000. 

Sec. 411. Period for Filing Plan under Chapter 11. Section 411 

amends section 1121(d) of the Bankruptcy Code to mandate that a 

debtor’s exclusive period for filing a plan may not be extended beyond a date that is 18 months after the order for relief in the chapter 11 case. In addition, it provides that the debtor’s exclusive period for obtaining acceptances of the plan may not be extended beyond 20 months after the order for relief. 

Sec. 412. Fees Arising from Certain Ownership Interests. Section 

412 amends section 523(a)(16) of the Bankruptcy Code to broaden 

the protections accorded to community associations with respect to 

fees or assessments arising from the debtor’s interest in a condominium, cooperative, or homeowners’ association. Irrespective of 

whether or not the debtor physically occupies such property, fees 

or assessments that accrue during the period the debtor or the 

trustee has a legal, equitable, or possessory ownership interest in 

such property are nondischargeable. 

Sec. 413. Creditor Representation at First Meeting of Creditors. Section 413 amends section 341(c) of the Bankruptcy Code to permit 

a creditor holding a consumer debt or any representative of such 

creditor, notwithstanding any local court rule, provision of a state 

constitution, or any otherwise applicable nonbankruptcy law, or 

any other requirement that such creditor must be represented by 

counsel, to appear at and participate in a section 341 meeting of 

creditors in chapter 7 and chapter 13 cases either alone or in conjunction with an attorney. In addition, the provision clarifies that 

it cannot be construed to require a creditor to be represented by 

counsel at any meeting of creditors. 

89 

Sec. 414. Definition of Disinterested Person. Section 414 amends 

section 101(14) of the Bankruptcy Code to eliminate the requirement that an investment banker be a disinterested person. 

Sec. 415. Factors for Compensation of Professional Persons. Section 

415 amends section 330(a)(3) of the Bankruptcy Code to permit the 

court to consider, in awarding compensation to a professional person, whether such person is board certified or otherwise has demonstrated skill and experience in the practice of bankruptcy law. 

Sec. 416. Appointment of Elected Trustee. Section 416 of the Act 

amends section 1104(b) of the Bankruptcy Code to clarify the procedure for the election of a trustee in a chapter 11 case. Section 

1104(b) permits creditors to elect an eligible, disinterested person 

to serve as the trustee in the case, provided certain conditions are 

met. Section 416 amends this provision to require the United 

States trustee to file a report certifying the election of a chapter 

11 trustee. Upon the filing of the report, the elected trustee is 

deemed to be selected and appointed for purposes of section 1104 

and the service of any prior trustee appointed in the case is terminated. Section 416 also clarifies that the court shall resolve any 

dispute arising out of a chapter 11 trustee election. 

Sec. 417. Utility Service. Section 417 amends section 366 of the 

Bankruptcy Code to provide that assurance of payment, for purposes of this provision, includes a cash deposit, letter of credit, certificate of deposit, surety bond, prepayment of utility consumption, 

or other form of security that is mutually agreed upon by the debtor or trustee and the utility. It also specifies that an administrative 

expense priority does not constitute an assurance of payment. With 

respect to chapter 11 cases, section 417 permits a utility to alter, 

refuse or discontinue service if it does not receive adequate assurance of payment that is satisfactory to the utility within 30 days 

of the filing of the petition. The court, upon request of a party in 

interest, may modify the amount of this payment after notice and 

a hearing. In determining the adequacy of such payment, a court 

may not consider: (1) the absence of security before the case was 

filed; (2) the debtor’s timely payment of utility service charges before the case was filed; or (3) the availability of an administrative 

expense priority. Notwithstanding any other provision of law, section 417 permits a utility to recover or set off against a security 

deposit provided prepetition by the debtor to the utility without notice or court order. 

Sec. 418. Bankruptcy Fees. Section 418 of the Act amends section 

1930 of title 28 of the United States Code to permit a district court 

or a bankruptcy court, pursuant to procedures prescribed by the 

Judicial Conference of the United States, to waive the chapter 7 filing fee for an individual and certain other fees under subsections 

(b) and (c) of section 1930 if such individual’s income is less than 

150 percent of the official poverty level (as defined by the Office of 

Management and Budget) and the individual is unable to pay such 

fee in installments. Section 418 also clarifies that section 1930, as 

amended, does not prevent a district or bankruptcy court from 

waiving other fees for creditors and debtors, if in accordance with 

Judicial Conference policy. 

90 

Sec. 419. More Complete Information Regarding Assets of the Estate. Section 419 of the Act directs the Judicial Conference of the 

United States, after consideration of the views of the Director of 

the Executive Office for United States Trustees, to propose official 

rules and forms directing chapter 11 debtors to disclose information 

concerning the value, operations, and profitability of any closely 

held corporation, partnership, or other entity in which the debtor 

holds a substantial or controlling interest. Section 419 is intended 

to ensure that the debtor’s interest in any of these entities is used 

for the payment of allowed claims against debtor. 

Subtitle B. Small Business Bankruptcy Provisions 

Sec. 431. Flexible Rules for Disclosure Statement and Plan. Section 

431 of the Act amends section 1125 of the Bankruptcy Code to 

streamline the disclosure statement process and to provide for 

more flexibility. Section 431(1) amends section 1125(a)(1) of the 

Bankruptcy Code to require a bankruptcy court, in determining 

whether a disclosure statement supplies adequate information, to 

consider the complexity of the case, the benefit of additional information to creditors and other parties in interest, and the cost of 

providing such additional information. With regard to a small business case, section 431(2) amends section 1125(f) to permit the court 

to dispense with a disclosure statement if the plan itself supplies 

adequate information. In addition, it provides that the court may 

approve a disclosure statement submitted on standard forms approved by the court or adopted under section 2075 of title 28 of the 

United States Code. Further, section 431(2) provides that the court 

may conditionally approve a disclosure statement, subject to final 

approval after notice and a hearing, and allow the debtor to solicit 

acceptances of the plan based on such disclosure statement. The 

hearing on the disclosure statement may be combined with the confirmation hearing. 

Sec. 432. Definitions. Section 432 of the Act amends section 101 of 

the Bankruptcy Code to define a ‘‘small business case’’ as a chapter 

11 case in which the debtor is a small business debtor. Section 432, 

in turn, defines a ‘‘small business debtor’’ as a person engaged in 

commercial or business activities (including an affiliate of such person that is also a debtor, but excluding a person whose primary activity is the business of owning or operating real property or activities incidental thereto) having aggregate noncontingent, liquidated 

secured and unsecured debts of not more than $2 million (excluding 

debts owed to affiliates or insiders of the debtor) as of the date of 

the petition or the order for relief. This monetary definition applies 

only in a case where the United States trustee has not appointed 

a creditors’ committee or where the court has determined that the 

creditors’ committee is not sufficiently active and representative to 

provide effective oversight of the debtor. It does not apply to any 

member of a group of affiliated debtors that has aggregate noncontingent, liquidated secured and unsecured debts in excess of $2 

million (excluding debts owed to one or more affiliates or insiders). 

This provision also requires this monetary figure to be periodically 

adjusted for inflation pursuant to section 104 of the Bankruptcy 

Code. 

91 

Sec. 433. Standard Form Disclosure Statement and Plan. Section 

433 of the Act directs the Judicial Conference of the United States 

to propose for adoption standard form disclosure statements and 

reorganization plans for small business debtors. The provision requires the forms to achieve a practical balance between the needs 

of the court, case administrators, and other parties in interest to 

have reasonably complete information as well as the debtor’s need 

for economy and simplicity. 

Sec. 434. Uniform National Reporting Requirements. Subsection (a) 

of section 434 of the Act adds a provision to the Bankruptcy Code 

mandating additional reporting requirements for small business 

debtors. It requires a small business debtor to file periodic financial 

reports and other documents containing the following information 

with respect to the debtor’s business operations: (1) profitability; (2) 

reasonable approximations of projected cash receipts and disbursements; (3) comparisons of actual cash receipts and disbursements 

with projections in prior reports; (4) whether the debtor is complying with postpetition requirements pursuant to the Bankruptcy 

Code and Federal Rules of Bankruptcy Procedure; (5) whether the 

debtor is timely filing tax returns and other government filings; 

and (6) whether the debtor is paying taxes and other administrative expenses when due. In addition, the debtor must report on 

such other matters that are in the best interests of the debtor and 

the creditors and in the public interest. If the debtor is not in compliance with any postpetition requirements pursuant to the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, or is not 

filing tax returns or other required governmental filings, paying 

taxes and other administrative expenses when due, the debtor 

must report: (1) what the failures are, (2) how they will be cured; 

(3) the cost of their cure; and (4) when they will be cured. Section 

434(b) specifies that the effective date of this provision is 60 days 

after the date on which the rules required under this provision are 

promulgated. 

Sec. 435. Uniform Reporting Rules and Forms for Small Business 

Cases. Subsection (a) of section 435 of the Act directs the Judicial 

Conference of the United States to propose official rules and forms 

with respect to the periodic financial reports and other information 

that a small business debtor must file concerning its profitability, 

cash receipts and disbursements, filing of its tax returns, and payment of its taxes and other administrative expenses. 

Section 435(b) requires the rules and forms to achieve a practical 

balance between the need for reasonably complete information by 

the bankruptcy court, United States trustee, creditors and other 

parties in interest, and the small business debtor’s interest in having such forms be easy and inexpensive to complete. The forms 

should also be designed to help the small business debtor better 

understand its financial condition and plan its future. 

Sec. 436. Duties in Small Business Cases. Section 436 of the Act 

is intended to implement greater administrative oversight and controls over small business chapter 11. The provision requires a chapter 11 trustee or debtor to: 

1. file with a voluntary petition (or in an involuntary case, 

within seven days from the date of the order for relief) the 

92 

debtor’s most recent financial statements (including a balance sheet, statement of operations, cash flow statement, 

and Federal income tax return) or a statement explaining 

why such information is not available; 

2. attend, through its senior management personnel and counsel, meetings scheduled by the bankruptcy court or the 

United States trustee (including the initial debtor interview 

and meeting of creditors pursuant to section 341 of the 

Bankruptcy Code), unless the court waives this requirement 

after notice and a hearing upon a finding of extraordinary 

and compelling circumstances; 

3. timely file all requisite schedules and the statement of financial affairs, unless the court, after notice and a hearing, 

grants an extension of up to 30 days from the order of relief, absent extraordinary and compelling circumstances; 

4. file all postpetition financial and other reports required by 

the Federal Rules of Bankruptcy Procedure or by local rule 

of the district court; 

5. maintain insurance that is customary and appropriate for 

the industry, subject to section 363(c)(2); 

6. timely file tax returns and other required government filings; 

7. timely pay all administrative expense taxes (except for certain contested claims), subject to section 363(c)(2); and 

8. permit the United States trustee to inspect the debtor’s 

business premises, books, and records at reasonable hours 

after appropriate prior written notice, unless notice is 

waived by the debtor. 

Sec. 437. Plan Filing and Confirmation Deadlines. Section 437 of 

the Act amends section 1121(e) of the Bankruptcy Code with respect to the period of time within which a small business debtor 

must file and confirm a plan of reorganization. This provision provides that a small business debtor’s exclusive period to file a plan 

is 180 days from the date of the order for relief, unless the period 

is extended after notice and a hearing, or the court, for cause, orders otherwise. It further provides that a small business debtor 

must file a plan and any disclosure statement not later than 300 

days after the order for relief. These time periods and the time 

fixed in section 1129(e) may be extended only if: (1) the debtor, 

after providing notice to parties in interest, demonstrates by a preponderance of the evidence that it is more likely than not that the 

court will confirm a plan within a reasonable period of time; (2) a 

new deadline is imposed at the time the extension is granted; and 

(3) the order granting such extension is signed before the expiration of the existing deadline. 

Sec. 438. Plan Confirmation Deadline. Section 438 of the Act 

amends Bankruptcy Code section 1129 to require the court to confirm a plan not later than 45 days after it is filed if the plan complies with the applicable provisions of the Bankruptcy Code, unless 

this period is extended pursuant to section 1121(e)(3). 

Sec. 439. Duties of the United States Trustee. Section 439 of the 

Act amends section 586(a) of title 28 of the United States Code to 

93 

require the United States trustee to perform the following additional duties with respect to small business debtors: 

1. conduct an initial debtor interview before the meeting of 

creditors for the purpose of (a) investigating the debtor’s viability, (b) inquiring about the debtor’s business plan, (c) explaining the debtor’s obligation to file monthly operating reports, (d) attempting to obtain an agreed scheduling order 

setting various time frames (such as the date for filing a 

plan and effecting confirmation), and (e) informing the debtor of other obligations; 

2. if determined to be appropriate and advisable, inspect the 

debtor’s business premises for the purpose of reviewing the 

debtor’s books and records and verifying that the debtor has 

filed its tax returns; 

3. review and monitor diligently the debtor’s activities to determine as promptly as possible whether the debtor will be 

unable to confirm a plan; and 

4. promptly apply to the court for relief in any case in which 

the United States trustee finds material grounds for dismissal or conversion of the case. 

Sec. 440. Scheduling Conferences. Section 440 amends section 

105(d) of the Bankruptcy Code to mandate that a bankruptcy court 

hold status conferences as are necessary to further the expeditious 

and economical resolution of a bankruptcy case. 

Sec. 441. Serial Filer Provisions. Paragraph (1) of section 441 of the 

Act amends section 362 of the Bankruptcy Code to provide that a 

court may award only actual damages for a violation of the automatic stay committed by an entity in the good faith belief that subsection (h) of section 362 (as amended) applies to the debtor. Section 441(2) adds a new subsection to section 362 of the Bankruptcy 

Code specifying that the automatic stay does not apply where the 

chapter 11 debtor: (1) is a debtor in a small business case pending 

at the time the subsequent case is filed; (2) was a debtor in a small 

business case dismissed for any reason pursuant to an order that 

became final in the two-year period ending on the date of the order 

for relief entered in the pending case; (3) was a debtor in small 

business case in which a plan was confirmed in the two-year period 

ending on the date of the order for relief entered in the pending 

case; or (4) is an entity that has acquired substantially all of the 

assets or business of a small business debtor described in the preceding paragraphs, unless such entity establishes by a preponderance of the evidence that it acquired the assets or business in good 

faith and not for the purpose of evading this provision. 

An exception to this provision applies to a chapter 11 case that 

is commenced involuntarily and involves no collusion between the 

debtor and the petitioning creditors. Also, it does not apply if the 

debtor proves by a preponderance of the evidence that: (1) the filing 

of the subsequent case resulted from circumstances beyond the 

debtor’s control and which were not foreseeable at the time the 

prior case was filed; and (2) it is more likely than not that the 

court will confirm a feasible plan of reorganization (but not a liquidating plan) within a reasonable time. 

94 

Sec. 442. Expanded Grounds for Dismissal or Conversion and Appointment of Trustee. Subsection (a) of section 442 of the Act 

amends section 1112(b) of the Bankruptcy Code to mandate that 

the court convert or dismiss a chapter 11 case, whichever is in the 

best interests of creditors and the estate, if the movant establishes 

cause, absent unusual circumstances. In this regard, the court 

must specify the circumstances that support the court’s finding 

that conversion or dismissal is not in the best interests of creditors 

and the estate. 

In addition, the provision specifies an exception to the provision’s 

mandatory requirement applies if: (1) the debtor or a party in interest objects and establishes that there is a reasonable likelihood 

that a plan will be confirmed within the time periods set forth in 

sections 1121(e) and 1129(e), or if these provisions are inapplicable, 

within a reasonable period of time; (2) the grounds for granting 

such relief include an act or omission of the debtor for which there 

exists a reasonable justification for such act or omission; and (3) 

such act or omission will be cured within a reasonable period of 

time. 

The court must commence the hearing on a section 1112(b) motion within 30 days of its filing and decide the motion not later 

than 15 days after commencement of the hearing unless the movant expressly consents to a continuance for a specified period of 

time or compelling circumstances prevent the court from meeting 

these time limits. Section 442 provides that the term ‘‘cause’’ under 

section 1112(b), as amended by this provision, includes the following: 

1. substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation; 

2. gross mismanagement of the estate; 

3. failure to maintain appropriate insurance that poses a material risk to the estate or the public; 

4. unauthorized use of cash collateral that is harmful to one 

or more creditors; 

5. failure to comply with a court order; 

6. unexcused failure to timely satisfy any filing or reporting 

requirement under the Bankruptcy Code or applicable 

rule; 

7. failure to attend the section 341 meeting of creditors or an 

examination pursuant to rule 2004 of the Federal Rules of 

Bankruptcy Procedure, without good cause shown by the 

debtor; 

8. failure to timely provide information or to attend meetings 

reasonably requested by the United States trustee or bankruptcy administrator; 

9. failure to timely pay taxes owed after the order for relief 

or to file tax returns due postpetition; 

10. failure to file a disclosure statement or to confirm a plan 

within the time fixed by the Bankruptcy Code or pursuant 

to court order; 

11. failure to pay any requisite fees or charges under chapter 

123 of title 28 of the United States Code; 

95 

12. revocation of a confirmation order; 

13. inability to effectuate substantial consummation of a confirmed plan; 

14. material default by the debtor with respect to a confirmed 

plan; 

15. termination of a plan by reason of the occurrence of a condition specified in the plan; and 

16. the debtor’s failure to pay any domestic support obligation 

that first becomes payable postpetition 

Section 442(b) creates an additional ground for the appointment 

of a chapter 11 trustee or examiner under section 1104(a). It provides that should the bankruptcy court determine cause exists to 

convert or dismiss a chapter 11 case, it may appoint a trustee or 

examiner if it is in the best interests of creditors and the bankruptcy estate. 

Section 442(b) is designed to benefit creditors when a chapter 11 

case would otherwise be dismissed or converted to a chapter 7 case 

pursuant to section 1112 of the Bankruptcy Code. Section 442(b) allows the court to appoint a chapter 11 trustee or examiner, as an 

alternative to dismissing or converting the case to chapter 7, if in 

the best interest of creditors and the bankruptcy estate. Section 

442(b) is not intended to ease the standards for appointing chapter 

11 trustees. Practice under Chapter X of the Bankruptcy Act of 

1898 demonstrated that routine appointment of trustees deters the 

use of reorganization statutes and increases the likelihood that by 

the time a company resorts to bankruptcy relief, it must liquidate. 

It is therefore important for section 442(b) to be used only for cases 

that would otherwise be dismissed or converted to chapter 7, and 

not as an alternative method for attaining the appointment of a 

chapter 11 trustee. 

Sec. 443. Study of Operation of Title 11, United States Code, with 

Respect to Small Businesses. Section 443 of the Act directs the Administrator of the Small Business Administration, in consultation 

with the Attorney General, the Director of the Executive Office for 

United States Trustees, and the Director of the Administrative Office of the United States Courts, to conduct a study to determine: 

(1) the internal and external factors that cause small businesses 

(particularly sole proprietorships) to seek bankruptcy relief and the 

factors that cause small businesses to successfully complete their 

chapter 11 cases; and (2) how the bankruptcy laws may be made 

more effective and efficient in assisting small business to remain 

viable. 

Sec. 444. Payment of Interest. Paragraph (1) of section 444 of the 

Act amends section 362(d)(3) of the Bankruptcy Code to require a 

court to grant relief from the automatic stay within 30 days after 

it determines that a single asset real estate debtor is subject to this 

provision. Section 444(2) amends section 362(d)(3)(B) to specify that 

relief from the automatic stay shall be granted unless the single 

asset real estate debtor has commenced making monthly payments 

to each creditor secured by the debtor’s real property (other than 

a claim secured by a judgment lien or unmatured statutory lien) 

in an amount equal to the interest at the then applicable nondefault contract rate of interest on the value of the creditor’s interVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00099 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
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est in the real estate. It allows a debtor in its sole discretion to 

make the requisite interest payments out of rents or other proceeds 

generated by the real property, notwithstanding section 363(c)(2). 

Sec. 445. Priority for Administrative Expenses. Section 445 of the 

Act amends section 503(b) of the Bankruptcy Code to add a new 

administrative expense priority for a nonresidential real property 

lease that is assumed under section 365 and then subsequently rejected. The amount of the priority is the sum of all monetary obligations due under the lease (excluding penalties and obligations 

arising from or relating to a failure to operate) for the two-year period following the rejection date or actual turnover of the premises 

(whichever is later), without reduction or setoff for any reason, except for sums actually received or to be received from a nondebtor. 

Any remaining sums due for the balance of the term of the lease 

are treated as a claim under section 502(b)(6) of the Bankruptcy 

Code. 

Sec. 446. Duties with Respect to a Debtor Who Is a Plan Administrator of an Employee Benefit Plan. Subsection (a) of section 446 of 

the Act amends Bankruptcy Code section 521(a) to require a debtor, unless a trustee is serving in the case, to serve as the administrator (as defined in the Employee Retirement Income Security Act 

of 1974) of an employee benefit plan if the debtor served in such 

capacity at the time the case was filed. Section 446(b) amends 

Bankruptcy Code section 704 to require the chapter 7 trustee to 

perform the obligations of such administrator in a case where the 

debtor or an entity designated by the debtor was required to perform such obligations. Section 446(c) amends Bankruptcy Code section 1106(a) to require a chapter 11 trustee to perform these obligations. 

Sec. 447. Appointment of Committee of Retired Employees. This provision amends section 1114(d) of the Bankruptcy Code to clarify 

that it is the responsibility of the United States trustee to appoint 

members to a committee of retired employees. 

TITLE V. MUNICIPAL BANKRUPTCY PROVISIONS

Sec. 501. Petition and Proceedings Related to Petition. Section 501 

amends sections 921(d) and 301 of the Bankruptcy Code to clarify 

that the court must enter the order for relief in a chapter 9 case. 

Sec. 502. Applicability of Other Sections to Chapter 9. Section 502 

of the of the Act amends section 901 of the Bankruptcy Code to 

make the following sections applicable to chapter 9 cases: 

1. section 555 (contractual right to liquidate, terminate or accelerate a securities contract); 

2. section 556 (contractual right to liquidate, terminate or accelerate a commodities or forward contract); 

3. section 559 (contractual right to liquidate, terminate or accelerate a repurchase agreement); 

4. section 560 (contractual right to liquidate, terminate or accelerate a swap agreement); 

5. section 561 (contractual right to liquidate, terminate, accelerate, or offset under a master netting agreement and 

across contracts); and 

97 

6. section 562 (damage measure in connection with swap 

agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, or master netting 

agreement). 

TITLE VI. BANKRUPTCY DATA

Sec. 601. Improved Bankruptcy Statistics. This provision amends 

chapter 6 of title 28 of the United States Code to require the clerk 

for each district (or the bankruptcy court clerk if one has been certified pursuant to section 156(b) of title 28 of the United States 

Code) to collect certain statistics for chapter 7, 11, and 13 cases in 

a standardized format prescribed by the Director of the Administrative Office of the United States Courts and to make this information available to the public. Not later than July 1, 2008, the Director must submit a report to Congress concerning the statistical 

information collected and then must report annually thereafter. 

The statistics must be itemized by chapter of the Bankruptcy Code 

and be presented in the aggregate for each district. The specific 

categories of information that must be gathered include the following: 

1. scheduled total assets and liabilities of debtors who are individuals with primarily consumer debts under chapters 7, 

11 and 13 by category; 

2. such debtors’ current monthly income, average income, and 

average expenses; 

3. the aggregate amount of debts discharged during the reporting period based on the difference between the total amount 

of scheduled debts and by categories that are predominantly 

nondischargeable; 

4. the average time between the filing of the bankruptcy case 

and the closing of the case; 

5. the number of cases in which reaffirmation agreements 

were filed, the total number of reaffirmation agreements 

filed, the number of cases in which the debtor was pro se 

and a reaffirmation agreement was filed, and the number of 

cases in which the reaffirmation agreement was approved 

by the court; 

6. for chapter 13 cases, information on the number of: (a) final 

orders determining the value of secured property in an 

amount less than the amount of the secured claim, (b) final 

orders that determined the value of property securing a 

claim, (c) cases dismissed, (d) cases dismissed for failure to 

make payments under the plan, (e) cases refiled after dismissal, (f) cases in which the plan was completed (separately itemized with respect to the number of modifications 

made before completion of the plan, and (g) cases in which 

the debtor had previously sought bankruptcy relief within 

the six years preceding the filing of the present case; 

7. the number of cases in which creditors were fined for misconduct and the amount of any punitive damages awarded 

for creditor misconduct; and 

8. the number of cases in which sanctions under rule 9011 of 

the Federal Rules of Bankruptcy Procedure were imposed 

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against a debtor’s counsel and the damages awarded under 

this rule. 

Section 601 provides that the amendments in this provision take 

effect 18 months after the date of enactment of this Act. 

Sec. 602. Uniform Rules for the Collection of Bankruptcy Data. Section 602 of the Act amends chapter 39 of title 28 of the United 

States Code to require the Attorney General to promulgate rules 

mandating the establishment of uniform forms for final reports in 

chapter 7, 12 and 13 cases and periodic reports in chapter 11 cases. 

This provision also specifies that these reports be designed to facilitate compilation of data and to provide maximum public access by 

physical inspection at one or more central filing locations and by 

electronic access through the Internet or other appropriate media. 

The information should enable an evaluation of the efficiency and 

practicality of the bankruptcy system. In issuing rules, the Attorney General must consider: (1) the reasonable needs of the public 

for information about the Federal bankruptcy system; (2) the economy, simplicity, and lack of undue burden on persons obligated to 

file the reports; and (3) appropriate privacy concerns and safeguards. 

Section 602 provides that final reports by trustees in chapter 7, 

12, and 13 cases include the following information: (1) the length 

of time the case was pending; (2) assets abandoned; (3) assets exempted; (4) receipts and disbursements of the estate; (5) administrative expenses, including those associated with section 707(b) of 

the Bankruptcy Code, and the actual costs of administering chapter 

13 cases; (6) claims asserted; (7) claims allowed; and (8) distributions to claimants and claims discharged without payment. With 

regard to chapter 11 cases, section 602 provides that periodic reports include the following information regarding: 

1. the industry classification for businesses conducted by the 

debtor, as published by the Department of Commerce; 

2. the length of time that the case was pending; 

3. the number of full-time employees as of the date of the 

order for relief and at the end of each reporting period; 

4. cash receipts, cash disbursements, and profitability of the 

debtor for the most recent period and cumulatively from the 

date of the order for relief; 

5. the debtor’s compliance with the Bankruptcy Code, including whether tax returns have been filed and taxes have 

been paid; 

6. professional fees approved by the court for the most recent 

period and cumulatively from the date of the order for relief; 

and 

7. plans filed and confirmed, including the aggregate recoveries of holders by class and as a percentage of total claims 

of an allowed class. 

Sec. 603. Audit Procedures. Subsection (a)(1) of section 603 of the 

Act requires the Attorney General (for judicial districts served by 

United States trustees) and the Judicial Conference of the United 

States (for judicial districts served by bankruptcy administrators) 

to establish procedures to determine the accuracy, veracity, and 

99 

completeness of petitions, schedules and other information filed by 

debtors pursuant to sections 111, 521 and 1322 of the Bankruptcy 

Code. Section 603(a)(1) requires the audits to be conducted in accordance with generally accepted auditing standards and performed by independent certified public accountants or independent 

licensed public accountants. It permits the Attorney General and 

the Judicial Conference to develop alternative auditing standards 

not later than two years after the date of enactment of this Act. 

Section 603(a)(2) requires these procedures to: (1) establish a method of selecting appropriate qualified contractors to perform these 

audits; (2) establish a method of randomly selecting cases for audit, 

and that a minimum of at least one case out of every 250 cases be 

selected for audit; (3) require audits in cases where the schedules 

of income and expenses reflect greater than average variances from 

the statistical norm for the district if they occur by reason of higher 

income or higher expenses than the statistical norm in which the 

schedules were filed; and (4) require the aggregate results of such 

audits, including the percentage of cases by district in which a material misstatement of income or expenditures is reported, to be 

made available to the public on an annual basis. 

Section 603(b) amends section 586 of title 28 of the United States 

Code to require the United States trustee to submit reports as directed by the Attorney General, including the results of audits performed under section 603(a). In addition, it authorizes the United 

States trustee to contract with auditors to perform the audits specified in this provision. Further, it requires the report of each audit 

to be filed with the court and transmitted to the United States 

trustee. The report must specify material misstatements of income, 

expenditures or assets. In a case where a material misstatement 

has been reported, the clerk must provide notice of such 

misstatement to creditors and the United States trustee must report it to the United States Attorney, if appropriate, for possible 

criminal prosecution. If advisable, the United States trustee must 

also take appropriate action, such as revoking the debtor’s discharge. 

Section 603(c) amends section 521 of the Bankruptcy Code to 

make it a duty of the debtor to cooperate with an auditor. Section 

603(d) amends section 727 of the Bankruptcy Code to add, as a 

ground for revocation of a chapter 7 discharge the debtor’s failure 

to: (a) satisfactorily explain a material misstatement discovered as 

the result of an audit pursuant to this provision; or (b) make available for inspection all necessary documents or property belonging 

to the debtor that are requested in connection with such audit. Section 603(e) provides that the amendments made by this provision 

take effect 18 months after the Act’s date of enactment. 

Sec. 604. Sense of Congress Regarding Availability of Bankruptcy 

Data. Section 604 expresses a sense of the Congress that it is a national policy of the United States that all data collected by bankruptcy clerks in electronic form (to the extent such data relates to 

public records pursuant to section 107 of the Bankruptcy Code) 

should be made available to the public in a useable electronic form 

in bulk, subject to appropriate privacy concerns and safeguards as 

determined by the Judicial Conference of the United States. It also 

states that a uniform bankruptcy data system should be established that uses a single set of data definitions and forms to collect 

100 

such data and that data for any particular bankruptcy case should 

be aggregated in electronic format. 

TITLE VII. BANKRUPTCY TAX PROVISIONS

Sec. 701. Treatment of Certain Tax Liens. Subsection (a) of section 

701 of the Act makes several amendments to section 724 of the 

Bankruptcy Code to provide greater protection for holders of tax 

liens on real or personal property of the estate, particularly holders 

of ad valorem tax liens. Many school boards obtain liens on real 

property to ensure collection of unpaid ad valorem taxes. Under 

current law, local governments are sometimes unable to collect 

these taxes despite the presence of a lien because they may be subordinated to certain claims and expenses as a result of section 724. 

Pursuant to section 701(a), subordination of ad valorem tax liens 

is still possible under section 724(b), but limited to the payment of: 

(1) claims for wages, salaries, and commissions entitled to priority 

under section 507(a)(4); and (2) claims for contributions to employee benefit plans entitled to priority under section 507(a)(5). 

Section 701(a) will also protect the holders of these tax liens as 

well as Federal tax liens from erosion of their claims’ status by expenses incurred under chapter 11 of the Bankruptcy Code. Before 

a tax lien on real or personal property may be subordinated pursuant to section 724, the chapter 7 trustee must exhaust all other 

unencumbered estate assets and, consistent with section 506, recover reasonably necessary costs and expenses of preserving or disposing of such property. 

Section 701(b) amends section 505(a)(2) of the Bankruptcy Code 

to prevent a bankruptcy court from determining the amount or legality of an ad valorem tax on real or personal property if the applicable period for contesting or redetermining the amount of the 

claim under nonbankruptcy law has expired. 

Sec. 702. Treatment of Fuel Tax Claims. Section 702 of the Act 

amends section 501 of the Bankruptcy Code to simplify the process 

for filing of claims by states for certain fuel taxes. Rather than requiring each state to file a claim for these taxes (as is the case 

under current law), section 702 permits the designated ‘‘base jurisdiction’’ under the International Fuel Tax Agreement to file a claim 

on behalf of all states, which would then be allowed as a single 

claim. 

Sec. 703. Notice of Request for a Determination of Taxes. Under current law, a trustee or debtor in possession may request a governmental unit to determine administrative tax liabilities in order to 

receive a discharge of those liabilities. There are no requirements 

as to the content or form of such notice to the government. Section 

703 of the Act amends section 505(b) of the Bankruptcy Code to require the clerk of each district to maintain a list of addresses designated by governmental units for service of section 505 requests. 

In addition, the list may also include information concerning filing 

requirements specified by such governmental units. If a governmental entity does not designate an address and provide that address to the bankruptcy court clerk, any request made under section 505(b) of the Bankruptcy Code may be served at the address 

for the filing of a tax return or protest of the appropriate taxing 

authority of that governmental unit. 

101 

Sec. 704. Rate of Interest on Tax Claims. Under current law, there 

is no uniform rate of interest applicable to tax claims. As a result, 

varying standards have been used to determine the applicable rate. 

Section 704 of the Act amends the Bankruptcy Code to add section 

511 for the purpose of simplifying the interest rate calculation. It 

provides that for all tax claims (federal, state, and local), including 

administrative expense taxes, the interest rate shall be determined 

in accordance with applicable nonbankruptcy law. With respect to 

taxes paid under a confirmed plan, the rate of interest is determined as of the calendar month in which the plan is confirmed. 

Sec. 705. Priority of Tax Claims. Under current law, a tax claim 

is entitled to be treated as a priority claim if it arises within certain specified time periods. In the case of income taxes, a priority 

arises, among other time periods, if the tax return was due within 

three years of the filing of the bankruptcy petition or if the assessment of the tax was made within 240 days of the filing of the petition. The 240-day period is tolled during the time that an offer in 

compromise is pending (plus 30 days). Though the statute is silent, 

the Supreme Court in Young v. United States, 535 U.S. 93 (2002) 

held that the three-year period is tolled during the pendency of a 

previous bankruptcy case. Section 705 amends section 507(a)(8) of 

the Bankruptcy Code to codify the rule tolling priority periods during the pendency of a previous bankruptcy case during that threeyear or 240-day period together with an additional 90 days. It also 

includes tolling provisions to adjust for the collection due process 

rights provided by the Internal Revenue Service Restructuring and 

Reform Act of 1998. During any period in which the government 

is prohibited from collecting a tax as a result of a request by the 

debtor for a hearing and an appeal of any collection action taken 

against the debtor, the priority is tolled, plus 90 days. Also, during 

any time in which there was a stay of proceedings in a prior bankruptcy case or collection of an income tax was precluded by a confirmed bankruptcy plan, the priority is tolled, plus 90 days. 

Sec. 706. Priority Property Taxes Incurred. Under current law, 

many provisions of the Bankruptcy Code are keyed to the word ‘‘assessed.’’ While this term has an accepted meaning in the Federal 

system, it is not used in many state and local statutes and has created some confusion. To eliminate this problem with respect to real 

property taxes, section 706 amends section 507(a)(8)(B) of the 

Bankruptcy Code by replacing the word ‘‘assessed’’ with ‘‘incurred.’’

Sec. 707. No Discharge of Fraudulent Taxes in Chapter 13. Under 

current law, a debtor’s ability to discharge tax debts varies depending on whether the debtor is in chapter 7 or chapter 13. In a chapter 7 case, taxes that are not dischargeable include taxes from a 

return due within three years of the petition date, taxes assessed 

within 240 days, or taxes related to an unfiled return or false return. Chapter 13, on the other hand, allows these obligations to be 

discharged. Section 707 of the Act amends Bankruptcy Code section 

1328(a)(2) to prohibit the discharge of tax claims described in section 523(a)(1)(B) and (C) as well as claims for a tax required to be 

collected or withheld and for which the debtor is liable in whatever 

capacity pursuant to section 507(a)(8)(C). 

102 

100 96 T.C. 895 (1991). 

Sec. 708. No Discharge of Fraudulent Taxes in Chapter 11. Under 

current law, the confirmation of a chapter 11 plan discharges a corporate debtor from most debts. Section 708 amends section 1141(d) 

of the Bankruptcy Code to except from discharge in a corporate 

chapter 11 case a debt specified in subsections 523(a)(2)(A) or (B) 

of the Bankruptcy Code owed to a domestic governmental unit. In 

addition, it excepts from discharge a debt owed to a person as the 

result of an action filed under subchapter III of chapter 37 of title 

31 of the United States Code or any similar state statute. Section 

708 excepts from discharge a debt for a tax or customs duty with 

respect to which the debtor made a fraudulent tax return or willfully attempted in any manner to evade or defeat such tax. 

Sec. 709. Stay of Tax Proceedings Limited to Prepetition Taxes. 

Under current law, the filing of a petition for relief under the 

Bankruptcy Code activates an automatic stay that enjoins the commencement or continuation of a case in the United States Tax 

Court. This rule was arguably extended in Halpern v. Commissioner,100 which held that the tax court did not have jurisdiction 

to hear a case involving a postpetition year. To address this issue, 

section 709 of the Act amends section 362(a)(8) of the Bankruptcy 

Code to specify that the automatic stay is limited to an individual 

debtor’s prepetition taxes (taxes incurred before entering bankruptcy). The amendment clarifies that the automatic stay does not 

apply to an individual debtor’s postpetition taxes. In addition, section 709 provides that the stay applies to both prepetition and 

postpetition tax liabilities of a corporation so long as it is a liability 

that the bankruptcy court may determine. 

Sec. 710. Periodic Payment of Taxes in Chapter 11 Cases. Section 

710 of the Act amends section 1129(a)(9) of the Bankruptcy Code 

to provide that the allowed amount of priority tax claims (as of the 

plan’s effective date) must be paid in regular cash installments 

within five years from the entry of the order for relief. The manner 

of payment may not be less favorable than that accorded the most 

favored nonpriority unsecured claim provided for by the plan (other 

than cash payments made to a class of creditors under section 

1122(b)). In addition, it requires the same payment treatment to be 

accorded to a secured claim that would otherwise meet the description of an unsecured claim under section 507(a)(8). 

Sec. 711. Avoidance of Statutory Liens Prohibited. The Internal 

Revenue Code gives special protections to certain purchasers of securities and motor vehicles notwithstanding the existence of a filed 

tax lien. Section 711 of the Act amends section 545(2) of the Bankruptcy Code to prevent that provision’s special protections from 

being used to avoid an otherwise valid lien. Specifically, it prevents 

the avoidance of unperfected liens against a bona fide purchaser, 

if the purchaser qualifies as such under section 6323 of the Internal Revenue Code or a similar provision under state or local law. 

Sec. 712. Payment of Taxes in the Conduct of Business. Although 

current law generally requires trustees and receivers to pay taxes 

in the ordinary course of the debtor’s business, the payment of administrative expenses must first be authorized by the court. Section 712(a) of the Act amends section 960 of title 28 of the United 

103 

States Code to clarify that postpetition taxes in the ordinary course 

of business must be paid on or before when such tax is due under 

applicable nonbankruptcy law, with certain exceptions. This requirement does not apply if the obligation is a property tax secured 

by a lien against property that is abandoned under section 554 

within a reasonable time after the lien attaches. In addition, the 

requirement does not pertain where the payment is excused under 

the Bankruptcy Code. With respect to chapter 7 cases, section 

712(a) provides that the payment of a tax claim may be deferred 

until final distribution pursuant to section 726 if the tax was not 

incurred by a chapter 7 trustee or if the court, prior to the due date 

of the tax, finds that the estate has insufficient funds to pay all administrative expenses in full. Section 712(b) amends section 

503(b)(1)(B)(i) of the Bankruptcy Code to clarify that this provision 

applies to secured as well as unsecured tax claims, including property taxes based on liability that is in rem, in personam or both. 

Section 712(c) amends section 503(b)(1) to exempt a governmental 

unit from the requirement to file a request for payment of an administrative expense. Section 712(d)(1) amends section 506(b) to 

provide that to the extent that an allowed claim is oversecured, the 

holder is entitled to interest and any reasonable fees, costs, or 

charges provided for under state law. Section 712(d)(2), in turn, 

amends section 506(c) to permit a trustee to recover from a secured 

creditor the payment of all ad valorem property taxes. 

Sec. 713. Tardily Filed Priority Tax Claims. Section 713 of the Act 

amends section 726(a)(1) of the Bankruptcy Code to require a claim 

under section 507 that is not timely filed pursuant to section 501 

to be entitled to a distribution if such claim is filed the earlier of 

the date that is ten days following the mailing to creditors of the 

summary of the trustee’s final report or before the trustee commences final distribution. 

Sec. 714. Income Tax Returns Prepared by Tax Authorities. Section 

714 of the Act amends section 523(a) of the Bankruptcy Code to 

provide that a return prepared pursuant to section 6020(a) of the 

Internal Revenue Code, or similar State or local law, constitutes filing a return (and the debt can be discharged), but that a return 

filed on behalf of a taxpayer pursuant to section 6020(b) of the Internal Revenue Code, or similar State or local law, does not constitute filing a return (and the debt cannot be discharged). 

Sec. 715. Discharge of the Estate’s Liability for Unpaid Taxes. 

Under the Bankruptcy Code, a trustee or debtor in possession may 

request a prompt audit to determine postpetition tax liabilities incurred by the bankruptcy estate. If the government does not make 

a determination or request an extension of time to audit, then the 

trustee or debtor in possession is discharged from any such tax liability. Several court cases have held that while this protects the 

debtor and the trustee, it does not necessarily protect the estate. 

Section 715 of the Act amends section 505(b) of the Bankruptcy 

Code to clarify that the estate is also protected if the government 

does not make a determination or request an extension of time to 

audit the debtor’s tax returns. Therefore, if the government does 

not make a determination of postpetition tax liabilities or request 

extension of time to audit, then the estate’s liability for unpaid 

taxes is discharged. 

104 

Sec. 716. Requirement to File Tax Returns to Confirm Chapter 13 

Plans. Under current law, a debtor may enjoy the benefits of chapter 13 even if delinquent in the filing of tax returns. Section 716 

of the Act responds to this problem. Subsection (a) amends section 

1325(a) of the Bankruptcy Code to require a chapter 13 debtor to 

file all applicable Federal, state, and local tax returns as a condition of confirmation as required by section 1308 (as added by section 716(b)). Section 716(b) adds section 1308 to chapter 13 to require a chapter 13 debtor to be current on the filing of tax returns 

for the four-year period preceding the filing of the case. If the returns are not filed by the date on which the meeting of creditors 

is first scheduled, the trustee may hold open that meeting for a 

reasonable period of time to allow the debtor to file any unfiled returns. The additional period of time may not extend beyond 120 

days after the date of the meeting of the creditors or beyond the 

date on which the return is due under the last automatic extension 

of time for filing. The debtor, however, may obtain an extension of 

time from the court if the debtor demonstrates by a preponderance 

of the evidence that the failure to file was attributable to circumstances beyond the debtor’s control. 

Section 716(c) amends section 1307 of the Bankruptcy Code to 

provide that if a chapter 13 debtor fails to file a tax return as required by section 1308, the court must dismiss the case or convert 

it to one under chapter 7 (whichever is in the best interests of 

creditors and the estate) on request of a party in interest or the 

United States trustee after notice and a hearing. 

Section 716(d) amends section 502(b)(9) of the Bankruptcy Code 

to provide that in a chapter 13 case, a governmental unit’s tax 

claim based on a return filed under section 1308 shall be deemed 

to be timely filed if the claim is filed within 60 days from the date 

on which such return is filed. Section 716(e) states the sense of the 

Congress that the Judicial Conference of the United States should 

propose for adoption official rules with respect an objection by a 

governmental unit to confirmation of a chapter 13 plan when such 

claim pertains to a tax return filed pursuant to section 1308. 

Sec. 717. Standards for Tax Disclosure. Before creditors and stockholders may be solicited to vote on a chapter 11 plan, the plan proponent must file a disclosure statement that provides adequate information to holders of claims and interests so they can make a decision as to whether or not to vote in favor of the plan. As the tax 

consequences of a plan can have a significant impact on the debtor’s reorganization prospects, section 717 amends section 1125(a) of 

the Bankruptcy Code to require that a chapter 11 disclosure statement discuss the plan’s potential material Federal tax consequences to the debtor, any successor to the debtor, and to a hypothetical investor that is representative of the claimants and interest holders in the case. 

Sec. 718. Setoff of Tax Refunds. Under current law, the filing of a 

bankruptcy petition automatically stays the setoff of a prepetition 

tax refund against a prepetition tax obligation unless the bankruptcy court approves the setoff. Interest and penalties that may 

continue to accrue may also be nondischargeable pursuant to section 523(a)(1) of the Bankruptcy Code and cause individual debtors 

undue hardship. Section 718 of the Act amends section 362(b) of 

105 

the Bankruptcy Code to create an exception to the automatic stay 

whereby such setoff could occur without court order unless it would 

not be permitted under applicable nonbankruptcy law because of a 

pending action to determine the amount or legality of the tax liability. In that circumstance, the governmental authority may hold the 

refund pending resolution of the action, unless the court, on motion 

of the trustee and after notice and a hearing, grants the taxing authority adequate protection pursuant to section 361. 

Sec. 719. Special Provisions Related to the Treatment of State and 

Local Taxes. Section 719 of the Act conforms state and local income 

tax administrative issues to the Internal Revenue Code. For example, under Federal law, a bankruptcy petitioner filing on March 5 

has two tax years (January 1 to March 4, and March 5 to December 31). Under the Bankruptcy Code, however, state and local tax 

years are divided differently (January 1 to March 5, and March 6 

to December 31). Section 719 requires the states to follow the Federal convention. It conforms state and local tax administration to 

the Internal Revenue Code in the following areas: division of tax 

liabilities and responsibilities between the estate and the debtor, 

tax consequences with respect to partnerships and transfers of 

property, and the taxable period of a debtor. Section 719 does not 

conform state and local tax rates to Federal tax rates. 

Sec. 720. Dismissal for Failure to Timely File Tax Returns. Under 

existing law, there is no definitive rule with respect to whether a 

bankruptcy court may dismiss a bankruptcy case if the debtor fails 

to file returns for taxes incurred postpetition. Section 720 of the 

Act amends section 521 of the Bankruptcy Code to allow a taxing 

authority to request that the court dismiss or convert a bankruptcy 

case if the debtor fails to file a postpetition tax return or obtain an 

extension. If the debtor does not file the required return or obtain 

the extension within 90 days from the time of the request by the 

taxing authority to file the return, the court must convert or dismiss the case, whichever is in the best interest of creditors and the 

estate. 

TITLE VIII. ANCILLARY AND OTHER CROSS-BORDER CASES

Title VIII of the Act adds a new chapter to the Bankruptcy Code 

for transnational bankruptcy cases. It incorporates the Model Law 

on Cross-Border Insolvency to encourage cooperation between the 

United States and foreign countries with respect to transnational 

insolvency cases. Title VIII is intended to provide greater legal certainty for trade and investment as well as to provide for the fair 

and efficient administration of cross-border insolvencies, which protects the interests of creditors and other interested parties, including the debtor. In addition, it serves to protect and maximize the 

value of the debtor’s assets. 

Sec. 801. Amendment to Add Chapter 15 to Title 11, United States 

Code. Section 801 introduces chapter 15 to the Bankruptcy Code, 

which is the Model Law on Cross-Border Insolvency (‘‘Model Law’’) 

promulgated by the United Nations Commission on International 

Trade Law (‘‘UNCITRAL’’) at its Thirtieth Session on May 12–30, 

106 

101The text of the Model Law and the Report of UNCITRAL on its adoption are found at U.N. 

G.A., 52d Sess., Supp. No. 17 (A/52/17) (‘‘Report’’). That Report and the Guide to Enactment of 

the UNCITRAL Model Law on Cross-Border Insolvency, U.N. Gen. Ass., UNCITRAL 30th Sess. 

U.N. Doc. A/CN.9/442 (1997) (‘‘Guide’’), which was discussed in the negotiations leading to the 

Model Law and published by UNCITRAL as an aid to enacting countries, should be consulted 

for guidance as to the meaning and purpose of its provisions. The development of the provisions 

in the negotiations at UNCITRAL, in which the United States was an active participant, is recounted in the interim reports of the Working Group that are cited in the Report. 102See section 1529 and commentary. 103Guide at 16–19. 104See id. at 18, ¶60; 19 ¶66. 105 Id. at 17. 

1997.101 Cases brought under chapter 15 are intended to be ancillary to cases brought in a debtor’s home country, unless a full 

United States bankruptcy case is brought under another chapter. 

Even if a full case is brought, the court may decide under section 

305 to stay or dismiss the United States case under the other chapter and limit the United States’ role to an ancillary case under this 

chapter.102 If the full case is not dismissed, it will be subject to the 

provisions of this chapter governing cooperation, communication 

and coordination with the foreign courts and representatives. In 

any case, an order granting recognition is required as a prerequisite to the use of sections 301 and 303 by a foreign representative. 

Sec. 1501. Purpose and scope of application. Section 1501 combines 

the Preamble to the Model Law (subsection (1)) with its article 1 

(subsections (2) and (3)).103 It largely tracks the language of the 

Model Law with appropriate United States references. However, it 

adds in subsection (3) an exclusion of certain natural persons who 

may be considered ordinary consumers. Although the consumer exclusion is not in the text of the Model Law, the discussions at 

UNCITRAL recognized that such exclusion would be necessary in 

countries like the United States where there are special provisions 

for consumer debtors in the insolvency laws.104

The reference to section 109(e) essentially defines ‘‘consumer 

debtors’’ for purposes of the exclusion by incorporating the debt 

limitations of that section, but not its requirement of regular income. The exclusion adds a requirement that the debtor or debtor 

couple be citizens or long-term legal residents of the United States. 

This ensures that residents of other countries will not be able to 

manipulate this exclusion to avoid recognition of foreign proceedings in their home countries or elsewhere. 

The first exclusion in subsection (c) constitutes, for the United 

States, the exclusion provided in article 1, subsection (2), of the 

Model Law.105 Foreign representatives of foreign proceedings which 

are excluded from the scope of chapter 15 may seek comity from 

courts other than the bankruptcy court since the limitations of section 1509(b)(2) and (3) would not apply to them. 

The reference to section 109(b) interpolates into chapter 15 the 

entities governed by specialized insolvency regimes under United 

States law which are currently excluded from liquidation proceedings under title 11. Section 1501 contains an exception to the 

section 109(b) exclusions so that foreign proceedings of foreign insurance companies are eligible for recognition and relief under 

chapter 15 as they had been under section 304. However, section 

1501(d) has the effect of leaving to State regulation any deposit, esVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00110 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
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106See section 1505. 107Guide at 19–21, ¶¶67–68. 108See Guide at 19, (Model Law) 21 ¶75 (concerning establishment); 21 ¶74 (concerning foreign 

court); 21 ¶¶72, 73 and 75 (concerning foreign main and non-main proceedings). 109See id. at 21, ¶75. 110See id. at 22, Art. 3. 

crow, trust fund or the like posted by a foreign insurer under State 

law. 

Sec. 1502. Definitions. ‘‘Debtor’’ is given a special definition for this 

chapter. This definition does not come from the Model Law, but is 

necessary to eliminate the need to refer repeatedly to ‘‘the same 

debtor as in the foreign proceeding.’’ With certain exceptions, the 

term ‘‘person’’ used in the Model Law has been replaced with ‘‘entity,’’ which is defined broadly in section 101(15) to include natural 

persons and various legal entities, thus matching the intended 

breadth of the term ‘‘person’’ in the Model Law. The exceptions include contexts in which a natural person is intended and those in 

which the Model Law language already refers to both persons and 

entities other than persons. The definition of ‘‘trustee’’ for this 

chapter ensures that debtors in possession and debtors, as well as 

trustees, are included in the term.106

The definition of ‘‘within the territorial jurisdiction of the United 

States’’ in subsection (7) is not taken from the Model Law. It has 

been added because the United States, like some other countries, 

asserts insolvency jurisdiction over property outside its territorial 

limits under appropriate circumstances. Thus a limiting phrase is 

useful where the Model Law and this chapter intend to refer only 

to property within the territory of the enacting state. In addition, 

a definition of ‘‘recognition’’ supplements the Model Law definitions 

and merely simplifies drafting of various other sections of chapter 

15. 

Two key definitions of ‘‘foreign proceeding’’ and ‘‘foreign representative,’’ are found in sections 101(23) and (24), which have 

been amended consistent with Model Law article 2.107 The definitions of ‘‘establishment,’’ ‘‘foreign court,’’ ‘‘foreign main proceeding,’’

and ‘‘foreign non-main proceeding’’ have been taken from Model 

Law article 2, with only minor language variations necessary to 

comport with United States terminology. Additionally, defined 

terms have been placed in alphabetical order.108 In order to be recognized as a foreign non-main proceeding, the debtor must at least 

have an establishment in that foreign country.109

Sec. 1503. International obligations of the United States. This section is taken exactly from the Model Law with only minor adaptations of terminology.110 Although this section makes an international obligation prevail over chapter 15, the courts will attempt 

to read the Model Law and the international obligation so as not 

to conflict, especially if the international obligation addresses a 

subject matter less directly related than the Model Law to a case 

before the court. 

Sec. 1504. Commencement of ancillary case. Article 4 of the Model 

Law is designed for designation of the competent court which will 

exercise jurisdiction under the Model Law. In United States law, 

section 1334(a) of title 28 gives exclusive jurisdiction to the district 

108 

111See id. at 23, Art. 4. 112 New section 1410 of title 28 provides as follows: 

A case under chapter 15 of title 11 may be commenced in the district court for the district——

(1) in which the debtor has its principal place of business or principal assets in the United 

States; 

(2) if the debtor does not have a place of business or assets in the United States, in which 

there is pending against the debtor an action or proceeding or enforcement of judgment 

in a Federal or State court; or 

(3) in a case other than those specified in paragraph (1) or (2), in which venue will be consistent with the interests of justice and the convenience of the parties having regard 

to the relief sought by the foreign representative. 113See Guide at 24. 114See id. at 24, Art. 5. 

courts in a ‘‘case’’ under this title.111 Therefore, since the competent court has been determined in title 28, this section instead 

provides that a petition for recognition commences a ‘‘case,’’ an approach that also invokes a number of other useful procedural provisions. In addition, a new subsection (P) to section 157 of title 28 

makes cases under this chapter part of the core jurisdiction of 

bankruptcy courts if referred by the district courts, thus completing 

the designation of the competent court. Finally, the particular 

bankruptcy court that will rule on the petition is determined pursuant to a revised section 1410 of title 28 governing venue and 

transfer.112

The title ‘‘ancillary’’ in the title of this section and in the title of 

this chapter emphasizes the United States policy in favor of a general rule that countries other than the home country of the debtor, 

where a main proceeding would be brought, should usually act 

through ancillary proceedings in aid of the main proceedings, in 

preference to a system of full bankruptcies (often called ‘‘secondary’’

proceedings) in each state where assets are found. Under the Model 

Law, notwithstanding the recognition of a foreign main proceeding, 

full bankruptcy cases are permitted in each country (see sections 

1528 and 1529). In the United States, the court will have the power 

to suspend or dismiss such cases where appropriate under section 

305. 

Sec. 1505. Authorization to act in a foreign country. The language 

in this section varies from the wording of article 5 of the Model 

Law as necessary to comport with United States law and terminology. The slight alteration to the language in the last sentence 

is meant to emphasize that the identification of the trustee or other 

entity entitled to act is under United States law, while the scope 

of actions that may be taken by the trustee or other entity under 

foreign law is limited by the foreign law.113

The related amendment to section 586(a)(3) of title 28 makes acting pursuant to authorization under this section an additional 

power of a trustee or debtor in possession. While the Model Law 

automatically authorizes an administrator to act abroad, this section requires all trustees and debtors to obtain court approval before acting abroad. That requirement is a change from the language of the Model Law, but one that is purely internal to United 

States law.114 Its main purpose is to ensure that the court has 

knowledge and control of possibly expensive activities, but it will 

have the collateral benefit of providing further assurance to foreign 

courts that the United States debtor or representative is under judicial authority and supervision. This requirement means that the 

109 

115See id. at 23–24, ¶82. 116See id. at 25. 117 Id. at 26. 118 Id. 119 Id. at 26, ¶91. 

first-day orders in reorganization cases should include authorization to act under this section where appropriate. 

This section also contemplates the designation of an examiner or 

other natural person to act for the estate in one or more foreign 

countries where appropriate. One instance might be a case in 

which the designated person had a special expertise relevant to 

that assignment. Another might be where the foreign court would 

be more comfortable with a designated person than with an entity 

like a debtor in possession. Either are to be recognized under the 

Model Law.115

Sec. 1506. Public policy exception. This provision follows the Model 

Law article 5 exactly, is standard in UNCITRAL texts, and has 

been narrowly interpreted on a consistent basis in courts around 

the world. The word ‘‘manifestly’’ in international usage restricts 

the public policy exception to the most fundamental policies of the 

United States.116

Sec. 1507. Additional assistance. Subsection (1) follows the language of Model Law article 7.117 Subsection (2) makes the authority for additional relief (beyond that permitted under sections 

1519–1521, below) subject to the conditions for relief heretofore 

specified in United States law under section 304, which is repealed. 

This section is intended to permit the further development of international cooperation begun under section 304, but is not to be the 

basis for denying or limiting relief otherwise available under this 

chapter. The additional assistance is made conditional upon the 

court’s consideration of the factors set forth in the current subsection 304(c) in a context of a reasonable balancing of interests following current case law. The references to ‘‘estate’’ in section 304 

have been changed to refer to the debtor’s property, because many 

foreign systems do not create an estate in insolvency proceedings 

of the sort recognized under this chapter. Although the case law 

construing section 304 makes it clear that comity is the central 

consideration, its physical placement as one of six factors in subsection (c) of section 304 is misleading, since those factors are essentially elements of the grounds for granting comity. Therefore, in 

subsection (2) of this section, comity is raised to the introductory 

language to make it clear that it is the central concept to be addressed.118

Sec. 1508. Interpretation. This provision follows conceptually Model 

Law article 8 and is a standard one in recent UNCITRAL treaties 

and model laws. Changes to the language were made to express the 

concepts more clearly in United States vernacular.119 Interpretation of this chapter on a uniform basis will be aided by reference 

to the Guide and the Reports cited therein, which explain the reasons for the terms used and often cite their origins as well. Uniform interpretation will also be aided by reference to CLOUT, the 

UNCITRAL Case Law On Uniform Texts, which is a service of 

UNCITRAL. CLOUT receives reports from national reporters all 

over the world concerning court decisions interpreting treaties, 

110 

120See id. at 23, Art. 4, ¶¶79–83; 27 Art. 9, ¶93. 121See id. at 27, Art. 9; 34–35, Art. 15 and ¶¶116–119; 39–40, Art. 18, ¶¶133–134; see also 

sections 1515(3), 1518. 122 Id. at 27, ¶93. 

model laws, and other text promulgated by UNCITRAL. Not only 

are these sources persuasive, but they advance the crucial goal of 

uniformity of interpretation. To the extent that the United States 

courts rely on these sources, their decisions will more likely be regarded as persuasive elsewhere. 

Sec. 1509. Right of direct access. This section implements the purpose of article 9 of the Model Law, enabling a foreign representative to commence a case under this chapter by filing a petition directly with the court without preliminary formalities that may 

delay or prevent relief. It varies the language to fit United States 

procedural requirements and it imposes recognition of the foreign 

proceeding as a condition to further rights and duties of the foreign 

representative. If recognition is granted, the foreign representative 

will have full capacity under United States law (subsection (b)(1)), 

may request such relief in a state or Federal court other than the 

bankruptcy court (subsection (b)(2)), and shall be granted comity or 

cooperation by such non-bankruptcy court (subsection (b)(3) and 

(c)). Subsections (b)(2), (b)(3), and (c) make it clear that chapter 15 

is intended to be the exclusive door to ancillary assistance to foreign proceedings. The goal is to concentrate control of these questions in one court. That goal is important in a Federal system like 

that of the United States with many different courts, state and federal, that may have pending actions involving the debtor or the 

debtor’s property. This section, therefore, completes for the United 

States the work of article 4 of the Model Law (‘‘competent court’’) 

as well as article 9.120

Although a petition under current section 304 is the proper 

method for achieving deference by a United States court to a foreign insolvency proceeding under present law, some cases in state 

and Federal courts under current law have granted comity suspension or dismissal of cases involving foreign proceedings without requiring a section 304 petition or even referring to the requirements 

of that section. Even if the result is correct in a particular case, the 

procedure is undesirable, because there is room for abuse of comity. 

Parties would be free to avoid the requirements of this chapter and 

the expert scrutiny of the bankruptcy court by applying directly to 

a state or Federal court unfamiliar with the statutory requirements. Such an application could be made after denial of a petition 

under this chapter. This section concentrates the recognition and 

deference process in one United States court, ensures against 

abuse, and empowers a court that will be fully informed of the current status of all foreign proceedings involving the debtor.121

Subsection (d) has been added to ensure that a foreign representative cannot seek relief in courts in the United States after being 

denied recognition by the court under this chapter. Subsection (e) 

makes activities in the United States by a foreign representative 

subject to applicable United States law, just as 28 U.S.C. section 

959 does for a domestic trustee in bankruptcy.122 Subsection (f) 

provides a limited exception to the prior recognition requirement so 

that collection of a claim which is property of the debtor, for examVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00114 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
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123See id. at 28, Art. 11. 124 Id. at 38, ¶¶97–99. 125 Id. at 29, Art. 12. 126 Id. at 29, ¶¶10–102. 127 Id. at 30, ¶103. 128See id. at 30, ¶104. 

ple an account receivable, by a foreign representative may proceed 

without commencement of a case or recognition under this chapter. 

Sec. 1510. Limited jurisdiction. Section 1510, article 10 of the 

Model Law, is modeled on section 306 of the Bankruptcy Code. Although the language referring to conditional relief in section 306 is 

not included, the court has the power under section 1522 to attach 

appropriate conditions to any relief it may grant. Nevertheless, the 

authority in section 1522 is not intended to permit the imposition 

of jurisdiction over the foreign representative beyond the boundaries of the case under this chapter and any related actions the foreign representative may take, such as commencing a case under 

another chapter of this title. 

Sec. 1511. Commencement of Case Under Section 301 or 303. This 

section reflects the intent of article 11 of the Model Law, but adds 

language that conforms to United States law or that is otherwise 

necessary in the United States given its many bankruptcy court 

districts and the importance of full information and coordination 

among them.123 Article 11 does not distinguish between voluntary 

and involuntary proceedings, but seems to have implicitly assumed 

an involuntary proceeding.124 Subsection 1(a)(2) goes farther and 

permits a voluntary filing, with its much simpler requirements, if 

the foreign proceeding that has been recognized is a main proceeding. 

Sec. 1512. Participation of a foreign representative in a case under 

this title. This section tracks article 12 of the Model Law with a 

slight alteration to tie into United States procedural terminology.125 The effect of this section is to make the recognized foreign representative a party in interest in any pending or later commenced United States bankruptcy case.126 Throughout this chapter, the word ‘‘case’’ has been substituted for the word ‘‘proceeding’’

in the Model Law when referring to cases under the United States 

Bankruptcy Code, to conform to United States usage. 

Sec. 1513. Access of foreign creditors to a case under this title. This 

section mandates nondiscriminatory or ‘‘national’’ treatment for foreign creditors, except as provided in subsection (b) and section 

1514. It follows the intent of Model Law article 13, but the language required alteration to fit into the Bankruptcy Code.127 The 

law as to priority for foreign claims that fit within a class given 

priority treatment under section 507 (for example, foreign employees or spouses) is unsettled. This section permits the continued development of case law on that subject and its general principle of 

national treatment should be an important factor to be considered. 

At a minimum, under this section, foreign claims must receive the 

treatment given to general unsecured claims without priority, unless they are in a class of claims in which domestic creditors would 

also be subordinated.128 The Model Law allows for an exception to 

the policy of nondiscrimination as to foreign revenue and other 

112 

129See id. at 31, ¶105. 130See Model Law, Art. 14; Guide at 31–32, ¶¶106–109. 131Guide at 33, ¶111. 132 Id. at 31, Art. 14(3)(a). 133 Id. at 33. 134See id. at 36, ¶121. 135 Id. at 36 

public law claims.129 Such claims (such as tax and Social Security 

claims) have been traditionally denied enforcement in the United 

States, inside and outside of bankruptcy. The Bankruptcy Code is 

silent on this point, so the rule is purely a matter of traditional 

case law. It is not clear if this policy should be maintained or modified, so this section leaves this question to developing case law. It 

also allows the Department of the Treasury to negotiate reciprocal 

arrangements with our tax treaty partners in this regard, although 

it does not mandate any restriction of the evolution of case law 

pending such negotiations. 

Sec. 1514. Notification of foreign creditors concerning a case under 

title 11. This section ensures that foreign creditors receive proper 

notice of cases in the United States.130 As ‘‘foreign creditor’’ is not 

a defined term, foreign addresses are used as the distinguishing 

factor. The Federal Rules of Bankruptcy Procedure (‘‘Rules’’) should 

be amended to conform to the requirements of this section, including a special form for initial notice to such creditors. In particular, 

the Rules must provide additional time for such creditors to file 

proofs of claim where appropriate and require the court to make 

specific orders in that regard in proper circumstances. The notice 

must specify that secured claims must be asserted, because in 

many countries such claims are not affected by an insolvency proceeding and need not be filed.131 If a foreign creditor has made an 

appropriate request for notice, it will receive notices in every instance where notices would be sent to other creditors who have 

made such requests. Subsection (d) replaces the reference to ‘‘a reasonable time period’’ in Model Law article 14(3)(a).132 It makes 

clear that the Rules, local rules, and court orders must make appropriate adjustments in time periods and bar dates so that foreign 

creditors have a reasonable time within which to receive notice or 

take an action. 

Sec. 1515. Application for recognition of a foreign proceeding. This 

section follows article 15 of the Model Law with minor changes.133

The Rules will require amendment to provide forms for some or all 

of the documents mentioned in this section, to make necessary additions to Rules 1000 and 2002 to facilitate appropriate notices of 

the hearing on the petition for recognition, and to require filing of 

lists of creditors and other interested persons who should receive 

notices. Throughout the Model Law, the question of notice procedure is left to the law of the enacting state.134

Sec. 1516. Presumptions concerning recognition. This section follows article 16 of the Model Law with minor changes.135 Although 

sections 1515 and 1516 are designed to make recognition as simple 

and expedient as possible, the court may hear proof on any element 

stated. The ultimate burden as to each element is on the foreign 

representative, although the court is entitled to shift the burden to 

the extent indicated in section 1516. The word ‘‘proof’’ in subsection 

(3) has been changed to ‘‘evidence’’ to make it clearer using United 

113 

136 Id. at 36, Art. 16(3). 137 Id. 138 Id. at 37. 139 Report of the Working Group on Insolvency Law on the Work of Its Twentieth Session (Vienna, 7–18 Oct. 1996), at 6, ¶¶16–20. 140Guide at 37, Art. 17(1)(d). 

States terminology that the ultimate burden is on the foreign representative.136 ‘‘Registered office’’ is the term used in the Model 

Law to refer to the place of incorporation or the equivalent for an 

entity that is not a natural person.137 The presumption that the 

place of the registered office is also the center of the debtor’s main 

interest is included for speed and convenience of proof where there 

is no serious controversy. 

Sec. 1517. Order granting recognition. This section closely tracks 

article 17 of the Model Law, with a few exceptions.138 The decision 

to grant recognition is not dependent upon any findings about the 

nature of the foreign proceedings of the sort previously mandated 

by section 304(c) of the Bankruptcy Code. The requirements of this 

section, which incorporates the definitions in section 1502 and sections 101(23) and (24), are all that must be fulfilled to attain recognition. Reciprocity was specifically suggested as a requirement 

for recognition on more than one occasion in the negotiations that 

resulted in the Model Law. It was rejected by overwhelming consensus each time. The United States was one of the leading countries opposing the inclusion of a reciprocity requirement.139 In this 

regard, the Model Law conforms to section 304, which has no such 

requirement. 

The drafters of the Model Law understood that only a main proceeding or a non-main proceeding meeting the standards of section 

1502 (that is, one brought where the debtor has an establishment) 

were entitled to recognition under this section. The Model Law has 

been slightly modified to make this point clear by referring to the 

section 1502 definition of main and non-main proceedings, as well 

as to the general definition of a foreign proceeding in section 

101(23). A petition under section 1515 must show that proceeding 

is a main or a qualifying non-main proceeding in order to obtain 

recognition under this section. 

Consistent with the position of various civil law representatives 

in the drafting of the Model Law, recognition creates a status with 

the effects set forth in section 1520, so those effects are not viewed 

as orders to be modified, as are orders granting relief under sections 1519 and 1521. Subsection (4) states the grounds for modifying or terminating recognition. On the other hand, the effects of 

recognition (found in section 1520 and including an automatic stay) 

are subject to modification under section 362(d), made applicable 

by section 1520(2), which permits relief from the automatic stay of 

section 1520 for cause. 

Paragraph 1(d) of section 17 of the Model Law has been omitted 

as an unnecessary requirement for United States purposes, because 

a petition submitted to the wrong court will be dismissed or transferred under other provisions of United States law.140 The reference to section 350 refers to the routine closing of a case that has 

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141 Id. 142 Id. at 39–40, ¶¶133, 134. 143 Id. at 40. 144 Id. at 42, Art. 20 1(a), (b). 145 Id. at 42, 45. 

port from the foreign representative in such form as the Rules may 

provide or a court may order.141

Sec. 1518. Subsequent information. This section follows the Model 

Law, except to eliminate the word ‘‘same,’’ which is rendered unnecessary by the definition of ‘‘debtor’’ in section 1502, and to provide for a formal document to be filed with the court.142 Judges in 

several jurisdictions, including the United States, have reported a 

need for a requirement of complete and candid reports to the court 

of all proceedings, worldwide, involving the debtor. This section 

will ensure that such information is provided to the court on a 

timely basis. Any failure to comply with this section will be subject 

to the sanctions available to the court for violations of the statute. 

The section leaves to the Rules the form of the required notice and 

related questions of notice to parties in interest, the time for filing, 

and the like. 

Sec. 1519. Relief may be granted upon petition for recognition of a 

foreign proceeding. This section generally follows article 19 of the 

Model Law.143 The bankruptcy court will have jurisdiction to grant 

emergency relief under Rule 7065 pending a hearing on the petition for recognition. This section does not expand or reduce the 

scope of section 105 as determined by cases under section 105 nor 

does it modify the sweep of sections 555 to 560. Subsection (d) precludes injunctive relief against police and regulatory action under 

section 1519, leaving section 105 as the only avenue for such relief. 

Subsection (e) makes clear that this section contemplates injunctive 

relief and that such relief is subject to specific rules and a body of 

jurisprudence. Subsection (f) was added to complement amendments to the Bankruptcy Code provisions dealing with financial 

contracts. 

Sec. 1520. Effects of recognition of a foreign main proceeding. In 

general, this chapter sets forth all the relief that is available as a 

matter of right based upon recognition hereunder, although additional assistance may be provided under section 1507 and this 

chapter has no effect on any relief currently available under section 

105. The stay created by article 20 of the Model Law is imported 

to chapter 15 from existing provisions of the Code. Subsection (a)(1) 

combines subsections 1(a) and (b) of article 20 of the Model Law, 

because section 362 imposes the restrictions required by those two 

subsections as well as additional restrictions.144

Subsections (a)(2) and (4) apply the Bankruptcy Code sections 

that impose the restrictions called for by subsection 1(c) of the 

Model Law. In both cases, the provisions are broader and more 

complete than those contemplated by the Model Law, but include 

all the restraints the Model Law provisions would impose.145 As 

the foreign proceeding may or may not create an ‘‘estate’’ similar 

to that created in cases under this title, the restraints are applicable to actions against the debtor under section 362(a) and with respect to the property of the debtor under the remaining sections. 

The only property covered by this section is property within the 

115 

146 Id. at 42, Art. 20(2); 44, ¶¶ 148, 150. 147 Id. at 42, Art. 20(3); 44–45, ¶¶ 151 152. 148 Id. 149 Id. at 45–46, Art. 21. 150 Id. at 46, Art. 21(2); 47, Art. 22(1). 

territorial jurisdiction of the United States as defined in section 

1502. To achieve effects on property of the debtor which is not 

within the territorial jurisdiction of the United States, the foreign 

representative would have to commence a case under another chapter of this title. 

By applying sections 361 and 362, subsection (a) makes applicable the United States exceptions and limitations to the restraints 

imposed on creditors, debtors, and other in a case under this title, 

as stated in article 20(2) of the Model Law.146 It also introduces the 

concept of adequate protection provided in sections 362 and 363. 

These exceptions and limitations include those set forth in sections 

362(b), (c) and (d). As a result, the court has the power to terminate the stay pursuant to section 362(d), for cause, including a failure of adequate protection.147

Subsection (a)(2), by its reference to sections 363 and 552 adds 

to the powers of a foreign representative of a foreign main proceeding an automatic right to operate the debtor’s business and exercise the power of a trustee under sections 363 and 542, unless 

the court orders otherwise. A foreign representative of a foreign 

main proceeding may need to continue a business operation to 

maintain value and granting that authority automatically will 

eliminate the risk of delay. If the court is uncomfortable about this 

authority in a particular situation, it can ‘‘order otherwise’’ as part 

of the order granting recognition. 

Two special exceptions to the automatic stay are embodied in 

subsections (b) and (c). To preserve a claim in certain foreign countries, it may be necessary to commence an action. Subsection (b) 

permits the commencement of such an action, but would not allow 

for its further prosecution. Subsection (c) provides that there is no 

stay of the commencement of a full United States bankruptcy case. 

This essentially provides an escape hatch through which any entity, including the foreign representative, can flee into a full case. 

The full case, however, will remain subject to subchapters IV and 

V on cooperation and coordination of proceedings and to section 305 

providing for stay or dismissal. Section 108 of the Bankruptcy Code 

provides the tolling protection intended by Model Law article 20(3), 

so no exception is necessary for claims that might be extinguished 

under United States law.148

Sec. 1521. Relief that may be granted upon recognition of a foreign 

proceeding. This section follows article 21 of the Model Law, with 

detailed changes to conform to United States law.149 The exceptions in subsection (a)(7) relate to avoiding powers. The foreign representative’s status as to such powers is governed by section 1523 

below. The avoiding power in section 549 and the exceptions to that 

power are covered by section 1520(a)(2). The word ‘‘adequately’’ in 

the Model Law, articles 21(2) and 22(1), has been changed to ‘‘sufficiently’’ in sections 1521(b) and 1522(a) to avoid confusion with a 

very specialized legal term in United States bankruptcy, ‘‘adequate 

protection.’’ 150 Subsection (c) is designed to limit relief to assets 

having some direct connection with a non-main proceeding, for exVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00119 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
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151See id. at 46–47, ¶¶ 158, 160. 152 Id. at 47. 153 Id. at 48–49. 154See id. at 49, ¶166. 155 Id. at 49. 

ample where they were part of an operating division in the jurisdiction of the non-main proceeding when they were fraudulently conveyed and then brought to the United States.151 Subsections (d), (e) 

and (f) are identical to those same subsections of section 1519. This 

section does not expand or reduce the scope of relief currently 

available in ancillary cases under sections 105 and 304 nor does it 

modify the sweep of sections 555 through 560. 

Sec. 1522. Protection of creditors and other interested persons. This 

section follows article 22 of the Model Law with changes for United 

States usage and references to relevant Bankruptcy Code sections.152 It gives the bankruptcy court broad latitude to mold relief 

to meet specific circumstances, including appropriate responses if it 

is shown that the foreign proceeding is seriously and unjustifiably 

injuring United States creditors. For a response to a showing that 

the conditions necessary to recognition did not actually exist or 

have ceased to exist, see section 1517. Concerning the change of 

‘‘adequately’’ in the Model Law to ‘‘sufficiently’’ in this section, see 

section 1521. Subsection (d) is new and simply makes clear that 

Bankruptcy Code section 1104(d) shall apply to the appointment of 

an examiner appointed in a case under chapter 15 and such examiner shall be subject to certain duties and bonding requirements 

based on those imposed on trustees and examiners under other 

chapters of this title. 

Sec. 1523. Actions to avoid acts detrimental to creditors. This section follows article 23 of the Model Law, with wording to fit it within procedure under this title.153 It confers standing on a recognized 

foreign representative to assert an avoidance action but only in a 

pending case under another chapter of this title. The Model Law 

is not clear about whether it would grant standing in a recognized 

foreign proceeding if no full case were pending. This limitation reflects concerns raised by the United States delegation during the 

UNCITRAL debates that a simple grant of standing to bring avoidance actions neglects to address very difficult choice of law and 

forum issues. This limited grant of standing in section 1523 does 

not create or establish any legal right of avoidance nor does it create or imply any legal rules with respect to the choice of applicable 

law as to the avoidance of any transfer of obligation.154 The courts 

will determine the nature and extent of any such action and what 

national law may be applicable to such action. 

Sec. 1524. Intervention by a foreign representative. The wording is 

the same as the Model Law, except for a few clarifying words.155

This section gives the foreign representative whose foreign proceeding has been recognized the right to intervene in United States 

cases, state or federal, where the debtor is a party. Recognition 

being an act under Federal bankruptcy law, it must take effect in 

state as well as Federal courts. This section does not require substituting the foreign representative for the debtor, although that 

result may be appropriate in some circumstances. 

117 

156 Id. at 50. 157 Id. at 51. 158Guide at 51, 53. 159See e.g., In re Maxwell Communication Corp., 93 F.2d 1036 (2d Cir. 1996). 160Guide at 54–55. 161 Id. at 55–56. 

Sec. 1525. Cooperation and direct communication between the court 

and foreign courts or foreign representatives. The wording of this 

provision is nearly identical to that of the Model Law.156 The right 

of courts to communicate with other courts in worldwide insolvency 

cases is of central importance. This section authorizes courts to do 

so. This right must be exercised, however, with due regard to the 

rights of the parties. Guidelines for such communications are left 

to the Federal rules of bankruptcy procedure. 

Sec. 1526 Cooperation and direct communication between the trustee and foreign courts or foreign representatives. This section closely 

tracks the Model Law.157 The language in Model Law article 26 

concerning the trustee’s function was eliminated as unnecessary 

because it is always implied under United States law. The section 

authorizes the trustee, including a debtor in possession, to cooperate with other proceedings. 

Sec. 1527. Forms of cooperation. This section is identical to the 

Model Law.158 United States bankruptcy courts already engage in 

most of the forms of cooperation described here, but they now have 

explicit statutory authorization for acts like the approval of protocols of the sort used in cases.159

Sec. 1528. Commencement of a case under title 11 after recognition 

of a foreign main proceeding. This section follows the Model Law, 

with specifics of United States law replacing the general clause at 

the end of the section to cover assets normally included within the 

jurisdiction of the United States courts in bankruptcy cases, except 

where assets are subject to the jurisdiction of another recognized 

proceeding.160 In a full bankruptcy case, the United States bankruptcy court generally has jurisdiction over assets outside the 

United States. Here that jurisdiction is limited where those assets 

are controlled by another recognized proceeding, if it is a main proceeding. 

The court may use section 305 of this title to dismiss, stay, or 

limit a case as necessary to promote cooperation and coordination 

in a cross-border case. In addition, although the jurisdictional limitation applies only to United States bankruptcy cases commenced 

after recognition of a foreign proceeding, the court has ample authority under the next section and section 305 to exercise its discretion to dismiss, stay, or limit a United States case filed after a petition for recognition of a foreign main proceeding has been filed but 

before it has been approved, if recognition is ultimately granted. 

Sec. 1529. Coordination of a case under title 11 and a foreign proceeding. This section follows the Model Law almost exactly, but 

subsection (4) adds a reference to section 305 to make it clear the 

bankruptcy court may continue to use that section, as under 

present law, to dismiss or suspend a United States case as part of 

coordination and cooperation with foreign proceedings.161 This provision is consistent with United States policy to act ancillary to a 

foreign main proceeding whenever possible. 

118 

162 Id. at 57. 163 Id. at 58. 164 Id. at 59. 165 Id. at 51–52, 71. 

Sec. 1530. Coordination of more than one foreign proceeding. This 

section follows article 30 of the Model Law exactly.162 It ensures 

that a foreign main proceeding will be given primacy in the United 

States, consistent with the overall approach of the United States 

favoring assistance to foreign main proceedings. 

Sec. 1531. Presumption of insolvency based on recognition of a foreign main proceeding. This section follows the Model Law exactly, 

inserting a reference to the standard for an involuntary case under 

this title.163 Where an insolvency proceeding has begun in the 

home country of the debtor, and in the absence of contrary evidence, the foreign representative should not have to make a new 

showing that the debtor is in the sort of financial distress requiring 

a collective judicial remedy. The word ‘‘proof’’ in this provision here 

means ‘‘presumption.’’ The presumption does not arise for any purpose outside this section. 

Sec. 1532. Rule of payment in concurrent proceeding. This section 

follows the Model Law exactly and is very similar to prior section 

508(a), which is repealed. The Model Law language is somewhat 

clearer and broader than the equivalent language of prior section 

508(a).164

Sec. 802. Other Amendments to Titles 11 and 28, United States 

Code. Section 802(a) amends section 103 of the Bankruptcy Code 

to clarify the provisions of the Code that apply to chapter 15 and 

to specify which portions of chapter 15 apply in cases under other 

chapters of title 11. Section 802(b) amends the Bankruptcy Code’s 

definitions of foreign proceeding and foreign representative in section 101. The new definitions are nearly identical to those contained in the Model Law but add to the phrase ‘‘under a law relating to insolvency’’ the words ‘‘or debt adjustment.’’ This addition 

emphasizes that the scope of the Model Law and chapter 15 is not 

limited to proceedings involving only debtors which are technically 

insolvent, but broadly includes all proceedings involving debtors in 

severe financial distress, so long as those proceedings also meet the 

other criteria of section 101(24).165

Section 802(c) amends section 157(b)(2) of title 28 to provide that 

proceedings under chapter 15 will be core proceedings while other 

amendments to title 28 provide that the United States trustee’s 

standing extends to cases under chapter 15 and that the United 

States trustee’s duties include acting in chapter 15 cases. Although 

the United States will continue to assert worldwide jurisdiction 

over property of a domestic or foreign debtor in a full bankruptcy 

case under chapters 7 and 13 of this title, subject to deference to 

foreign proceedings under chapter 15 and section 305, the situation 

is different in a case commenced under chapter 15. There the 

United States is acting solely in an ancillary position, so jurisdiction over property is limited to that stated in chapter 15. 

Section 802(d) amends section 109 of the Bankruptcy Code to 

permit recognition of foreign proceedings involving foreign insurance companies and involving foreign banks which do not have a 

branch or agency in the United States (as defined in 12 U.S.C. 

119 

3101). While a foreign bank not subject to United States regulation 

will be eligible for chapter 15 as a consequence of the amendment 

to section 109, section 303 prohibits the commencement of a full involuntary case against such a foreign bank unless the bank is a 

debtor in a foreign proceeding. 

While section 304 is repealed and replaced by chapter 15, access 

to the jurisprudence which developed under section 304 is preserved in the context of new section 1507. On deciding whether to 

grant the additional assistance contemplated by section 1507, the 

court must consider the same factors specified in former section 

304. The venue provisions for cases ancillary to foreign proceedings 

have been amended to provide a hierarchy of choices beginning 

with principal place of business in the United States, if any. If 

there is no principal place of business in the United States, but 

there is litigation against a debtor, then the district in which the 

litigation is pending would be the appropriate venue. In any other 

case, venue must be determined with reference to the interests of 

justice and the convenience of the parties. 

TITLE IX. FINANCIAL CONTRACT PROVISIONS

Sec. 901. Treatment of Certain Agreements by Conservators of Receivers of Insured Depository Institutions. Subsections (a) through 

(f) of section 901 of the Act amend the definitions of ‘‘qualified financial contract,’’ ‘‘securities contract,’’ ‘‘commodity contract,’’ ‘‘forward contract,’’ ‘‘repurchase agreement’’ and ‘‘swap agreement’’ contained in the Federal Deposit Insurance Act (FDIA) and the Federal Credit Union Act (FCUA) to make them consistent with the 

definitions in the Bankruptcy Code and to reflect the enactment of 

the Commodity Futures Modernization Act of 2000 (CFMA). It is 

intended that the legislative history and case law surrounding 

those terms, to the date of this amendment, be incorporated into 

the legislative history of the FDIA and the FCUA. 

Subsection (b) amends the definition of ‘‘securities contract’’ expressly to encompass margin loans, to clarify the coverage of securities options and to clarify the coverage of repurchase and reverse 

repurchase transactions. The inclusion of ‘‘margin loans’’ in the definition is intended to encompass only those loans commonly known 

in the securities industry as ‘‘margin loans,’’ such as credit permitted in a margin account under the Federal Reserve Board’s Regulation T (whether or not effected in that account) or arrangements 

where a financial intermediary—a stockbroker, financial institution, financial participant, or securities agency—extends credit in 

connection with the purchase, sale, carrying, or trading of securities. ‘‘Margin loans’’ do not include, however, other loans that happen to be secured by securities collateral. The reference in subsection (b) to a ‘‘guarantee by or to any securities clearing agency’’

is intended to cover other arrangements, such as novation, that 

have an effect similar to a guarantee. The reference to a ‘‘loan’’ of 

a security in the definition is intended to apply to loans of securities, whether or not for a ‘‘permitted purpose’’ under margin regulations. The reference to ‘‘repurchase and reverse repurchase transactions’’ is intended to eliminate any inquiry under the qualified financial contract provisions of the FDIA or FCUA as to whether a 

repurchase or reverse repurchase transaction is a purchase and 

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166See 12 C.F.R. § 360.5. 

purchase transactions meeting certain criteria are already covered 

under the definition of ‘‘repurchase agreement’’ in the FDIA (and 

a regulation of the Federal Deposit Insurance Corporation (FDIC)). 

Repurchase and reverse repurchase transactions on all securities 

(including, for example, equity securities, asset-backed securities, 

corporate bonds and commercial paper) are included under the definition of ‘‘securities contract.’’ Subsection (b) also specifies that purchase, sale and repurchase obligations under a participation in a 

commercial mortgage loan do not constitute ‘‘securities contracts.’’ While a contract for the purchase, sale or repurchase of a participation may constitute a ‘‘securities contract,’’ the purchase, sale or repurchase obligation embedded in a participation agreement does 

not make that agreement a ‘‘securities contract.’’ A number of terms used in the qualified financial contract provisions, but not defined therein, are intended to have the meanings 

set forth in the analogous provisions of the Bankruptcy Code or 

Federal Deposit Insurance Corporation Improvement Act 

(‘‘FDICIA’’), such as, for example, ‘‘securities clearing agency.’’ The 

term ‘‘person,’’ however, is not intended to be so interpreted. Instead, ‘‘person’’ is intended to have the meaning set forth in section 

1 of title 1 of the United States Code. 

Section 901(c) amends with respect the definition of ‘‘commodity 

contract’’ in section 11(e)(8)(D)(iii) of the FDIA and in section 

207(c)(8)(D)(iii) of the FCUA. Section 901(d) amends section 

11(e)(8)(D)(iv) of the FDIA and section 207(c)(8)(D)(iv) of the FCUA 

with respect to the definition of a ‘‘forward contract.’’ Subsection (e) amends the definition of ‘‘repurchase agreement’’ in the FDIA and the FCUA to codify the substance of the FDIC’s 

1995 regulation defining repurchase agreement to include those on 

qualified foreign government securities.166 The term ‘‘qualified foreign government securities’’ is defined to include those that are direct obligations of, or fully guaranteed by, central governments of 

members of the Organization for Economic Cooperation and Development (OECD), as determined by rule, of the appropriate Federal 

banking agency. Subsection (e) reflects developments in the repurchase agreement markets, which increasingly use foreign government securities as the underlying asset. The securities are limited 

to those issued by or guaranteed by full members of the OECD, as 

well as countries that have concluded special lending arrangements 

with the International Monetary Fund associated with the Fund’s 

General Arrangements to Borrow. 

Subsection (e) also amends the definition of ‘‘repurchase agreement’’ to include those on mortgage-related securities, mortgage 

loans and interests therein, and expressly to include principal and 

interest-only U.S. government and agency securities as securities 

that can be the subject of a ‘‘repurchase agreement.’’ The reference 

in the definition to United States government- and agency-issued 

or fully guaranteed securities is intended to include obligations 

issued or guaranteed by Fannie Mae and the Federal Home Loan 

Mortgage Corporation (Freddie Mac) as well as all obligations eligible for purchase by Federal Reserve banks under the similar language of section 14(b) of the Federal Reserve Act. This amendment 

is not intended to affect the status of repos involving securities or 

121 

commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under the qualified financial contract provisions. In particular, an agreement for the sale and repurchase of a security 

would continue to be a securities contract as defined in the FDIA 

or FCUA, even if not a ‘‘repurchase agreement’’ as defined in the 

FDIA or FCUA. Similarly, an agreement for the sale and repurchase of a commodity, even though not a ‘‘repurchase agreement’’ as defined in the FDIA or FCUA, would continue to be a forward 

contract for purposes of the FDIA or FCUA. 

Subsection (e), like subsection (b) for ‘‘securities contracts,’’ specifies that repurchase obligations under a participation in a commercial mortgage loan do not make the participation agreement a ‘‘repurchase agreement.’’ Such repurchase obligations embedded in 

participations in commercial loans (such as recourse obligations) do 

not constitute a ‘‘repurchase agreement.’’ A repurchase agreement 

involving the transfer of participations in commercial mortgage 

loans with a simultaneous agreement to repurchase the participation on demand or at a date certain one year or less after such 

transfer, however, would constitute a ‘‘repurchase agreement’’ as 

well as a ‘‘securities contract.’’ Section 901(f) of the Act amends the definition of ‘‘swap agreement’’ to include an ‘‘interest rate swap, option, future, or forward 

agreement, including a rate floor, rate cap, rate collar, cross-currency rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-next, forward, or other foreign exchange or precious metals 

agreement; a currency swap, option, future, or forward agreement; 

an equity index or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or forward agreement; a total return, credit spread or credit swap, option, future, 

or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option.’’ As amended, the definition of ‘‘swap 

agreement’’ will update the statutory definition and achieve contractual netting across economically similar transactions that are 

the subject of recurring dealings in the swap agreements. 

The definition of ‘‘swap agreement’’ originally was intended to 

provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that 

end, the phrase ‘‘or any other similar agreement’’ was included in 

the definition. (The phrase ‘‘or any similar agreement’’ has been 

added to the definitions of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement’’ and ‘‘securities contract’’ for the 

same reason.) To clarify this, subsection (f) expands the definition 

of ‘‘swap agreement’’ to include ‘‘any agreement or transaction that 

is similar to any other agreement or transaction referred to in [section 11(e)(8)(D)(vi) of the FDIA] and is of a type that has been, is 

presently, or in the future becomes, the subject of recurrent dealings in the swap markets . . . and that is a forward, swap, future, 

or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt 

instruments, quantitative measures associated with an occurrence, 

extent of an occurrence, or contingency associated with a financial, 

commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value.’’

122 

The definition of ‘‘swap agreement,’’ however, should not be interpreted to permit parties to document non-swaps as swap transactions. Traditional commercial arrangements, such as supply 

agreements, or other non-financial market transactions, such as 

commercial, residential or consumer loans, cannot be treated as 

‘‘swaps’’ under the FDIA, the FCUA, or the Bankruptcy Code simply because the parties purport to document or label the transactions as ‘‘swap agreements.’’ In addition, these definitions apply 

only for purposes of the FDIA, the FCUA, and the Bankruptcy 

Code. These definitions, and the characterization of a certain transaction as a ‘‘swap agreement,’’ are not intended to affect the characterization, definition, or treatment of any instruments under any 

other statute, regulation, or rule including, but not limited to, the 

statutes, regulations or rules enumerated in subsection (f). Similarly, Section 17 and a new paragraph of Section 11(e) of the FDIA 

provide that the definitions of ‘‘securities contract,’’ ‘‘repurchase 

agreement,’’ ‘‘forward contract,’’ and ‘‘commodity contract,’’ and the 

characterization of certain transactions as such a contract or agreement, are not intended to affect the characterization, definition, or 

treatment of any instruments under any other statute, regulation, 

or rule including, but not limited to, the statutes, regulations or 

rules enumerated in subsection (f). 

The definition also includes any security agreement or arrangement, or other credit enhancement, related to a swap agreement, 

including any guarantee or reimbursement obligation related to a 

swap agreement. This ensures that any such agreement, arrangement or enhancement is itself deemed to be a swap agreement, and 

therefore eligible for treatment as such for purposes of termination, 

liquidation, acceleration, offset and netting under the FDIA, FCUA, 

and the Bankruptcy Code. Similar changes are made in the definitions of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase 

agreement’’ and ‘‘securities contract.’’ The use of the term ‘‘forward’’ in the definition of ‘‘swap agreement’’ is not intended to refer only to transactions that fall within 

the definition of ‘‘forward contract.’’ Instead, a ‘‘forward’’ transaction could be a ‘‘swap agreement’’ even if not a ‘‘forward contract.’’

Section 901(g) amends the definition of ‘‘transfer’’ in the FDIA 

and FCUA, which is a key term used in both, to ensure that it is 

broadly construed to encompass dispositions of property or interests in property. The definition tracks the Bankruptcy Code’s definition of this term in Bankruptcy Code section 101. 

Section 901(h) makes clarifying technical changes to conform the 

receivership and conservatorship provisions of the FDIA and the 

FCUA. It also clarifies that the FDIA and the FCUA expressly protect rights under security agreements, arrangements or other credit 

enhancements related to one or more qualified financial contracts 

(QFCs). An example of a security arrangement is a right of setoff, 

and examples of other credit enhancements are letters of credit, 

guarantees, reimbursement obligations and other similar agreements. 

Section 901(i) of the Act clarifies that no provision of Federal or 

state law relating to the avoidance of preferential or fraudulent 

transfers (including the anti-preference provision of the National 

Bank Act) can be invoked to avoid a transfer made in connection 

123 

with any QFC of an insured depository institution in conservatorship or receivership, absent actual fraudulent intent on the part of 

the transferee. 

Sec. 902. Authority of the FDIC and NCUAB with Respect to Failed 

and Failing Institutions. Section 902 of the Act provides that no 

provision of law, including FDICIA, shall be construed to limit the 

power of the FDIC or the NCUAB to transfer or to repudiate any 

QFC in accordance with its powers under the FDIA or FCUA, respectively. As discussed below, there has been some uncertainty regarding whether or not FDICIA limits the authority of the FDIC 

or the NCUAB to transfer or to repudiate QFCs of an insolvent financial institution. Section 902, as well as other provisions in the 

Act, clarify that FDICIA does not limit the transfer powers of the 

FDIC or the NCUAB with respect to QFCs. Section 902 denies enforcement to ‘‘walkaway’’ clauses in QFCs. A walkaway clause is 

defined as a provision that, after calculation of a value of a party’s 

position or an amount due to or from one of the parties upon termination, liquidation or acceleration of the QFC, either does not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in part solely because of such party’s 

status as a non-defaulting party. 

Sec. 903. Amendments Relating to Transfers of Qualified Financial 

Contracts. Section 903 of the Act amends the FDIA and the FCUA 

to expand the transfer authority of the FDIC and the NCUAB, respectively to permit transfers of QFCs to ‘‘financial institutions’’ as 

defined in FDICIA or in regulations. This provision will allow the 

FDIC and NCUAB to transfer QFCs to a non-depository financial 

institution, provided the institution is not subject to bankruptcy or 

insolvency proceedings. 

The new FDIA and FCUA provisions specify that when the FDIC 

and NCUAB transfer QFCs that are cleared on or subject to the 

rules of a particular clearing organization, the transfer will not require the clearing organization to accept the transferee as a member of the organization. This provision gives the FDIC and NCUAB 

flexibility in resolving QFCs cleared on or subject to the rules of 

a clearing organization, while preserving the ability of such organizations to enforce appropriate risk reducing membership requirements. The amendment does not require the clearing organization 

to accept for clearing any QFCs from the transferee, except on the 

terms and conditions applicable to other parties permitted to clear 

through that clearing organization. ‘‘Clearing organization’’ is defined to mean a ‘‘clearing organization’’ within the meaning of 

FDICIA (as amended both by the CFMA and by Section 906 of the 

Act). 

The new FDIA and FCUA provisions also permit transfers to an 

eligible financial institution that is a non-U.S. person, or the 

branch or agency of a non-U.S. person or a U.S. financial institution that is not an FDIC-insured institution if, following the transfer, the contractual rights of the parties would be enforceable substantially to the same extent as under the FDIA and the FCUA. 

It is expected that neither the FDIC nor the NCUAB would transfer QFCs to such a financial institution if there were an impending 

change of law that would impair the enforceability of the parties’

contractual rights. 

124 

Section 903 amends the notification requirements following a 

transfer of the QFCs of a failed depository institution to require the 

FDIC and NCUAB to notify any party to a transferred QFC of such 

transfer by 5:00 p.m. (Eastern Time) on the business day following 

the date of the appointment of the FDIC acting as receiver or following the date of such transfer by the FDIC or NCUAB acting as 

a conservator. This amendment is consistent with the policy statement on QFCs issued by the FDIC on December 12, 1989. 

Section 903 amends the FDIA to clarify the relationship between 

the FDIA and FDICIA. There has been some uncertainty whether 

FDICIA permits counterparties to terminate or liquidate a QFC before the expiration of the time period provided by the FDIA during 

which the FDIC may repudiate or transfer a QFC in a conservatorship or receivership. Subsection (c) provides that a party may not 

terminate a QFC based solely on the appointment of the FDIC as 

receiver until 5:00 p.m. (Eastern Time) on the business day following the appointment of the receiver or after the person has received notice of a transfer under FDIA section 11(d)(9), or based 

solely on the appointment of the FDIC as conservator, notwithstanding the provisions of FDICIA. This provides the FDIC with an 

opportunity to undertake an orderly resolution of the insured depository institution. Section 903 makes a similar change to the 

FCUA. 

Section 903 also prohibits the enforcement of rights of termination or liquidation that arise solely because of the insolvency of 

the institution or are based on the ‘‘financial condition’’ of the depository institution in receivership or conservatorship. For example, termination based on a cross-default provision in a QFC that 

is triggered upon a default under another contract could be rendered ineffective if such other default was caused by an acceleration of amounts due under that other contract, and such acceleration was based solely on the appointment of a conservator or receiver for that depository institution. Similarly, a provision in a 

QFC permitting termination of the QFC based solely on a downgraded credit rating of a party will not be enforceable in an FDIC 

or NCUAB receivership or conservatorship because the provision is 

based solely on the financial condition of the depository institution 

in default. However, any payment, delivery or other performancebased default, or breach of a representation or covenant putting in 

question the enforceability of the agreement, will not be deemed to 

be based solely on financial condition for purposes of this provision. 

The amendment is not intended to prevent counterparties from 

taking all actions permitted and recovering all damages authorized 

upon repudiation of any QFC by a conservator or receiver, or from 

taking actions based upon a receivership or other financial condition-triggered default in the absence of a transfer (as contemplated 

in Section 11(e)(10) of the FDIA). The amendment allows the FDIC 

or NCUAB to meet its obligation to provide notice to parties to 

transferred QFCs by taking steps reasonably calculated to provide 

notice to such parties by the required time. This is consistent with 

the existing policy statement on QFCs issued by the FDIC on December 12, 1989. 

Finally, the amendment permits the FDIC or NCUAB to transfer 

QFCs of a failed depository institution to a bridge bank or a depository institution organized by the FDIC or NCUAB for which a conVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00128 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
125 

servator is appointed either (i) immediately upon the organization 

of such institution or (ii) at the time of a purchase and assumption 

transaction between the FDIC or NCUAB and the institution. This 

provision clarifies that such institutions are not to be considered financial institutions that are ineligible to receive such transfers 

under FDIA section 11(e)(9). This is consistent with the existing 

policy statement on QFCs issued by the FDIC on December 12, 

1989. 

Sec. 904. Amendments Relating to Disaffirmance or Repudiation of 

Qualified Financial Contracts. Section 904 of the Act limits the 

disaffirmance and repudiation authority of the FDIC and NCUAB 

with respect to QFCs so that such authority is consistent with their 

transfer authority under FDIA section 11(e)(9) or FCUA section 

207(c). This ensures that no disaffirmance, repudiation or transfer 

authority of the FDIC or NCUAB may be exercised to ‘‘cherry-pick’’ or otherwise treat independently all the QFCs between a depository institution in default and a person or any affiliate of such person. The FDIC has announced that its policy is not to repudiate or 

disaffirm QFCs selectively. This unified treatment is fundamental 

to the reduction of systemic risk. 

Sec. 905. Clarifying Amendment Relating to Master Agreements. 

Section 905 of the Act specifies that a master agreement for one 

or more securities contracts, commodity contracts, forward contracts, repurchase agreements or swap agreements will be treated 

as a single QFC under the FDIA or the FCUA (but only with respect to the underlying agreements are themselves QFCs). This 

provision ensures that cross-product netting pursuant to a master 

agreement, or pursuant to an umbrella agreement for separate 

master agreements between the same parties, each of which is 

used to document one or more qualified financial contracts, will be 

enforceable under the FDIA and the FCUA. Cross-product netting 

permits a wide variety of financial transactions between two parties to be netted, thereby maximizing the present and potential future risk-reducing benefits of the netting arrangement between the 

parties. Express recognition of the enforceability of such cross-product master agreements furthers the policy of increasing legal certainty and reducing systemic risks in the case of an insolvency of 

a large financial participant. 

Sec. 906. Federal Deposit Insurance Corporation Improvement Act 

of 1991. Subsection (a)(1) of section 906 of the Act amends the definition of ‘‘clearing organization’’ in section 402 of the FDICIA to include clearinghouses that are subject to exemptions pursuant to orders of the Securities and Exchange Commission or the Commodity 

Futures Trading Commission and to include multilateral clearing 

organizations (the definition of which was added to FDICIA by the 

CFMA). 

FDICIA provides that a netting arrangement will be enforced 

pursuant to its terms, notwithstanding the failure of a party to the 

agreement. The current netting provisions of FDICIA, however, 

limit this protection to ‘‘financial institutions,’’ which include depository institutions. Section 906(a)(2) amends the FDICIA definition 

of covered institutions to include (i) uninsured national and State 

member banks, irrespective of their eligibility for deposit insurance 

and (ii) foreign banks (including the foreign bank and its branches 

126 

or agencies as a combined group, or only the foreign bank parent 

of a branch or agency). The latter change will extend the protections of FDICIA to ensure that U.S. financial organizations participating in netting agreements with foreign banks are covered by the 

Act, thereby enhancing the safety and soundness of these arrangements. It is intended that a non-defaulting foreign bank and its 

branches and agencies be considered to be a single financial institution for purposes of the bilateral netting provisions of FDICIA 

(except to the extent that the non-defaulting foreign bank and its 

branches and agencies on the one hand, and the defaulting financial institution, on the other, have entered into agreements that 

clearly evidence an intention that the non-defaulting foreign bank 

and its branches and agencies be treated as separate financial institutions for purposes of the bilateral netting provisions of 

FDICIA). 

Subsection (a)(3) amends the FDICIA to provide that, for purposes of FDICIA, two or more clearing organizations that enter into 

a netting contract are considered ‘‘members’’ of each other. This 

assures the enforceability of netting arrangements involving two or 

more clearing organizations and a member common to all such organizations, thus reducing systemic risk in the event of the failure 

of such a member. Under the current FDICIA provisions, the enforceability of such arrangements depends on a case-by-case determination that clearing organizations could be regarded as members 

of each other for purposes of FDICIA. 

Section 906(a)(4) of the Act amends the FDICIA definition of netting contract and the general rules applicable to netting contracts. 

The current FDICIA provisions require that the netting agreement 

must be governed by the law of the United States or a State to receive the protections of FDICIA. Many of these agreements, however, particularly netting arrangements covering positions taken in 

foreign exchange dealings, are governed by the laws of a foreign 

country. This subsection broadens the definition of ‘‘netting contract’’ to include those agreements governed by foreign law, and 

preserves the FDICIA requirement that a netting contract not be 

invalid under, or precluded by, Federal law. 

Section 906(b) and (c) establish two exceptions to FDICIA’s protection of the enforceability of the provisions of netting contracts 

between financial institutions and among clearing organization 

members. First, the termination provisions of netting contracts will 

not be enforceable based solely on (i) the appointment of a conservator for an insolvent depository institution under the FDIA or 

FCUA, or (ii) the appointment of a receiver or liquidating agent for 

such institution under the FDIA or FCUA, if such receiver or liquidating agent transfers or repudiates QFCs in accordance with the 

FDIA or FCUA and gives notice of a transfer by 5:00 p.m. on the 

business day following such appointment. This change is made to 

confirm the FDIC’s and FCUA’s flexibility to transfer or repudiate 

the QFCs of an insolvent depository institution in accordance with 

the terms of the FDIA or FCUA. This modification also provides 

important legal certainty regarding the treatment of QFCs under 

the FDIA and FCUA, because the current relationship between 

these statutes and FDICIA is unclear. 

The second exception provides that FDICIA does not override a 

stay order under SIPA with respect to foreclosure on securities (but 

127 

not cash) collateral of a debtor (section 911 of the Act makes a conforming change to SIPA). There is also an exception relating to insolvent commodity brokers. Subsections (b) and (c) also clarify that 

a security agreement or other credit enhancement related to a netting contract is enforceable to the same extent as the underlying 

netting contract. 

Section 906(d) of the Act adds a new section 407 to FDICIA. This 

new section provides that, notwithstanding any other law, QFCs 

with uninsured national banks, uninsured Federal branches or 

agencies, or Edge Act corporations, or uninsured State member 

banks that operate, or operate as, a multilateral clearing organization and that are placed in receivership or conservatorship will be 

treated in the same manner as if the contract were with an insured 

national bank or insured Federal branch for which a receiver or 

conservator was appointed. This provision will ensure that parties 

to QFCs with these institutions will have the same rights and obligations as parties entering into the same agreements with insured 

depository institutions. The new section also specifically limits the 

powers of a receiver or conservator for such an institution to those 

contained in 12 U.S.C. §§ 1821(e)(8), (9), (10), and (11), which address QFCs. 

While the amendment would apply the same rules that apply to 

insured institutions, the provision would not change the rules that 

apply to insured institutions. Nothing in this section would amend 

the International Banking Act, the Federal Deposit Insurance Act, 

the National Bank Act, or other statutory provisions with respect 

to receiverships of insured national banks or Federal branches. 

Sec. 907. Bankruptcy Law Amendments. Section 907 of the Act 

makes a series of amendments to the Bankruptcy Code. Subsection 

(a)(1) amends the Bankruptcy Code definitions of ‘‘repurchase 

agreement’’ and ‘‘swap agreement’’ to conform with the amendments to the FDIA contained in sections 901(e) and (f) of the Act. 

In connection with the definition of ‘‘repurchase agreement,’’ the 

term ‘‘qualified foreign government securities’’ is defined to include 

securities that are direct obligations of, or fully guaranteed by, central governments of members of the Organization for Economic Cooperation and Development (OECD). This language reflects developments in the repurchase agreement markets, which increasingly 

use foreign government securities as the underlying asset. The securities are limited to those issued by or guaranteed by full members of the OECD, as well as countries that have concluded special 

lending arrangements with the International Monetary Fund associated with the Fund’s General Arrangements to Borrow. 

Subsection (a)(1) also amends the definition of ‘‘repurchase agreement’’ to include those on mortgage-related securities, mortgage 

loans and interests therein, and to include principal and interestonly U.S. government and agency securities as securities that can 

be the subject of a ‘‘repurchase agreement.’’ The reference in the 

definition to United States government- and agency-issued or fully 

guaranteed securities is intended to include obligations issued or 

guaranteed by Fannie Mae and the Federal Home Loan Mortgage 

Corporation (Freddie Mac) as well as all obligations eligible for 

purchase by Federal Reserve banks under the similar language of 

section 14(b) of the Federal Reserve Act. 

128 

This amendment is not intended to affect the status of repos involving securities or commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under other provisions of the Bankruptcy Code. In particular, an agreement for the sale and repurchase of a security would continue to be a securities contract as defined in the Bankruptcy Code and thus also would be subject to the 

Bankruptcy Code provisions pertaining to securities contracts, even 

if not a ‘‘repurchase agreement’’ as defined in the Bankruptcy Code. 

Similarly, an agreement for the sale and repurchase of a commodity, even though not a ‘‘repurchase agreement’’ as defined in 

the Bankruptcy Code, would continue to be a forward contract for 

purposes of the Bankruptcy Code and would be subject to the 

Bankruptcy Code provisions pertaining to forward contracts. 

Subsection (a)(1) specifies that repurchase obligations under a 

participation in a commercial mortgage loan do not make the participation agreement a ‘‘repurchase agreement.’’ These repurchase 

obligations embedded in participations in commercial loans (such 

as recourse obligations) do not constitute a ‘‘repurchase agreement.’’ However, a repurchase agreement involving the transfer of 

participations in commercial mortgage loans with a simultaneous 

agreement to repurchase the participation on demand or at a date 

certain one year or less after such transfer would constitute a ‘‘repurchase agreement’’ (as well as a ‘‘securities contract’’). 

The definition of ‘‘swap agreement’’ is amended to include an ‘‘interest rate swap, option, future, or forward agreement, including a 

rate floor, rate cap, rate collar, cross-currency rate swap, and basis 

swap; a spot, same day-tomorrow, tomorrow-next, forward, or other 

foreign exchange or precious metals agreement; a currency swap, 

option, future, or forward agreement; an equity index or equity 

swap, option, future, or forward agreement; a debt index or debt 

swap, option, future, or forward agreement; a total return, credit 

spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option.’’

As amended, the definition of ‘‘swap agreement’’ will update the 

statutory definition and achieve contractual netting across economically similar transactions. 

The definition of ‘‘swap agreement’’ originally was intended to 

provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that 

end, the phrase ‘‘or any other similar agreement’’ was included in 

the definition. (The phrase ‘‘or any similar agreement’’ has been 

added to the definitions of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement,’’ and ‘‘securities contract’’ for the 

same reason.) To clarify this, subsection (a)(1) expands the definition of ‘‘swap agreement’’ to include ‘‘any agreement or transaction 

that is similar to any other agreement or transaction referred to in 

[Section 101(53B) of the Bankruptcy Code] and that is of a type 

that has been, is presently, or in the future becomes, the subject 

of recurrent dealings in the swap markets’’ and [that] is a forward, 

swap, future, or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities 

or other debt instruments, quantitative measures associated with 

an occurrence, extent of an occurrence, or contingency associated 

129 

with a financial, commercial, or economic consequence, or economic 

or financial indices or measures of economic or financial risk or 

value.’’ The definition of ‘‘swap agreement’’ in this subsection should not 

be interpreted to permit parties to document non-swaps as swap 

transactions. Traditional commercial arrangements, such as supply 

agreements, or other non-financial market transactions, such as 

commercial, residential or consumer loans, cannot be treated as 

‘‘swaps’’ under the FDIA, the FCUA, or the Bankruptcy Code because the parties purport to document or label the transactions as 

‘‘swap agreements.’’ These definitions, and the characterization of 

a certain transaction as a ‘‘swap agreement,’’ are not intended to 

affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but 

not limited to, the statutes, regulations or rules enumerated in subsection (a)(1)(C). Similarly, the definitions of ‘‘securities contract,’’ ‘‘repurchase agreement,’’ and ‘‘commodity contract’’ and the characterization of certain transactions as such a contract or agreement, 

are not intended to affect the characterization, definition, or treatment of any instrument under any other statute, regulation, or rule 

including, but not limited to, the statutes, regulations or rules enumerated in subsection (f). 

The definition also includes any security agreement or arrangement, or other credit enhancement, related to a swap agreement, 

including any guarantee or reimbursement obligation related to a 

swap agreement. This ensures that any such agreement, arrangement or enhancement is itself deemed to be a swap agreement, and 

therefore eligible for treatment as such for purposes of termination, 

liquidation, acceleration, offset and netting under the Bankruptcy 

Code, the FDIA and the FCUA. Similar changes are made in the 

definitions of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase 

agreement,’’ and ‘‘securities contract.’’ An example of a security arrangement is a right of setoff; examples of other credit enhancements are letters of credit and other similar agreements. A security 

agreement or arrangement or guarantee or reimbursement obligation related to a ‘‘swap agreement,’’ ‘‘forward contract,’’ ‘‘commodity 

contract,’’ ‘‘repurchase agreement’’ or ‘‘securities contract’’ will be 

such an agreement or contract only to the extent of the damages 

in connection with such agreement measured in accordance with 

Section 562 of the Bankruptcy Code (added by the Act). This limitation does not affect, however, the other provisions of the Bankruptcy Code (including Section 362(b)) relating to security arrangements in connection with agreements or contracts that otherwise 

qualify as ‘‘swap agreements,’’ ‘‘forward contracts,’’ ‘‘commodity contracts,’’ ‘‘repurchase agreements’’ or ‘‘securities contracts.’’

The use of the term ‘‘forward’’ in the definition of ‘‘swap agreement’’ is not intended to refer only to transactions that fall within 

the definition of ‘‘forward contract.’’ Instead, a ‘‘forward’’ transaction could be a ‘‘swap agreement’’ even if not a ‘‘forward contract.’’

Subsections (a)(2) and (a)(3) amend the Bankruptcy Code definitions of ‘‘securities contract’’ and ‘‘commodity contract,’’ respectively, to conform them to the definitions in the FDIA. 

Subsection (a)(2), like the amendments to the FDIA and the 

FCUA, amends the definition of ‘‘securities contract’’ expressly to 

130 

encompass margin loans, to clarify the coverage of securities options and to clarify the coverage of repurchase and reverse repurchase transactions. The inclusion of ‘‘margin loans’’ in the definition is intended to encompass only those loans commonly known in 

the securities industry as ‘‘margin loans,’’ such as credit permitted 

in a margin account under the Federal Reserve Board’s Regulation 

T (whether or not effected in that account) or arrangements where 

a financial intermediary—a stockbroker, financial institution, financial participant, or securities clearing agency—extends credit in 

connection with the purchase, sale, carrying, or trading of securities. ‘‘Margin loans’’ do not include, however, other loans that happen to be secured by securities collateral. The reference in subsection (b) to a ‘‘guarantee’’ by or to a ‘‘securities clearing agency’’ is intended to cover other arrangements, such as novation, that 

have an effect similar to a guarantee. The reference to a ‘‘loan’’ of 

a security in the definition is intended to apply to loans of securities, whether or not for a ‘‘permitted purpose’’ under margin regulations. The reference to ‘‘repurchase and reverse repurchase transactions’’ is intended to eliminate any inquiry under section 555 and 

related provisions as to whether a repurchase or reverse repurchase transaction is a purchase and sale transaction or a secured 

financing. Repurchase and reverse repurchase transactions meeting 

certain criteria are already covered under the definition of ‘‘repurchase agreement’’ in the Bankruptcy Code. Repurchase and reverse 

repurchase transactions on all securities (including, for example, 

equity securities, asset-backed securities, corporate bonds and commercial paper) are included under the definition of ‘‘securities contract.’’ A repurchase or reverse repurchase transaction which is a ‘‘securities contract’’ but not a ‘‘repurchase agreement’’ would thus 

be subject to the ‘‘counterparty limitations’’ contained in section 

555 of the Bankruptcy Code (i.e., only stockbrokers, financial institutions, securities clearing agencies and financial participants can 

avail themselves of section 555 and related provisions). 

Subsection (a)(2) also specifies that purchase, sale and repurchase obligations under a participation in a commercial mortgage 

loan do not constitute ‘‘securities contracts.’’ While a contract for 

the purchase, sale or repurchase of a participation may constitute 

a ‘‘securities contract,’’ the purchase, sale or repurchase obligation 

embedded in a participation agreement does not make that agreement a ‘‘securities contract.’’ Section 907(a) clarifies the reference 

to guarantee or reimbursement obligation. 

Section 907(b) amends the Bankruptcy Code definitions of ‘‘financial institution’’ and ‘‘forward contract merchant.’’ The definition for 

‘‘financial institution’’ includes Federal Reserve Banks and the receivers or conservators of insolvent depository institutions. With respect to securities contracts, the definition of ‘‘financial institution’’

expressly includes investment companies registered under the Investment Company Act of 1940. 

Subsection (b) also adds a new definition of ‘‘financial participant’’ to limit the potential impact of insolvencies upon other major 

market participants. This definition will allow such market participants to close-out and net agreements with insolvent entities under 

sections 362(b)(6), 555, and 556 even if the creditor could not qualify as, for example, a commodity broker. Sections 362(b)(6), 555 and 

556 preserve the limitations of the right to close-out and net such 

131 

contracts, in most cases, to entities who qualify under the Bankruptcy Code’s counterparty limitations. However, where the 

counterparty has transactions with a total gross dollar value of at 

least $1 billion in notional or actual principal amount outstanding 

on any day during the previous 15-month period, or has gross 

mark-to-market positions of at least $100 million (aggregated 

across counterparties) in one or more agreements or transactions 

on any day during the previous 15-month period, sections 362(b)(6), 

555 and 556 and corresponding amendments would permit it to exercise netting and related rights irrespective of its inability otherwise to satisfy those counterparty limitations. This change will help 

prevent systemic impact upon the markets from a single failure, 

and is derived from threshold tests contained in Regulation EE 

promulgated by the Federal Reserve Board in implementing the 

netting provisions of the Federal Deposit Insurance Corporation 

Improvement Act. It is intended that the 15-month period be measured with reference to the 15 months preceding the filing of a petition by or against the debtor. ‘‘Financial participant’’ is also defined to include ‘‘clearing organizations’’ within the meaning of FDICIA (as amended by the CFMA 

and Section 906 of the Act). This amendment, together with the inclusion of ‘‘financial participants’’ as eligible counterparties in connection with ‘‘commodity contracts,’’ ‘‘forward contracts’’ and ‘‘securities contracts’’ and the amendments made in other Sections of the 

Act to include ‘‘financial participants’’ as counterparties eligible for 

the protections in respect of ‘‘swap agreements’’ and ‘‘repurchase 

agreements,’’ take into account the CFMA and will allow clearing 

organizations to benefit from the protections of all of the provisions 

of the Bankruptcy Code relating to these contracts and agreements. 

This will further the goal of promoting the clearing of derivatives 

and other transactions as a way to reduce systemic risk. The definition of ‘‘financial participant’’ (as with the other provisions of the 

Bankruptcy Code relating to ‘‘securities contracts,’’ ‘‘forward contracts,’’ ‘‘commodity contracts,’’ ‘‘repurchase agreements’’ and ‘‘swap 

agreements’’) is not mutually exclusive, i.e., an entity that qualifies 

as a ‘‘financial participant’’ could also be a ‘‘swap participant,’’

‘‘repo participant,’’ ‘‘forward contract merchant,’’ ‘‘commodity 

broker,’’ ‘‘stockbroker,’’ ‘‘securities clearing agency’’ and/or ‘‘financial institution.’’

Section 907(c) of the Act adds to the Bankruptcy Code new definitions for the terms ‘‘master netting agreement’’ and ‘‘master netting agreement participant.’’ The definition of ‘‘master netting 

agreement’’ is designed to protect the termination and close-out 

netting provisions of cross-product master agreements between parties. Such an agreement may be used: (i) to document a wide variety of securities contracts, commodity contracts, forward contracts, 

repurchase agreements and swap agreements, or (ii) as an umbrella agreement for separate master agreements between the 

same parties, each of which is used to document a discrete type of 

transaction. The definition includes security agreements or arrangements or other credit enhancements related to one or more 

such agreements and clarifies that a master netting agreement will 

be treated as such even if it documents transactions that are not 

within the enumerated categories of qualifying transactions (but 

the provisions of the Bankruptcy Code relating to master netting 

132 

agreements and the other categories of transactions will not apply 

to such other transactions). A ‘‘master netting agreement participant’’ is any entity that is a party to an outstanding master netting 

agreement with a debtor before the filing of a bankruptcy petition. 

Subsection (d) amends section 362(b) of the Bankruptcy Code to 

protect enforcement, free from the automatic stay, of setoff or netting provisions in swap agreements and in master netting agreements and security agreements or arrangements related to one or 

more swap agreements or master netting agreements. This provision parallels the other provisions of the Bankruptcy Code that protect netting provisions of securities contracts, commodity contracts, 

forward contracts, and repurchase agreements. Because the relevant definitions include related security agreements, the references to ‘‘setoff’’ in these provisions, as well as in section 

362(b)(6) and (7) of the Bankruptcy Code, are intended to refer also 

to rights to foreclose on, and to set off against obligations to return, 

collateral securing swap agreements, master netting agreements, 

repurchase agreements, securities contracts, commodity contracts, 

or forward contracts. Collateral may be pledged to cover the cost 

of replacing the defaulted transactions in the relevant market, as 

well as other costs and expenses incurred or estimated to be incurred for the purpose of hedging or reducing the risks arising out 

of such termination. Enforcement of these agreements and arrangements free from the automatic stay is consistent with the policy 

goal of minimizing systemic risk. 

Subsection (d) also clarifies that the provisions protecting setoff 

and foreclosure in relation to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements, and master netting agreements free from the automatic 

stay apply to collateral pledged by the debtor but that cannot technically be ‘‘held by’’ the creditor, such as receivables and book-entry 

securities, and to collateral that has been repledged by the creditor 

and securities re-sold pursuant to repurchase agreements. 

Subsections (e) and (f) of section 907 of the Act amend sections 

546 and 548(d) of the Bankruptcy Code to provide that transfers 

made under or in connection with a master netting agreement may 

not be avoided by a trustee except where such transfer is made 

with actual intent to hinder, delay or defraud and not taken in 

good faith. This amendment provides the same protections for a 

transfer made under, or in connection with, a master netting agreement as currently is provided for margin payments, settlement 

payments and other transfers received by commodity brokers, forward contract merchants, stockbrokers, financial institutions, securities clearing agencies, repo participants, and swap participants 

under sections 546 and 548(d), except to the extent the trustee 

could otherwise avoid such a transfer made under an individual 

contract covered by such master netting agreement. 

Subsections (g), (h), (i), and (j) of section 907 clarify that the provisions of the Bankruptcy Code that protect: (i) rights of liquidation 

under securities contracts, commodity contracts, forward contracts 

and repurchase agreements also protect rights of termination or acceleration under such contracts, and (ii) rights to terminate under 

swap agreements also protect rights of liquidation and acceleration. 

Section 907(k) of the Act adds a new section 561 to the Bankruptcy Code to protect the contractual right of a master netting 

133 

agreement participant to enforce any rights of termination, liquidation, acceleration, offset or netting under a master netting agreement. These rights include rights arising: (i) from the rules of a derivatives clearing organization, multilateral clearing organization, 

securities clearing agency, securities exchange, securities association, contract market, derivatives transaction execution facility or 

board of trade; (ii) under common law, law merchant; or (iii) by 

reason of normal business practice. This reflects the enactment of 

the CFMA and the current treatment of rights under swap agreements under section 560 of the Bankruptcy Code. Similar changes 

to reflect the enactment of the CFMA have been made to the definition of ‘‘contractual right’’ for purposes of Sections 555, 556, 559, 

and 560 of the Bankruptcy Code. 

Subsections (b)(2)(A) and (b)(2)(B) of new Section 561 limit the 

exercise of contractual rights to net or to offset obligations where 

the debtor is a commodity broker and one leg of the obligations 

sought to be netted relates to commodity contracts traded on or 

subject to the rules of a contract market designated under the 

Commodity Exchange Act or a derivatives transaction execution facility registered under the Commodity Exchange Act. Under subsection (b)(2)(A) netting or offsetting is not permitted in these circumstances if the party seeking to net or to offset has no positive 

net equity in the commodity accounts at the debtor. Subsection 

(b)(2)(B) applies only if the debtor is a commodity broker, acting on 

behalf of its own customer, and is in turn a customer of another 

commodity broker. In that case, the latter commodity broker may 

not net or offset obligations under such commodity contracts with 

other claims against its customer, the debtor. Subsections (b)(2)(A) 

and (b)(2)(B) limit the depletion of assets available for distribution 

to customers of commodity brokers. Subsection (b)(2)(C) provides an 

exception to subsections (b)(2)(A) and (b)(2)(B) for cross-margining 

and other similar arrangements approved by, or submitted to and 

not rendered ineffective by, the Commodity Futures Trading Commission, as well as certain other netting arrangements. 

For the purposes of Bankruptcy Code sections 555, 556, 559, 560, 

and 561, it is intended that the normal business practice in the 

event of a default of a party based on bankruptcy or insolvency is 

to terminate, liquidate or accelerate securities contracts, commodity 

contracts, forward contracts, repurchase agreements, swap agreements and master netting agreements with the bankrupt or insolvent party. The protection of netting and offset rights in sections 

560 and 561 is in addition to the protections afforded in sections 

362(b)(6), (b)(7), (b)(17), and (b)(28) of the Bankruptcy Code. 

Under the Act, the termination, liquidation or acceleration rights 

of a master netting agreement participant are subject to limitations 

contained in other provisions of the Bankruptcy Code relating to 

securities contracts and repurchase agreements. In particular, if a 

securities contract or repurchase agreement is documented under 

a master netting agreement, a party’s termination, liquidation and 

acceleration rights would be subject to the provisions of the Bankruptcy Code relating to orders authorized under the provisions of 

SIPA or any statute administered by the SEC. In addition, the netting rights of a party to a master netting agreement would be subject to any contractual terms between the parties limiting or 

waiving netting or set off rights. Similarly, a waiver by a bank or 

134 

a counterparty of netting or set off rights in connection with QFCs 

would be enforceable under the FDIA. 

New section 561 of the Bankruptcy Code clarifies that the provisions of the Bankruptcy Code related to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap 

agreements and master netting agreements apply in a proceeding 

ancillary to a foreign insolvency proceeding under new section 304 

of the Bankruptcy Code. 

Subsections (l) and (m) of section 907 of the Act clarify that the 

exercise of termination and netting rights will not otherwise affect 

the priority of the creditor’s claim after the exercise of netting, foreclosure and related rights. 

Subsection (n) amends section 553 of the Bankruptcy Code to 

clarify that the acquisition by a creditor of setoff rights in connection with swap agreements, repurchase agreements, securities contracts, forward contracts, commodity contracts and master netting 

agreements cannot be avoided as a preference. This subsection also 

adds setoff of the kinds described in sections 555, 556, 559, 560, 

and 561 of the Bankruptcy Code to the types of setoff excepted 

from section 553(b). 

Section 907(o), as well as other subsections of the Act, adds references to ‘‘financial participant’’ in all the provisions of the Bankruptcy Code relating to securities, forward and commodity contracts and repurchase and swap agreements. 

Sec. 908. Recordkeeping Requirements. Section 908 of the Act 

amends section 11(e)(8) of the Federal Deposit Insurance Act to explicitly authorize the FDIC, in consultation with appropriate Federal banking agencies, to prescribe regulations on recordkeeping by 

any insured depository institution with respect to QFCs only if the 

insured financial institution is in a troubled condition (as such 

term is defined in the FDIA). 

Sec. 909. Exemptions from Contemporaneous Execution Requirement. Section 909 of the Act amends FDIA section 13(e)(2) to provide that an agreement for the collateralization of governmental 

deposits, bankruptcy estate funds, Federal Reserve Bank or Federal Home Loan Bank extensions of credit or one or more QFCs 

shall not be deemed invalid solely because such agreement was not 

entered into contemporaneously with the acquisition of the collateral or because of pledges, delivery or substitution of the collateral 

made in accordance with such agreement. 

The amendment codifies portions of policy statements issued by 

the FDIC regarding the application of section 13(e), which codifies 

the ‘‘D’Oench Duhme’’ doctrine. With respect to QFCs, this codification recognizes that QFCs often are subject to collateral and other 

security arrangements that may require posting and return of collateral on an ongoing basis based on the mark-to-market values of 

the collateralized transactions. The codification of only portions of 

the existing FDIC policy statements on these and related issues 

should not give rise to any negative implication regarding the continued validity of these policy statements. 

Sec. 910. Damage Measure. Section 910 of the Act adds a new section 562 to the Bankruptcy Code providing that damages under 

any swap agreement, securities contract, forward contract, commodity contract, repurchase agreement or master netting agreeVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00138 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
135 

ment will be calculated as of the earlier of: (i) the date of rejection 

of such agreement by a trustee, or (ii) the date or dates of liquidation, termination or acceleration of such contract or agreement. 

Section 562 provides an exception to the rules in (i) and (ii) if 

there are no commercially reasonable determinants of value as of 

such date or dates, in which case damages are to be measured as 

of the earliest subsequent date or dates on which there are commercially reasonable determinants of value. Although it is expected 

that in most circumstances damages would be measured as of the 

date or dates of either rejection or liquidation, termination or acceleration, in certain unusual circumstances, such as dysfunctional 

markets or liquidation of very large portfolios, there may be no 

commercially reasonable determinants of value for liquidating any 

such agreements or contracts or for liquidating all such agreements 

and contracts in a large portfolio on a single day. It is expected 

that measuring damages as of a date or dates before the date of 

liquidation, termination, or acceleration will occur only in very unusual circumstances. 

The party determining damages is given limited discretion to determine the dates as of which damages are to be measured. Its actions are circumscribed unless there are no ‘‘commercially reasonable’’ determinants of value for it to measure damages on the date 

or dates of either rejection or liquidation, termination or acceleration. The references to ‘‘commercially reasonable’’ are intended to 

reflect existing state law standards relating to a creditor’s actions 

in determining damages. New section 562 provides that if damages 

are not measured as of either the date of rejection or the date or 

dates of liquidation, termination or acceleration and the trustee 

challenges the timing of the measurement of damages by the nondefaulting party determining the damages, then the non-defaulting 

party, rather than the trustee, has the burden of proving the absence of any commercially reasonable determinants of value. 

New section 562 is not intended to have any impact on the determination under the Bankruptcy Code of the timing of damages for 

contracts and agreements other than those specified in section 562. 

Also, section 562 does not apply to proceedings under the FDIA, 

and it is not intended that Section 562 have any impact on the interpretation of the provisions of the FDIA relating to timing of 

damages in respect of QFCs or other contracts. 

Sec. 911. SIPC Stay. Section 911 of the Act amends SIPA to provide that an order or decree issued pursuant to SIPA shall not operate as a stay of any right of liquidation, termination, acceleration, offset or netting under one or more securities contracts, commodity contracts, forward contracts, repurchase agreements, swap 

agreements or master netting agreements (as defined in the Bankruptcy Code and including rights of foreclosure on collateral), except that such order or decree may stay any right to foreclose on 

or dispose of securities (but not cash) collateral pledged by the 

debtor or sold by the debtor under a repurchase agreement or lent 

by the debtor under a securities lending agreement. A corresponding amendment to FDICIA is made by section 906. A creditor that was stayed in exercising rights against such securities 

would be entitled to post-insolvency interest to the extent of the 

value of such securities. 

136 

167 11 U.S.C. § 109(f). 168 11 U.S.C. § 101(19). 169 11 U.S.C. § 1202. 170 11 U.S.C. § 1222. 171For example, chapter 12 is typically less complex and expensive than chapter 11, a form 

of bankruptcy relief generally utilized to effectuate large corporate reorganizations. 172 Chapter 13, a form of bankruptcy relief for individuals seeking to reorganize their debts, 

limits its eligibility to debtors with debts in lower amounts than permitted for eligibility purposes under chapter 12. Cf. 11 U.S.C. §§ 109(e), 101(18). 173Pub. L. No. 99–554, § 255, 100 Stat. 3088, 3105 (1986). 174See U.S. DEPT. OF AGRICULTURE, INFO. BULL. NO. 724–09, ISSUES IN AGRICULTURAL AND

RURAL FINANCE: DO FARMERS NEED A SEPARATE CHAPTER IN THE BANKRUPTCY CODE? (Oct. 

1997). 

As one of the principal proponents of this legislation explained: 

I doubt there will be anything that we do that will have such an immediate impact in the 

grassroots of our country with respect to the situation that exists in most of the heartland, and 

that is in the agricultural sector. . . . 

You know, William Jennings Bryan in his famous speech, the Cross of Gold, almost 60 years 

ago [sic], stated these words: ‘‘Destroy our cities and they will spring up again as if by magic; 

but destroy our farms, and the grass will grow in every city in our country.’’ This legislation will hopefully stem the tide that we have seen so recently in the massive 

bankruptcies in the family farm area. 

132 CONG. REC. 28,147 (1986) (statement of Rep. Mike Synar (D-Okla.)). 175Pub. L. No. 107–171, § 10814 (2002). 

TITLE X. PROTECTION OF FAMILY FARMERS AND FAMILY FISHERMEN

Sec. 1001. Permanent Reenactment of Chapter 12. Chapter 12 is a 

specialized form of bankruptcy relief available only to a ‘‘family 

farmer with regular annual income,’’ 167 a defined term.168 This 

form of bankruptcy relief permits eligible family farmers, under the 

supervision of a bankruptcy trustee,169 to reorganize their debts 

pursuant to a repayment plan.170 The special attributes of chapter 

12 make it better suited to meet the particularized needs of family 

farmers in financial distress than other forms of bankruptcy relief, 

such as chapter 11 171 and chapter 13.172

Chapter 12 was enacted on a temporary 7-year basis as part of 

the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 173 in response to the farm financial crisis of the early- to mid-1980’s.174 It was subsequently reenacted 

and extended on several occasions. The most recent extension, authorized as part of the Farm Security and Rural Investment Act of 

2002, provides that chapter remains in effect until December 31, 

2002.175

Section 1001(a) of the Act reenacts chapter 12 of the Bankruptcy 

Code and provides that such reenactment takes effect as of July 1, 

2005. Section 1001(b) makes a conforming amendment to section 

302 of the Bankruptcy Judges, United States Trustees, and Family 

Farmer Bankruptcy Act of 1986. As a result of this provision, chapter 12 becomes a permanent form of relief under the Bankruptcy 

Code. 

Sec. 1002. Debt Limit Increase. Section 1002 of the Act amends section 104(b) of the Bankruptcy Code to provide for periodic adjustments for inflation of the debt eligibility limit for family farmers. 

Sec. 1003. Certain Claims Owed to Governmental Units. Subsection 

(a) of section 1003 of the Act amends section 1222(a) of the Bankruptcy Code to add an exception with respect to payments to a governmental unit for a debt entitled to priority under section 507 if 

such debt arises from the sale, transfer, exchange, or other disposition of an asset used in the debtor’s farming operation, but only if 

the debtor receives a discharge. Section 1003(b) amends section 

137 

1231(b) of the Bankruptcy Code to have it apply to any governmental unit. Subsection (c) provides that section 1003 becomes effective on the date of enactment of this Act and applies to cases 

commenced after such effective date. 

Sec. 1004. Definition of Family Farmer. Section 1004 of the Act 

amends the definition of ‘‘family farmer’’ in section 101(18) of the 

Bankruptcy Code to increase the debt eligibility limit from 

$1,500,000 to $3,237,000. It also reduces the percentage of the 

farmer’s liabilities that must arise out of the debtor’s farming operation for eligibility purposes from 80 percent to 50 percent. 

Sec. 1005. Elimination of Requirement that Family Farmer and 

Spouse Receive over 50 Percent of Income from Farming Operation 

in Year Prior to Bankruptcy. Section 1005 of the Act amends the 

Bankruptcy Code’s definition of ‘‘family farmer’’ with respect to the 

determination of the farmer’s income. Current law provides that a 

debtor, in order to be eligible to be a family farmer, must derive 

a specified percentage of his or her income from farming activities 

for the taxable year preceding the commencement of the bankruptcy case. Section 1005 adjusts the threshold percentage to be 

met during either: (1) the taxable year preceding the filing of the 

bankruptcy case; or (2) the taxable year in the second and third 

taxable years preceding the filing of the bankruptcy case. 

Sec. 1006. Prohibition of Retroactive Assessment of Disposable Income. Section 1006 of the Act amends the Bankruptcy Code in two 

respects concerning chapter 12 plans. Section 1006(a) amends 

Bankruptcy Code section 1225(b) to permit the court to confirm a 

plan even if the distribution proposed under the plan equal or exceed the debtor’s projected disposable income for that period, providing the plan otherwise satisfies the requirements for confirmation. Section 1006(b) amends Bankruptcy Code section 1229 to restrict the bases for modifying a confirmed chapter 12 plan. Specifically, Section 1006(b) to provide that a confirmed chapter 12 plan 

may not be modified to increase the amount of payments due prior 

to the date of the order modifying the confirmation of the plan. 

Where the modification is based on an increase in the debtor’s disposable income, the plan may not be modified to require payments 

to unsecured creditors in any particular month in an amount greater than the debtor’s disposable income for that month, unless the 

debtor proposes such a modification. Section 1006(b) further provides that a modification of a plan shall not require payments that 

would leave the debtor with insufficient funds to carry on the farming operation after the plan is completed, unless the debtor proposes such a modification. 

Sec. 1007. Family Fishermen. Subsection (a) of section 1007 of the 

Act amends Bankruptcy Code section 101 to add definitions of 

‘‘commercial fishing operation,’’ ‘‘commercial fishing vessel,’’ ‘‘family 

fisherman’’ and ‘‘family fisherman with regular annual income.’’ The definition of ‘‘commercial fishing operation’’ includes the catching or harvesting of fish, shrimp, lobsters, urchins, seaweed, shellfish, or other aquatic species or products. The term ‘‘commercial 

fishing vessel’’ is defined as a vessel used by a fisher to ‘‘carry out 

a commercial fishing operation.’’ The term ‘‘family fisherman’’ is defined as an individual engaged in a commercial fishing operation, 

138 

with an aggregate debt limit of $1.5 million. The definition specifies that at least 80 percent of those debts must be derived from 

a commercial fishing operation. The percentage of income that 

must be derived from such operation is specified to be more than 

50 percent of the individual’s gross income for the taxable year preceding the taxable year in which the case was filed. Similar provisions are included for corporations and partnerships. The term 

‘‘family fisherman with regular annual income’’ is defined as a family fisherman whose annual income is sufficiently stable and regular to enable such person to make payments under a chapter 12 

plan. Section 1007(b) amends Bankruptcy Code section 109 to provide that a family fisherman is eligible to be a debtor under chapter 12. Section 1007(c) amends the heading of chapter 12 to include 

a reference to family fisherman and makes conforming revisions to 

Sections 1203 and 1206. 

TITLE XI. HEALTH CARE AND EMPLOYEE BENEFITS

Sec. 1101. Definitions. Subsection (a) of section 1101 of the Act 

amends section 101 of the Bankruptcy Code to add a definition of 

‘‘health care business.’’ The definition includes any public or private entity (without regard to whether that entity is for or not for 

profit) that is primarily engaged in offering to the general public 

facilities and services for the diagnosis or treatment of injury, deformity or disease; and surgical, drug treatment, psychiatric or obstetric care. It also includes the following entities: (1) a general or 

specialized hospital; (2) an ancillary ambulatory, emergency, or 

surgical treatment facility; (3) a hospice; (d) a home health agency; 

(e) other health care institution that is similar to an entity referred 

to in (a) through (d); and other long-term care facility. These include a skilled nursing facility, intermediate care facility, assisted 

living facility, home for the aged, domiciliary care facility, or health 

care institution that is related to an aforementioned facility. Section 1101(b) amends Bankruptcy Code section 101 to add a definition of ‘‘patient.’’ The term means an individual who obtains or receives services from a health care business. Section 1101(c) amends 

section 101 of the Bankruptcy Code to add a definition of ‘‘patient 

records.’’ The term means any written document relating to a patient or record recorded in a magnetic, optical, or other form of 

electronic medium. Section 1101(d) specifies that the amendments 

effectuated by new section 101(27A) do not affect the interpretation 

of section 109(b). 

Sec. 1102. Disposal of Patient Records. Section 1102 of the Act adds 

a provision to the Bankruptcy Code specifying requirements for the 

disposal of patient records in a chapter 7, 9, or 11 case of a health 

care business where the trustee lacks sufficient funds to pay for the 

storage of such records in accordance with applicable Federal or 

state law. The requirements chiefly consist of providing notice to 

the affected patients and specifying the method of disposal for unclaimed records. They are intended to protect the privacy and confidentiality of a patient’s medical records when they are in the custody of a health care business in bankruptcy. The provision specifies the following requirements: 

1. The trustee shall: (a) publish notice in one or more appropriate newspapers stating that if the records are not 

139 

claimed by the patient or an insurance provider (if permitted under applicable law) within 365 days of the date of 

such notice, then the trustee will destroy such records; and 

(b) during the first 180 days of such 365-day period, attempt 

to directly notify by mail each patient and appropriate insurance carrier of the claiming or disposing of such records. 

2. If after providing such notice patient records are not 

claimed within the specified period, the trustee shall, upon 

the expiration of such period, send a request by certified 

mail to each appropriate Federal agency to request permission from such agency to deposit the records with the agency. 

3. If after providing the notice as set forth above, patient 

records are not claimed, the trustee shall destroy such 

records as follows: (a) by shredding or burning, if the 

records are written; or (b) by destroying the records so that 

their information cannot be retrieved, if the records are 

magnetic, optical or electronic. 

It is anticipated that if the estate of the debtor lacks the funds 

to pay for the costs and expenses related to the above, the trustee 

may recover such costs and expenses under section 506(c) of the 

Bankruptcy Code. 

Sec. 1103. Administrative Expense Claim for Costs of Closing a 

Health Care Business and Other Administrative Expenses. Section 

1103 of the Act amends section 503(b) of the Bankruptcy Code to 

provide that the actual, necessary costs and expenses of closing a 

health care business (including the disposal of patient records or 

transferral of patients) incurred by a trustee, Federal agency, or a 

department or agency of a state are allowed administrative expenses. 

Sec. 1104. Appointment of Ombudsman to Act as Patient Advocate. 

Section 1104 of the Act adds a provision to the Bankruptcy Code 

requiring the court to order the appointment of an ombudsman to 

monitor the quality of patient care within 30 days after commencement of a chapter 7, 9, or 11 health care business bankruptcy case, 

unless the court finds that such appointment is not necessary for 

the protection of patients under the specific facts of the case. The 

ombudsman must be a disinterested person. If the health care business is a long-term care facility, a person who is serving as a State 

Long-Term Care Ombudsman of the Older Americans Act of 1965 

may be appointed as the ombudsman in such case. The ombudsman must: (1) monitor the quality of patient care to the extent necessary under the circumstances, including interviewing patients 

and physicians; (2) report to the court, not less than 60 days from 

the date of appointment and then every 60 days thereafter, at a 

hearing or in writing regarding the quality of patient care at the 

health care business involved; and (3) notify the court by motion 

or written report (with notice to appropriate parties in interest) if 

the ombudsman determines that the quality of patient care is declining significantly or is otherwise being materially compromised. 

The provision requires the ombudsman to maintain any information obtained that relates to patients (including patient records) as 

confidential. Section 1104(b) amends section 330(a)(1) of the BankVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00143 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
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ruptcy Code to authorize the payment of reasonable compensation 

to an ombudsman. 

Sec. 1105. Debtor in Possession; Duty of Trustee to Transfer Patients. Section 1105 of the Act amends section 704(a) of the Bankruptcy Code to require a trustee or debtor in possession to use all 

reasonable and best efforts to transfer patients from a health care 

business that is in the process of being closed to an appropriate 

health care business. The transferee health care business should be 

in the vicinity of the transferor health care business, provide the 

patient with services that are substantially similar to those provided by the transferor health care business, and maintain a reasonable quality of care. 

Sec. 1106. Exclusion from Program Participation Not Subject to 

Automatic Stay. Section 1106 amends section 362(b) of the Bankruptcy Code to except from the automatic stay the exclusion by the 

Secretary of Health and Human Services of a debtor from participation in the medicare program or other specified Federal health 

care programs. 

TITLE XII. TECHNICAL AMENDMENTS

Sec. 1201. Definitions. Section 1201 of the Act amends the definitions contained in section 101 of the Bankruptcy Code. Paragraphs 

(1), (2), (4), and (7) of section 1201 make technical changes to section 101 to convert each definition into a sentence (thereby facilitating future amendments to the separate paragraphs) and to redesignate the definitions in correct and completely numerical sequence. Paragraph (3) of section 1101 makes necessary and conforming amendments to cross references to the newly redesignated 

definitions. 

Paragraph (5) of section 1201 concerns single asset real estate 

debtors. A single asset real estate chapter 11 case presents special 

concerns. As the name implies, the principal asset in this type of 

case consists of some form of real estate, such as undeveloped land. 

Typically, the form of ownership of a single asset real estate debtor 

is a corporation or limited partnership. The largest creditor in a 

single asset real estate case is typically the secured lender who advanced the funds to the debtor to acquire the real property. Often, 

a single asset real estate debtor resorts to filing for bankruptcy relief for the sole purpose of staying an impending foreclosure proceeding or sale commenced by the secured lender. Foreclosure actions are filed when the debtor lacks sufficient cash flow to service 

the debt and maintain the property. Taxing authorities may also 

have liens against the property. Based on the nature of its principal asset, a single asset real estate debtor often has few, if any, 

unsecured creditors. If unsecured creditors exist, they may have 

only nominal claims against the single asset real estate debtor. Depending on the nature and ownership of any business operating on 

the debtor’s real property, the debtor may have few, if any, employees. Accordingly, there may be little interest on behalf of unsecured 

creditors in a single asset real estate case to serve on a creditors’

committee. 

In 1994, the Bankruptcy Code was amended to accord special 

treatment for single asset real estate debtors. It defined this type 

of debtor as a bankruptcy estate comprised of a single piece of real 

141 

176Thompson v. Margen (In re McConville), 110 F.3d 47 (9th Cir.), cert. denied, 522 U.S. 966 

(1997). 177Pub. L. No. 95–598, 92 Stat. 2549 (1978). 

property or project, other than residential real property with fewer 

than four residential units. The property or project must generate 

substantially all of the debtor’s gross income. A debtor that conducts substantial business on the property beyond that relating to 

its operation is excluded from this definition. In addition, the definition fixed a monetary cap. To qualify as a single asset real estate 

debtor, the debtor could not have noncontingent, liquidated secured 

debts in excess of $4 million. Subparagraph (5)(A) amends the definition of ‘‘single asset real estate’’ to exclude family farmers from 

this definition. Paragraph (5)(B) amends section 101(51B) of the 

Bankruptcy Code to eliminate the $4 million debt limitation on single asset real estate. The present $4 million cap prevents the use 

of the expedited relief procedure in many commercial property reorganizations, and effectively provides an opportunity for a number 

of debtors to abusively file for bankruptcy in order to obtain the 

protection of the automatic stay against their creditors. As a result 

of this amendment, creditors in more cases will be able to obtain 

the expedited relief from the automatic stay which is made available under section 362(d)(3) of the Bankruptcy Code. 

Paragraph (6) of section 1201, together with section 1214, respond to a 1997 Ninth Circuit case, in which two purchase money 

lenders (without knowledge that the debtor had recently filed an 

undisclosed chapter 11 case that was subsequently converted to 

chapter 7), funded the debtor’s acquisition of an apartment complex 

and recorded their purchase-money deed of trust immediately following recordation of the deed to the debtors.176 Specifically, it 

amends the definition of ‘‘transfer’’ in section 101(54) of the Bankruptcy Code to include the ‘‘creation of a lien.’’ This amendment 

gives expression to a widely held understanding since the enactment of the Bankruptcy Reform Act of 1978,177 that is, a transfer 

includes the creation of a lien. 

Sec. 1202. Adjustment of Dollar Amounts. Bankruptcy Code section 

104 provides for the periodic automatic adjustment of certain dollar 

amounts specified in the Code to reflect the change in the Consumer Price Index. Section 1202 amends Bankruptcy Code section 

104(b) to add a reference to certain other monetary amounts specified in the Bankruptcy Code section. These include: (1) section 

522(f)(3) (pertaining to the avoidance of certain liens on implements and other personal property valued at less than $5,000); (2) 

section 101(19A) (definition of family fisherman); (3) section 

522(f)(4) (definition of household goods); (4) section 541(b) (property 

items, such as certain educational individual retirement accounts 

and tuition credit or certificate programs, that do not constitute 

property of the bankruptcy estate); (5) section 547(c)(9) (limits the 

avoidance of a preferential transfer, under certain circumstances); 

(6) section 1322(d) (concerning the applicability of the needs-based 

test to chapter 13 debtors with above median incomes); (7) section 

1325(b) (determination of disposable income for chapter 13 debtors 

with above median incomes); and (8) section 1326(b)(3) (payments 

to a chapter 7 trustee in a chapter 13 case). In addition, the provision adds a reference to section 1409(b) of title 28 of the United 

142 

States Code, which pertains to the venue of proceedings to recover 

a money judgment or property. 

Sec. 1203. Extension of Time. Section 1203 of the Act makes a technical amendment to correct a reference error described in amendment notes contained in the United States Code. As specified in the 

amendment note relating to subsection (c)(2) of section 108 of the 

Bankruptcy Code, the amendment made by section 257(b)(2)(B) of 

Public Law 99–554 could not be executed as stated. 

Sec. 1204. Technical Amendments. Section 1204 of the Act makes 

technical amendments to Bankruptcy Code sections 109(b)(2) (to 

strike an statutory cross reference), 541(b)(2) (to add ‘‘or’’ to the 

end of this provision), and 522(b)(1) (to replace ‘‘product’’ with 

‘‘products’’). 

Sec. 1205. Penalty for Persons Who Negligently or Fraudulently 

Prepare Bankruptcy Petitions. Section 1205 of the Act amends section 110(j)(4) of the Bankruptcy Code to change the reference to attorneys from the singular possessive to the plural possessive. 

Sec. 1206. Limitation on Compensation of Professional Persons. Section 328(a) of the Bankruptcy Code provides that a trustee or a 

creditors’ and equity security holders’ committee may, with court 

approval, obtain the services of a professional person on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, or on a contingent fee basis. Section 

1206 of the Act amends section 328(a) to include compensation ‘‘on 

a fixed or percentage fee basis’’ in addition to the other specified 

forms of reimbursement. 

Sec. 1207. Effect of Conversion. Section 1207 of the Act makes a 

technical correction in section 348(f)(2) of the Bankruptcy Code to 

clarify that the first reference to property, like the subsequent reference to property, is a reference to property of the estate. 

Sec. 1208. Allowance of Administrative Expenses. Section 1208 of 

the Act amends section 503(b)(4) of the Bankruptcy Code to limit 

the types of compensable professional services rendered by an attorney or accountant that can qualify as administrative expenses in 

a bankruptcy case. Expenses for attorneys or accountants incurred 

by individual members of creditors’ or equity security holders’ committees are not recoverable, but expenses incurred for such professional services incurred by such committees themselves would be. 

Sec. 1209. Exceptions to Discharge. Section 1209 of the Act amends 

section 523(a) of the Bankruptcy Code to correct a technical error 

in the placement of paragraph (15), which was added to section 523 

by section 304(e)(1) of the Bankruptcy Reform Act of 1994. Section 

1209 also amends section 523(a)(9), which makes nondischargeable 

any debt resulting from death or personal injury arising from the 

debtor’s unlawful operation of a motor vehicle while intoxicated, to 

add ‘‘watercraft, or aircraft’’ after ‘‘motor vehicle.’’ Neither additional term should be defined or included as a ‘‘motor vehicle’’ in 

section 523(a)(9) and each is intended to comprise unpowered as 

well as motor-powered craft. Congress previously made the policy 

judgment that the equities of persons injured by drunk drivers outweigh the responsible debtor’s interest in a fresh start, and here 

clarifies that the policy applies not only on land but also on the 

143 

178For a description of these errors, see the appropriate footnote and amendment notes in the 

United States Code. 

water and in the air. Viewed from a practical standpoint, this provision closes a loophole that gives intoxicated watercraft and aircraft operators preferred treatment over intoxicated motor vehicle 

drivers and denies victims of alcohol and drug related boat and 

plane accidents the same rights accorded to automobile accident 

victims under current law. Finally, this section corrects a grammatical error in section 523(e). 

Sec. 1210. Effect of Discharge. Section 1210 of the Act makes technical amendments to correct errors in section 524(a)(3) of the Bankruptcy Code caused by section 257(o)(2) of Public Law 99–554 and 

section 501(d)(14)(A) of Public Law 103–394.178

Sec. 1211. Protection Against Discriminatory Treatment. Section 

1211 of the Act conforms a reference to its antecedent reference in 

section 525(c) of the Bankruptcy Code. The omission of ‘‘student’’

before ‘‘grant’’ in the second place it appears in section 525(c) made 

possible the interpretation that a broader limitation on lender discretion was intended, so that no loan could be denied because of 

a prior bankruptcy if the lending institution was in the business 

of making student loans. Section 1211 is intended to make clear 

that lenders involved in making government guaranteed or insured 

student loans are not barred by this Bankruptcy Code provision 

from denying other types of loans based on an applicant’s bankruptcy history; only student loans and grants, therefore, cannot be 

denied under section 525(c) because of a prior bankruptcy. 

Sec. 1212. Property of the Estate. Production payments are royalties 

tied to the production of a certain volume or value of oil or gas, determined without regard to production costs. They typically would 

be paid by an oil or gas operator to the owner of the underlying 

property on which the oil or gas is found. Under section 

541(b)(4)(B)(ii) of the Bankruptcy Code, added by the Bankruptcy 

Reform Act of 1994, production payments are generally excluded 

from the debtor’s estate, provided they could be included only by 

virtue of section 542 of the Bankruptcy Code, which relates generally to the obligation of those holding property which belongs in 

the estate to turn it over to the trustee. Section 1212 of the Act 

adds to this proviso a reference to section 365 of the Bankruptcy 

Code, which authorizes the trustee to assume or reject an executory contract or unexpired lease. It thereby clarifies the original 

Congressional intent to generally exclude production payments 

from the debtor’s estate. 

Sec. 1213. Preferences. Section 547 of the Bankruptcy Code authorizes a trustee to avoid a preferential payment made to a creditor 

by a debtor within 90 days of filing, whether the creditor is an insider or an outsider. To address the concern that a corporate insider (such as an officer or director who is a creditor of his or her 

own corporation) has an unfair advantage over outside creditors, 

section 547 also authorizes a trustee to avoid a preferential payment made to an insider creditor between 90 days and one year beVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00147 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
144 

179Levit v. Ingersoll Rand Fin. Corp., 874 F.2d 1186 (7th Cir. 1989); see also Ray v. City Bank 

and Trust Co. (In re C-L Cartage Co.), 899 F.2d 1490 (6th Cir. 1990); Manufacturers Hanover 

Leasing Corp. v. Lowrey (In re Robinson Bros. Drilling, Inc.), 892 F.2d 850 (10th Cir. 1989). 180See supra notes 86 and 176 and accompanying text. 181For a description of the error, see the appropriate footnote and amendment notes in the 

United States Code. 

fore filing. Several recent cases, including DePrizio,179 allowed the 

trustee to ‘‘reach-back’’ and avoid a transfer to a noninsider creditor made within the 90-day to one-year time frame if an insider 

benefitted from the transfer in some way. This had the effect of discouraging lenders from obtaining loan guarantees, lest transfers to 

the lender be vulnerable to recapture by reason of the debtor’s insider relationship with the loan guarantor. Section 202 of the 

Bankruptcy Reform Act of 1994 addressed the DePrizio problem by 

inserting a new section 550(c) into the Bankruptcy Code to prevent 

avoidance or recovery from a noninsider creditor during the 90-day 

to one-year period even though the transfer to the noninsider benefitted an insider creditor. The 1994 amendments, however, failed to 

make a corresponding amendment to section 547, which deals with 

the avoidance of preferential transfers. As a result, a trustee could 

still utilize section 547 to avoid a preferential lien given to a noninsider bank, more than 90 days but less than one year before 

bankruptcy, if the transfer benefitted an insider guarantor of the 

debtor’s debt. Accordingly, section 1213 of the Act makes a perfecting amendment to section 547 to provide that if the trustee 

avoids a transfer given by the debtor to a noninsider for the benefit 

of an insider creditor between 90 days and one year before filing, 

that avoidance is valid only with respect to the insider creditor. 

Thus both the previous amendment to section 550 and the perfecting amendment to section 547 protect the noninsider from the 

avoiding powers of the trustee exercised with respect to transfers 

made during the 90-day to one year pre-filing period. This provision is intended to apply to any case, including any adversary proceeding, that is pending or commenced on or after the date of enactment of this Act. 

Sec. 1214. Postpetition Transactions. Section 1214 of the Act 

amends section 549(c) of the Bankruptcy Code to clarify its application to an interest in real property. This amendment should be construed in conjunction with section 1201 of the Act.180

Sec. 1215. Disposition of Property of the Estate. Section 1215 of the 

Act amends section 726(b) of the Bankruptcy Code to strike an erroneous reference.181

Sec. 1216. General Provisions. Section 1216 of the Act amends section 901(a) of the Bankruptcy Code to correct an omission in a list 

of sections applicable to cases under chapter 9 of title 11 of the 

United States Code. 

Sec. 1217. Abandonment of Railroad Line. Section 1217 of the Act 

amends section 1170(e)(1) of the Bankruptcy Code to reflect the 

fact that section 11347 of title 49 of the United States Code was 

repealed by section 102(a) of Public Law 104–88 and that provisions comparable to section 11347 appear in section 11326(a) of 

title 49 of the United States Code. 

Sec. 1218. Contents of Plan. Section 1218 of the Act amends section 

1172(c)(1) of the Bankruptcy Code to reflect the fact that section 

145 

182For a description of the errors, see the appropriate footnote and amendment notes in the 

United States Code. 

11347 of title 49 of the United States Code was repealed by section 

102(a) of Public Law 104–88 and that provisions comparable to section 11347 appear in section 11326(a) of title 49 of the United 

States Code. 

Sec. 1219. Bankruptcy Cases and Proceedings. Section 1219 of the 

Act amends section 1334(d) of title 28 of the United States Code 

to make clarifying references.182

Sec. 1220. Knowing Disregard of Bankruptcy Law or Rule. Section 

1220 of the Act amends section 156(a) of title 18 of the United 

States Code to make stylistic changes and correct a reference to the 

Bankruptcy Code. 

Sec. 1221. Transfers Made by Nonprofit Charitable Corporations. 

Section 1221 of the Act amends section 363(d) of the Bankruptcy 

Code to restrict the authority of a trustee to use, sell, or lease property by a nonprofit corporation or trust. First, the use, sell or lease 

of such property must be in accordance with applicable nonbankruptcy law and to the extent it is not inconsistent with any relief 

granted under certain specified provisions of section 362 of the 

Bankruptcy Code concerning the applicability of the automatic 

stay. Second, section 1221 imposes similar restrictions with regard 

to plan confirmation requirements for chapter 11 cases. Third, it 

amends section 541 of the Bankruptcy Code to provide that any 

property of a bankruptcy estate in which the debtor is a nonprofit 

corporation (as described in certain provisions of the Internal Revenue Code) may not be transferred to an entity that is not such a 

corporation, but only under the same conditions that would apply 

if the debtor was not in bankruptcy. The amendments made by this 

section apply to cases pending on the date of enactment or to cases 

filed after such date. Section 1221 provides that a court may not 

confirm a plan without considering whether this provision would 

substantially affect the rights of a party in interest who first acquired rights with respect to the debtor postpetition. Nothing in 

this provision may be construed to require the court to remand or 

refer any proceeding, issue, or controversy to any other court or to 

require the approval of any other court for the transfer of property. 

Sec. 1222. Protection of Valid Purchase Money Security Interests. 

Section 1222 of the Act extends the applicable perfection period for 

a security interest in property of the debtor in section 547(c)(3)(B) 

of the Bankruptcy Code from 20 to 30 days. 

Sec. 1223. Bankruptcy Judgeships. The substantial increase in 

bankruptcy case filings clearly creates a need for additional bankruptcy judgeships. In the 105th Congress, the House responded to 

this need by passing H.R. 1596, which would have created additional permanent and temporary bankruptcy judgeships and extended an existing temporary position. Section 1223 extends four 

existing temporary judgeships and authorizes 28 additional bankruptcy judgeships. In determining the official duty stations of bankruptcy judges and places of holding court pursuant to section 

152(b)(1) of title 28 of the United States Code regarding the additional judgeships authorized in this section, the Judicial ConVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00149 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
146 

ference should consider the convenience of the parties, the district’s 

geography, and factors that would facilitate better administration 

of cases, such as may be presented in the Eastern District of California with respect to Bakersfield, for example. 

Sec. 1224. Compensating Trustees. Section 1224 of the Act amends 

section 1326 of the Bankruptcy Code to provide that if a chapter 

7 trustee has been allowed compensation as a result of the conversion or dismissal of the debtor’s prior case pursuant to section 

707(b) and some portion of that compensation remains unpaid, the 

amount of any such unpaid compensation must be repaid in the 

debtor’s subsequent chapter 13 case. This payment must be prorated over the term of the plan and paid on a monthly basis. The 

amount of the monthly payment may not exceed the greater of $25 

or the amount payable to unsecured nonpriority creditors as provided by the plan, multiplied by five percent and the result divided 

by the number of months of the plan. 

Sec. 1225. Amendment to Section 362 of Titile11, United States 

Code. Section 1225 of the Act amends section 362(b) of the Bankruptcy Code to except from the automatic stay the creation or perfection of a statutory lien for an ad valorem property tax or for a 

special tax or special assessment on real property (whether or not 

ad valorem) that is imposed by a governmental unit, if such tax or 

assessment becomes due after the filing of the petition. 

Sec. 1226. Judicial Education. Section 1226 of the Act requires the 

Director of the Federal Judicial Center, in consultation with the Director of the Executive Office for United States Trustees, to develop 

materials and conduct training as may be useful to the courts in 

implementing this Act, including the needs-based reforms under 

section 707(b) (as amended by this Act) and amendments pertaining to reaffirmation agreements. 

Sec. 1227. Reclamation. Section 1227 of the Act amends section 

546(c) of the Bankruptcy Code to provide that the rights of a trustee under sections 544(a), 545, 547, and 549 are subject to the rights 

of a seller of goods to reclaim goods sold in the ordinary course of 

business to the debtor if: (1) the debtor, while insolvent, received 

these goods not later than 45 days prior to the commencement of 

the case, and (2) written demand for reclamation of the goods is 

made not later than 45 days after receipt of such goods by the debtor or not later than 20 days after the commencement of the case, 

if the 45-day period expires after the commencement of the case. 

If the seller fails to provide notice in the manner provided in this 

provision, the seller may still assert the rights set forth in section 

503(b)(7) of the Bankruptcy Code. Section 1227(b) amends Bankruptcy Code section 503(b) to provide that the value of any goods 

received by a debtor not later than within 20 days prior to the commencement of a bankruptcy case in which the goods have been sold 

to the debtor in the ordinary course of the debtor’s business is an 

allowed administrative expense. 

Sec. 1228. Providing Requested Tax Documents to the Court. Subsection (a) of section 1228 of the Act provides that the court may 

not grant a discharge to an individual in a case under chapter 7 

unless requested tax documents have been provided to the court. 

Section 1228(b) similarly provides that the court may not confirm 

147 

a chapter 11 or 13 plan unless requested tax documents have been 

filed with the court. Section 1228(c) directs the court to destroy 

documents submitted in support of a bankruptcy claim not sooner 

than three years after the date of the conclusion of a bankruptcy 

case filed by an individual debtor under chapter 7, 11, or 13. In the 

event of a pending audit or enforcement action, the court may extend the time for destruction of such requested tax documents. 

Sec. 1229. Encouraging Creditworthiness. Subsection (a) of section 

1229 of the Act expresses the sense of the Congress that certain 

lenders may sometimes offer credit to consumers indiscriminately 

and that resulting consumer debt may be a major contributing factor leading to consumer insolvency. Section 1229(b) directs the 

Board of Governors of the Federal Reserve to study certain consumer credit industry solicitation and credit granting practices as 

well as the effect of such practices on consumer debt and insolvency. The specified practices involve the solicitation and extension 

of credit on an indiscriminate basis that encourages consumers to 

accumulate additional debt and where the lender fails to ensure 

that the consumer borrower is capable of repaying the debt. Section 

1229(c) requires the study described in subsection (b) to be prepared within 12 months from the date of the Act’s enactment. This 

provision authorizes the Board to issue regulations requiring additional disclosures to consumers and permits it to undertake any 

other actions consistent with its statutory authority, which are necessary to ensure responsible industry practices and to prevent resulting consumer debt and insolvency. 

Sec. 1230. Property No Longer Subject to Redemption. Section 1230 

of the Act amends section 541(b) of the Bankruptcy Code to provide 

that, under certain circumstances, an interest of the debtor in tangible personal property (other than securities, or written or printed 

evidences of indebtedness or title) that the debtor pledged or sold 

as collateral for a loan or advance of money given by a person licensed under law to make such loan or advance is not property of 

the estate. Subject to subchapter III of chapter 5 of the Bankruptcy 

Code, the provision applies where: (1) the property is in the possession of the pledgee or transferee; (2) the debtor has no obligation 

to repay the money, redeem the collateral, or buy back the property 

at a stipulated price; and (3) neither the debtor nor the trustee 

have exercised any right to redeem provided under the contract or 

State law in a timely manner as provided under state law and section 108(b) of the Bankruptcy Code. 

Sec. 1231. Trustees. Section 1231 of the Act establishes a series of 

procedural protections for chapter 7 and chapter 13 trustees concerning final agency decisions relating to trustee appointments and 

future case assignments. Section 1231(a) amends section 586(d) of 

title 28 of the United States Code to allow a chapter 7 or chapter 

13 trustee to obtain judicial review of such decisions by commencing an action in the United States district court after the 

trustee exhausts all available administrative remedies. Unless the 

trustee elects to have an administrative hearing on the record, the 

trustee is deemed to have exhausted all administrative remedies 

under this provision if the agency fails to make a final agency decision within 90 days after the trustee requests an administrative 

remedy. The provision requires the Attorney General to promulgate 

148 

procedures to implement this provision. It further provides that the 

agency’s decision must be affirmed by the district court unless it 

is unreasonable and without cause based on the administrative 

record before the agency. 

Section 1231(b) amends section 586(e) of title 28 of the United 

States Code to permit a chapter 13 trustee to obtain judicial review 

of certain final agency actions relating to claims for actual, necessary expenses under section 586(e). The trustee may commence 

an action in the United States district court where the trustee resides. The agency’s decision must be affirmed by the district court 

unless it is unreasonable and without cause based on the administrative record before the agency. It directs the Attorney General to 

prescribe procedures to implement this provision. 

Sec. 1232. Bankruptcy Forms. Section 1232 of the Act amends section 2075 of title 28 of the United States Code to a form to be prescribed for the statement specified under section 707(b)(2)(C) of the 

Bankruptcy Code and to promulgate general rules on the content 

of such statement. 

Sec. 1233. Direct Appeals of Bankruptcy Matters to Courts of Appeals. Under current law, appeals from decisions rendered by the 

bankruptcy court are either heard by the district court or a bankruptcy appellate panel. In addition to the time and cost factors attendant to the present appellate system, decisions rendered by a 

district court as well as a bankruptcy appellate panel are generally 

not binding and lack stare decisis value. 

To address these problems, section 1233 of the Act amends section 158(d) of title 28 to establish a procedure to facilitate appeals 

of certain decisions, judgments, orders and decrees of the bankruptcy courts to the circuit courts of appeals by means of a twostep certification process. The first step is a certification by the 

bankruptcy court, district court, or bankruptcy appellate panel (acting on its own motion or on the request of a party, or the appellants and appellees acting jointly). Such certification must be 

issued by the lower court if: (1) the bankruptcy court, district court, 

or bankruptcy appellate panel determines that one or more of certain specified standards are met; or (2) a majority in number of the 

appellants and a majority in number of the appellees request certification and represent that one or more of the standards are met. 

The second step is authorization by the circuit court of appeals. Jurisdiction for the direct appeal would exist in the circuit court of 

appeals only if the court of appeals authorizes the direct appeal. 

This procedure is intended to be used to settle unresolved questions of law where there is a need to establish clear binding precedent at the court of appeals level, where the matter is one of public 

importance, where there is a need to resolve conflicting decisions 

on a question of law, or where an immediate appeal may materially 

advance the progress of the case or proceeding. The courts of appeals are encouraged to authorize direct appeals in these circumstances. While fact-intensive issues may occasionally offer 

grounds for certification even when binding precedent already exists on the general legal issue in question, it is anticipated that 

this procedure will rarely be used in that circumstance or in an attempt to bring to the circuit courts of appeals matters that can apVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00152 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
149 

propriately be resolved initially by district court judges or bankruptcy appellate panels. 

Sec. 1234. Involuntary Cases. Section 1234 of the Act amends the 

Bankruptcy Code’s criteria for commencing an involuntary bankruptcy case. Current law renders a creditor ineligible if its claim 

is contingent as to liability or the subject of a bona fide dispute. 

This provision amends section 303(b)(1) to specify that a creditor 

would be ineligible to file an involuntary petition if the creditor’s 

claim was the subject of a bona fide dispute as to liability or 

amount. It further provides that the claims needed to meet the 

monetary threshold must be undisputed. The provision makes a 

conforming revision to section 303(h)(1). Section 1234 becomes effective on the date of enactment of this Act and applies to cases 

commenced before, on, and after such date. 

Sec. 1235. Federal Election Law Fines and Penalties as Nondischargeable Debt. Section 1235 of the Act amends section 523(a) 

of the Bankruptcy Code to make debts incurred to pay fines or penalties imposed under Federal election law nondischargeable. 

TITLE XIII. CONSUMER CREDIT DISCLOSURE

Sec. 1301. Enhanced Disclosures under an Open End Credit Plan. 

Section 1301 of the Act amends section 127(b) of the Truth in 

Lending Act to mandate the inclusion of certain specified disclosures in billing statements with respect to various open end credit 

plans. In general, these statements must contain an example of the 

time it would take to repay a stated balance at a specified interest 

rate. In addition, they must warn the borrower that making only 

the minimum payment will increase the amount of interest that 

must be paid and the time it takes to repay the balance. Further, 

a toll-free telephone number must be provided where the borrower 

can obtain an estimate of the time it would take to repay the balance if only minimum payments are made. With respect to a creditor whose compliance with title 15 of the United States Code is enforced by the Federal Trade Commission (FTC), the billing statement must advise the borrower to contact the FTC at a toll-free 

telephone number to obtain an estimate of the time it would take 

to repay the borrower’s balance. Section 1301(a) permits the creditor to substitute an example based on a higher interest rate. As 

necessary, the provision requires the Board of Governors of the 

Federal Reserve System (‘‘Board’’), to periodically recalculate by 

rule the interest rate and repayment periods specified in Section 

1301(a). With respect to the toll-free telephone number, section 

1301(a) permits a third party to establish and maintain it. Under 

certain circumstances, the toll-free number may connect callers to 

an automated device. 

For a period not to exceed 24 months from the effective date of 

the Act, the Board is required to establish and maintain a toll-free 

telephone number (or provide a toll-free telephone number established and maintained by a third party) for use by creditors that 

are depository institutions (as defined in section 3 of the Federal 

Deposit Insurance Act), including a Federal or state credit union 

(as defined in section 101 of the Federal Credit Union Act), with 

total assets not exceeding $250 million. Not later than six months 

prior to the expiration of the 24-month period, the Board must subVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00153 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
150 

mit a report on this program to the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives. In addition, section 

1301(a) requires the Board to establish a detailed table illustrating 

the approximate number of months that it would take to repay an 

outstanding balance if a consumer pays only the required minimum 

month payments and if no other advances are made. The table 

should reflect a significant number of different annual percentage 

rates, and account balances, minimum payment amounts. The 

Board must also promulgate regulations providing instructional 

guidance regarding the manner in which the information contained 

in the tables should be used to respond to a request by an obligor 

under this provision. Section 1301(a) provides that the disclosure 

requirements of this provision are inapplicable to any charge card 

account where the primary purpose of which is to require payment 

of charges in full each month. 

Section 1301(b)(1) requires the Federal Reserve Board to promulgate regulations implementing section 1301(a)’s amendments to 

section 127. Section 1301(b)(2) specifies that the effective date of 

the amendments under subsection (a) and the regulations required 

under this provision shall not take effect until the later of 18 

months after the date of enactment of this Act or 12 months after 

the publication of final regulations by the Board. 

Section 1301(c) authorizes the Federal Reserve Board to conduct 

a study to determine the types of information available to potential 

borrowers from consumer credit lending institutions regarding factors qualifying potential borrowers for credit, repayment requirements, and the consequences of default. The provision specifies the 

factors that should be considered. The study’s findings must be 

submitted to Congress and include recommendations for legislative 

initiatives, based on the Board’s findings. 

Sec. 1302. Enhanced Disclosure for Credit Extensions Secured by a 

Dwelling. Subsection (a)(1) of section 1302 of the Act amends section 127A(a)(13) of the Truth in Lending Act to require a statement 

in any case in which the extension of credit exceeds the fair market 

value of a dwelling specifying that the interest on the portion of the 

credit extension that is greater than the fair market value of the 

dwelling is not tax deductible for Federal income tax purposes. Section 1302(a)(2) amends section 147(b) of the Truth in Lending Act 

to require an advertisement relating to an extension of credit that 

may exceed the fair market value of a dwelling and such advertisement is disseminated in paper form to the public or through the 

Internet (as opposed to dissemination by radio or television) to include a specified statement. The statement must disclose that the 

interest on the portion of the credit extension that is greater than 

the fair market value of the dwelling is not tax deductible for Federal income tax purposes and that the consumer should consult a 

tax advisor for further information regarding the deductibility of 

interest and charges. 

With respect to non-open end credit extensions, section 1302(b)(1) 

amends section 128 of the Truth in Lending Act to require that a 

consumer receive a specified statement at the time he or she applies for credit with respect to a consumer credit transaction secured by the consumer’s principal dwelling and where the credit extension may exceed the fair market value of the dwelling. The 

151 

statement must disclose that the interest on the portion of the 

credit extension that exceeds the dwelling’s fair market value is not 

tax deductible for Federal income tax purposes and that the consumer should consult a tax advisor for further information regarding the deductibility of interest and charges. Section 1302(b)(2) requires certain advertisements disseminated in paper form to the 

public or through the Internet that relate to a consumer credit 

transaction secured by a consumer’s principal dwelling where the 

extension of credit may exceed the dwelling’s fair market value to 

contain specified statements. These statements advise that the interest on the portion of the credit extension that is greater than the 

fair market value of the dwelling is not tax deductible for Federal 

income tax purposes and that the consumer should consult a tax 

advisor for further information regarding the deductibility of interest and charges. 

Section 1302(c)(1) requires the Federal Reserve Board to promulgate regulations implementing the amendments effectuated by this 

provision. Section 1302(c)(2) provides that these regulations shall 

not take effect until the later of 12 months following the Act’s enactment date or 12 months after the date of publication of such 

final regulations by the Board. 

Sec. 1303. Disclosures Related to ‘‘Introductory Rates.’’ Subsection 

(a) of section 1303 of the Act amends section 127(c) of the Truth 

in Lending Act by adding a provision to specify further requirements for applications, solicitations and related materials that are 

subject to section 127(c)(1). With respect to an application or solicitation to open a credit card account and all promotional materials 

accompanying such application or solicitation involving an ‘‘introductory rate’’ offer, such materials must do the following if they 

offer a temporary annual percentage rate of interest: 

1. the term ‘‘introductory’’ in immediate proximity to each listing of the temporary annual percentage interest rate applicable to such account; 

2. if the annual percentage interest rate that will apply after 

the end of the temporary rate period will be a fixed rate, the 

time period in which the introductory period will end and 

the annual percentage rate that will apply after the end of 

the introductory period must be clearly and conspicuously 

stated in a prominent location closely proximate to the first 

listing of the temporary annual percentage rate; 

3. if the annual percentage rate that will apply after the end 

of the temporary rate period will vary in accordance with an 

index, the time period in which the introductory period will 

end and the rate that will apply after that, based on an annual percentage rate that was in effect 60 days before the 

date of mailing of the application or solicitation must be 

clearly and conspicuously stated in a prominent location 

closely proximate to the first listing of the temporary annual percentage rate. 

The second and third provisions described above do not apply to 

any listing of a temporary annual percentage rate on an envelope 

or other enclosure in which an application or solicitation to open 

a credit card account is mailed. With respect to an application or 

152 

solicitation to open a credit card account for which disclosure is required pursuant to section 127(c)(1) of the Truth in Lending Act, 

section 1303(a) specifies that certain statements be made if the 

rate of interest is revocable under any circumstance or upon any 

event. The statements must clearly and conspicuously appear in a 

prominent manner on or with the application or solicitation. The 

disclosures include a general description of the circumstances that 

may result in the revocation of the temporary annual percentage 

rate and an explanation of the type of interest rate that will apply 

upon revocation of the temporary rate. 

To implement this provision, section 1303(b) amends section 

127(c) of the Truth in Lending Act to define various relevant terms 

and requires the Board to promulgate regulations. The provision 

does not become effective until the earlier of 12 months after the 

Act’s enactment date or 12 months after the date of publication of 

such final regulations. 

Sec. 1304. Internet-Based Credit Card Solicitations. Subsection (a) 

of section 1304 of the Act amends section 127(c) of the Truth in 

Lending Act to require any solicitation to open a credit card account for an open end consumer credit plan through the Internet 

or other interactive computer service to clearly and conspicuously 

include the disclosures required under section 127(c)(1)(A) and (B). 

It also specifies that the disclosure required pursuant to section 

127(c)(1)(A) be readily accessible to consumers in close proximity to 

the solicitation and be updated regularly to reflect current policies, 

terms, and fee amounts applicable to the credit card account. Section 1304(a) defines terms relevant to the Internet. 

Section 1304(b) requires the Federal Reserve Board to promulgate regulations implementing this provision. It also provides that 

the amendments effectuated by section 1304 do not take effect until 

the later of 12 months after the Act’s enactment date or 12 months 

after the date of publication of such regulations. 

Sec. 1305. Disclosures Related to Late Payment Deadlines and Penalties. Subsection (a) of section 1305 of the Act amends section 

127(b) of the Truth in Lending Act to provide that if a late payment fee is to be imposed due to the obligor’s failure to make payment on or before a required payment due date, the billing statement must specify the date on which that payment is due (or if different the earliest date on which a late payment fee may be 

charged) and the amount of the late payment fee to be imposed if 

payment is made after such date. 

Section 1305(b) requires the Federal Reserve Board to promulgate regulations implementing this provision. The amendments effectuated by this provision and the regulations promulgated thereunder shall not take effect until the later of 12 months after the 

Act’s enactment date or 12 months after the date of publication of 

the regulations. 

Sec. 1306. Prohibition on Certain Actions for Failure to Incur Finance Charges. Subsection (a) of section 1306 of the Act amends 

section 127 of the Truth in Lending Act to add a provision prohibiting a creditor of an open end consumer credit plan from terminating an account prior to its expiration date solely because the 

consumer has not incurred finance charges on the account. The 

153 

provision does not prevent the creditor from terminating such account for inactivity for three or more consecutive months. 

Section 1306(b) requires the Federal Reserve Board to promulgate regulations implementing the amendments effectuated by section 1306(a) and provides that they do not become effective until 

the later of 12 months after the Act’s enactment date or 12 months 

after the date of publication of such final regulations. 

Sec. 1307. Dual Use Debit Card. Subsection (a) of section 1307 of 

the act provides that the Federal Reserve Board may conduct a 

study and submit a report to Congress containing its analysis of 

consumer protections under existing law to limit the liability of 

consumers for unauthorized use of a debit card or similar access 

device. The report must include recommendations for legislative 

initiatives, if any, based on its findings. 

Section 1307(b) provides that the Federal Reserve Board, in preparing its report, may include analysis of section 909 of the Electronic Fund Transfer Act to the extent this provision is in effect at 

the time of the report and the implementing regulations. In addition, the analysis may pertain to whether any voluntary industry 

rules have enhanced or may enhance the level of protection afforded consumers in connection with such unauthorized use liability and whether amendments to the Electronic Fund Transfer Act 

or implementing regulations are necessary to further address adequate protection for consumers concerning unauthorized use liability. 

Sec. 1308. Study of Bankruptcy Impact of Credit Extended to Dependent Students. Section 1308 of the Act directs the Board of Governors of the Federal Reserve to study the impact that the extension of credit to dependents (defined under the Internal Revenue 

Code of 1986) who are enrolled in postsecondary educational institutions has on the rate of bankruptcy cases filed. The report must 

be submitted to the Senate and House of Representatives no later 

than one year from the Act’s enactment date. 

Sec. 1309. Clarification of Clear and Conspicuous. Subsection (a) of 

section 1309 of the Act requires the Board (in consultation with 

other Federal banking agencies, the National Credit Union Administration Board, and the Federal Trade Commission) to promulgate 

regulations not later than six months after the Act’s enactment 

date to provide guidance on the meaning of the term ‘‘clear and 

conspicuous’’ as it is used in section 127(b)(11)(A), (B) and (C) and 

section 127(c)(6)(A)(ii) and (iii) of the Truth in Lending Act. 

Section 1309(b) provides that regulations promulgated under section 1309(a) shall include examples of clear and conspicuous model 

disclosures for the purpose of disclosures required under the Truth 

in Lending Act provisions set forth therein. 

Section 1309(c) requires the Federal Reserve Board, in promulgating regulations under this provision, to ensure that the clear 

and conspicuous standard required for disclosures made under the 

Truth in Lending Act provisions set forth in section 1309(a) can be 

implemented in a manner that results in disclosures which are reasonably understandable and designed to call attention to the nature and significance of the information in the notice. 

154 

TITLE XIV. PREVENTING CORPORATE BANKRUPTCY ABUSE

Sec. 1401. Employee Wage and Benefit Priorities. Section 1401 of 

the Act amends Bankruptcy Code section 507(a) to provide heightened protections for employees by increasing the monetary cap on 

wage and employee benefit claims entitled to priority under the 

Bankruptcy Code from $4,650 to $10,000 and lengthens the 

reachback period for wage claims from 90 days to 180 days. As few 

employees will continue working without pay for an extended period, the principal effect of extending the time period to 180 days 

is that a greater portion of unpaid vacation, severance, and sick 

leave pay will be entitled to priority payment. 

Sec. 1402. Fraudulent Transfers and Obligations. Section 1402 of 

the Act amends section 548 of the Bankruptcy Code to enhance the 

recovery of avoidable transfers and excessive prepetition compensation, such as bonuses, paid to insiders of a debtor. It effectuates 

two changes to current law that would make it easier for a trustee 

to avoid pre-petition transfers. First, section 1402(1) extends the 

one-year reachback period for fraudulent transfers to two years. 

Second, section 1402(2) amends Bankruptcy Code section 548(a) to 

clarify that it permits the recovery of any transfer to or an obligation incurred for the benefit of an insider under an employment 

contract, under certain conditions. In addition, section 1402 adds a 

new provision to section 548 authorizing a bankruptcy trustee to 

avoid any transfer of an interest of the debtor in property that was 

made on or within the ten-year period preceding the filing of the 

debtor’s bankruptcy case if: (a) the transfer was made to a self-settled trust or similar device; (b) the transfer was made by the debtor; (c) the debtor is a beneficiary of such trust or similar device; 

and (d) the debtor made such transfer with actual intent to hinder, 

delay, or defraud any entity to which the debtor was or became, on 

or after the date of such transfer, indebted. For purposes of this 

provision, a transfer includes a transfer made in anticipation of 

any money judgment, criminal fine, or similar obligation or which 

the debtor believed would be incurred as a result of: (1) a violation 

of Federal or state securities laws, regulations, or orders; or (2) 

fraud, deceit, or manipulation in fiduciary capacity or in connection 

with the purchase or sale of a security under specified provisions 

of the Federal securities laws. 

Sec. 1403. Payment of Insurance Benefits to Retired Employees. 

Current bankruptcy law prevents a chapter 11 debtor from unilaterally modifying certain retiree benefits, such as health insurance, 

during the pendency of the bankruptcy case unless an authorized 

retiree representative is appointed and agrees to the modification, 

or the court authorizes the modification. Section 1403 amends 

Bankruptcy Code section 1114 to prevent debtors from evading 

these requirements by terminating retiree benefit plans on the eve 

of bankruptcy. The amendment would require retroactive reinstatement of retiree benefits that were modified within 180 days before 

the debtor filed for bankruptcy protection, unless the court finds 

that the balance of the equities clearly favors the modification. 

Sec. 1404. Debts Nondischargeable If Incurred in Violation of Securities Fraud Laws. Bankruptcy Code section 523(a)(19) makes certain debts nondischargeable that result from the violation of FedVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00158 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
155 

eral securities law, state securities law, or any regulation or order 

issued under such Federal or state securities law nondischargeable. 

Section 1404 amends Bankruptcy Code section 523(a)(19)(B) to provide that it applies to such debts that result before, on, or after the 

date on which the petition was filed from any judgment, order, consent order, decree, settlement agreement, or from any court or administrative order for damages or for other specified payments 

owed by the debtor. Section 1404 is effective as of July 30, 2002. 

Sec. 1405. Appointment of Trustee in Cases of Suspected Fraud. 

Section 1405 amends Bankruptcy Code section 1104 to require the 

United States trustee to move for the appointment of a trustee if 

there are reasonable grounds to suspect that current members of 

a chapter 11 debtor’s governing body, chief executive officer, chief 

financial officer, or members of the debtor’s governing body who selected the debtor’s chief executive officer or chief financial officer 

participated in actual fraud, dishonesty, or criminal conduct in the 

management of the debtor or the debtor’s public financial reporting. 

Sec. 1406. Effective Date; Application of Amendments. Section 1406 

provides that title XIV, with the exception of one provision, takes 

effect on the date of enactment of this Act and the amendments 

apply only to cases commenced after such date. The exception applies to section 1402(1) of the Act, which applies only to cases commenced under the Bankruptcy Code more than one year after the 

date of enactment of this Act. 

TITLE XV. GENERAL EFFECTIVE DATE; APPLICATION OF AMENDMENTS

Sec. 1501. Effective Date; Application of Amendments. Subsection 

(a) of section 1501 of the Act provides that the Act shall take effect 

180 days after the date of enactment, unless otherwise specified in 

this Act. Section 1501(b) provides that the amendments made by 

this Act shall not apply to cases commenced under the Bankruptcy 

Code before the Act’s effective date, unless otherwise specified in 

this Act. The provision specifies that the amendments made by sections 308, 322 and 330 shall apply to cases commenced on or after 

the date of enactment of this Act. 

Sec. 1502. Technical Corrections. In light of the renumbering of a 

paragraph in Bankruptcy Code section 507 as effectuated by section 212 of this Act, section 1502 corrects various cross-references 

in the Bankruptcy Code to reflect such renumbering. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italics, 

existing law in which no change is proposed is shown in roman): 

156 

TITLE 11, UNITED STATES CODE 

Chap. Sec. 

1. General Provisions ................................................................................. 101 

* * * * * * * 

ø12. Adjustment of Debts of Family Farmers with Regular Annual 

Income .................................................................................................... 1201¿ 

12. Adjustments of Debts of a Family Farmer or Family Fisherman 

with Regular Annual Income ............................................................ 1201 

* * * * * * * 

15. Ancillary and Other Cross-Border Cases ........................................... 1501 

CHAPTER 1—GENERAL PROVISIONS 

Sec. 

101. Definitions. 

* * * * * * * 

111. Nonprofit budget and credit counseling agencies; financial management instructional courses. 

112. Prohibition on disclosure of name of minor children. 

§ 101. Definitions 

øIn this title—¿ In this title the following definitions shall 

apply: 

(1) The term ‘‘accountant’’ means accountant authorized 

under applicable law to practice public accounting, and includes professional accounting association, corporation, or partnership, if so authorizedø;¿. (2) The term ‘‘affiliate’’ means— (A) * * * 

* * * * * * * 

(D) entity that operates the business or substantially 

all of the property of the debtor under a lease or operating 

agreementø;¿. (3) The term ‘‘assisted person’’ means any person whose 

debts consist primarily of consumer debts and the value of 

whose nonexempt property is less than $150,000. 

(4) The term ‘‘attorney’’ means attorney, professional law 

association, corporation, or partnership, authorized under applicable law to practice lawø;¿. (4A) The term ‘‘bankruptcy assistance’’ means any goods or 

services sold or otherwise provided to an assisted person with 

the express or implied purpose of providing information, advice, 

counsel, document preparation, or filing, or attendance at a 

creditors’ meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to 

a case or proceeding under this title. 

(5) The term ‘‘claim’’ means— (A) * * * 

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, 

whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, 

disputed, undisputed, secured, or unsecuredø;¿. 

(6) The term ‘‘commodity broker’’ means futures commission merchant, foreign futures commission merchant, clearing 

157 

organization, leverage transaction merchant, or commodity options dealer, as defined in section 761 of this title, with respect 

to which there is a customer, as defined in section 761 of this 

titleø;¿. (7) The term ‘‘community claim’’ means claim that arose 

before the commencement of the case concerning the debtor for 

which property of the kind specified in section 541(a)(2) of this 

title is liable, whether or not there is any such property at the 

time of the commencement of the caseø;¿. (7A) The term ‘‘commercial fishing operation’’ means— (A) the catching or harvesting of fish, shrimp, lobsters, 

urchins, seaweed, shellfish, or other aquatic species or 

products of such species; or 

(B) for purposes of section 109 and chapter 12, aquaculture activities consisting of raising for market any species or product described in subparagraph (A). 

(7B) The term ‘‘commercial fishing vessel’’ means a vessel 

used by a family fisherman to carry out a commercial fishing 

operation. 

(8) The term ‘‘consumer debt’’ means debt incurred by an 

individual primarily for a personal, family, or household 

purposeø;¿. (9) The term ‘‘corporation’’—

(A) * * * 

(B) does not include limited partnershipø;¿. (10) The term ‘‘creditor’’ means— (A) * * * 

* * * * * * * 

(C) entity that has a community claimø;¿. (10A) The term ‘‘current monthly income’’—

(A) means the average monthly income from all sources 

that the debtor receives (or in a joint case the debtor and 

the debtor’s spouse receive) without regard to whether such 

income is taxable income, derived during the 6-month period ending on— (i) the last day of the calendar month immediately 

preceding the date of the commencement of the case if 

the debtor files the schedule of current income required 

by section 521(a)(1)(B)(ii); or 

(ii) the date on which current income is determined 

by the court for purposes of this title if the debtor does 

not file the schedule of current income required by section 521(a)(1)(B)(ii); and 

(B) includes any amount paid by any entity other than 

the debtor (or in a joint case the debtor and the debtor’s 

spouse), on a regular basis for the household expenses of 

the debtor or the debtor’s dependents (and in a joint case 

the debtor’s spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity 

on account of their status as victims of such crimes, and 

payments to victims of international terrorism (as defined 

in section 2331 of title 18) or domestic terrorism (as defined 

in section 2331 of title 18) on account of their status as victims of such terrorism. 

158 

(11) The term ‘‘custodian’’ means—

(A) * * * 

* * * * * * * 

(C) trustee, receiver, or agent under applicable law, or 

under a contract, that is appointed or authorized to take 

charge of property of the debtor for the purpose of enforcing a lien against such property, or for the purpose of general administration of such property for the benefit of the 

debtor’s creditorsø;¿. 

(12) The term ‘‘debt’’ means liability on a claimø;¿. ø(12A) ‘‘debt for child support’’ means a debt of a kind 

specified in section 523(a)(5) of this title for maintenance or 

support of a child of the debtor;¿ 

(12A) The term ‘‘debt relief agency’’ means any person who 

provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, 

or who is a bankruptcy petition preparer under section 110, but 

does not include— (A) any person who is an officer, director, employee, or 

agent of a person who provides such assistance or of the 

bankruptcy petition preparer; 

(B) a nonprofit organization that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code 

of 1986; 

(C) a creditor of such assisted person, to the extent that 

the creditor is assisting such assisted person to restructure 

any debt owed by such assisted person to the creditor; 

(D) a depository institution (as defined in section 3 of 

the Federal Deposit Insurance Act) or any Federal credit 

union or State credit union (as those terms are defined in 

section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such depository institution or credit 

union; or 

(E) an author, publisher, distributor, or seller of works 

subject to copyright protection under title 17, when acting 

in such capacity. 

(13) The term ‘‘debtor’’ means person or municipality concerning which a case under this title has been commencedø;¿. 

(13A) The term ‘‘debtor’s principal residence’’—

(A) means a residential structure, including incidental 

property, without regard to whether that structure is attached to real property; and 

(B) includes an individual condominium or cooperative 

unit, a mobile or manufactured home, or trailer. 

ø(14) ‘‘disinterested person’’ means person that—

ø(A) is not a creditor, an equity security holder, or an 

insider; 

ø(B) is not and was not an investment banker for any 

outstanding security of the debtor; 

ø(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; 

159 

ø(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 

ø(E) does not have an interest materially adverse to 

the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor or 

an investment banker specified in subparagraph (B) or (C) 

of this paragraph, or for any other reason;¿ 

(14) The term ‘‘disinterested person’’ means a person that— (A) is not a creditor, an equity security holder, or an 

insider; 

(B) is not and was not, within 2 years before the date 

of the filing of the petition, a director, officer, or employee 

of the debtor; and 

(C) does not have an interest materially adverse to the 

interest of the estate or of any class of creditors or equity 

security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor, or for 

any other reason. 

(14A) The term ‘‘domestic support obligation’’ means a debt 

that accrues before, on, or after the date of the order for relief 

in a case under this title, including interest that accrues on that 

debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is— (A) owed to or recoverable by— (i) a spouse, former spouse, or child of the debtor 

or such child’s parent, legal guardian, or responsible 

relative; or 

(ii) a governmental unit; 

(B) in the nature of alimony, maintenance, or support 

(including assistance provided by a governmental unit) of 

such spouse, former spouse, or child of the debtor or such 

child’s parent, without regard to whether such debt is expressly so designated; 

(C) established or subject to establishment before, on, 

or after the date of the order for relief in a case under this 

title, by reason of applicable provisions of— (i) a separation agreement, divorce decree, or property settlement agreement; 

(ii) an order of a court of record; or 

(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; 

and 

(D) not assigned to a nongovernmental entity, unless 

that obligation is assigned voluntarily by the spouse, 

former spouse, child of the debtor, or such child’s parent, 

legal guardian, or responsible relative for the purpose of 

collecting the debt. 

(15) The term ‘‘entity’’ includes person, estate, trust, governmental unit, and United States trusteeø;¿. (16) The term ‘‘equity security’’ means— (A) * * * 

* * * * * * * 

160 

(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 

paragraphø;¿. (17) The term ‘‘equity security holder’’ means holder of an 

equity security of the debtorø;¿. (18) The term ‘‘family farmer’’ means— (A) individual or individual and spouse engaged in a 

farming operation whose aggregate debts do not exceed 

ø$1,500,000¿ $3,237,000 and not less than ø80¿ 50 percent 

of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt 

arises out of a farming operation), on the date the case is 

filed, arise out of a farming operation owned or operated 

by such individual or such individual and spouse, and such 

individual or such individual and spouse receive from such 

farming operation more than 50 percent of such individual’s or such individual and spouse’s gross income øfor the 

taxable year preceding the taxable year¿ for— (i) the taxable year preceding; or 

(ii) each of the 2d and 3d taxable years preceding; 

the taxable year in which the case concerning such individual or such individual and spouse was filed; or 

(B) corporation or partnership in which more than 50 

percent of the outstanding stock or equity is held by one 

family, or by one family and the relatives of the members 

of such family, and such family or such relatives conduct 

the farming operation, and 

(i) * * * 

(ii) its aggregate debts do not exceed ø$1,500,000¿ 

$3,237,000 and not less than ø80¿ 50 percent of its aggregate noncontingent, liquidated debts (excluding a 

debt for one dwelling which is owned by such corporation or partnership and which a shareholder or partner maintains as a principal residence, unless such 

debt arises out of a farming operation), on the date the 

case is filed, arise out of the farming operation owned 

or operated by such corporation or such partnership; 

and 

(iii) if such corporation issues stock, such stock is 

not publicly tradedø;¿. 

(19) The term ‘‘family farmer with regular annual income’’

means family farmer whose annual income is sufficiently stable and regular to enable such family farmer to make payments under a plan under chapter 12 of this titleø;¿. 

(19A) The term ‘‘family fisherman’’ means—

(A) an individual or individual and spouse engaged in 

a commercial fishing operation—

(i) whose aggregate debts do not exceed $1,500,000 

and not less than 80 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the 

principal residence of such individual or such individual and spouse, unless such debt arises out of a 

commercial fishing operation), on the date the case is 

161 

filed, arise out of a commercial fishing operation 

owned or operated by such individual or such individual and spouse; and 

(ii) who receive from such commercial fishing operation more than 50 percent of such individual’s or such 

individual’s and spouse’s gross income for the taxable 

year preceding the taxable year in which the case concerning such individual or such individual and spouse 

was filed; or 

(B) a corporation or partnership—

(i) in which more than 50 percent of the outstanding stock or equity is held by—

(I) 1 family that conducts the commercial fishing operation; or 

(II) 1 family and the relatives of the members 

of such family, and such family or such relatives 

conduct the commercial fishing operation; and 

(ii)(I) more than 80 percent of the value of its assets consists of assets related to the commercial fishing 

operation; 

(II) its aggregate debts do not exceed $1,500,000 

and not less than 80 percent of its aggregate noncontingent, liquidated debts (excluding a debt for 1 dwelling 

which is owned by such corporation or partnership and 

which a shareholder or partner maintains as a principal residence, unless such debt arises out of a commercial fishing operation), on the date the case is filed, 

arise out of a commercial fishing operation owned or 

operated by such corporation or such partnership; and 

(III) if such corporation issues stock, such stock is 

not publicly traded. 

(19B) The term ‘‘family fisherman with regular annual income’’ means a family fisherman whose annual income is sufficiently stable and regular to enable such family fisherman to 

make payments under a plan under chapter 12 of this title. 

(20) The term ‘‘farmer’’ means (except when such term appears in the term ‘‘family farmer’’) person that received more 

than 80 percent of such person’s gross income during the taxable year of such person immediately preceding the taxable 

year of such person during which the case under this title concerning such person was commenced from a farming operation 

owned or operated by such personø;¿. 

(21) The term ‘‘farming operation’’ includes farming, tillage 

of the soil, dairy farming, ranching, production or raising of 

crops, poultry, or livestock, and production of poultry or livestock products in an unmanufactured stateø;¿. 

(21A) The term ‘‘farmout agreement’’ means a written 

agreement in which—

(A) * * * 

(B) such other entity (either directly or through its 

agents or its assigns), as consideration, agrees to perform 

drilling, reworking, recompleting, testing, or similar or related operations, to develop or produce liquid or gaseous 

hydrocarbons on the propertyø;¿. 

162 

(21B) The term ‘‘Federal depository institutions regulatory 

agency’’ means— (A) * * * 

* * * * * * * 

(D) with respect to any insured depository institution 

for which the Federal Deposit Insurance Corporation has 

been appointed conservator or receiver, the Federal Deposit Insurance Corporationø;¿. ø(22) the term ‘‘financial institution’’—

ø(A) means— ø(i) a Federal reserve bank or an entity (domestic 

or foreign) that is a commercial or savings bank, industrial savings bank, savings and loan association, 

trust company, or receiver or conservator for such entity and, when any such Federal reserve bank, receiver, conservator, or entity is acting as agent or custodian for a customer in connection with a securities 

contract, as defined in section 741 of this title, the customer; or 

ø(ii) in connection with a securities contract, as 

defined in section 741 of this title, an investment company registered under the Investment Company Act of 

1940; and 

ø(B) includes any person described in subparagraph 

(A) which operates, or operates as, a multilateral clearing 

organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991; 

ø(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; 

ø(24) ‘‘foreign representative’’ means duly selected trustee, 

administrator, or other representative of an estate in a foreign 

proceeding;¿ 

(22) The term ‘‘financial institution’’ means— (A) a Federal reserve bank, or an entity (domestic or 

foreign) that is a commercial or savings bank, industrial 

savings bank, savings and loan association, trust company, 

federally-insured credit union, or receiver, liquidating 

agent, or conservator for such entity and, when any such 

Federal reserve bank, receiver, liquidating agent, conservator or entity is acting as agent or custodian for a customer in connection with a securities contract (as defined in 

section 741) such customer; or 

(B) in connection with a securities contract (as defined 

in section 741) an investment company registered under the 

Investment Company Act of 1940. 

(22A) The term ‘‘financial participant’’ means— (A) an entity that, at the time it enters into a securities 

contract, commodity contract, swap agreement, repurchase 

agreement, or forward contract, or at the time of the date 

of the filing of the petition, has one or more agreements or 

163 

transactions described in paragraph (1), (2), (3), (4), (5), or 

(6) of section 561(a) with the debtor or any other entity 

(other than an affiliate) of a total gross dollar value of not 

less than $1,000,000,000 in notional or actual principal 

amount outstanding on any day during the previous 15- 

month period, or has gross mark-to-market positions of not 

less than $100,000,000 (aggregated across counterparties) 

in one or more such agreements or transactions with the 

debtor or any other entity (other than an affiliate) on any 

day during the previous 15-month period; or 

(B) a clearing organization (as defined in section 402 

of the Federal Deposit Insurance Corporation Improvement 

Act of 1991). 

(23) The term ‘‘foreign proceeding’’ means a collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency 

or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation. 

(24) The term ‘‘foreign representative’’ means a person or 

body, including a person or body appointed on an interim basis, 

authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or affairs or to act 

as a representative of such foreign proceeding. 

(25) The term ‘‘forward contract’’ ømeans a contract¿ 

means—(A) a contract (other than a commodity contract) for 

the purchase, sale, or transfer of a commodity, as defined 

in section 761(8) of this title, or any similar good, article, 

service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract 

trade, or product or byproduct thereof, with a maturity 

date more than two days after the date the contract is entered into, including, but not limited to, a repurchase 

transaction, reverse repurchase transaction, consignment, 

lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transactionø, or any combination thereof or option thereon;¿, or any other similar 

agreement; 

(B) any combination of agreements or transactions referred to in subparagraphs (A) and (C); 

(C) any option to enter into an agreement or transaction referred to in subparagraph (A) or (B); 

(D) a master agreement that provides for an agreement 

or transaction referred to in subparagraph (A), (B), or (C), 

together with all supplements to any such master agreement, without regard to whether such master agreement 

provides for an agreement or transaction that is not a forward contract under this paragraph, except that such master agreement shall be considered to be a forward contract 

under this paragraph only with respect to each agreement 

or transaction under such master agreement that is referred to in subparagraph (A), (B), or (C); or 

(E) any security agreement or arrangement, or other 

credit enhancement related to any agreement or transaction 

164 

referred to in subparagraph (A), (B), (C), or (D), including 

any guarantee or reimbursement obligation by or to a forward contract merchant or financial participant in connection with any agreement or transaction referred to in any 

such subparagraph, but not to exceed the damages in connection with any such agreement or transaction, measured 

in accordance with section 562. 

ø(26) ‘‘forward contract merchant’’ means a person whose 

business consists in whole or in part of entering into forward 

contracts as or with merchants in a commodity, as defined in 

section 761(8) of this title, or any similar good, article, service, 

right, or interest which is presently or in the future becomes 

the subject of dealing in the forward contract trade;¿ 

(26) The term ‘‘forward contract merchant’’ means a Federal reserve bank, or an entity the business of which consists in 

whole or in part of entering into forward contracts as or with 

merchants in a commodity (as defined in section 761) or any 

similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade. 

(27) The term ‘‘governmental unit’’ means United States; 

State; Commonwealth; District; Territory; municipality; foreign 

state; department, agency, or instrumentality of the United 

States (but not a United States trustee while serving as a 

trustee in a case under this title), a State, a Commonwealth, 

a District, a Territory, a municipality, or a foreign state; or 

other foreign or domestic governmentø;¿. (27A) The term ‘‘health care business’’—

(A) means any public or private entity (without regard 

to whether that entity is organized for profit or not for profit) that is primarily engaged in offering to the general public facilities and services for— (i) the diagnosis or treatment of injury, deformity, 

or disease; and 

(ii) surgical, drug treatment, psychiatric, or obstetric care; and 

(B) includes—

(i) any—

(I) general or specialized hospital; 

(II) ancillary ambulatory, emergency, or surgical treatment facility; 

(III) hospice; 

(IV) home health agency; and 

(V) other health care institution that is similar 

to an entity referred to in subclause (I), (II), (III), 

or (IV); and 

(ii) any long-term care facility, including any—

(I) skilled nursing facility; 

(II) intermediate care facility; 

(III) assisted living facility; 

(IV) home for the aged; 

(V) domiciliary care facility; and 

(VI) health care institution that is related to a 

facility referred to in subclause (I), (II), (III), (IV), 

or (V), if that institution is primarily engaged in 

165 

offering room, board, laundry, or personal assistance with activities of daily living and incidentals 

to activities of daily living. 

(27B) The term ‘‘incidental property’’ means, with respect to 

a debtor’s principal residence—

(A) property commonly conveyed with a principal residence in the area where the real property is located; 

(B) all easements, rights, appurtenances, fixtures, 

rents, royalties, mineral rights, oil or gas rights or profits, 

water rights, escrow funds, or insurance proceeds; and 

(C) all replacements or additions. 

(28) The term ‘‘indenture’’ means mortgage, deed of trust, 

or indenture, under which there is outstanding a security, 

other than a voting-trust certificate, constituting a claim 

against the debtor, a claim secured by a lien on any of the 

debtor’s property, or an equity security of the debtorø;¿. 

(29) The term ‘‘indenture trustee’’ means trustee under an 

indentureø;¿. 

(30) The term ‘‘individual with regular income’’ means individual whose income is sufficiently stable and regular to enable 

such individual to make payments under a plan under chapter 

13 of this title, other than a stockbroker or a commodity 

brokerø;¿. 

(31) The term ‘‘insider’’ includes—

(A) * * * 

* * * * * * * 

(F) managing agent of the debtorø;¿. 

(32) The term ‘‘insolvent’’ means—

(A) * * * 

* * * * * * * 

(C) with reference to a municipality, financial condition such that the municipality is—

(i) * * * 

(ii) unable to pay its debts as they become dueø;¿. 

(33) The term ‘‘institution-affiliated party’’—

(A) * * * 

(B) with respect to an insured credit union, has the 

meaning given it in section 206(r) of the Federal Credit 

Union Actø;¿. 

(34) The term ‘‘insured credit union’’ has the meaning 

given it in section 101(7) of the Federal Credit Union Actø;¿. 

(35) The term ‘‘insured depository institution’’—

(A) * * * 

(B) includes an insured credit union (except in the 

case of øparagraphs (21B) and (33)(A)¿ paragraphs (23) 

and (35) of this subsection)ø;¿. 

(35A) The term ‘‘intellectual property’’ means—

(A) * * * 

* * * * * * * 

to the extent protected by applicable nonbankruptcy lawø; 

and¿. 

166 

(36) The term ‘‘judicial lien’’ means lien obtained by judgment, levy, sequestration, or other legal or equitable process or 

proceedingø;¿. 

(37) The term ‘‘lien’’ means charge against or interest in 

property to secure payment of a debt or performance of an 

obligationø;¿. 

(38) The term ‘‘margin payment’’ means, for purposes of 

the forward contract provisions of this title, payment or deposit 

of cash, a security or other property, that is commonly known 

in the forward contract trade as original margin, initial margin, maintenance margin, or variation margin, including markto-market payments, or variation paymentsø; and¿. 

(38A) The term ‘‘master netting agreement’’—

(A) means an agreement providing for the exercise of 

rights, including rights of netting, setoff, liquidation, termination, acceleration, or close out, under or in connection 

with one or more contracts that are described in any one 

or more of paragraphs (1) through (5) of section 561(a), or 

any security agreement or arrangement or other credit enhancement related to one or more of the foregoing, including any guarantee or reimbursement obligation related to 1 

or more of the foregoing; and 

(B) if the agreement contains provisions relating to 

agreements or transactions that are not contracts described 

in paragraphs (1) through (5) of section 561(a), shall be 

deemed to be a master netting agreement only with respect 

to those agreements or transactions that are described in 

any one or more of paragraphs (1) through (5) of section 

561(a). 

(38B) The term ‘‘master netting agreement participant’’

means an entity that, at any time before the date of the filing 

of the petition, is a party to an outstanding master netting 

agreement with the debtor. 

(39) The term ‘‘mask work’’ has the meaning given it in 

section 901(a)(2) of title 17. 

(39A) The term ‘‘median family income’’ means for any 

year—

(A) the median family income both calculated and reported by the Bureau of the Census in the then most recent 

year; and 

(B) if not so calculated and reported in the then current year, adjusted annually after such most recent year 

until the next year in which median family income is both 

calculated and reported by the Bureau of the Census, to reflect the percentage change in the Consumer Price Index for 

All Urban Consumers during the period of years occurring 

after such most recent year and before such current year. 

(40) The term ‘‘municipality’’ means political subdivision or 

public agency or instrumentality of a Stateø;¿. 

(40A) The term ‘‘patient’’ means any individual who obtains or receives services from a health care business. 

(40B) The term ‘‘patient records’’ means any written document relating to a patient or a record recorded in a magnetic, 

optical, or other form of electronic medium. 

167 

(41) The term ‘‘person’’ includes individual, partnership, 

and corporation, but does not include governmental unit, except that a governmental unit that—

(A) * * * 

* * * * * * * 

shall be considered, for purposes of section 1102 of this title, 

to be a person with respect to such asset or such benefitø;¿. 

(41A) The term ‘‘personally identifiable information’’

means—

(A) if provided by an individual to the debtor in connection with obtaining a product or a service from the debtor primarily for personal, family, or household purposes— (i) the first name (or initial) and last name of such 

individual, whether given at birth or time of adoption, 

or resulting from a lawful change of name; 

(ii) the geographical address of a physical place of 

residence of such individual; 

(iii) an electronic address (including an e-mail address) of such individual; 

(iv) a telephone number dedicated to contacting 

such individual at such physical place of residence; 

(v) a social security account number issued to such 

individual; or 

(vi) the account number of a credit card issued to 

such individual; or 

(B) if identified in connection with 1 or more of the 

items of information specified in subparagraph (A)— (i) a birth date, the number of a certificate of birth 

or adoption, or a place of birth; or 

(ii) any other information concerning an identified 

individual that, if disclosed, will result in contacting 

or identifying such individual physically or electronically. 

(42) The term ‘‘petition’’ means petition filed under section 

301, 302, 303, or 304 of this title, as the case may be, commencing a case under this titleø;¿. 

(42A) The term ‘‘production payment’’ means a term overriding royalty satisfiable in cash or in kind—

(A) * * * 

(B) from a specified volume, or a specified value, from 

the liquid or gaseous hydrocarbon produced from such 

property, and determined without regard to production 

costsø;¿. 

(43) The term ‘‘purchaser’’ means transferee of a voluntary 

transfer, and includes immediate or mediate transferee of such 

a transfereeø;¿. 

(44) The term ‘‘railroad’’ means common carrier by railroad 

engaged in the transportation of individuals or property or 

owner of trackage facilities leased by such a common 

carrierø;¿. 

(45) The term ‘‘relative’’ means individual related by affinity or consanguinity within the third degree as determined by 

the common law, or individual in a step or adoptive relationship within such third degreeø;¿. 

168 

(46) The term ‘‘repo participant’’ means an entity that, øon 

any day during the period beginning 90 days before the date 

of¿ at any time before the filing of the petition, has an outstanding repurchase agreement with the debtorø;¿. ø(47) ‘‘repurchase agreement’’ (which definition also applies to a reverse repurchase agreement) means an agreement, 

including related terms, which provides for the transfer of certificates of deposit, eligible bankers’ acceptances, or securities 

that are direct obligations of, or that are fully guaranteed as 

to principal and interest by, the United States or any agency 

of the United States against the transfer of funds by the transferee of such certificates of deposit, eligible bankers’ acceptances, or securities with a simultaneous agreement by such 

transferee to transfer to the transferor thereof certificates of 

deposit, eligible bankers’ acceptances, or securities as described 

above, at a date certain not later than one year after such 

transfers or on demand, against the transfer of funds;¿ 

(47) The term ‘‘repurchase agreement’’ (which definition 

also applies to a reverse repurchase agreement)— (A) means— (i) an agreement, including related terms, which 

provides for the transfer of one or more certificates of 

deposit, mortgage related securities (as defined in section 3 of the Securities Exchange Act of 1934), mortgage loans, interests in mortgage related securities or 

mortgage loans, eligible bankers’ acceptances, qualified 

foreign government securities (defined as a security 

that is a direct obligation of, or that is fully guaranteed by, the central government of a member of the Organization for Economic Cooperation and Development), or securities that are direct obligations of, or 

that are fully guaranteed by, the United States or any 

agency of the United States against the transfer of 

funds by the transferee of such certificates of deposit, 

eligible bankers’ acceptances, securities, mortgage 

loans, or interests, with a simultaneous agreement by 

such transferee to transfer to the transferor thereof certificates of deposit, eligible bankers’ acceptance, securities, mortgage loans, or interests of the kind described 

in this clause, at a date certain not later than 1 year 

after such transfer or on demand, against the transfer 

of funds; 

(ii) any combination of agreements or transactions 

referred to in clauses (i) and (iii); 

(iii) an option to enter into an agreement or transaction referred to in clause (i) or (ii); 

(iv) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), or 

(iii), together with all supplements to any such master 

agreement, without regard to whether such master 

agreement provides for an agreement or transaction 

that is not a repurchase agreement under this paragraph, except that such master agreement shall be considered to be a repurchase agreement under this paragraph only with respect to each agreement or transVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00172 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
169 

action under the master agreement that is referred to 

in clause (i), (ii), or (iii); or 

(v) any security agreement or arrangement or other 

credit enhancement related to any agreement or transaction referred to in clause (i), (ii), (iii), or (iv), including any guarantee or reimbursement obligation by or to 

a repo participant or financial participant in connection with any agreement or transaction referred to in 

any such clause, but not to exceed the damages in connection with any such agreement or transaction, measured in accordance with section 562 of this title; and 

(B) does not include a repurchase obligation under a 

participation in a commercial mortgage loan. 

(48) The term ‘‘securities clearing agency’’ means person 

that is registered as a clearing agency under section 17A of the 

Securities Exchange Act of 1934, or exempt from such registration under such section pursuant to an order of the Securities 

and Exchange Commission, or whose business is confined to 

the performance of functions of a clearing agency with respect 

to exempted securities, as defined in section 3(a)(12) of such 

Act for the purposes of such section 17Aø;¿. (48A) The term ‘‘securities self regulatory organization’’ means either a securities association registered with the Securities and Exchange Commission under section 15A of the Securities Exchange Act of 1934 or a national securities exchange registered with the Securities and Exchange Commission under 

section 6 of the Securities Exchange Act of 1934. 

(49) The term ‘‘security’’—

(A) * * * 

* * * * * * * 

(B) does not include— (i) * * * 

* * * * * * * 

(vii) debt or evidence of indebtedness for goods 

sold and delivered or services renderedø;¿. 

(50) The term ‘‘security agreement’’ means agreement that 

creates or provides for a security interestø;¿. 

(51) The term ‘‘security interest’’ means lien created by an 

agreementø;¿. 

(51A) The term ‘‘settlement payment’’ means, for purposes 

of the forward contract provisions of this title, a preliminary 

settlement payment, a partial settlement payment, an interim 

settlement payment, a settlement payment on account, a final 

settlement payment, a net settlement payment, or any other 

similar payment commonly used in the forward contract 

tradeø;¿. 

(51B) The term ‘‘single asset real estate’’ means real property constituting a single property or project, other than residential real property with fewer than 4 residential units, which 

generates substantially all of the gross income of a debtor who 

is not a family farmer and on which no substantial business is 

being conducted by a debtor other than the business of operating the real property and activities incidental øthereto havVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00173 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
170 

ing aggregate noncontingent, liquidated secured debts in an 

amount no more than $4,000,000;¿. ø(51C) ‘‘small business’’ means a person engaged in commercial or business activities (but does not include a person 

whose primary activity is the business of owning or operating 

real property and activities incidental thereto) whose aggregate 

noncontingent liquidated secured and unsecured debts as of 

the date of the petition do not exceed $2,000,000;¿ 

(51C) The term ‘‘small business case’’ means a case filed 

under chapter 11 of this title in which the debtor is a small 

business debtor. 

(51D) The term ‘‘small business debtor’’—

(A) subject to subparagraph (B), means a person engaged in commercial or business activities (including any 

affiliate of such person that is also a debtor under this title 

and excluding a person whose primary activity is the business of owning or operating real property or activities incidental thereto) that has aggregate noncontingent liquidated 

secured and unsecured debts as of the date of the petition 

or the date of the order for relief in an amount not more 

than $2,000,000 (excluding debts owed to 1 or more affiliates or insiders) for a case in which the United States trustee has not appointed under section 1102(a)(1) a committee 

of unsecured creditors or where the court has determined 

that the committee of unsecured creditors is not sufficiently 

active and representative to provide effective oversight of 

the debtor; and 

(B) does not include any member of a group of affiliated debtors that has aggregate noncontingent liquidated 

secured and unsecured debts in an amount greater than 

$2,000,000 (excluding debt owed to 1 or more affiliates or 

insiders). 

(52) The term ‘‘State’’ includes the District of Columbia and 

Puerto Rico, except for the purpose of defining who may be a 

debtor under chapter 9 of this titleø;¿. 

(53) The term ‘‘statutory lien’’ means lien arising solely by 

force of a statute on specified circumstances or conditions, or 

lien of distress for rent, whether or not statutory, but does not 

include security interest or judicial lien, whether or not such 

interest or lien is provided by or is dependent on a statute and 

whether or not such interest or lien is made fully effective by 

statuteø;¿. 

(53A) The term ‘‘stockbroker’’ means person—

(A) * * * 

(B) that is engaged in the business of effecting transactions in securities—

(i) * * * 

(ii) with members of the general public, from or 

for such person’s own accountø;¿. 

ø(53B) ‘‘swap agreement’’ means—

ø(A) an agreement (including terms and conditions incorporated by reference therein) which is a rate swap 

agreement, basis swap, forward rate agreement, commodity swap, interest rate option, forward foreign exchange agreement, spot foreign exchange agreement, rate 

171 

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); 

ø(B) any combination of the foregoing; or 

ø(C) a master agreement for any of the foregoing together with all supplements;¿ 

(53B) The term ‘‘swap agreement’’—

(A) means— (i) any agreement, including the terms and conditions incorporated by reference in such agreement, 

which is—

(I) an interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, 

rate collar, cross-currency rate swap, and basis 

swap; 

(II) a spot, same day-tomorrow, tomorrownext, forward, or other foreign exchange or precious metals agreement; 

(III) a currency swap, option, future, or forward agreement; 

(IV) an equity index or equity swap, option, future, or forward agreement; 

(V) a debt index or debt swap, option, future, 

or forward agreement; 

(VI) a total return, credit spread or credit 

swap, option, future, or forward agreement; 

(VII) a commodity index or a commodity swap, 

option, future, or forward agreement; or 

(VIII) a weather swap, weather derivative, or 

weather option; 

(ii) any agreement or transaction that is similar to 

any other agreement or transaction referred to in this 

paragraph and that—

(I) is of a type that has been, is presently, or 

in the future becomes, the subject of recurrent dealings in the swap markets (including terms and 

conditions incorporated by reference therein); and 

(II) is a forward, swap, future, or option on 

one or more rates, currencies, commodities, equity 

securities, or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic 

or financial risk or value; 

(iii) any combination of agreements or transactions 

referred to in this subparagraph; 

(iv) any option to enter into an agreement or transaction referred to in this subparagraph; 

(v) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), (iii), 

or (iv), together with all supplements to any such master agreement, and without regard to whether the masVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00175 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
172 

ter agreement contains an agreement or transaction 

that is not a swap agreement under this paragraph, except that the master agreement shall be considered to 

be a swap agreement under this paragraph only with 

respect to each agreement or transaction under the 

master agreement that is referred to in clause (i), (ii), 

(iii), or (iv); or 

(vi) any security agreement or arrangement or 

other credit enhancement related to any agreements or 

transactions referred to in clause (i) through (v), including any guarantee or reimbursement obligation by 

or to a swap participant or financial participant in 

connection with any agreement or transaction referred 

to in any such clause, but not to exceed the damages 

in connection with any such agreement or transaction, 

measured in accordance with section 562; and 

(B) is applicable for purposes of this title only, and 

shall not be construed or applied so as to challenge or affect 

the characterization, definition, or treatment of any swap 

agreement under any other statute, regulation, or rule, including the Securities Act of 1933, the Securities Exchange 

Act of 1934, the Public Utility Holding Company Act of 

1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the 

Securities Investor Protection Act of 1970, the Commodity 

Exchange Act, the Gramm-Leach-Bliley Act, and the Legal 

Certainty for Bank Products Act of 2000. 

(53C) The term ‘‘swap participant’’ means an entity that, 

at any time before the filing of the petition, has an outstanding 

swap agreement with the debtorø;¿. (56A) The term ‘‘term overriding royalty’’ means an interest in liquid or gaseous hydrocarbons in place or to be produced from particular real property that entitles the owner 

thereof to a share of production, or the value thereof, for a 

term limited by time, quantity, or value realizedø;¿. 

(53D) The term ‘‘timeshare plan’’ means and shall include 

that interest purchased in any arrangement, plan, scheme, or 

similar device, but not including exchange programs, whether 

by membership, agreement, tenancy in common, sale, lease, 

deed, rental agreement, license, right to use agreement, or by 

any other means, whereby a purchaser, in exchange for consideration, receives a right to use accommodations, facilities, or 

recreational sites, whether improved or unimproved, for a specific period of time less than a full year during any given year, 

but not necessarily for consecutive years, and which extends 

for a period of more than three years. A ‘‘timeshare interest’’

is that interest purchased in a timeshare plan which grants 

the purchaser the right to use and occupy accommodations, facilities, or recreational sites, whether improved or unimproved, 

pursuant to a timeshare planø;¿. 

ø(54) ‘‘transfer’’ means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or 

parting with property or with an interest in property, including 

retention of title as a security interest and foreclosure of the 

debtor’s equity of redemption;¿ 

173 

(54) The term ‘‘transfer’’ means—

(A) the creation of a lien; 

(B) the retention of title as a security interest; 

(C) the foreclosure of a debtor’s equity of redemption; or 

(D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting 

with—

(i) property; or 

(ii) an interest in property. 

(54A) øthe term¿ The term ‘‘uninsured State member 

bank’’ means a State member bank (as defined in section 3 of 

the Federal Deposit Insurance Act) the deposits of which are 

not insured by the Federal Deposit Insurance Corporationø; 

and¿. 

(55) The term ‘‘United States’’, when used in a geographical sense, includes all locations where the judicial jurisdiction of the United States extends, including territories and 

possessions of the United Statesø;¿. 

* * * * * * * 

§ 103. Applicability of chapters 

(a) Except as provided in section 1161 of this title, chapters 1, 

3, and 5 of this title apply in a case under chapter 7, 11, 12, or 

13 of this title, and this chapter, sections 307, 362(n), 555 through 

557, and 559 through 562 apply in a case under chapter 15. 

* * * * * * * 

(k) Chapter 15 applies only in a case under such chapter, except 

that—

(1) sections 1505, 1513, and 1514 apply in all cases under 

this title; and 

(2) section 1509 applies whether or not a case under this 

title is pending. 

§ 104. Adjustment of dollar amounts 

(a) * * * 

(b)(1) On April 1, 1998, and at each 3-year interval ending on 

April 1 thereafter, each dollar amount in effect under sections 

101(3), 101(18), 101(19A), 101(51D), 109(e), 303(b), 507(a), 522(d), 

øand 523(a)(2)(C)¿ 522(f)(3) and 522(f)(4), 522(n), 522(p), 522(q), 

522(f)(3) and 522(f)(4), 523(a)(2)(C), 541(b), 547(c)(9), 707(b), 

1322(d), 1325(b), and 1326(b)(3) of this title and section 1409(b) of 

title 28 immediately before such April 1 shall be adjusted—

(A) * * * 

* * * * * * * 

(2) Not later than March 1, 1998, and at each 3-year interval 

ending on March 1 thereafter, the Judicial Conference of the 

United States shall publish in the Federal Register the dollar 

amounts that will become effective on such April 1 under sections 

101(3), 101(18), 101(19A), 101(51D), 109(e), 303(b), 507(a), 522(d), 

øand 523(a)(2)(C) of this title¿ 522(f)(3) and 522(f)(4), 522(n), 

522(p), 522(q), 522(f)(3) and 522(f)(4), 523(a)(2)(C), 541(b), 547(c)(9), 

174 

707(b), 1322(d), 1325(b), and 1326(b)(3) of this title and section 

1409(b) of title 28. 

* * * * * * * 

§ 105. Power of court 

(a) * * * 

* * * * * * * 

(d) The court, on its own motion or on the request of a party 

in interestø, may¿—

ø(1) hold a status conference regarding any case or proceeding under this title after notice to the parties in interest; 

and¿ 

(1) shall hold such status conferences as are necessary to 

further the expeditious and economical resolution of the case; 

and 

* * * * * * * 

§ 107. Public access to papers 

(a) Except as provided in subsection (b) of this section and subject to section 112, a paper filed in a case under this title and the 

dockets of a bankruptcy court are public records and open to examination by an entity at reasonable times without charge. 

* * * * * * * 

(c)(1) The bankruptcy court, for cause, may protect an individual, with respect to the following types of information to the extent the court finds that disclosure of such information would create 

undue risk of identity theft or other unlawful injury to the individual or the individual’s property: 

(A) Any means of identification (as defined in section 

1028(d) of title 18) contained in a paper filed, or to be filed, in 

a case under this title. 

(B) Other information contained in a paper described in 

subparagraph (A). 

(2) Upon ex parte application demonstrating cause, the court 

shall provide access to information protected pursuant to paragraph 

(1) to an entity acting pursuant to the police or regulatory power of 

a domestic governmental unit. 

(3) The United States trustee, bankruptcy administrator, trustee, and any auditor serving under section 586(f) of title 28—

(A) shall have full access to all information contained in 

any paper filed or submitted in a case under this title; and 

(B) shall not disclose information specifically protected by 

the court under this title. 

§ 108. Extension of time 

(a) * * * 

* * * * * * * 

(c) Except as provided in section 524 of this title, if applicable 

nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on 

a claim against the debtor, or against an individual with respect 

175 

to which such individual is protected under section 1201 or 1301 

of this title, and such period has not expired before the date of the 

filing of the petition, then such period does not expire until the 

later of—

(1) * * * 

(2) 30 days after notice of the termination or expiration of 

the stay under section 362, ø922, 1201, or¿ 922, 1201, or 1301 

of this title, as the case may be, with respect to such claim. 

§ 109. Who may be a debtor 

(a) * * * 

(b) A person may be a debtor under chapter 7 of this title only 

if such person is not—

(1) a railroad; 

(2) a domestic insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan 

association, homestead association, a New Markets Venture 

Capital company as defined in section 351 of the Small Business Investment Act of 1958, a small business investment company licensed by the Small Business Administration under 

øsubsection (c) or (d) of¿ section 301 of the Small Business Investment Act of 1958, credit union, or industrial bank or similar institution which is an insured bank as defined in section 

3(h) of the Federal Deposit Insurance Act, except that an uninsured State member bank, or a corporation organized under 

section 25A of the Federal Reserve Act, which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit Insurance Corporation Improvement Act of 1991 may be a debtor if a petition is filed at 

the direction of the Board of Governors of the Federal Reserve 

System; or 

ø(3) a foreign insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan 

association, homestead association, or credit union, engaged in 

such business in the United States.¿ 

(3)(A) a foreign insurance company, engaged in such business in the United States; or 

(B) a foreign bank, savings bank, cooperative bank, savings 

and loan association, building and loan association, or credit 

union, that has a branch or agency (as defined in section 1(b) 

of the International Banking Act of 1978 in the United States. 

* * * * * * * 

(f) Only a family farmer or family fisherman with regular annual income may be a debtor under chapter 12 of this title. 

* * * * * * * 

(h)(1) Subject to paragraphs (2) and (3), and notwithstanding 

any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day 

period preceding the date of filing of the petition by such individual, 

received from an approved nonprofit budget and credit counseling 

agency described in section 111(a) an individual or group briefing 

(including a briefing conducted by telephone or on the Internet) that 

outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis. 

176 

(2)(A) Paragraph (1) shall not apply with respect to a debtor 

who resides in a district for which the United States trustee (or the 

bankruptcy administrator, if any) determines that the approved 

nonprofit budget and credit counseling agencies for such district are 

not reasonably able to provide adequate services to the additional 

individuals who would otherwise seek credit counseling from such 

agencies by reason of the requirements of paragraph (1). 

(B) The United States trustee (or the bankruptcy administrator, 

if any) who makes a determination described in subparagraph (A) 

shall review such determination not later than 1 year after the date 

of such determination, and not less frequently than annually thereafter. Notwithstanding the preceding sentence, a nonprofit budget 

and credit counseling agency may be disapproved by the United 

States trustee (or the bankruptcy administrator, if any) at any time. 

(3)(A) Subject to subparagraph (B), the requirements of paragraph (1) shall not apply with respect to a debtor who submits to 

the court a certification that— (i) describes exigent circumstances that merit a waiver of 

the requirements of paragraph (1); 

(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling 

agency, but was unable to obtain the services referred to in 

paragraph (1) during the 5-day period beginning on the date on 

which the debtor made that request; and 

(iii) is satisfactory to the court. 

(B) With respect to a debtor, an exemption under subparagraph 

(A) shall cease to apply to that debtor on the date on which the debtor meets the requirements of paragraph (1), but in no case may the 

exemption apply to that debtor after the date that is 30 days after 

the debtor files a petition, except that the court, for cause, may order 

an additional 15 days. 

(4) The requirements of paragraph (1) shall not apply with respect to a debtor whom the court determines, after notice and hearing, is unable to complete those requirements because of incapacity, 

disability, or active military duty in a military combat zone. For the 

purposes of this paragraph, incapacity means that the debtor is impaired by reason of mental illness or mental deficiency so that he 

is incapable of realizing and making rational decisions with respect 

to his financial responsibilities; and ‘‘disability’’ means that the 

debtor is so physically impaired as to be unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing 

required under paragraph (1). 

§ 110. Penalty for persons who negligently or fraudulently 

prepare bankruptcy petitions 

(a) In this section— (1) ‘‘bankruptcy petition preparer’’ means a person, other 

than an attorney øor an employee of an attorney¿ for the debtor or an employee of such attorney under the direct supervision 

of such attorney, who prepares for compensation a document 

for filing; and 

* * * * * * * 

(b)(1) A bankruptcy petition preparer who prepares a document 

for filing shall sign the document and print on the document the 

preparer’s name and address. If a bankruptcy petition preparer is 

177 

not an individual, then an officer, principal, responsible person, or 

partner of the bankruptcy petition preparer shall be required to— (A) sign the document for filing; and 

(B) print on the document the name and address of that officer, principal, responsible person, or partner. 

ø(2) A bankruptcy petition preparer who fails to comply with paragraph (1) may be fined not more than $500 for each such failure unless the failure is due to reasonable cause.¿ 

(2)(A) Before preparing any document for filing or accepting 

any fees from a debtor, the bankruptcy petition preparer shall provide to the debtor a written notice which shall be on an official form 

prescribed by the Judicial Conference of the United States in accordance with rule 9009 of the Federal Rules of Bankruptcy Procedure. 

(B) The notice under subparagraph (A)— (i) shall inform the debtor in simple language that a bankruptcy petition preparer is not an attorney and may not practice 

law or give legal advice; 

(ii) may contain a description of examples of legal advice 

that a bankruptcy petition preparer is not authorized to give, in 

addition to any advice that the preparer may not give by reason 

of subsection (e)(2); and 

(iii) shall— (I) be signed by the debtor and, under penalty of perjury, by the bankruptcy petition preparer; and 

(II) be filed with any document for filing. 

(c)(1) * * * 

ø(2) For purposes¿ (2)(A) Subject to subparagraph (B), for purposes of this section, the identifying number of a bankruptcy petition preparer shall be the Social Security account number of each 

individual who prepared the document or assisted in its preparation. 

(B) If a bankruptcy petition preparer is not an individual, the 

identifying number of the bankruptcy petition preparer shall be the 

Social Security account number of the officer, principal, responsible 

person, or partner of the bankruptcy petition preparer. 

ø(3) A bankruptcy petition preparer who fails to comply with 

paragraph (1) may be fined not more than $500 for each such failure unless the failure is due to reasonable cause.¿ 

ø(d)(1)¿ (d) A bankruptcy petition preparer shall, not later 

than the time at which a document for filing is presented for the 

debtor’s signature, furnish to the debtor a copy of the document. 

ø(2) A bankruptcy petition preparer who fails to comply with 

paragraph (1) may be fined not more than $500 for each such failure unless the failure is due to reasonable cause.¿ 

(e)(1) * * * 

ø(2) A bankruptcy petition preparer may be fined not more 

than $500 for each document executed in violation of paragraph 

(1).¿ 

(2)(A) A bankruptcy petition preparer may not offer a potential 

bankruptcy debtor any legal advice, including any legal advice described in subparagraph (B). 

(B) The legal advice referred to in subparagraph (A) includes 

advising the debtor—

(i) whether—

178 

(I) to file a petition under this title; or 

(II) commencing a case under chapter 7, 11, 12, or 13 

is appropriate; 

(ii) whether the debtor’s debts will be discharged in a case 

under this title; 

(iii) whether the debtor will be able to retain the debtor’s 

home, car, or other property after commencing a case under this 

title; 

(iv) concerning— (I) the tax consequences of a case brought under this 

title; or 

(II) the dischargeability of tax claims; 

(v) whether the debtor may or should promise to repay 

debts to a creditor or enter into a reaffirmation agreement with 

a creditor to reaffirm a debt; 

(vi) concerning how to characterize the nature of the debtor’s interests in property or the debtor’s debts; or 

(vii) concerning bankruptcy procedures and rights. 

ø(f)(1)¿ (f) A bankruptcy petition preparer shall not use the 

word ‘‘legal’’ or any similar term in any advertisements, or advertise under any category that includes the word ‘‘legal’’ or any similar term. 

ø(2) A bankruptcy petition preparer shall be fined not more than $500 for each violation of paragraph (1).¿ 

ø(g)(1)¿ (g) A bankruptcy petition preparer shall not collect or 

receive any payment from the debtor or on behalf of the debtor for 

the court fees in connection with filing the petition. 

ø(2) A bankruptcy petition preparer shall be fined not more than $500 for each violation of paragraph (1).¿ 

(h)(1) The Supreme Court may promulgate rules under section 

2075 of title 28, or the Judicial Conference of the United States may 

prescribe guidelines, for setting a maximum allowable fee chargeable by a bankruptcy petition preparer. A bankruptcy petition preparer shall notify the debtor of any such maximum amount before 

preparing any document for filing for a debtor or accepting any fee 

from the debtor. 

ø(1) Within 10 days after the date of the filing of a petition, 

a bankruptcy petition preparer shall file a¿ (2) A declaration under 

penalty of perjury by the bankruptcy petition preparer shall be filed 

together with the petition, disclosing any fee received from or on behalf of the debtor within 12 months immediately prior to the filing 

of the case, and any unpaid fee charged to the debtor. If rules or 

guidelines setting a maximum fee for services have been promulgated or prescribed under paragraph (1), the declaration under this 

paragraph shall include a certification that the bankruptcy petition 

preparer complied with the notification requirement under paragraph (1). 

ø(2) The court shall disallow and order the immediate turnover 

to the bankruptcy trustee of any fee referred to in paragraph (1) 

found to be in excess of the value of services rendered for the documents prepared. An individual debtor may exempt any funds so recovered under section 522(b).¿ 

(3)(A) The court shall disallow and order the immediate turnover to the bankruptcy trustee any fee referred to in paragraph (2) 

found to be in excess of the value of any services—

179 

(i) rendered by the bankruptcy petition preparer during the 

12-month period immediately preceding the date of the filing of 

the petition; or 

(ii) found to be in violation of any rule or guideline promulgated or prescribed under paragraph (1). 

(B) All fees charged by a bankruptcy petition preparer may be 

forfeited in any case in which the bankruptcy petition preparer fails 

to comply with this subsection or subsection (b), (c), (d), (e), (f), or 

(g). 

(C) An individual may exempt any funds recovered under this 

paragraph under section 522(b). 

ø(3)¿ (4) The debtor, the trustee, a creditor, øor the United 

States trustee¿ the United States trustee (or the bankruptcy administrator, if any) or the court, on the initiative of the court, may file 

a motion for an order under paragraph (2). 

ø(4)¿ (5) A bankruptcy petition preparer shall be fined not more than $500 for each failure to comply with a court order to 

turn over funds within 30 days of service of such order. 

ø(i)(1) If a bankruptcy case or related proceeding is dismissed 

because of the failure to file bankruptcy papers, including papers 

specified in section 521(1) of this title, the negligence or intentional 

disregard of this title or the Federal Rules of Bankruptcy Procedure by a bankruptcy petition preparer, or if a bankruptcy petition 

preparer violates this section or commits any fraudulent, unfair, or 

deceptive act, the bankruptcy court shall certify that fact to the district court, and the district court, on motion of the debtor, the 

trustee, or a creditor and after a hearing, shall order the bankruptcy petition preparer to pay to the debtor—¿ 

(i)(1) If a bankruptcy petition preparer violates this section or 

commits any act that the court finds to be fraudulent, unfair, or deceptive, on the motion of the debtor, trustee, United States trustee 

(or the bankruptcy administrator, if any), and after notice and a 

hearing, the court shall order the bankruptcy petition preparer to 

pay to the debtor—

(A) * * * 

* * * * * * * 

(j)(1) * * * 

(2)(A) In an action under paragraph (1), if the court finds 

that—

(i) a bankruptcy petition preparer has—

(I) engaged in conduct in violation of this section or of 

any provision of this title øa violation of which subjects a 

person to criminal penalty¿; 

* * * * * * * 

(B) If the court finds that a bankruptcy petition preparer has 

continually engaged in conduct described in subclause (I), (II), or 

(III) of clause (i) and that an injunction prohibiting such conduct 

would not be sufficient to prevent such person’s interference with 

the proper administration of this title, øor has not paid a penalty¿ 

has not paid a penalty imposed under this section, or failed to disgorge all fees ordered by the court the court may enjoin the person 

from acting as a bankruptcy petition preparer. 

(3) The court, as part of its contempt power, may enjoin a bankruptcy petition preparer that has failed to comply with a previous 

180 

order issued under this section. The injunction under this paragraph may be issued on the motion of the court, the trustee, or the 

United States trustee (or the bankruptcy administrator, if any). 

ø(3)¿ (4) The court shall award to a debtor, trustee, or creditor 

that brings a successful action under this subsection reasonable 

øattorney’s¿ attorneys’ fees and costs of the action, to be paid by 

the bankruptcy petition preparer. 

* * * * * * * 

(l)(1) A bankruptcy petition preparer who fails to comply with 

any provision of subsection (b), (c), (d), (e), (f), (g), or (h) may be 

fined not more than $500 for each such failure. 

(2) The court shall triple the amount of a fine assessed under 

paragraph (1) in any case in which the court finds that a bankruptcy petition preparer— (A) advised the debtor to exclude assets or income that 

should have been included on applicable schedules; 

(B) advised the debtor to use a false Social Security account 

number; 

(C) failed to inform the debtor that the debtor was filing for 

relief under this title; or 

(D) prepared a document for filing in a manner that failed 

to disclose the identity of the bankruptcy petition preparer. 

(3) A debtor, trustee, creditor, or United States trustee (or the 

bankruptcy administrator, if any) may file a motion for an order 

imposing a fine on the bankruptcy petition preparer for any violation of this section. 

(4)(A) Fines imposed under this subsection in judicial districts 

served by United States trustees shall be paid to the United States 

trustee, who shall deposit an amount equal to such fines in a special 

account of the United States Trustee System Fund referred to in section 586(e)(2) of title 28. Amounts deposited under this subparagraph shall be available to fund the enforcement of this section on 

a national basis. 

(B) Fines imposed under this subsection in judicial districts 

served by bankruptcy administrators shall be deposited as offsetting 

receipts to the fund established under section 1931 of title 28, and 

shall remain available until expended to reimburse any appropriation for the amount paid out of such appropriation for expenses of 

the operation and maintenance of the courts of the United States. 

§ 111. Nonprofit budget and credit counseling agencies; financial management instructional courses 

(a) The clerk shall maintain a publicly available list of—

(1) nonprofit budget and credit counseling agencies that 

provide 1 or more services described in section 109(h) currently 

approved by the United States trustee (or the bankruptcy administrator, if any); and 

(2) instructional courses concerning personal financial 

management currently approved by the United States trustee 

(or the bankruptcy administrator, if any), as applicable. 

(b) The United States trustee (or bankruptcy administrator, if 

any) shall only approve a nonprofit budget and credit counseling 

agency or an instructional course concerning personal financial 

management as follows: 

181 

(1) The United States trustee (or bankruptcy administrator, 

if any) shall have thoroughly reviewed the qualifications of the 

nonprofit budget and credit counseling agency or of the provider 

of the instructional course under the standards set forth in this 

section, and the services or instructional courses that will be offered by such agency or such provider, and may require such 

agency or such provider that has sought approval to provide information with respect to such review. 

(2) The United States trustee (or bankruptcy administrator, 

if any) shall have determined that such agency or such instructional course fully satisfies the applicable standards set forth in 

this section. 

(3) If a nonprofit budget and credit counseling agency or 

instructional course did not appear on the approved list for the 

district under subsection (a) immediately before approval under 

this section, approval under this subsection of such agency or 

such instructional course shall be for a probationary period not 

to exceed 6 months. 

(4) At the conclusion of the applicable probationary period 

under paragraph (3), the United States trustee (or bankruptcy 

administrator, if any) may only approve for an additional 1- 

year period, and for successive 1-year periods thereafter, an 

agency or instructional course that has demonstrated during 

the probationary or applicable subsequent period of approval 

that such agency or instructional course—

(A) has met the standards set forth under this section 

during such period; and 

(B) can satisfy such standards in the future. 

(5) Not later than 30 days after any final decision under 

paragraph (4), an interested person may seek judicial review of 

such decision in the appropriate district court of the United 

States. 

(c)(1) The United States trustee (or the bankruptcy administrator, if any) shall only approve a nonprofit budget and credit 

counseling agency that demonstrates that it will provide qualified 

counselors, maintain adequate provision for safekeeping and payment of client funds, provide adequate counseling with respect to 

client credit problems, and deal responsibly and effectively with 

other matters relating to the quality, effectiveness, and financial security of the services it provides. 

(2) To be approved by the United States trustee (or the bankruptcy administrator, if any), a nonprofit budget and credit counseling agency shall, at a minimum—

(A) have a board of directors the majority of which—

(i) are not employed by such agency; and 

(ii) will not directly or indirectly benefit financially 

from the outcome of the counseling services provided by 

such agency; 

(B) if a fee is charged for counseling services, charge a reasonable fee, and provide services without regard to ability to 

pay the fee; 

(C) provide for safekeeping and payment of client funds, including an annual audit of the trust accounts and appropriate 

employee bonding; 

182 

(D) provide full disclosures to a client, including funding 

sources, counselor qualifications, possible impact on credit reports, and any costs of such program that will be paid by such 

client and how such costs will be paid; 

(E) provide adequate counseling with respect to a client’s 

credit problems that includes an analysis of such client’s current financial condition, factors that caused such financial condition, and how such client can develop a plan to respond to 

the problems without incurring negative amortization of debt; 

(F) provide trained counselors who receive no commissions 

or bonuses based on the outcome of the counseling services provided by such agency, and who have adequate experience, and 

have been adequately trained to provide counseling services to 

individuals in financial difficulty, including the matters described in subparagraph (E); 

(G) demonstrate adequate experience and background in 

providing credit counseling; and 

(H) have adequate financial resources to provide continuing 

support services for budgeting plans over the life of any repayment plan. 

(d) The United States trustee (or the bankruptcy administrator, 

if any) shall only approve an instructional course concerning personal financial management—

(1) for an initial probationary period under subsection 

(b)(3) if the course will provide at a minimum—

(A) trained personnel with adequate experience and 

training in providing effective instruction and services; 

(B) learning materials and teaching methodologies designed to assist debtors in understanding personal financial management and that are consistent with stated objectives directly related to the goals of such instructional 

course; 

(C) adequate facilities situated in reasonably convenient locations at which such instructional course is offered, 

except that such facilities may include the provision of such 

instructional course by telephone or through the Internet, if 

such instructional course is effective; 

(D) the preparation and retention of reasonable records 

(which shall include the debtor’s bankruptcy case number) 

to permit evaluation of the effectiveness of such instructional course, including any evaluation of satisfaction of instructional course requirements for each debtor attending 

such instructional course, which shall be available for inspection and evaluation by the Executive Office for United 

States Trustees, the United States trustee (or the bankruptcy administrator, if any), or the chief bankruptcy judge 

for the district in which such instructional course is offered; 

and 

(E) if a fee is charged for the instructional course, charge 

a reasonable fee, and provide services without regard to ability 

to pay the fee. 

(2) for any 1-year period if the provider thereof has demonstrated that the course meets the standards of paragraph (1) 

and, in addition—

183 

(A) has been effective in assisting a substantial number 

of debtors to understand personal financial management; 

and 

(B) is otherwise likely to increase substantially the 

debtor’s understanding of personal financial management. 

(e) The district court may, at any time, investigate the qualifications of a nonprofit budget and credit counseling agency referred to 

in subsection (a), and request production of documents to ensure the 

integrity and effectiveness of such agency. The district court may, at 

any time, remove from the approved list under subsection (a) a nonprofit budget and credit counseling agency upon finding such agency does not meet the qualifications of subsection (b). 

(f) The United States trustee (or the bankruptcy administrator, 

if any) shall notify the clerk that a nonprofit budget and credit 

counseling agency or an instructional course is no longer approved, 

in which case the clerk shall remove it from the list maintained 

under subsection (a). 

(g)(1) No nonprofit budget and credit counseling agency may 

provide to a credit reporting agency information concerning whether 

a debtor has received or sought instruction concerning personal financial management from such agency. 

(2) A nonprofit budget and credit counseling agency that willfully or negligently fails to comply with any requirement under this 

title with respect to a debtor shall be liable for damages in an 

amount equal to the sum of— (A) any actual damages sustained by the debtor as a result 

of the violation; and 

(B) any court costs or reasonable attorneys’ fees (as determined by the court) incurred in an action to recover those damages. 

§ 112. Prohibition on disclosure of name of minor children 

The debtor may be required to provide information regarding a 

minor child involved in matters under this title but may not be required to disclose in the public records in the case the name of such 

minor child. The debtor may be required to disclose the name of 

such minor child in a nonpublic record that is maintained by the 

court and made available by the court for examination by the 

United States trustee, the trustee, and the auditor (if any) serving 

under section 586(f) of title 28, in the case. The court, the United 

States trustee, the trustee, and such auditor shall not disclose the 

name of such minor child maintained in such nonpublic record. 

CHAPTER 3—CASE ADMINISTRATION 

SUBCHAPTER I—COMMENCEMENT OF A CASE 

Sec. 

301. Voluntary cases. 

* * * * * * * 

ø304. Cases ancillary to foreign proceedings.¿ 

* * * * * * * 

308. Debtor reporting requirements. 

SUBCHAPTER II—OFFICERS 

321. Eligibility to serve as trustee. 

* * * * * * * 

184 

332. Consumer privacy ombudsman. 

333 Appointment of ombudsman. 

SUBCHAPTER III—ADMINISTRATION 

341. Meetings of creditors and equity security holders. 

* * * * * * * 

ø346. Special tax provisions.¿ 

346. Special provisions related to the treatment of State and local taxes. 

* * * * * * * 

351. Disposal of patient records. 

SUBCHAPTER I—COMMENCEMENT OF A CASE 

§ 301. Voluntary cases 

(a) A voluntary case under a chapter of this title is commenced 

by the filing with the bankruptcy court of a petition under such 

chapter by an entity that may be a debtor under such chapter. 

øThe commencement of a voluntary case under a chapter of this 

title constitutes an order for relief under such chapter.¿ 

(b) The commencement of a voluntary case under a chapter of 

this title constitutes an order for relief under such chapter. 

* * * * * * * 

§ 303. Involuntary cases 

(a) * * * 

(b) An involuntary case against a person is commenced by the 

filing with the bankruptcy court of a petition under chapter 7 or 

11 of this title—

(1) by three or more entities, each of which is either a 

holder of a claim against such person that is not contingent as 

to liability or the subject of a bona fide dispute as to liability 

or amount, or an indenture trustee representing such a holder, 

øif such claims¿ if such noncontingent, undisputed claims aggregate at least $10,000 more than the value of any lien on 

property of the debtor securing such claims held by the holders 

of such claims; 

* * * * * * * 

(h) If the petition is not timely controverted, the court shall 

order relief against the debtor in an involuntary case under the 

chapter under which the petition was filed. Otherwise, after trial, 

the court shall order relief against the debtor in an involuntary 

case under the chapter under which the petition was filed, only if—

(1) the debtor is generally not paying such debtor’s debts 

as such debts become due unless such debts are the subject of 

a bona fide dispute as to liability or amount; or 

* * * * * * * 

ø(k) Notwithstanding subsection (a) of this section, an involuntary case may be commenced against a foreign bank that is not engaged in such business in the United States only under chapter 7 

of this title and only if a foreign proceeding concerning such bank 

is pending.¿ 

(l)(1) If—

(A) the petition under this section is false or contains any 

materially false, fictitious, or fraudulent statement; 

(B) the debtor is an individual; and 

185 

(C) the court dismisses such petition, 

the court, upon the motion of the debtor, shall seal all the records 

of the court relating to such petition, and all references to such petition. 

(2) If the debtor is an individual and the court dismisses a petition under this section, the court may enter an order prohibiting all 

consumer reporting agencies (as defined in section 603(f) of the Fair 

Credit Reporting Act (15 U.S.C. 1681a(f))) from making any consumer report (as defined in section 603(d) of that Act) that contains 

any information relating to such petition or to the case commenced 

by the filing of such petition. 

(3) Upon the expiration of the statute of limitations described 

in section 3282 of title 18, for a violation of section 152 or 157 of 

such title, the court, upon the motion of the debtor and for good 

cause, may expunge any records relating to a petition filed under 

this section. 

ø§ 304. Cases ancillary to foreign proceedings 

ø(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. 

ø(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—

ø(1) enjoin the commencement or continuation of—

ø(A) any action against—

ø(i) a debtor with respect to property involved in 

such foreign proceeding; or 

ø(ii) such property; or 

ø(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; 

ø(2) order turnover of the property of such estate, or the 

proceeds of such property, to such foreign representative; or 

ø(3) order other appropriate relief. 

ø(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—

ø(1) just treatment of all holders of claims against or interests in such estate; 

ø(2) protection of claim holders in the United States 

against prejudice and inconvenience in the processing of claims 

in such foreign proceeding; 

ø(3) prevention of preferential or fraudulent dispositions of 

property of such estate; 

ø(4) distribution of proceeds of such estate substantially in 

accordance with the order prescribed by this title; 

ø(5) comity; and 

ø(6) if appropriate, the provision of an opportunity for a 

fresh start for the individual that such foreign proceeding concerns.¿ 

186 

§ 305. Abstention 

(a) The court, after notice and a hearing, may dismiss a case 

under this title, or may suspend all proceedings in a case under 

this title, at any time if—

(1) * * * 

ø(2)(A) there is pending a foreign proceeding; and 

ø(B) the factors specified in section 304(c) of this title warrant such dismissal or suspension.¿ 

(2)(A) a petition under section 1515 for recognition of a foreign proceeding has been granted; and 

(B) the purposes of chapter 15 of this title would be best 

served by such dismissal or suspension. 

* * * * * * * 

§ 306. Limited appearance 

An appearance in a bankruptcy court by a foreign representative in connection with a petition or request under section 303ø, 

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 303ø, 304,¿ or 305 of this title on compliance by such 

foreign representative with the orders of such bankruptcy court. 

* * * * * * * 

§ 308. Debtor reporting requirements 

(a) For purposes of this section, the term ‘‘profitability’’ means, 

with respect to a debtor, the amount of money that the debtor has 

earned or lost during current and recent fiscal periods. 

(b) A small business debtor shall file periodic financial and 

other reports containing information including—

(1) the debtor’s profitability; 

(2) reasonable approximations of the debtor’s projected cash 

receipts and cash disbursements over a reasonable period; 

(3) comparisons of actual cash receipts and disbursements 

with projections in prior reports; 

(4)(A) whether the debtor is—

(i) in compliance in all material respects with 

postpetition requirements imposed by this title and the Federal Rules of Bankruptcy Procedure; and 

(ii) timely filing tax returns and other required government filings and paying taxes and other administrative expenses when due; 

(B) if the debtor is not in compliance with the requirements 

referred to in subparagraph (A)(i) or filing tax returns and 

other required government filings and making the payments referred to in subparagraph (A)(ii), what the failures are and 

how, at what cost, and when the debtor intends to remedy such 

failures; and 

(C) such other matters as are in the best interests of the 

debtor and creditors, and in the public interest in fair and efficient procedures under chapter 11 of this title. 

187 

SUBCHAPTER II—OFFICERS 

* * * * * * * 

§ 328. Limitation on compensation of professional persons 

(a) The trustee, or a committee appointed under section 1102 

of this title, with the court’s approval, may employ or authorize the 

employment of a professional person under section 327 or 1103 of 

this title, as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, 

on a fixed or percentage fee basis, or on a contingent fee basis. Notwithstanding such terms and conditions, the court may allow compensation different from the compensation provided under such 

terms and conditions after the conclusion of such employment, if 

such terms and conditions prove to have been improvident in light 

of developments not capable of being anticipated at the time of the 

fixing of such terms and conditions. 

* * * * * * * 

§ 330. Compensation of officers 

(a)(1) After notice to the parties in interest and the United 

States Trustee and a hearing, and subject to sections 326, 328, and 

329, the court may award to a trustee, a consumer privacy ombudsman appointed under section 332, an examiner, an ombudsman appointed under section 333, or a professional person employed under 

section 327 or 1103—

(A) reasonable compensation for actual, necessary services 

rendered by the trustee, examiner, ombudsman, professional 

person, or attorney and by any paraprofessional person employed by any such person; and 

(B) reimbursement for actual, necessary expenses. 

(3)ø(A) In¿ In determining the amount of reasonable compensation to be awarded to an examiner, trustee under chapter 11, 

or professional person, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including—

(A) * * * 

* * * * * * * 

(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; 

øand¿ 

(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and 

experience in the bankruptcy field; and 

ø(E)¿ (F) whether the compensation is reasonable based on 

the customary compensation charged by comparably skilled 

practitioners in cases other than cases under this title. 

* * * * * * * 

(7) In determining the amount of reasonable compensation to be 

awarded to a trustee, the court shall treat such compensation as a 

commission, based on section 326. 

* * * * * * * 

188 

§ 332. Consumer privacy ombudsman 

(a) If a hearing is required under section 363(b)(1)(B), the court 

shall order the United States trustee to appoint, not later than 5 

days before the commencement of the hearing, 1 disinterested person 

(other than the United States trustee) to serve as the consumer privacy ombudsman in the case and shall require that notice of such 

hearing be timely given to such ombudsman. 

(b) The consumer privacy ombudsman may appear and be 

heard at such hearing and shall provide to the court information 

to assist the court in its consideration of the facts, circumstances, 

and conditions of the proposed sale or lease of personally identifiable information under section 363(b)(1)(B). Such information may 

include presentation of—

(1) the debtor’s privacy policy; 

(2) the potential losses or gains of privacy to consumers if 

such sale or such lease is approved by the court; 

(3) the potential costs or benefits to consumers if such sale 

or such lease is approved by the court; and 

(4) the potential alternatives that would mitigate potential 

privacy losses or potential costs to consumers. 

(c) A consumer privacy ombudsman shall not disclose any personally identifiable information obtained by the ombudsman under 

this title. 

§ 333. Appointment of patient care ombudsman 

(a)(1) If the debtor in a case under chapter 7, 9, or 11 is a 

health care business, the court shall order, not later than 30 days 

after the commencement of the case, the appointment of an ombudsman to monitor the quality of patient care and to represent the interests of the patients of the health care business unless the court 

finds that the appointment of such ombudsman is not necessary for 

the protection of patients under the specific facts of the case. 

(2)(A) If the court orders the appointment of an ombudsman 

under paragraph (1), the United States trustee shall appoint 1 disinterested person (other than the United States trustee) to serve as 

such ombudsman. 

(B) If the debtor is a health care business that provides longterm care, then the United States trustee may appoint the State 

Long-Term Care Ombudsman appointed under the Older Americans 

Act of 1965 for the State in which the case is pending to serve as 

the ombudsman required by paragraph (1). 

(C) If the United States trustee does not appoint a State LongTerm Care Ombudsman under subparagraph (B), the court shall 

notify the State Long-Term Care Ombudsman appointed under the 

Older Americans Act of 1965 for the State in which the case is pending, of the name and address of the person who is appointed under 

subparagraph (A). 

(b) An ombudsman appointed under subsection (a) shall—

(1) monitor the quality of patient care provided to patients 

of the debtor, to the extent necessary under the circumstances, 

including interviewing patients and physicians; 

(2) not later than 60 days after the date of appointment, 

and not less frequently than at 60-day intervals thereafter, report to the court after notice to the parties in interest, at a hearVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00192 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
189 

ing or in writing, regarding the quality of patient care provided 

to patients of the debtor; and 

(3) if such ombudsman determines that the quality of patient care provided to patients of the debtor is declining significantly or is otherwise being materially compromised, file with 

the court a motion or a written report, with notice to the parties 

in interest immediately upon making such determination. 

(c)(1) An ombudsman appointed under subsection (a) shall 

maintain any information obtained by such ombudsman under this 

section that relates to patients (including information relating to patient records) as confidential information. Such ombudsman may 

not review confidential patient records unless the court approves 

such review in advance and imposes restrictions on such ombudsman to protect the confidentiality of such records. 

(2) An ombudsman appointed under subsection (a)(2)(B) shall 

have access to patient records consistent with authority of such ombudsman under the Older Americans Act of 1965 and under nonFederal laws governing the State Long-Term Care Ombudsman program. 

SUBCHAPTER III—ADMINISTRATION 

§ 341. Meetings of creditors and equity security holders 

(a) * * * 

* * * * * * * 

(c) The court may not preside at, and may not attend, any 

meeting under this section including any final meeting of creditors. 

Notwithstanding any local court rule, provision of a State constitution, any otherwise applicable nonbankruptcy law, or any other requirement that representation at the meeting of creditors under subsection (a) be by an attorney, a creditor holding a consumer debt or 

any representative of the creditor (which may include an entity or 

an employee of an entity and may be a representative for more than 

1 creditor) shall be permitted to appear at and participate in the 

meeting of creditors in a case under chapter 7 or 13, either alone 

or in conjunction with an attorney for the creditor. Nothing in this 

subsection shall be construed to require any creditor to be represented by an attorney at any meeting of creditors. 

* * * * * * * 

(e) Notwithstanding subsections (a) and (b), the court, on the request of a party in interest and after notice and a hearing, for cause 

may order that the United States trustee not convene a meeting of 

creditors or equity security holders if the debtor has filed a plan as 

to which the debtor solicited acceptances prior to the commencement 

of the case. 

§ 342. Notice 

(a) * * * 

ø(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.¿ 

190 

(b) Before the commencement of a case under this title by an individual whose debts are primarily consumer debts, the clerk shall 

give to such individual written notice containing—

(1) a brief description of—

(A) chapters 7, 11, 12, and 13 and the general purpose, 

benefits, and costs of proceeding under each of those chapters; and 

(B) the types of services available from credit counseling agencies; and 

(2) statements specifying that—

(A) a person who knowingly and fraudulently conceals 

assets or makes a false oath or statement under penalty of 

perjury in connection with a case under this title shall be 

subject to fine, imprisonment, or both; and 

(B) all information supplied by a debtor in connection 

with a case under this title is subject to examination by the 

Attorney General. 

(c)(1) If notice is required to be given by the debtor to a creditor under this title, any rule, any applicable law, or any order of 

the court, such notice shall contain the name, address, and last 4 

digits of the taxpayer identification number of the debtorø, but the 

failure of such notice to contain such information shall not invalidate the legal effect of such notice¿. If the notice concerns an 

amendment that adds a creditor to the schedules of assets and liabilities, the debtor shall include the full taxpayer identification 

number in the notice sent to that creditor, but the debtor shall include only the last 4 digits of the taxpayer identification number in 

the copy of the notice filed with the court. 

(2)(A) If, within the 90 days before the commencement of a voluntary case, a creditor supplies the debtor in at least 2 communications sent to the debtor with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then any notice required by this title to be sent by the 

debtor to such creditor shall be sent to such address and shall include such account number. 

(B) If a creditor would be in violation of applicable nonbankruptcy law by sending any such communication within such 90-day 

period and if such creditor supplies the debtor in the last 2 communications with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then 

any notice required by this title to be sent by the debtor to such creditor shall be sent to such address and shall include such account 

number. 

(d) In a case under chapter 7 of this title in which the debtor 

is an individual and in which the presumption of abuse arises 

under section 707(b), the clerk shall give written notice to all creditors not later than 10 days after the date of the filing of the petition 

that the presumption of abuse has arisen. 

(e)(1) In a case under chapter 7 or 13 of this title of a debtor 

who is an individual, a creditor at any time may both file with the 

court and serve on the debtor a notice of address to be used to provide notice in such case to such creditor. 

(2) Any notice in such case required to be provided to such creditor by the debtor or the court later than 5 days after the court and 

191 

the debtor receive such creditor’s notice of address, shall be provided 

to such address. 

(f)(1) An entity may file with any bankruptcy court a notice of 

address to be used by all the bankruptcy courts or by particular 

bankruptcy courts, as so specified by such entity at the time such 

notice is filed, to provide notice to such entity in all cases under 

chapters 7 and 13 pending in the courts with respect to which such 

notice is filed, in which such entity is a creditor. 

(2) In any case filed under chapter 7 or 13, any notice required 

to be provided by a court with respect to which a notice is filed 

under paragraph (1), to such entity later than 30 days after the filing of such notice under paragraph (1) shall be provided to such address unless with respect to a particular case a different address is 

specified in a notice filed and served in accordance with subsection 

(e). 

(3) A notice filed under paragraph (1) may be withdrawn by 

such entity. 

(g)(1) Notice provided to a creditor by the debtor or the court 

other than in accordance with this section (excluding this subsection) shall not be effective notice until such notice is brought to 

the attention of such creditor. If such creditor designates a person 

or an organizational subdivision of such creditor to be responsible 

for receiving notices under this title and establishes reasonable procedures so that such notices receivable by such creditor are to be delivered to such person or such subdivision, then a notice provided 

to such creditor other than in accordance with this section (excluding this subsection) shall not be considered to have been brought to 

the attention of such creditor until such notice is received by such 

person or such subdivision. 

(2) A monetary penalty may not be imposed on a creditor for 

a violation of a stay in effect under section 362(a) (including a monetary penalty imposed under section 362(k)) or for failure to comply 

with section 542 or 543 unless the conduct that is the basis of such 

violation or of such failure occurs after such creditor receives notice 

effective under this section of the order for relief. 

* * * * * * * 

ø§ 346. Special tax provisions 

ø(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. 

ø(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. 

ø(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 

192 

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. 

ø(3) The estate in such a case shall use the same accounting 

method as the debtor used immediately before the commencement 

of the case. 

ø(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. 

ø(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. 

ø(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. 

ø(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. 

ø(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. 

ø(g)(1) Neither gain nor loss shall be recognized on a transfer—

ø(A) by operation of law, of property to the estate; 

ø(B) other than a sale, of property from the estate to the 

debtor; or 

ø(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. 

ø(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. 

ø(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 

193 

case is commenced is deemed not to have been terminated by such 

commencement. 

ø(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— ø(A) any investment credit carryover; 

ø(B) any recovery exclusion; 

ø(C) any loss carryover; 

ø(D) any foreign tax credit carryover; 

ø(E) any capital loss carryover; and 

ø(F) any claim of right. 

ø(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. 

ø(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. 

ø(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. 

ø(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. 

ø(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. 

ø(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—

ø(A) consisted of items of a deductible nature that were 

not deducted by such debtor; or 

ø(B) resulted in an expired net operating loss carryover or 

other deduction that—

ø(i) did not offset income for any taxable period; and 

194 

ø(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. 

ø(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— ø(A)(i) the amount by which the indebtedness of the debtor 

has been forgiven or discharged in a case under this title; 

minus 

ø(ii) the total amount of adjustments made under paragraphs (2) and (3) of this subsection; and 

ø(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. 

ø(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. 

ø(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— ø(A) to any extent that such indebtedness did not consist 

of items of a deductible nature; or 

ø(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—

ø(i) the extent that such issuance has the same such 

consequences; and 

ø(ii) the extent of such fair market value.¿ 

§ 346. Special provisions related to the treatment of State and 

local taxes 

(a) Whenever the Internal Revenue Code of 1986 provides that 

a separate taxable estate or entity is created in a case concerning 

a debtor under this title, and the income, gain, loss, deductions, and 

credits of such estate shall be taxed to or claimed by the estate, a 

separate taxable estate is also created for purposes of any State and 

local law imposing a tax on or measured by income and such income, gain, loss, deductions, and credits shall be taxed to or 

claimed by the estate and may not be taxed to or claimed by the 

debtor. The preceding sentence shall not apply if the case is dismissed. The trustee shall make tax returns of income required under 

any such State or local law. 

(b) Whenever the Internal Revenue Code of 1986 provides that 

no separate taxable estate shall be created in a case concerning a 

195 

debtor under this title, and the income, gain, loss, deductions, and 

credits of an estate shall be taxed to or claimed by the debtor, such 

income, gain, loss, deductions, and credits shall be taxed to or 

claimed by the debtor under a State or local law imposing a tax on 

or measured by income and may not be taxed to or claimed by the 

estate. The trustee shall make such tax returns of income of corporations and of partnerships as are required under any State or local 

law, but with respect to partnerships, shall make such returns only 

to the extent such returns are also required to be made under such 

Code. The estate shall be liable for any tax imposed on such corporation or partnership, but not for any tax imposed on partners or 

members. 

(c) With respect to a partnership or any entity treated as a partnership under a State or local law imposing a tax on or measured 

by income that is a debtor in a case under this title, any gain or 

loss resulting from a distribution of property from such partnership, 

or any distributive share of any income, gain, loss, deduction, or 

credit of a partner or member that is distributed, or considered distributed, from such partnership, after the commencement of the 

case, is gain, loss, income, deduction, or credit, as the case may be, 

of the partner or member, and if such partner or member is a debtor 

in a case under this title, shall be subject to tax in accordance with 

subsection (a) or (b). 

(d) For purposes of any State or local law imposing a tax on 

or measured by income, the taxable period of a debtor in a case 

under this title shall terminate only if and to the extent that the taxable period of such debtor terminates under the Internal Revenue 

Code of 1986. 

(e) The estate in any case described in subsection (a) shall use 

the same accounting method as the debtor used immediately before 

the commencement of the case, if such method of accounting complies with applicable nonbankruptcy tax law. 

(f) For purposes of any State or local law imposing a tax on or 

measured by income, a transfer of property from the debtor to the 

estate or from the estate to the debtor shall not be treated as a disposition for purposes of any provision assigning tax consequences to 

a disposition, except to the extent that such transfer is treated as a 

disposition under the Internal Revenue Code of 1986. 

(g) Whenever a tax is imposed pursuant to a State or local law 

imposing a tax on or measured by income pursuant to subsection (a) 

or (b), such tax shall be imposed at rates generally applicable to the 

same types of entities under such State or local law. 

(h) The trustee shall withhold from any payment of claims for 

wages, salaries, commissions, dividends, interest, or other payments, 

or collect, any amount required to be withheld or collected under applicable State or local tax law, and shall pay such withheld or collected amount to the appropriate governmental unit at the time and 

in the manner required by such tax law, and with the same priority 

as the claim from which such amount was withheld or collected was 

paid. 

(i)(1) To the extent that any State or local law imposing a tax 

on or measured by income provides for the carryover of any tax attribute from one taxable period to a subsequent taxable period, the 

estate shall succeed to such tax attribute in any case in which such 

estate is subject to tax under subsection (a). 

196 

(2) After such a case is closed or dismissed, the debtor shall 

succeed to any tax attribute to which the estate succeeded under 

paragraph (1) to the extent consistent with the Internal Revenue 

Code of 1986. 

(3) The estate may carry back any loss or tax attribute to a taxable period of the debtor that ended before the date of the order for 

relief under this title to the extent that— (A) applicable State or local tax law provides for a 

carryback in the case of the debtor; and 

(B) the same or a similar tax attribute may be carried back 

by the estate to such a taxable period of the debtor under the 

Internal Revenue Code of 1986. 

(j)(1) For purposes of any State or local law imposing a tax on 

or measured by income, income is not realized by the estate, the 

debtor, or a successor to the debtor by reason of discharge of indebtedness in a case under this title, except to the extent, if any, that 

such income is subject to tax under the Internal Revenue Code of 

1986. 

(2) Whenever the Internal Revenue Code of 1986 provides that 

the amount excluded from gross income in respect of the discharge 

of indebtedness in a case under this title shall be applied to reduce 

the tax attributes of the debtor or the estate, a similar reduction 

shall be made under any State or local law imposing a tax on or 

measured by income to the extent such State or local law recognizes 

such attributes. Such State or local law may also provide for the reduction of other attributes to the extent that the full amount of income from the discharge of indebtedness has not been applied. 

(k)(1) Except as provided in this section and section 505, the 

time and manner of filing tax returns and the items of income, gain, 

loss, deduction, and credit of any taxpayer shall be determined 

under applicable nonbankruptcy law. 

(2) For Federal tax purposes, the provisions of this section are 

subject to the Internal Revenue Code of 1986 and other applicable 

Federal nonbankruptcy law. 

* * * * * * * 

§ 348. Effect of conversion 

(a) * * * 

* * * * * * * 

(f)(1) Except as provided in paragraph (2), when a case under 

chapter 13 of this title is converted to a case under another chapter 

under this title—

(A) property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control 

of the debtor on the date of conversion; øand¿ 

(B) valuations of property and of allowed secured claims in 

the chapter 13 case shall apply øin the converted case, with allowed secured claims¿ only in a case converted to a case under 

chapter 11 or 12, but not in a case converted to a case under 

chapter 7, with allowed secured claims in cases under chapters 

11 and 12 reduced to the extent that they have been paid in 

accordance with the chapter 13 planø.¿; and 

(C) with respect to cases converted from chapter 13—

197 

(i) the claim of any creditor holding security as of the 

date of the petition shall continue to be secured by that security unless the full amount of such claim determined 

under applicable nonbankruptcy law has been paid in full 

as of the date of conversion, notwithstanding any valuation 

or determination of the amount of an allowed secured claim 

made for the purposes of the case under chapter 13; and 

(ii) unless a prebankruptcy default has been fully cured 

under the plan at the time of conversion, in any proceeding 

under this title or otherwise, the default shall have the effect given under applicable nonbankruptcy law. 

(2) If the debtor converts a case under chapter 13 of this title 

to a case under another chapter under this title in bad faith, the 

property of the estate in the converted case shall consist of the 

property of the estate as of the date of conversion. 

* * * * * * * 

§ 351. Disposal of patient records 

If a health care business commences a case under chapter 7, 9, 

or 11, and the trustee does not have a sufficient amount of funds 

to pay for the storage of patient records in the manner required 

under applicable Federal or State law, the following requirements 

shall apply: 

(1) The trustee shall— (A) promptly publish notice, in 1 or more appropriate 

newspapers, that if patient records are not claimed by the 

patient or an insurance provider (if applicable law permits 

the insurance provider to make that claim) by the date that 

is 365 days after the date of that notification, the trustee 

will destroy the patient records; and 

(B) during the first 180 days of the 365-day period described in subparagraph (A), promptly attempt to notify directly each patient that is the subject of the patient records 

and appropriate insurance carrier concerning the patient 

records by mailing to the most recent known address of 

that patient, or a family member or contact person for that 

patient, and to the appropriate insurance carrier an appropriate notice regarding the claiming or disposing of patient 

records. 

(2) If, after providing the notification under paragraph (1), 

patient records are not claimed during the 365-day period described under that paragraph, the trustee shall mail, by certified mail, at the end of such 365-day period a written request 

to each appropriate Federal agency to request permission from 

that agency to deposit the patient records with that agency, except that no Federal agency is required to accept patient records 

under this paragraph. 

(3) If, following the 365-day period described in paragraph 

(2) and after providing the notification under paragraph (1), 

patient records are not claimed by a patient or insurance provider, or request is not granted by a Federal agency to deposit 

such records with that agency, the trustee shall destroy those 

records by—

(A) if the records are written, shredding or burning the 

records; or 

198 

(B) if the records are magnetic, optical, or other electronic records, by otherwise destroying those records so that 

those records cannot be retrieved. 

SUBCHAPTER IV—ADMINISTRATIVE POWERS 

* * * * * * * 

§ 362. Automatic stay 

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection 

Act of 1970, operates as a stay, applicable to all entities, of—

(1) * * * 

* * * * * * * 

(8) the commencement or continuation of a proceeding before the United States Tax Court concerning øthe debtor¿ a 

corporate debtor’s tax liability for a taxable period the bankruptcy court may determine or concerning the tax liability of a 

debtor who is an individual for a taxable period ending before 

the date of the order for relief under this title. 

(b) The filing of a petition under section 301, 302, or 303 of this 

title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay—

(1) * * * 

ø(2) under subsection (a) of this section—

ø(A) of the commencement or continuation of an action 

or proceeding for—

ø(i) the establishment of paternity; or 

ø(ii) the establishment or modification of an order 

for alimony, maintenance, or support; or 

ø(B) of the collection of alimony, maintenance, or support from property that is not property of the estate;¿ 

(2) under subsection (a)—

(A) of the commencement or continuation of a civil action or proceeding—

(i) for the establishment of paternity; 

(ii) for the establishment or modification of an 

order for domestic support obligations; 

(iii) concerning child custody or visitation; 

(iv) for the dissolution of a marriage, except to the 

extent that such proceeding seeks to determine the division of property that is property of the estate; or 

(v) regarding domestic violence; 

(B) of the collection of a domestic support obligation 

from property that is not property of the estate; 

(C) with respect to the withholding of income that is 

property of the estate or property of the debtor for payment 

of a domestic support obligation under a judicial or administrative order or a statute; 

(D) of the withholding, suspension, or restriction of a 

driver’s license, a professional or occupational license, or a 

recreational license, under State law, as specified in section 

466(a)(16) of the Social Security Act; 

199 

(E) of the reporting of overdue support owed by a parent to any consumer reporting agency as specified in section 

466(a)(7) of the Social Security Act; 

(F) of the interception of a tax refund, as specified in 

sections 464 and 466(a)(3) of the Social Security Act or 

under an analogous State law; or 

(G) of the enforcement of a medical obligation, as specified under title IV of the Social Security Act; 

* * * * * * * 

(6) under subsection (a) of this section, of the setoff by a 

commodity broker, forward contract merchant, stockbroker, øfinancial institutions,¿ financial institution, financial participant, or securities clearing agency of any mutual debt and 

claim under or in connection with commodity contracts, as defined in section 761 of this title, forward contracts, or securities 

contracts, as defined in section 741 of this title, that constitutes the setoff of a claim against the debtor for a margin 

payment, as defined in section 101, 741, or 761 of this title, or 

settlement payment, as defined in section 101 or 741 of this 

title, arising out of commodity contracts, forward contracts, or 

securities contracts against cash, securities, or other property 

held by, pledged to, under the control of, or due from such commodity broker, forward contract merchant, stockbroker, øfinancial institutions,¿ financial institution, financial participant, or 

securities clearing agency to margin, guarantee, secure, or settle commodity contracts, forward contracts, or securities contracts; 

(7) under subsection (a) of this section, of the setoff by a 

repo participant or financial participant, of any mutual debt 

and claim under or in connection with repurchase agreements 

that constitutes the setoff of a claim against the debtor for a 

margin payment, as defined in section 741 or 761 of this title, 

or settlement payment, as defined in section 741 of this title, 

arising out of repurchase agreements against cash, securities, 

or other property held by, pledged to, under the control of, or 

due from such repo participant or financial participant to margin, guarantee, secure or settle repurchase agreements; 

* * * * * * * 

ø(17) under subsection (a) of this section, of the setoff by 

a swap participant, of any mutual debt and claim under or in 

connection with any swap agreement that constitutes the setoff 

of a claim against the debtor for any payment due from the 

debtor under or in connection with any swap agreement 

against any payment due to the debtor from the swap participant under or in connection with any swap agreement or 

against cash, securities, or other property of the debtor held by 

or due from such swap participant to guarantee, secure or settle any swap agreement; or 

ø(18) under subsection (a) of the creation or perfection of 

a statutory lien for an ad valorem property tax imposed by the 

District of Columbia, or a political subdivision of a State, if 

such tax comes due after the filing of the petition.¿ 

(17) under subsection (a), of the setoff by a swap participant or financial participant of a mutual debt and claim under 

200 

or in connection with one or more swap agreements that constitutes the setoff of a claim against the debtor for any payment 

or other transfer of property due from the debtor under or in 

connection with any swap agreement against any payment due 

to the debtor from the swap participant or financial participant 

under or in connection with any swap agreement or against 

cash, securities, or other property held by, pledged to, under the 

control of, or due from such swap participant or financial participant to margin, guarantee, secure, or settle any swap agreement; 

(18) under subsection (a) of the creation or perfection of a 

statutory lien for an ad valorem property tax, or a special tax 

or special assessment on real property whether or not ad valorem, imposed by a governmental unit, if such tax or assessment 

comes due after the date of the filing of the petition; 

(19) under subsection (a), of withholding of income from a 

debtor’s wages and collection of amounts withheld, under the 

debtor’s agreement authorizing that withholding and collection 

for the benefit of a pension, profit-sharing, stock bonus, or other 

plan established under section 401, 403, 408, 408A, 414, 457, 

or 501(c) of the Internal Revenue Code of 1986, that is sponsored by the employer of the debtor, or an affiliate, successor, 

or predecessor of such employer— (A) to the extent that the amounts withheld and collected are used solely for payments relating to a loan from 

a plan under section 408(b)(1) of the Employee Retirement 

Income Security Act of 1974 or is subject to section 72(p) 

of the Internal Revenue Code of 1986; or 

(B) a loan from a thrift savings plan permitted under 

subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title; 

but nothing in this paragraph may be construed to provide that 

any loan made under a governmental plan under section 

414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under 

this title; 

(20) under subsection (a), of any act to enforce any lien 

against or security interest in real property following entry of 

the order under subsection (d)(4) as to such real property in any 

prior case under this title, for a period of 2 years after the date 

of the entry of such an order, except that the debtor, in a subsequent case under this title, may move for relief from such order 

based upon changed circumstances or for other good cause 

shown, after notice and a hearing; 

(21) under subsection (a), of any act to enforce any lien 

against or security interest in real property—

(A) if the debtor is ineligible under section 109(g) to be 

a debtor in a case under this title; or 

(B) if the case under this title was filed in violation of 

a bankruptcy court order in a prior case under this title 

prohibiting the debtor from being a debtor in another case 

under this title; 

(22) subject to subsection (l), under subsection (a)(3), of the 

continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential 

201 

property in which the debtor resides as a tenant under a lease 

or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, 

a judgment for possession of such property against the debtor; 

(23) subject to subsection (m), under subsection (a)(3), of an 

eviction action that seeks possession of the residential property 

in which the debtor resides as a tenant under a lease or rental 

agreement based on endangerment of such property or the illegal use of controlled substances on such property, but only if the 

lessor files with the court, and serves upon the debtor, a certification under penalty of perjury that such an eviction action has 

been filed, or that the debtor, during the 30-day period preceding the date of the filing of the certification, has endangered 

property or illegally used or allowed to be used a controlled 

substance on the property; 

(24) under subsection (a), of any transfer that is not avoidable under section 544 and that is not avoidable under section 

549; 

(25) under subsection (a), of— (A) the commencement or continuation of an investigation or action by a securities self regulatory organization to 

enforce such organization’s regulatory power; 

(B) the enforcement of an order or decision, other than 

for monetary sanctions, obtained in an action by such securities self regulatory organization to enforce such organization’s regulatory power; or 

(C) any act taken by such securities self regulatory organization to delist, delete, or refuse to permit quotation of 

any stock that does not meet applicable regulatory requirements; 

(26) under subsection (a), of the setoff under applicable 

nonbankruptcy law of an income tax refund, by a governmental 

unit, with respect to a taxable period that ended before the date 

of the order for relief against an income tax liability for a taxable period that also ended before the date of the order for relief, except that in any case in which the setoff of an income tax 

refund is not permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality 

of a tax liability, the governmental unit may hold the refund 

pending the resolution of the action, unless the court, on the 

motion of the trustee and after notice and a hearing, grants the 

taxing authority adequate protection (within the meaning of section 361) for the secured claim of such authority in the setoff 

under section 506(a); 

(27) under subsection (a), of the setoff by a master netting 

agreement participant of a mutual debt and claim under or in 

connection with one or more master netting agreements or any 

contract or agreement subject to such agreements that constitutes the setoff of a claim against the debtor for any payment 

or other transfer of property due from the debtor under or in 

connection with such agreements or any contract or agreement 

subject to such agreements against any payment due to the 

debtor from such master netting agreement participant under or 

in connection with such agreements or any contract or agreement subject to such agreements or against cash, securities, or 

202 

other property held by, pledged to, under the control of, or due 

from such master netting agreement participant to margin, 

guarantee, secure, or settle such agreements or any contract or 

agreement subject to such agreements, to the extent that such 

participant is eligible to exercise such offset rights under paragraph (6), (7), or (17) for each individual contract covered by 

the master netting agreement in issue; and 

(28) under subsection (a), of the exclusion by the Secretary 

of Health and Human Services of the debtor from participation 

in the medicare program or any other Federal health care program (as defined in section 1128B(f) of the Social Security Act 

pursuant to title XI or XVIII of such Act). 

The provisions of paragraphs (12) and (13) of this subsection shall 

apply with respect to any such petition filed on or before December 

31, 1989. 

(c) Except as provided in subsections (d), ø(e), and (f)¿ (e), (f), 

and (h) of this section—

(1) the stay of an act against property of the estate under 

subsection (a) of this section continues until such property is 

no longer property of the estate; øand¿ 

(2) the stay of any other act under subsection (a) of this 

section continues until the earliest of—

(A) * * * 

* * * * * * * 

(C) if the case is a case under chapter 7 of this title 

concerning an individual or a case under chapter 9, 11, 12, 

or 13 of this title, the time a discharge is granted or 

deniedø.¿; 

(3) if a single or joint case is filed by or against debtor who 

is an individual in a case under chapter 7, 11, or 13, and if 

a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case 

refiled under a chapter other than chapter 7 after dismissal 

under section 707(b)—

(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such 

debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the 

later case; 

(B) on the motion of a party in interest for continuation 

of the automatic stay and upon notice and a hearing, the 

court may extend the stay in particular cases as to any or 

all creditors (subject to such conditions or limitations as 

the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the 

party in interest demonstrates that the filing of the later 

case is in good faith as to the creditors to be stayed; and 

(C) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption 

may be rebutted by clear and convincing evidence to the 

contrary)—

(i) as to all creditors, if—

(I) more than 1 previous case under any of 

chapters 7, 11, and 13 in which the individual was 

203 

a debtor was pending within the preceding 1-year 

period; 

(II) a previous case under any of chapters 7, 

11, and 13 in which the individual was a debtor 

was dismissed within such 1-year period, after the 

debtor failed to—

(aa) file or amend the petition or other 

documents as required by this title or the court 

without substantial excuse (but mere inadvertence or negligence shall not be a substantial 

excuse unless the dismissal was caused by the 

negligence of the debtor’s attorney); 

(bb) provide adequate protection as ordered by the court; or 

(cc) perform the terms of a plan confirmed 

by the court; or 

(III) there has not been a substantial change 

in the financial or personal affairs of the debtor 

since the dismissal of the next most previous case 

under chapter 7, 11, or 13 or any other reason to 

conclude that the later case will be concluded—

(aa) if a case under chapter 7, with a discharge; or 

(bb) if a case under chapter 11 or 13, with 

a confirmed plan that will be fully performed; 

and 

(ii) as to any creditor that commenced an action 

under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of 

such case, that action was still pending or had been resolved by terminating, conditioning, or limiting the 

stay as to actions of such creditor; and 

(4)(A)(i) if a single or joint case is filed by or against a 

debtor who is an individual under this title, and if 2 or more 

single or joint cases of the debtor were pending within the previous year but were dismissed, other than a case refiled under 

section 707(b), the stay under subsection (a) shall not go into effect upon the filing of the later case; and 

(ii) on request of a party in interest, the court shall promptly enter an order confirming that no stay is in effect; 

(B) if, within 30 days after the filing of the later case, a 

party in interest requests the court may order the stay to take 

effect in the case as to any or all creditors (subject to such conditions or limitations as the court may impose), after notice and 

a hearing, only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be 

stayed; 

(C) a stay imposed under subparagraph (B) shall be effective on the date of the entry of the order allowing the stay to 

go into effect; and 

(D) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)—

(i) as to all creditors if—

204 

(I) 2 or more previous cases under this title in 

which the individual was a debtor were pending within the 1-year period; 

(II) a previous case under this title in which the 

individual was a debtor was dismissed within the time 

period stated in this paragraph after the debtor failed 

to file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be 

substantial excuse unless the dismissal was caused by 

the negligence of the debtor’s attorney), failed to provide adequate protection as ordered by the court, or 

failed to perform the terms of a plan confirmed by the 

court; or 

(III) there has not been a substantial change in the 

financial or personal affairs of the debtor since the dismissal of the next most previous case under this title, 

or any other reason to conclude that the later case will 

not be concluded, if a case under chapter 7, with a discharge, and if a case under chapter 11 or 13, with a 

confirmed plan that will be fully performed; or 

(ii) as to any creditor that commenced an action under 

subsection (d) in a previous case in which the individual 

was a debtor if, as of the date of dismissal of such case, 

such action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to such action of such creditor. 

(d) On request of a party in interest and after notice and a 

hearing, the court shall grant relief from the stay provided under 

subsection (a) of this section, such as by terminating, annulling, 

modifying, or conditioning such stay—

(1) * * * 

(2) with respect to a stay of an act against property under 

subsection (a) of this section, if—

(A) * * * 

(B) such property is not necessary to an effective reorganization; øor¿ 

(3) with respect to a stay of an act against single asset real 

estate under subsection (a), by a creditor whose claim is secured by an interest in such real estate, unless, not later than 

the date that is 90 days after the entry of the order for relief 

(or such later date as the court may determine for cause by 

order entered within that 90-day period) or 30 days after the 

court determines that the debtor is subject to this paragraph, 

whichever is later—

(A) * * * 

ø(B) the debtor has commenced monthly payments to 

each creditor whose claim is secured by such real estate 

(other than a claim secured by a judgment lien or by an 

unmatured statutory lien), which payments are in an 

amount equal to interest at a current fair market rate on 

the value of the creditor’s interest in the real estate.¿ 

(B) the debtor has commenced monthly payments 

that—

205 

(i) may, in the debtor’s sole discretion, notwithstanding section 363(c)(2), be made from rents or other 

income generated before, on, or after the date of the 

commencement of the case by or from the property to 

each creditor whose claim is secured by such real estate 

(other than a claim secured by a judgment lien or by 

an unmatured statutory lien); and 

(ii) are in an amount equal to interest at the then 

applicable nondefault contract rate of interest on the 

value of the creditor’s interest in the real estate; or 

(4) with respect to a stay of an act against real property 

under subsection (a), by a creditor whose claim is secured by an 

interest in such real property, if the court finds that the filing 

of the petition was part of a scheme to delay, hinder, and defraud creditors that involved either—

(A) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured 

creditor or court approval; or 

(B) multiple bankruptcy filings affecting such real 

property. 

If recorded in compliance with applicable State laws governing notices of interests or liens in real property, an order entered under 

paragraph (4) shall be binding in any other case under this title 

purporting to affect such real property filed not later than 2 years 

after the date of the entry of such order by the court, except that a 

debtor in a subsequent case under this title may move for relief from 

such order based upon changed circumstances or for good cause 

shown, after notice and a hearing. Any Federal, State, or local governmental unit that accepts notices of interests or liens in real property shall accept any certified copy of an order described in this subsection for indexing and recording. 

(e)(1) Thirty days after a request under subsection (d) of this 

section for relief from the stay of any act against property of the 

estate under subsection (a) of this section, such stay is terminated 

with respect to the party in interest making such request, unless 

the court, after notice and a hearing, orders such stay continued in 

effect pending the conclusion of, or as a result of, a final hearing 

and determination under subsection (d) of this section. A hearing 

under this subsection may be a preliminary hearing, or may be 

consolidated with the final hearing under subsection (d) of this section. The court shall order such stay continued in effect pending 

the conclusion of the final hearing under subsection (d) of this section if there is a reasonable likelihood that the party opposing relief from such stay will prevail at the conclusion of such final hearing. If the hearing under this subsection is a preliminary hearing, 

then such final hearing shall be concluded not later than thirty 

days after the conclusion of such preliminary hearing, unless the 

30-day period is extended with the consent of the parties in interest or for a specific time which the court finds is required by compelling circumstances. 

(2) Notwithstanding paragraph (1), in a case under chapter 7, 

11, or 13 in which the debtor is an individual, the stay under subsection (a) shall terminate on the date that is 60 days after a request is made by a party in interest under subsection (d), unless—

206 

(A) a final decision is rendered by the court during the 60- 

day period beginning on the date of the request; or 

(B) such 60-day period is extended— (i) by agreement of all parties in interest; or 

(ii) by the court for such specific period of time as the 

court finds is required for good cause, as described in findings made by the court. 

* * * * * * * 

(h)(1) In a case in which the debtor is an individual, the stay 

provided by subsection (a) is terminated with respect to personal 

property of the estate or of the debtor securing in whole or in part 

a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)— (A) to file timely any statement of intention required under 

section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender 

such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant 

to section 722, enter into an agreement of the kind specified in 

section 524(c) applicable to the debt secured by such personal 

property, or assume such unexpired lease pursuant to section 

365(p) if the trustee does not do so, as applicable; and 

(B) to take timely the action specified in such statement, as 

it may be amended before expiration of the period for taking action, unless such statement specifies the debtor’s intention to reaffirm such debt on the original contract terms and the creditor 

refuses to agree to the reaffirmation on such terms. 

(2) Paragraph (1) does not apply if the court determines, on the 

motion of the trustee filed before the expiration of the applicable 

time set by section 521(a)(2), after notice and a hearing, that such 

personal property is of consequential value or benefit to the estate, 

and orders appropriate adequate protection of the creditor’s interest, 

and orders the debtor to deliver any collateral in the debtor’s possession to the trustee. If the court does not so determine, the stay provided by subsection (a) shall terminate upon the conclusion of the 

hearing on the motion. 

(i) If a case commenced under chapter 7, 11, or 13 is dismissed 

due to the creation of a debt repayment plan, for purposes of subsection (c)(3), any subsequent case commenced by the debtor under 

any such chapter shall not be presumed to be filed not in good faith. 

(j) On request of a party in interest, the court shall issue an 

order under subsection (c) confirming that the automatic stay has 

been terminated. 

ø(h) An¿ (k)(1) Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this 

section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages. 

(2) If such violation is based on an action taken by an entity 

in the good faith belief that subsection (h) applies to the debtor, the 

recovery under paragraph (1) of this subsection against such entity 

shall be limited to actual damages. 

(l)(1) Except as otherwise provided in this subsection, subsection 

(b)(22) shall apply on the date that is 30 days after the date on 

207 

which the bankruptcy petition is filed, if the debtor files with the petition and serves upon the lessor a certification under penalty of perjury that—

(A) under nonbankruptcy law applicable in the jurisdiction, 

there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the 

judgment for possession, after that judgment for possession was 

entered; and 

(B) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become 

due during the 30-day period after the filing of the bankruptcy 

petition. 

(2) If, within the 30-day period after the filing of the bankruptcy petition, the debtor (or an adult dependent of the debtor) 

complies with paragraph (1) and files with the court and serves 

upon the lessor a further certification under penalty of perjury that 

the debtor (or an adult dependent of the debtor) has cured, under 

nonbankrupcty law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession 

is sought by the lessor, subsection (b)(22) shall not apply, unless ordered to apply by the court under paragraph (3). 

(3)(A) If the lessor files an objection to any certification filed by 

the debtor under paragraph (1) or (2), and serves such objection 

upon the debtor, the court shall hold a hearing within 10 days after 

the filing and service of such objection to determine if the certification filed by the debtor under paragraph (1) or (2) is true. 

(B) If the court upholds the objection of the lessor filed under 

subparagraph (A)—

(i) subsection (b)(22) shall apply immediately and relief 

from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full 

possession of the property; and 

(ii) the clerk of the court shall immediately serve upon the 

lessor and the debtor a certified copy of the court’s order upholding the lessor’s objection. 

(4) If a debtor, in accordance with paragraph (5), indicates on 

the petition that there was a judgment for possession of the residential rental property in which the debtor resides and does not file a 

certification under paragraph (1) or (2)—

(A) subsection (b)(22) shall apply immediately upon failure 

to file such certification, and relief from the stay provided 

under subsection (a)(3) shall not be required to enable the lessor 

to complete the process to recover full possession of the property; 

and 

(B) the clerk of the court shall immediately serve upon the 

lessor and the debtor a certified copy of the docket indicating 

the absence of a filed certification and the applicability of the 

exception to the stay under subsection (b)(22). 

(5)(A) Where a judgment for possession of residential property 

in which the debtor resides as a tenant under a lease or rental 

agreement has been obtained by the lessor, the debtor shall so indicate on the bankruptcy petition and shall provide the name and address of the lessor that obtained that pre-petition judgment on the 

petition and on any certification filed under this subsection. 

208 

(B) The form of certification filed with the petition, as specified 

in this subsection, shall provide for the debtor to certify, and the 

debtor shall certify— (i) whether a judgment for possession of residential rental 

housing in which the debtor resides has been obtained against 

the debtor before the date of the filing of the petition; and 

(ii) whether the debtor is claiming under paragraph (1) 

that under nonbankruptcy law applicable in the jurisdiction, 

there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the 

judgment for possession, after that judgment of possession was 

entered, and has made the appropriate deposit with the court. 

(C) The standard forms (electronic and otherwise) used in a 

bankruptcy proceeding shall be amended to reflect the requirements 

of this subsection. 

(D) The clerk of the court shall arrange for the prompt transmittal of the rent deposited in accordance with paragraph (1)(B) to 

the lessor. 

(m)(1) Except as otherwise provided in this subsection, subsection (b)(23) shall apply on the date that is 15 days after the date 

on which the lessor files and serves a certification described in subsection (b)(23). 

(2)(A) If the debtor files with the court an objection to the truth 

or legal sufficiency of the certification described in subsection (b)(23) 

and serves such objection upon the lessor, subsection (b)(23) shall 

not apply, unless ordered to apply by the court under this subsection. 

(B) If the debtor files and serves the objection under subparagraph (A), the court shall hold a hearing within 10 days after the 

filing and service of such objection to determine if the situation giving rise to the lessor’s certification under paragraph (1) existed or 

has been remedied. 

(C) If the debtor can demonstrate to the satisfaction of the court 

that the situation giving rise to the lessor’s certification under paragraph (1) did not exist or has been remedied, the stay provided 

under subsection (a)(3) shall remain in effect until the termination 

of the stay under this section. 

(D) If the debtor cannot demonstrate to the satisfaction of the 

court that the situation giving rise to the lessor’s certification under 

paragraph (1) did not exist or has been remedied—

(i) relief from the stay provided under subsection (a)(3) 

shall not be required to enable the lessor to proceed with the 

eviction; and 

(ii) the clerk of the court shall immediately serve upon the 

lessor and the debtor a certified copy of the court’s order upholding the lessor’s certification. 

(3) If the debtor fails to file, within 15 days, an objection under 

paragraph (2)(A)—

(A) subsection (b)(23) shall apply immediately upon such 

failure and relief from the stay provided under subsection (a)(3) 

shall not be required to enable the lessor to complete the process 

to recover full possession of the property; and 

(B) the clerk of the court shall immediately serve upon the 

lessor and the debtor a certified copy of the docket indicating 

such failure. 

209 

(n)(1) Except as provided in paragraph (2), subsection (a) does 

not apply in a case in which the debtor— (A) is a debtor in a small business case pending at the time 

the petition is filed; 

(B) was a debtor in a small business case that was dismissed for any reason by an order that became final in the 2- 

year period ending on the date of the order for relief entered 

with respect to the petition; 

(C) was a debtor in a small business case in which a plan 

was confirmed in the 2-year period ending on the date of the 

order for relief entered with respect to the petition; or 

(D) is an entity that has acquired substantially all of the 

assets or business of a small business debtor described in subparagraph (A), (B), or (C), unless such entity establishes by a 

preponderance of the evidence that such entity acquired substantially all of the assets or business of such small business 

debtor in good faith and not for the purpose of evading this 

paragraph. 

(2) Paragraph (1) does not apply— (A) to an involuntary case involving no collusion by the 

debtor with creditors; or 

(B) to the filing of a petition if— (i) the debtor proves by a preponderance of the evidence 

that the filing of the petition resulted from circumstances 

beyond the control of the debtor not foreseeable at the time 

the case then pending was filed; and 

(ii) it is more likely than not that the court will confirm 

a feasible plan, but not a liquidating plan, within a reasonable period of time. 

(o) The exercise of rights not subject to the stay arising under 

subsection (a) pursuant to paragraph (6), (7), (17), or (27) of subsection (b) shall not be stayed by any order of a court or administrative agency in any proceeding under this title. 

§ 363. Use, sale, or lease of property 

(a) * * * 

(b)(1) The trustee, after notice and a hearing, may use, sell, or 

lease, other than in the ordinary course of business, property of the 

estateø.¿, except that if the debtor in connection with offering a 

product or a service discloses to an individual a policy prohibiting 

the transfer of personally identifiable information about individuals 

to persons that are not affiliated with the debtor and if such policy 

is in effect on the date of the commencement of the case, then the 

trustee may not sell or lease personally identifiable information to 

any person unless— (A) such sale or such lease is consistent with such policy; 

or 

(B) after appointment of a consumer privacy ombudsman in 

accordance with section 332, and after notice and a hearing, the 

court approves such sale or such lease— (i) giving due consideration to the facts, circumstances, 

and conditions of such sale or such lease; and 

(ii) finding that no showing was made that such sale 

or such lease would violate applicable nonbankruptcy law. 

* * * * * * * 

210 

(d) The trustee may use, sell, or lease property under subsection (b) or (c) of this section øonly to the extent not inconsistent 

with any relief granted under section 362(c), 362(d), 362(e), or 

362(f) of this title.¿ only— (1) in accordance with applicable nonbankruptcy law that 

governs the transfer of property by a corporation or trust that 

is not a moneyed, business, or commercial corporation or trust; 

and 

(2) to the extent not inconsistent with any relief granted 

under subsection (c), (d), (e), or (f) of section 362. 

* * * * * * * 

(o) Notwithstanding subsection (f), if a person purchases any interest in a consumer credit transaction that is subject to the Truth 

in Lending Act or any interest in a consumer credit contract (as defined in section 433.1 of title 16 of the Code of Federal Regulations 

(January 1, 2004), as amended from time to time), and if such interest is purchased through a sale under this section, then such person shall remain subject to all claims and defenses that are related 

to such consumer credit transaction or such consumer credit contract, to the same extent as such person would be subject to such 

claims and defenses of the consumer had such interest been purchased at a sale not under this section. 

ø(o)¿ (p) In any hearing under this section—

(1) * * * 

* * * * * * * 

§ 365. Executory contracts and unexpired leases 

(a) * * * 

(b)(1) If there has been a default in an executory contract or 

unexpired lease of the debtor, the trustee may not assume such 

contract or lease unless, at the time of assumption of such contract 

or lease, the trustee—

(A) cures, or provides adequate assurance that the trustee 

will promptly cure, such defaultø;¿ other than a default that is 

a breach of a provision relating to the satisfaction of any provision (other than a penalty rate or penalty provision) relating to 

a default arising from any failure to perform nonmonetary obligations under an unexpired lease of real property, if it is impossible for the trustee to cure such default by performing nonmonetary acts at and after the time of assumption, except that 

if such default arises from a failure to operate in accordance 

with a nonresidential real property lease, then such default 

shall be cured by performance at and after the time of assumption in accordance with such lease, and pecuniary losses resulting from such default shall be compensated in accordance with 

the provisions of this paragraph; 

* * * * * * * 

(2) Paragraph (1) of this subsection does not apply to a default 

that is a breach of a provision relating to— (A) * * * 

* * * * * * * 

(D) the satisfaction of any øpenalty rate or provision¿ penalty rate or penalty provision relating to a default arising from 

211 

any failure by the debtor to perform nonmonetary obligations 

under the executory contract or unexpired lease. 

* * * * * * * 

(c) The trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract 

or lease prohibits or restricts assignment of rights or delegation of 

duties, if—

(1) * * * 

(2) such contract is a contract to make a loan, or extend 

other debt financing or financial accommodations, to or for the 

benefit of the debtor, or to issue a security of the debtor; or 

(3) such lease is of nonresidential real property and has 

been terminated under applicable nonbankruptcy law prior to 

the order for reliefø; or¿. ø(4) such lease is of nonresidential real property under 

which the debtor is the lessee of an aircraft terminal or aircraft 

gate at an airport at which the debtor is the lessee under one 

or more additional nonresidential leases of an aircraft terminal 

or aircraft gate and the trustee, in connection with such assumption or assignment, does not assume all such leases or 

does not assume and assign all of such leases to the same person, except that the trustee may assume or assign less than all 

of such leases with the airport operator’s written consent.¿ 

(d)(1) * * * 

* * * * * * * 

ø(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. 

ø(5) Notwithstanding paragraphs (1) and (4) of this subsection, 

in a case under any chapter of this title, if the trustee does not assume or reject an unexpired lease of nonresidential real property 

under which the debtor is an affected air carrier that is the lessee 

of an aircraft terminal or aircraft gate before the occurrence of a 

termination event, then (unless the court orders the trustee to assume such unexpired leases within 5 days after the termination 

event), at the option of the airport operator, such lease is deemed 

rejected 5 days after the occurrence of a termination event and the 

trustee shall immediately surrender possession of the premises to 

the airport operator; except that the lease shall not be deemed to 

be rejected unless the airport operator first waives the right to 

damages related to the rejection. In the event that the lease is 

deemed to be rejected under this paragraph, the airport operator 

shall provide the affected air carrier adequate opportunity after the 

surrender of the premises to remove the fixtures and equipment installed by the affected air carrier. 

ø(6) For the purpose of paragraph (5) of this subsection and 

paragraph (f)(1) of this section, the occurrence of a termination 

event means, with respect to a debtor which is an affected air carrier that is the lessee of an aircraft terminal or aircraft gate—

212 

ø(A) the entry under section 301 or 302 of this title of an 

order for relief under chapter 7 of this title; 

ø(B) the conversion of a case under any chapter of this 

title to a case under chapter 7 of this title; or 

ø(C) the granting of relief from the stay provided under 

section 362(a) of this title with respect to aircraft, aircraft engines, propellers, appliances, or spare parts, as defined in section 40102(a) of title 49, except for property of the debtor found 

by the court not to be necessary to an effective reorganization. 

ø(7) Any order entered by the court pursuant to paragraph (4) 

extending the period within which the trustee of an affected air 

carrier must assume or reject an unexpired lease of nonresidential 

real property shall be without prejudice to—

ø(A) the right of the trustee to seek further extensions 

within such additional time period granted by the court pursuant to paragraph (4); and 

ø(B) the right of any lessor or any other party in interest 

to request, at any time, a shortening or termination of the period within which the trustee must assume or reject an unexpired lease of nonresidential real property. 

ø(8) The burden of proof for establishing cause for an extension 

by an affected air carrier under paragraph (4) or the maintenance 

of a previously granted extension under paragraph (7)(A) and (B) 

shall at all times remain with the trustee. 

ø(9) For purposes of determining cause under paragraph (7) 

with respect to an unexpired lease of nonresidential real property 

between the debtor that is an affected air carrier and an airport 

operator under which such debtor is the lessee of an airport terminal or an airport gate, the court shall consider, among other relevant factors, whether substantial harm will result to the airport 

operator or airline passengers as a result of the extension or the 

maintenance of a previously granted extension. In making the determination of substantial harm, the court shall consider, among 

other relevant factors, the level of actual use of the terminals or 

gates which are the subject of the lease, the public interest in actual use of such terminals or gates, the existence of competing demands for the use of such terminals or gates, the effect of the 

court’s extension or termination of the period of time to assume or 

reject the lease on such debtor’s ability to successfully reorganize 

under chapter 11 of this title, and whether the trustee of the affected air carrier is capable of continuing to comply with its obligations under section 365(d)(3) of this title.¿ 

(4)(A) Subject to subparagraph (B), an unexpired lease of nonresidential real property under which the debtor is the lessee shall 

be deemed rejected, and the trustee shall immediately surrender 

that nonresidential real property to the lessor, if the trustee does not 

assume or reject the unexpired lease by the earlier of—

(i) the date that is 120 days after the date of the order for 

relief; or 

(ii) the date of the entry of an order confirming a plan. 

(B)(i) The court may extend the period determined under subparagraph (A), prior to the expiration of the 120-day period, for 90 

days on the motion of the trustee or lessor for cause. 

213 

(ii) If the court grants an extension under clause (i), the court 

may grant a subsequent extension only upon prior written consent 

of the lessor in each instance. 

ø(10)¿ (5) The trustee shall timely perform all of the obligations of the debtor, except those specified in section 365(b)(2), first 

arising from or after 60 days after the order for relief in a case 

under chapter 11 of this title under an unexpired lease of personal 

property (other than personal property leased to an individual primarily for personal, family, or household purposes), until such 

lease is assumed or rejected notwithstanding section 503(b)(1) of 

this title, unless the court, after notice and a hearing and based on 

the equities of the case, orders otherwise with respect to the obligations or timely performance thereof. This subsection shall not be 

deemed to affect the trustee’s obligations under the provisions of 

subsection (b) or (f). Acceptance of any such performance does not 

constitute waiver or relinquishment of the lessor’s rights under 

such lease or under this title. 

* * * * * * * 

(f)(1) Except as provided in øsubsection¿ subsections (b) and (c) 

of this section, notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law, that 

prohibits, restricts, or conditions the assignment of such contract or 

lease, the trustee may assign such contract or lease under paragraph (2) of this subsectionø; except that the trustee may not assign an unexpired lease of nonresidential real property under 

which the debtor is an affected air carrier that is the lessee of an 

aircraft terminal or aircraft gate if there has occurred a termination event¿. 

* * * * * * * 

(p)(1) If a lease of personal property is rejected or not timely assumed by the trustee under subsection (d), the leased property is no 

longer property of the estate and the stay under section 362(a) is 

automatically terminated. 

(2)(A) If the debtor in a case under chapter 7 is an individual, 

the debtor may notify the creditor in writing that the debtor desires 

to assume the lease. Upon being so notified, the creditor may, at its 

option, notify the debtor that it is willing to have the lease assumed 

by the debtor and may condition such assumption on cure of any 

outstanding default on terms set by the contract. 

(B) If, not later than 30 days after notice is provided under subparagraph (A), the debtor notifies the lessor in writing that the lease 

is assumed, the liability under the lease will be assumed by the 

debtor and not by the estate. 

(C) The stay under section 362 and the injunction under section 

524(a)(2) shall not be violated by notification of the debtor and negotiation of cure under this subsection. 

(3) In a case under chapter 11 in which the debtor is an individual and in a case under chapter 13, if the debtor is the lessee 

with respect to personal property and the lease is not assumed in 

the plan confirmed by the court, the lease is deemed rejected as of 

the conclusion of the hearing on confirmation. If the lease is rejected, the stay under section 362 and any stay under section 1301 

is automatically terminated with respect to the property subject to 

the lease. 

214 

§ 366. Utility service 

(a) Except as provided in øsubsection (b)¿ subsections (b) and 

(c) of this section, a utility may not alter, refuse, or discontinue 

service to, or discriminate against, the trustee or the debtor solely 

on the basis of the commencement of a case under this title or that 

a debt owed by the debtor to such utility for service rendered before 

the order for relief was not paid when due. 

* * * * * * * 

(c)(1)(A) For purposes of this subsection, the term ‘‘assurance of 

payment’’ means—

(i) a cash deposit; 

(ii) a letter of credit; 

(iii) a certificate of deposit; 

(iv) a surety bond; 

(v) a prepayment of utility consumption; or 

(vi) another form of security that is mutually agreed on between the utility and the debtor or the trustee. 

(B) For purposes of this subsection an administrative expense 

priority shall not constitute an assurance of payment. 

(2) Subject to paragraphs (3) and (4), with respect to a case 

filed under chapter 11, a utility referred to in subsection (a) may 

alter, refuse, or discontinue utility service, if during the 30-day period beginning on the date of the filing of the petition, the utility 

does not receive from the debtor or the trustee adequate assurance 

of payment for utility service that is satisfactory to the utility. 

(3)(A) On request of a party in interest and after notice and a 

hearing, the court may order modification of the amount of an assurance of payment under paragraph (2). 

(B) In making a determination under this paragraph whether 

an assurance of payment is adequate, the court may not consider— (i) the absence of security before the date of the filing of the 

petition; 

(ii) the payment by the debtor of charges for utility service 

in a timely manner before the date of the filing of the petition; 

or 

(iii) the availability of an administrative expense priority. 

(4) Notwithstanding any other provision of law, with respect to 

a case subject to this subsection, a utility may recover or set off 

against a security deposit provided to the utility by the debtor before 

the date of the filing of the petition without notice or order of the 

court. 

* * * * * * * 

CHAPTER 5—CREDITORS, THE DEBTOR, AND THE 

ESTATE 

SUBCHAPTER I—CREDITORS AND CLAIMS 

Sec. 

501. Filing of proofs of claims or interests. 

* * * * * * * 

511. Rate of interest on tax claims. 

* * * * * * * 

215 

SUBCHAPTER II—DEBTOR’S DUTIES AND BENEFITS 

521. Debtor’s duties. 

* * * * * * * 

526. Restrictions on debt relief agencies. 

527. Disclosures. 

528. Requirements for debt relief agencies. 

* * * * * * * 

SUBCHAPTER III—THE ESTATE 

541. Property of the estate. 

* * * * * * * 

ø555. Contractual right to liquidate a securities contract. 

ø556. Contractual right to liquidate a commodity contract or forward contract.¿ 

555. Contractual right to liquidate, terminate, or accelerate a securities contract. 

556. Contractual right to liquidate, terminate, or accelerate a commodities contract 

or forward contract. 

* * * * * * * 

ø559. Contractual right to liquidate a repurchase agreement. 

ø560. Contractual right to terminate a swap agreement.¿ 

559. Contractual right to liquidate, terminate, or accelerate a repurchase agreement. 

560. Contractual right to liquidate, terminate, or accelerate a swap agreement. 

561. Contractual right to terminate, liquidate, accelerate, or offset under a master 

netting agreement and across contracts; proceedings under chapter 15. 

562. Timing of damage measure in connection with swap agreements, securities 

contracts, forward contracts, commodity contracts, repurchase agreements, or master netting agreements. 

SUBCHAPTER I—CREDITORS AND CLAIMS 

§ 501. Filing of proofs of claims or interests 

(a) * * * 

* * * * * * * 

(e) A claim arising from the liability of a debtor for fuel use tax 

assessed consistent with the requirements of section 31705 of title 49 

may be filed by the base jurisdiction designated pursuant to the 

International Fuel Tax Agreement (as defined in section 31701 of 

title 49) and, if so filed, shall be allowed as a single claim. 

§ 502. Allowance of claims or interests 

(a) * * * 

(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) 

of this section, if such objection to a claim is made, the court, after 

notice and a hearing, shall determine the amount of such claim in 

lawful currency of the United States as of the date of the filing of 

the petition, and shall allow such claim in such amount, except to 

the extent that—

(1) * * * 

* * * * * * * 

(9) proof of such claim is not timely filed, except to the extent tardily filed as permitted under paragraph (1), (2), or (3) 

of section 726(a) of this title or under the Federal Rules of 

Bankruptcy Procedure, except that a claim of a governmental 

unit shall be timely filed if it is filed before 180 days after the 

date of the order for relief or such later time as the Federal 

Rules of Bankruptcy Procedure may provide, and except that in 

a case under chapter 13, a claim of a governmental unit for a 

216 

tax with respect to a return filed under section 1308 shall be 

timely if the claim is filed on or before the date that is 60 days 

after the date on which such return was filed as required. 

* * * * * * * 

(g)(1) A claim arising from the rejection, under section 365 of 

this title or under a plan under chapter 9, 11, 12, or 13 of this title, 

of an executory contract or unexpired lease of the debtor that has 

not been assumed shall be determined, and shall be allowed under 

subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition. 

(2) A claim for damages calculated in accordance with section 

562 shall be allowed under subsection (a), (b), or (c), or disallowed 

under subsection (d) or (e), as if such claim had arisen before the 

date of the filing of the petition. 

* * * * * * * 

(k)(1) The court, on the motion of the debtor and after a hearing, may reduce a claim filed under this section based in whole on 

an unsecured consumer debt by not more than 20 percent of the 

claim, if—

(A) the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment schedule 

proposed on behalf of the debtor by an approved nonprofit 

budget and credit counseling agency described in section 111; 

(B) the offer of the debtor under subparagraph (A)—

(i) was made at least 60 days before the date of the filing of the petition; and 

(ii) provided for payment of at least 60 percent of the 

amount of the debt over a period not to exceed the repayment period of the loan, or a reasonable extension thereof; 

and 

(C) no part of the debt under the alternative repayment 

schedule is nondischargeable. 

(2) The debtor shall have the burden of proving, by clear and 

convincing evidence, that—

(A) the creditor unreasonably refused to consider the debtor’s proposal; and 

(B) the proposed alternative repayment schedule was made 

prior to expiration of the 60-day period specified in paragraph 

(1)(B)(i). 

§ 503. Allowance of administrative expenses 

(a) * * * 

(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of 

this title, including—

(1)ø(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions 

for services rendered after the commencement of the case;¿ (A) 

the actual, necessary costs and expenses of preserving the estate 

including—

(i) wages, salaries, and commissions for services rendered after the commencement of the case; and 

217 

(ii) wages and benefits awarded pursuant to a judicial 

proceeding or a proceeding of the National Labor Relations 

Board as back pay attributable to any period of time occurring after commencement of the case under this title, as a 

result of a violation of Federal or State law by the debtor, 

without regard to the time of the occurrence of unlawful 

conduct on which such award is based or to whether any 

services were rendered, if the court determines that payment of wages and benefits by reason of the operation of 

this clause will not substantially increase the probability of 

layoff or termination of current employees, or of nonpayment of domestic support obligations, during the case 

under this title; 

(B) any tax— (i) incurred by the estate, whether secured or unsecured, including property taxes for which liability is in 

rem, in personam, or both, except a tax of a kind specified 

in section 507(a)(8) of this title; or 

(ii) attributable to an excessive allowance of a tentative carryback adjustment that the estate received, 

whether the taxable year to which such adjustment relates 

ended before or after the commencement of the case; 

øand¿ 

(C) any fine, penalty, or reduction in credit relating to a 

tax of a kind specified in subparagraph (B) of this paragraph; 

and 

(D) notwithstanding the requirements of subsection (a), a 

governmental unit shall not be required to file a request for the 

payment of an expense described in subparagraph (B) or (C), as 

a condition of its being an allowed administrative expense; 

* * * * * * * 

(4) reasonable compensation for professional services rendered by an attorney or an accountant of an entity whose expense is allowable under subparagraph (A), (B), (C), (D), or (E) 

of paragraph (3) of this subsection, based on the time, the nature, the extent, and the value of such services, and the cost 

of comparable services other than in a case under this title, 

and reimbursement for actual, necessary expenses incurred by 

such attorney or accountant; 

(5) reasonable compensation for services rendered by an 

indenture trustee in making a substantial contribution in a 

case under chapter 9 or 11 of this title, based on the time, the 

nature, the extent, and the value of such services, and the cost 

of comparable services other than in a case under this title; 

øand¿ 

(6) the fees and mileage payable under chapter 119 of title 

28ø.¿; 

(7) with respect to a nonresidential real property lease previously assumed under section 365, and subsequently rejected, 

a sum equal to all monetary obligations due, excluding those 

arising from or relating to a failure to operate or a penalty provision, for the period of 2 years following the later of the rejection date or the date of actual turnover of the premises, without 

reduction or setoff for any reason whatsoever except for sums 

actually received or to be received from an entity other than the 

218 

debtor, and the claim for remaining sums due for the balance 

of the term of the lease shall be a claim under section 502(b)(6); 

(8) the actual, necessary costs and expenses of closing a 

health care business incurred by a trustee or by a Federal agency (as defined in section 551(1) of title 5) or a department or 

agency of a State or political subdivision thereof, including any 

cost or expense incurred— (A) in disposing of patient records in accordance with 

section 351; or 

(B) in connection with transferring patients from the 

health care business that is in the process of being closed 

to another health care business; and 

(9) the value of any goods received by the debtor within 20 

days before the date of commencement of a case under this title 

in which the goods have been sold to the debtor in the ordinary 

course of such debtor’s business. 

(c) Notwithstanding subsection (b), there shall neither be allowed, nor paid— (1) a transfer made to, or an obligation incurred for the 

benefit of, an insider of the debtor for the purpose of inducing 

such person to remain with the debtor’s business, absent a finding by the court based on evidence in the record that— (A) the transfer or obligation is essential to retention of 

the person because the individual has a bona fide job offer 

from another business at the same or greater rate of compensation; 

(B) the services provided by the person are essential to 

the survival of the business; and 

(C) either— (i) the amount of the transfer made to, or obligation incurred for the benefit of, the person is not greater 

than an amount equal to 10 times the amount of the 

mean transfer or obligation of a similar kind given to 

nonmanagement employees for any purpose during the 

calendar year in which the transfer is made or the obligation is incurred; or 

(ii) if no such similar transfers were made to, or 

obligations were incurred for the benefit of, such nonmanagement employees during such calendar year, the 

amount of the transfer or obligation is not greater than 

an amount equal to 25 percent of the amount of any 

similar transfer or obligation made to or incurred for 

the benefit of such insider for any purpose during the 

calendar year before the year in which such transfer is 

made or obligation is incurred; 

(2) a severance payment to an insider of the debtor, unless—

(A) the payment is part of a program that is generally 

applicable to all full-time employees; and 

(B) the amount of the payment is not greater than 10 

times the amount of the mean severance pay given to nonmanagement employees during the calendar year in which 

the payment is made; or 

(3) other transfers or obligations that are outside the ordinary course of business and not justified by the facts and cirVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00222 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
219 

cumstances of the case, including transfers made to, or obligations incurred for the benefit of, officers, managers, or consultants hired after the date of the filing of the petition. 

§ 504. Sharing of compensation 

(a) * * * 

* * * * * * * 

(c) This section shall not apply with respect to sharing, or 

agreeing to share, compensation with a bona fide public service attorney referral program that operates in accordance with non-Federal law regulating attorney referral services and with rules of professional responsibility applicable to attorney acceptance of referrals. 

§ 505. Determination of tax liability 

(a)(1) * * * 

(2) The court may not so determine—

(A) the amount or legality of a tax, fine, penalty, or addition to tax if such amount or legality was contested before and 

adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the case under 

this title; øor¿ 

(B) any right of the estate to a tax refund, before the earlier of—

(i) * * * 

(ii) a determination by such governmental unit of such 

requestø.¿; or 

(C) the amount or legality of any amount arising in connection with an ad valorem tax on real or personal property of the 

estate, if the applicable period for contesting or redetermining 

that amount under any law (other than a bankruptcy law) has 

expired. 

(b)(1)(A) The clerk shall maintain a list under which a Federal, 

State, or local governmental unit responsible for the collection of 

taxes within the district may—

(i) designate an address for service of requests under this 

subsection; and 

(ii) describe where further information concerning additional requirements for filing such requests may be found. 

(B) If such governmental unit does not designate an address 

and provide such address to the clerk under subparagraph (A), any 

request made under this subsection may be served at the address for 

the filing of a tax return or protest with the appropriate taxing authority of such governmental unit. 

ø(b)¿ (2) A trustee may request a determination of any unpaid 

liability of the estate for any tax incurred during the administration of the case by submitting a tax return for such tax and a request for such a determination to the governmental unit charged 

with responsibility for collection or determination of such tax at the 

address and in the manner designated in paragraph (1). Unless 

such return is fraudulent, or contains a material misrepresentation, the estate, the trustee, the debtor, and any successor to the 

debtor are discharged from any liability for such tax—

220 

ø(1)¿ (A) upon payment of the tax shown on such return, 

if—

ø(A)¿ (i) such governmental unit does not notify the 

trustee, within 60 days after such request, that such return has been selected for examination; or 

ø(B)¿ (ii) such governmental unit does not complete 

such an examination and notify the trustee of any tax due, 

within 180 days after such request or within such additional time as the court, for cause, permits; 

ø(2)¿ (B) upon payment of the tax determined by the court, 

after notice and a hearing, after completion by such governmental unit of such examination; or 

ø(3)¿ (C) upon payment of the tax determined by such governmental unit to be due. 

§ 506. Determination of secured status 

(a)(1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff 

under section 553 of this title, is a secured claim to the extent of 

the value of such creditor’s interest in the estate’s interest in such 

property, or to the extent of the amount subject to setoff, as the 

case may be, and is an unsecured claim to the extent that the 

value of such creditor’s interest or the amount so subject to setoff 

is less than the amount of such allowed claim. Such value shall be 

determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with 

any hearing on such disposition or use or on a plan affecting such 

creditor’s interest. 

(2) If the debtor is an individual in a case under chapter 7 or 

13, such value with respect to personal property securing an allowed 

claim shall be determined based on the replacement value of such 

property as of the date of the filing of the petition without deduction 

for costs of sale or marketing. With respect to property acquired for 

personal, family, or household purposes, replacement value shall 

mean the price a retail merchant would charge for property of that 

kind considering the age and condition of the property at the time 

value is determined. 

(b) To the extent that an allowed secured claim is secured by 

property the value of which, after any recovery under subsection (c) 

of this section, is greater than the amount of such claim, there 

shall be allowed to the holder of such claim, interest on such claim, 

and any reasonable fees, costs, or charges provided for under the 

agreement or State statute under which such claim arose. 

(c) The trustee may recover from property securing an allowed 

secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit 

to the holder of such claim, including the payment of all ad valorem 

property taxes with respect to the property. 

* * * * * * * 

§ 507. Priorities 

(a) The following expenses and claims have priority in the following order: 

(1) First: 

221 

(A) Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in 

a case under this title, are owed to or recoverable by a 

spouse, former spouse, or child of the debtor, or such child’s 

parent, legal guardian, or responsible relative, without regard to whether the claim is filed by such person or is filed 

by a governmental unit on behalf of such person, on the 

condition that funds received under this paragraph by a 

governmental unit under this title after the date of the filing of the petition shall be applied and distributed in accordance with applicable nonbankruptcy law. 

(B) Subject to claims under subparagraph (A), allowed 

unsecured claims for domestic support obligations that, as 

of the date of the filing of the petition, are assigned by a 

spouse, former spouse, child of the debtor, or such child’s 

parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily 

by the spouse, former spouse, child, parent, legal guardian, 

or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by 

a governmental unit under applicable nonbankruptcy law, 

on the condition that funds received under this paragraph 

by a governmental unit under this title after the date of the 

filing of the petition be applied and distributed in accordance with applicable nonbankruptcy law. 

(C) If a trustee is appointed or elected under section 

701, 702, 703, 1104, 1202, or 1302, the administrative expenses of the trustee allowed under paragraphs (1)(A), (2), 

and (6) of section 503(b) shall be paid before payment of 

claims under subparagraphs (A) and (B), to the extent that 

the trustee administers assets that are otherwise available 

for the payment of such claims. 

ø(1) First¿ (2) Second, administrative expenses allowed 

under section 503(b) of this title, and any fees and charges assessed against the estate under chapter 123 of title 28. 

ø(2) Second¿ (3) Third, unsecured claims allowed under 

section 502(f) of this title. 

ø(3) Third¿ (4) Fourth, allowed unsecured claims, but only 

to the extent of ø$4,000¿ $10,000 for each individual or corporation, as the case may be, earned within ø90¿ 180 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first, for—

(A) * * * 

(B) sales commissions earned by an individual or by a 

corporation with only 1 employee, acting as an independent contractor in the sale of goods or services for the 

debtor in the ordinary course of the debtor’s business if, 

and only if, during the 12 months preceding that date, at 

least 75 percent of the amount that the individual or corporation earned by acting as an independent contractor in 

the sale of goods or services was earned from the 

debtorø;¿. 

ø(4) Fourth¿ (5) Fifth, allowed unsecured claims for contributions to an employee benefit plan—

(A) * * * 

222 

(B) for each such plan, to the extent of—

(i) the number of employees covered by each such 

plan multiplied by ø$4,000¿ $10,000; less 

(ii) the aggregate amount paid to such employees 

under paragraph ø(3)¿ (4) of this subsection, plus the 

aggregate amount paid by the estate on behalf of such 

employees to any other employee benefit plan. 

ø(5) Fifth¿ (6) Sixth, allowed unsecured claims of persons—

(A) * * * 

* * * * * * * 

ø(6) Sixth¿ (7) Seventh, allowed unsecured claims of individuals, to the extent of $1,800 for each such individual, arising from the deposit, before the commencement of the case, of 

money in connection with the purchase, lease, or rental of 

property, or the purchase of services, for the personal, family, 

or household use of such individuals, that were not delivered 

or provided. 

ø(7) Seventh, allowed claims for debts to a spouse, former 

spouse, or child of the debtor, for alimony to, maintenance for, 

or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of 

record, determination made in accordance with State or territorial law by a governmental unit, or property settlement 

agreement, but not to the extent that such debt—

ø(A) is assigned to another entity, voluntarily, by operation of law, or otherwise; or 

ø(B) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the 

nature of alimony, maintenance or support.¿ 

(8) Eighth, allowed unsecured claims of governmental 

units, only to the extent that such claims are for—

(A) a tax on or measured by income or gross receipts 

for a taxable year ending on or before the date of the filing 

of the petition—

(i) øfor 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; 

ø(ii) assessed within 240 days, plus any time plus 

30 days during which an offer in compromise with respect to such tax that was made within 240 days after 

such assessment was pending, before the date of the 

filing of the petition; or¿ 

(ii) assessed within 240 days before the date of the 

filing of the petition, exclusive of—

(I) any time during which an offer in compromise with respect to that tax was pending or in 

effect during that 240-day period, plus 30 days; 

and 

(II) any time during which a stay of proceedings against collections was in effect in a prior 

223 

case under this title during that 240-day period, 

plus 90 days. 

* * * * * * * 

(B) a property tax øassessed¿ incurred before the commencement of the case and last payable without penalty 

after one year before the date of the filing of the petition; 

* * * * * * * 

(D) an employment tax on a wage, salary, or commission of a kind specified in paragraph ø(3)¿ (4) of this subsection earned from the debtor before the date of the filing 

of the petition, whether or not actually paid before such 

date, for which a return is last due, under applicable law 

or under any extension, after three years before the date 

of the filing of the petition; 

* * * * * * * 

An otherwise applicable time period specified in this paragraph 

shall be suspended for any period during which a governmental 

unit is prohibited under applicable nonbankruptcy law from 

collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed 

against the debtor, plus 90 days; plus any time during which 

the stay of proceedings was in effect in a prior case under this 

title or during which collection was precluded by the existence 

of 1 or more confirmed plans under this title, plus 90 days. 

* * * * * * * 

(10) Tenth, allowed claims for death or personal injury resulting from the operation of a motor vehicle or vessel if such 

operation was unlawful because the debtor was intoxicated from 

using alcohol, a drug, or another substance. 

(b) If the trustee, under section 362, 363, or 364 of this title, 

provides adequate protection of the interest of a holder of a claim 

secured by a lien on property of the debtor and if, notwithstanding 

such protection, such creditor has a claim allowable under subsection ø(a)(1)¿ (a)(2) of this section arising from the stay of action 

against such property under section 362 of this title, from the use, 

sale, or lease of such property under section 363 of this title, or 

from the granting of a lien under section 364(d) of this title, then 

such creditor’s claim under such subsection shall have priority over 

every other claim allowable under such subsection. 

* * * * * * * 

(d) An entity that is subrogated to the rights of a holder of a 

claim of a kind specified in subsection ø(a)(3)¿ (a)(1), (a)(4), (a)(5), 

(a)(6), (a)(7), (a)(8), or (a)(9) of this section is not subrogated to the 

right of the holder of such claim to priority under such subsection. 

§ 508. Effect of distribution other than under this title 

ø(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 

224 

under this title equal in value to the consideration received by such 

creditor in such foreign proceeding.¿ 

ø(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. 

* * * * * * * 

§ 511. Rate of interest on tax claims 

(a) If any provision of this title requires the payment of interest 

on a tax claim or on an administrative expense tax, or the payment 

of interest to enable a creditor to receive the present value of the allowed amount of a tax claim, the rate of interest shall be the rate 

determined under applicable nonbankruptcy law. 

(b) In the case of taxes paid under a confirmed plan under this 

title, the rate of interest shall be determined as of the calendar 

month in which the plan is confirmed. 

SUBCHAPTER II—DEBTOR’S DUTIES AND BENEFITS 

§ 521. Debtor’s duties 

(a) The debtor shall— ø(1) file a list of creditors, and unless the court orders otherwise, a schedule of assets and liabilities, a schedule of current income and current expenditures, and a statement of the 

debtor’s financial affairs;¿ 

(1) file—(A) a list of creditors; and 

(B) unless the court orders otherwise— (i) a schedule of assets and liabilities; 

(ii) a schedule of current income and current expenditures; 

(iii) a statement of the debtor’s financial affairs 

and, if section 342(b) applies, a certificate—

(I) of an attorney whose name is indicated on 

the petition as the attorney for the debtor, or a 

bankruptcy petition preparer signing the petition 

under section 110(b)(1), indicating that such attorney or the bankruptcy petition preparer delivered 

to the debtor the notice required by section 342(b); 

or 

(II) if no attorney is so indicated, and no 

bankruptcy petition preparer signed the petition, of 

the debtor that such notice was received and read 

by the debtor; 

(iv) copies of all payment advices or other evidence 

of payment received within 60 days before the date of 

the filing of the petition, by the debtor from any employer of the debtor; 

225 

(v) a statement of the amount of monthly net income, itemized to show how the amount is calculated; 

and 

(vi) a statement disclosing any reasonably anticipated increase in income or expenditures over the 12- 

month period following the date of the filing of the petition; 

(2) if an individual debtor’s schedule of assets and liabilities includes øconsumer¿ debts which are secured by property 

of the estate— (A) * * * 

(B) within øforty-five days after the filing of a notice 

of intent under this section¿ 30 days after the first date set 

for the meeting of creditors under section 341(a), or within 

such additional time as the court, for cause, within such 

øforty-five day¿ 30-day period fixes, the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; and 

(C) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor’s or the trustee’s rights with 

regard to such property under this title, except as provided 

in section 362(h); 

(3) if a trustee is serving in the case or an auditor serving 

under section 586(f) of title 28, cooperate with the trustee as 

necessary to enable the trustee to perform the trustee’s duties 

under this title; 

(4) if a trustee is serving in the case or an auditor serving 

under section 586(f) of title 28, surrender to the trustee all 

property of the estate and any recorded information, including 

books, documents, records, and papers, relating to property of 

the estate, whether or not immunity is granted under section 

344 of this titleø, and¿; 

(5) appear at the hearing required under section 524(d) of 

this titleø.¿; 

(6) in a case under chapter 7 of this title in which the debtor is an individual, not retain possession of personal property 

as to which a creditor has an allowed claim for the purchase 

price secured in whole or in part by an interest in such personal 

property unless the debtor, not later than 45 days after the first 

meeting of creditors under section 341(a), either—

(A) enters into an agreement with the creditor pursuant 

to section 524(c) with respect to the claim secured by such 

property; or 

(B) redeems such property from the security interest 

pursuant to section 722. 

(7) unless a trustee is serving in the case, continue to perform the obligations required of the administrator (as defined 

in section 3 of the Employee Retirement Income Security Act of 

1974) of an employee benefit plan if at the time of the commencement of the case the debtor (or any entity designated by 

the debtor) served as such administrator. 

If the debtor fails to so act within the 45-day period referred to in 

paragraph (6), the stay under section 362(a) is terminated with respect to the personal property of the estate or of the debtor which 

is affected, such property shall no longer be property of the estate, 

226 

and the creditor may take whatever action as to such property as 

is permitted by applicable nonbankruptcy law, unless the court determines on the motion of the trustee filed before the expiration of 

such 45-day period, and after notice and a hearing, that such property is of consequential value or benefit to the estate, orders appropriate adequate protection of the creditor’s interest, and orders the 

debtor to deliver any collateral in the debtor’s possession to the 

trustee. 

(b) In addition to the requirements under subsection (a), a debtor who is an individual shall file with the court—

(1) a certificate from the approved nonprofit budget and 

credit counseling agency that provided the debtor services under 

section 109(h) describing the services provided to the debtor; 

and 

(2) a copy of the debt repayment plan, if any, developed 

under section 109(h) through the approved nonprofit budget 

and credit counseling agency referred to in paragraph (1). 

(c) In addition to meeting the requirements under subsection 

(a), a debtor shall file with the court a record of any interest that 

a debtor has in an education individual retirement account (as defined in section 530(b)(1) of the Internal Revenue Code of 1986) or 

under a qualified State tuition program (as defined in section 

529(b)(1) of such Code). 

(d) If the debtor fails timely to take the action specified in subsection (a)(6) of this section, or in paragraphs (1) and (2) of section 

362(h), with respect to property which a lessor or bailor owns and 

has leased, rented, or bailed to the debtor or as to which a creditor 

holds a security interest not otherwise voidable under section 522(f), 

544, 545, 547, 548, or 549, nothing in this title shall prevent or 

limit the operation of a provision in the underlying lease or agreement that has the effect of placing the debtor in default under such 

lease or agreement by reason of the occurrence, pendency, or existence of a proceeding under this title or the insolvency of the debtor. 

Nothing in this subsection shall be deemed to justify limiting such 

a provision in any other circumstance. 

(e)(1) If the debtor in a case under chapter 7 or 13 is an individual and if a creditor files with the court at any time a request 

to receive a copy of the petition, schedules, and statement of financial affairs filed by the debtor, then the court shall make such petition, such schedules, and such statement available to such creditor. 

(2)(A) The debtor shall provide—

(i) not later than 7 days before the date first set for the first 

meeting of creditors, to the trustee a copy of the Federal income 

tax return required under applicable law (or at the election of 

the debtor, a transcript of such return) for the most recent tax 

year ending immediately before the commencement of the case 

and for which a Federal income tax return was filed; and 

(ii) at the same time the debtor complies with clause (i), a 

copy of such return (or if elected under clause (i), such transcript) to any creditor that timely requests such copy. 

(B) If the debtor fails to comply with clause (i) or (ii) of subparagraph (A), the court shall dismiss the case unless the debtor 

demonstrates that the failure to so comply is due to circumstances 

beyond the control of the debtor. 

227 

(C) If a creditor requests a copy of such tax return or such transcript and if the debtor fails to provide a copy of such tax return 

or such transcript to such creditor at the time the debtor provides 

such tax return or such transcript to the trustee, then the court shall 

dismiss the case unless the debtor demonstrates that the failure to 

provide a copy of such tax return or such transcript is due to circumstances beyond the control of the debtor. 

(3) If a creditor in a case under chapter 13 files with the court 

at any time a request to receive a copy of the plan filed by the debtor, then the court shall make available to such creditor a copy of 

the plan—

(A) at a reasonable cost; and 

(B) not later than 5 days after such request is filed. 

(f) At the request of the court, the United States trustee, or any 

party in interest in a case under chapter 7, 11, or 13, a debtor who 

is an individual shall file with the court— (1) at the same time filed with the taxing authority, a copy 

of each Federal income tax return required under applicable 

law (or at the election of the debtor, a transcript of such tax return) with respect to each tax year of the debtor ending while 

the case is pending under such chapter; 

(2) at the same time filed with the taxing authority, each 

Federal income tax return required under applicable law (or at 

the election of the debtor, a transcript of such tax return) that 

had not been filed with such authority as of the date of the commencement of the case and that was subsequently filed for any 

tax year of the debtor ending in the 3-year period ending on the 

date of the commencement of the case; 

(3) a copy of each amendment to any Federal income tax return or transcript filed with the court under paragraph (1) or 

(2); and 

(4) in a case under chapter 13— (A) on the date that is either 90 days after the end of 

such tax year or 1 year after the date of the commencement 

of the case, whichever is later, if a plan is not confirmed 

before such later date; and 

(B) annually after the plan is confirmed and until the 

case is closed, not later than the date that is 45 days before 

the anniversary of the confirmation of the plan; 

a statement, under penalty of perjury, of the income and expenditures of the debtor during the tax year of the debtor most 

recently concluded before such statement is filed under this 

paragraph, and of the monthly income of the debtor, that shows 

how income, expenditures, and monthly income are calculated. 

(g)(1) A statement referred to in subsection (f)(4) shall disclose—

(A) the amount and sources of the income of the debtor; 

(B) the identity of any person responsible with the debtor 

for the support of any dependent of the debtor; and 

(C) the identity of any person who contributed, and the 

amount contributed, to the household in which the debtor resides. 

(2) The tax returns, amendments, and statement of income and 

expenditures described in subsections (e)(2)(A) and (f) shall be available to the United States trustee (or the bankruptcy administrator, 

if any), the trustee, and any party in interest for inspection and 

228 

copying, subject to the requirements of section 315(c) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. 

(h) If requested by the United States trustee or by the trustee, 

the debtor shall provide— (1) a document that establishes the identity of the debtor, 

including a driver’s license, passport, or other document that 

contains a photograph of the debtor; or 

(2) such other personal identifying information relating to 

the debtor that establishes the identity of the debtor. 

(i)(1) Subject to paragraphs (2) and (4) and notwithstanding 

section 707(a), if an individual debtor in a voluntary case under 

chapter 7 or 13 fails to file all of the information required under 

subsection (a)(1) within 45 days after the date of the filing of the 

petition, the case shall be automatically dismissed effective on the 

46th day after the date of the filing of the petition. 

(2) Subject to paragraph (4) and with respect to a case described in paragraph (1), any party in interest may request the court 

to enter an order dismissing the case. If requested, the court shall 

enter an order of dismissal not later than 5 days after such request. 

(3) Subject to paragraph (4) and upon request of the debtor 

made within 45 days after the date of the filing of the petition described in paragraph (1), the court may allow the debtor an additional period of not to exceed 45 days to file the information required under subsection (a)(1) if the court finds justification for extending the period for the filing. 

(4) Notwithstanding any other provision of this subsection, on 

the motion of the trustee filed before the expiration of the applicable 

period of time specified in paragraph (1), (2), or (3), and after notice 

and a hearing, the court may decline to dismiss the case if the court 

finds that the debtor attempted in good faith to file all the information required by subsection (a)(1)(B)(iv) and that the best interests 

of creditors would be served by administration of the case. 

(j)(1) Notwithstanding any other provision of this title, if the 

debtor fails to file a tax return that becomes due after the commencement of the case or to properly obtain an extension of the due 

date for filing such return, the taxing authority may request that the 

court enter an order converting or dismissing the case. 

(2) If the debtor does not file the required return or obtain the 

extension referred to in paragraph (1) within 90 days after a request 

is filed by the taxing authority under that paragraph, the court 

shall convert or dismiss the case, whichever is in the best interests 

of creditors and the estate. 

§ 522. Exemptions 

(a) * * * 

ø(b) Notwithstanding¿ (b)(1) Notwithstanding section 541 of 

this title, an individual debtor may exempt from property of the estate the property listed in either paragraph ø(1)¿ (2) or, in the alternative, paragraph ø(2)¿ (3) of this subsection. In joint cases filed 

under section 302 of this title and individual cases filed under section 301 or 303 of this title by or against debtors who are husband 

and wife, and whose estates are ordered to be jointly administered 

under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, 

one debtor may not elect to exempt property listed in paragraph 

ø(1)¿ (2) and the other debtor elect to exempt property listed in 

229 

paragraph ø(2)¿ (3) of this subsection. If the parties cannot agree 

on the alternative to be elected, they shall be deemed to elect paragraph ø(1)¿ (2), where such election is permitted under the law of 

the jurisdiction where the case is filed. øSuch property is—¿ 

ø(1) property that is specified under subsection (d) of this 

section, unless the State law that is applicable to the debtor 

under paragraph (2)(A) of this subsection specifically does not 

so authorize; or, in the alternative,¿ 

(2) Property listed in this paragraph is property that is specified 

under subsection (d), unless the State law that is applicable to the 

debtor under paragraph (3)(A) specifically does not so authorize. 

ø(2)(A) any property¿ 

(3) Property listed in this paragraph is—

(A) subject to subsections (o) and (p), any property that is 

exempt under Federal law, other than subsection (d) of this 

section, or State or local law that is applicable on the date of 

the filing of the petition at the place in which the debtor’s 

domicile has been located for the ø180 days¿ 730 days immediately preceding the date of the filing of the petitionø, or for 

a longer portion of such 180-day period than in any other 

place¿ or if the debtor’s domicile has not been located at a single State for such 730-day period, the place in which the debtor’s domicile was located for 180 days immediately preceding 

the 730-day period or for a longer portion of such 180-day period than in any other place; øand¿ 

(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 lawø.¿; and 

(C) retirement funds to the extent that those funds are in 

a fund or account that is exempt from taxation under section 

401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue 

Code of 1986. 

If the effect of the domiciliary requirement under subparagraph (A) 

is to render the debtor ineligible for any exemption, the debtor may 

elect to exempt property that is specified under subsection (d). 

(4) For purposes of paragraph (3)(C) and subsection (d)(12), the 

following shall apply: 

(A) If the retirement funds are in a retirement fund that 

has received a favorable determination under section 7805 of 

the Internal Revenue Code of 1986, and that determination is 

in effect as of the date of the filing of the petition in a case 

under this title, those funds shall be presumed to be exempt 

from the estate. 

(B) If the retirement funds are in a retirement fund that 

has not received a favorable determination under such section 

7805, those funds are exempt from the estate if the debtor demonstrates that—

(i) no prior determination to the contrary has been 

made by a court or the Internal Revenue Service; and 

(ii)(I) the retirement fund is in substantial compliance 

with the applicable requirements of the Internal Revenue 

Code of 1986; or 

230 

(II) the retirement fund fails to be in substantial compliance with the applicable requirements of the Internal 

Revenue Code of 1986 and the debtor is not materially responsible for that failure. 

(C) A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section 401, 403, 408, 

408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986, 

under section 401(a)(31) of the Internal Revenue Code of 1986, 

or otherwise, shall not cease to qualify for exemption under 

paragraph (3)(C) or subsection (d)(12) by reason of such direct 

transfer. 

(D)(i) Any distribution that qualifies as an eligible rollover 

distribution within the meaning of section 402(c) of the Internal 

Revenue Code of 1986 or that is described in clause (ii) shall 

not cease to qualify for exemption under paragraph (3)(C) or 

subsection (d)(12) by reason of such distribution. 

(ii) A distribution described in this clause is an amount 

that— (I) has been distributed from a fund or account that is 

exempt from taxation under section 401, 403, 408, 408A, 

414, 457, or 501(a) of the Internal Revenue Code of 1986; 

and 

(II) to the extent allowed by law, is deposited in such 

a fund or account not later than 60 days after the distribution of such amount. 

(c) Unless the case is dismissed, property exempted under this 

section is not liable during or after the case for any debt of the 

debtor that arose, or that is determined under section 502 of this 

title as if such debt had arisen, before the commencement of the 

case, except— ø(1) a debt of a kind specified in section 523(a)(1) or 

523(a)(5) of this title;¿ 

(1) a debt of a kind specified in paragraph (1) or (5) of section 523(a) (in which case, notwithstanding any provision of applicable nonbankruptcy law to the contrary, such property shall 

be liable for a debt of a kind specified in section 523(a)(5)); 

* * * * * * * 

(d) The following property may be exempted under subsection 

ø(b)(1)¿ (b)(2) of this section: 

(1) * * * 

* * * * * * * 

(12) Retirement funds to the extent that those funds are in 

a fund or account that is exempt from taxation under section 

401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue 

Code of 1986. 

* * * * * * * 

(f)(1) Notwithstanding any waiver of exemptions but subject to 

paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs 

an exemption to which the debtor would have been entitled under 

subsection (b) of this section, if such lien is—

(A) a judicial lien, other than a judicial lien that secures 

a debtø—

231 

ø(i) to a spouse, former spouse, or child of the debtor, 

for alimony to, maintenance for, or support of such spouse 

or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a 

governmental unit, or property settlement agreement; and 

ø(ii) to the extent that such debt— ø(I) is not assigned to another entity, voluntarily, 

by operation of law, or otherwise; and 

ø(II) includes a liability designated as alimony, 

maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support.; 

or¿ of a kind that is specified in section 523(a)(5); or 

* * * * * * * 

(4)(A) Subject to subparagraph (B), for purposes of paragraph 

(1)(B), the term ‘‘household goods’’ means— (i) clothing; 

(ii) furniture; 

(iii) appliances; 

(iv) 1 radio; 

(v) 1 television; 

(vi) 1 VCR; 

(vii) linens; 

(viii) china; 

(ix) crockery; 

(x) kitchenware; 

(xi) educational materials and educational equipment primarily for the use of minor dependent children of the debtor; 

(xii) medical equipment and supplies; 

(xiii) furniture exclusively for the use of minor children, or 

elderly or disabled dependents of the debtor; 

(xiv) personal effects (including the toys and hobby equipment of minor dependent children and wedding rings) of the 

debtor and the dependents of the debtor; and 

(xv) 1 personal computer and related equipment. 

(B) The term ‘‘household goods’’ does not include—

(i) works of art (unless by or of the debtor, or any relative 

of the debtor); 

(ii) electronic entertainment equipment with a fair market 

value of more than $500 in the aggregate (except 1 television, 

1 radio, and 1 VCR); 

(iii) items acquired as antiques with a fair market value of 

more than $500 in the aggregate; 

(iv) jewelry with a fair market value of more than $500 in 

the aggregate (except wedding rings); and 

(v) a computer (except as otherwise provided for in this section), motor vehicle (including a tractor or lawn tractor), boat, 

or a motorized recreational device, conveyance, vehicle, 

watercraft, or aircraft. 

* * * * * * * 

(g) Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that 

the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 

553 of this title, to the extent that the debtor could have exempted 

232 

such property under subsection (b) of this section if such property 

had not been transferred, if— (1) * * * 

(2) the debtor could have avoided such transfer under 

øsubsection (f)(2)¿ subsection (f)(1)(B) of this section. 

* * * * * * * 

(n) For assets in individual retirement accounts described in 

section 408 or 408A of the Internal Revenue Code of 1986, other 

than a simplified employee pension under section 408(k) of such 

Code or a simple retirement account under section 408(p) of such 

Code, the aggregate value of such assets exempted under this section, without regard to amounts attributable to rollover contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 

403(b)(8) of the Internal Revenue Code of 1986, and earnings thereon, shall not exceed $1,000,000 in a case filed by a debtor who is 

an individual, except that such amount may be increased if the interests of justice so require. 

(o) For purposes of subsection (b)(3)(A), and notwithstanding 

subsection (a), the value of an interest in— (1) real or personal property that the debtor or a dependent 

of the debtor uses as a residence; 

(2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence; 

(3) a burial plot for the debtor or a dependent of the debtor; 

or 

(4) real or personal property that the debtor or a dependent 

of the debtor claims as a homestead; 

shall be reduced to the extent that such value is attributable to any 

portion of any property that the debtor disposed of in the 10-year 

period ending on the date of the filing of the petition with the intent 

to hinder, delay, or defraud a creditor and that the debtor could not 

exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of. 

(p)(1) Except as provided in paragraph (2) of this subsection 

and sections 544 and 548, as a result of electing under subsection 

(b)(3)(A) to exempt property under State or local law, a debtor may 

not exempt any amount of interest that was acquired by the debtor 

during the 1215-day period preceding the date of the filing of the 

petition that exceeds in the aggregate $125,000 in value in— (A) real or personal property that the debtor or a dependent 

of the debtor uses as a residence; 

(B) a cooperative that owns property that the debtor or a 

dependent of the debtor uses as a residence; 

(C) a burial plot for the debtor or a dependent of the debtor; 

or 

(D) real or personal property that the debtor or dependent 

of the debtor claims as a homestead. 

(2)(A) The limitation under paragraph (1) shall not apply to an 

exemption claimed under subsection (b)(3)(A) by a family farmer for 

the principal residence of such farmer. 

(B) For purposes of paragraph (1), any amount of such interest 

does not include any interest transferred from a debtor’s previous 

principal residence (which was acquired prior to the beginning of 

such 1215-day period) into the debtor’s current principal residence, 

233 

if the debtor’s previous and current residences are located in the 

same State. 

(q)(1) As a result of electing under subsection (b)(3)(A) to exempt 

property under State or local law, a debtor may not exempt any 

amount of an interest in property described in subparagraphs (A), 

(B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate 

$125,000 if—(A) the court determines, after notice and a hearing, that 

the debtor has been convicted of a felony (as defined in section 

3156 of title 18), which under the circumstances, demonstrates 

that the filing of the case was an abuse of the provisions of this 

title; or 

(B) the debtor owes a debt arising from—

(i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 

1934), any State securities laws, or any regulation or order 

issued under Federal securities laws or State securities 

laws; 

(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities 

Exchange Act of 1934 or under section 6 of the Securities 

Act of 1933; 

(iii) any civil remedy under section 1964 of title 18; or 

(iv) any criminal act, intentional tort, or willful or 

reckless misconduct that caused serious physical injury or 

death to another individual in the preceding 5 years. 

(2) Paragraph (1) shall not apply to the extent the amount of 

an interest in property described in subparagraphs (A), (B), (C), and 

(D) of subsection (p)(1) is reasonably necessary for the support of the 

debtor and any dependent of the debtor. 

§ 523. Exceptions to discharge 

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 

1328(b) of this title does not discharge an individual debtor from 

any debt—

(1) for a tax or a customs duty—

(A) of the kind and for the periods specified in section 

ø507(a)(2)¿ 507(a)(3) or 507(a)(8) of this title, whether or 

not a claim for such tax was filed or allowed; 

(B) with respect to which a return, or equivalent report 

or notice, if required—

(i) was not filed or given; or 

(ii) was filed or given after the date on which such 

return, report, or notice was last due, under applicable 

law or under any extension, and after two years before 

the date of the filing of the petition; or 

* * * * * * * 

(2) for money, property, services, or an extension, renewal, 

or refinancing of credit, to the extent obtained by— (A) * * * 

* * * * * * * 

ø(C) for purposes of subparagraph (A) of this paragraph, consumer debts owed to a single creditor and aggreVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00237 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
234 

gating more than $1,000 for ‘‘luxury goods or services’’ incurred by an individual debtor on or within 60 days before 

the order for relief under this title, or cash advances aggregating more than $1,000 that are extensions of consumer credit under an open end credit plan obtained by an 

individual debtor on or within 60 days before the order for 

relief under this title, are presumed to be nondischargeable; ‘‘luxury goods or services’’ do not include goods or 

services reasonably acquired for the support or maintenance of the debtor or a dependent of the debtor; an extension of consumer credit under an open end credit plan is 

to be defined for purposes of this subparagraph as it is defined in the Consumer Credit Protection Act;¿ 

(C)(i) for purposes of subparagraph (A)—

(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 

days before the order for relief under this title are presumed to be nondischargeable; and (II) cash advances aggregating more than $750 

that are extensions of consumer credit under an open 

end credit plan obtained by an individual debtor on or 

within 70 days before the order for relief under this 

title, are presumed to be nondischargeable; and 

(ii) for purposes of this subparagraph—

(I) the terms ‘‘consumer’’, ‘‘credit’’, and ‘‘open end 

credit plan’’ have the same meanings as in section 103 

of the Truth in Lending Act; and 

(II) the term ‘‘luxury goods or services’’ does not include goods or services reasonably necessary for the 

support or maintenance of the debtor or a dependent of 

the debtor. 

* * * * * * * 

ø(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—

ø(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts 

assigned pursuant to section 408(a)(3) of the Social Security Act, or any such debt which has been assigned to the 

Federal Government or to a State or any political subdivision of such State); or 

ø(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support;¿ 

(5) for a domestic support obligation; 

* * * * * * * 

ø(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 

235 

received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph 

will impose an undue hardship on the debtor and the debtor’s 

dependents;¿ 

(8) unless excepting such debt from discharge under this 

paragraph would impose an undue hardship on the debtor and 

the debtor’s dependents, for— (A)(i) an educational benefit overpayment or loan 

made, insured, or guaranteed by a governmental unit, or 

made under any program funded in whole or in part by a 

governmental unit or nonprofit institution; or 

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or 

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal 

Revenue Code of 1986, incurred by a debtor who is an individual; 

(9) for death or personal injury caused by the debtor’s operation of a ømotor vehicle¿ motor vehicle, vessel, or aircraft if 

such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance; 

* * * * * * * 

(14A) incurred to pay a tax to a governmental unit, other 

than the United States, that would be nondischargeable under 

paragraph (1); 

(14B) incurred to pay fines or penalties imposed under Federal election law; 

(15) to a spouse, former spouse, or child of the debtor and 

not of the kind described in paragraph (5) that is incurred by 

the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order 

of a court of record, or a determination made in accordance 

with State or territorial law by a governmental unit øunless— ø(A) the debtor does not have the ability to pay such 

debt from income or property of the debtor not reasonably 

necessary to be expended for the maintenance or support 

of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or 

ø(B) discharging such debt would result in a benefit to 

the debtor that outweighs the detrimental consequences to 

a spouse, former spouse, or child of the debtor;¿; 

(16) for a fee or assessment that becomes due and payable 

after the order for relief to a membership association with respect to the debtor’s interest in a ødwelling¿ unit that has condominium ownership øor¿, in a share of a cooperative øhousing¿ corporation, øbut only if such fee or assessment is payable 

for a period during which— ø(A) the debtor physically occupied a dwelling unit in 

the condominium or cooperative project; or 

ø(B) the debtor rented the dwelling unit to a tenant 

and received payments from the tenant for such period,¿ 

or a lot in a homeowners association, for as long as the 

debtor or the trustee has a legal, equitable, or possessory 

236 

ownership interest in such unit, such corporation, or such 

lot, 

but nothing in this paragraph shall except from discharge the 

debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in 

a pending or subsequent bankruptcy case; 

(17) for a fee imposed øby a court¿ on a prisoner by any 

court for the filing of a case, motion, complaint, or appeal, or 

for other costs and expenses assessed with respect to such filing, regardless of an assertion of poverty by the debtor under 

øsection 1915(b) or (f)¿ subsection (b) or (f)(2) of section 1915 

of title 28 (or a similar non-Federal law), or the debtor’s status 

as a prisoner, as defined in section 1915(h) of title 28 (or a 

similar non-Federal law); 

ø(18) owed under State law to a State or municipality that 

is—

ø(A) in the nature of support, and 

ø(B) enforceable under part D of title IV of the Social 

Security Act (42 U.S.C. 601 et seq.); or¿ 

(18) owed to a pension, profit-sharing, stock bonus, or other 

plan established under section 401, 403, 408, 408A, 414, 457, 

or 501(c) of the Internal Revenue Code of 1986, under— (A) a loan permitted under section 408(b)(1) of the Employee Retirement Income Security Act of 1974, or subject 

to section 72(p) of the Internal Revenue Code of 1986; or 

(B) a loan from a thrift savings plan permitted under 

subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title; 

but nothing in this paragraph may be construed to provide that 

any loan made under a governmental plan under section 

414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under 

this title; or 

(19) that— (A) * * * 

(B) results, before, on, or after the date on which the 

petition was filed, from— (i) * * * 

* * * * * * * 

For purposes of this subsection, the term ‘‘return’’ means a return 

that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return 

prepared pursuant to section 6020(a) of the Internal Revenue Code 

of 1986, or similar State or local law, or a written stipulation to a 

judgment or a final order entered by a nonbankruptcy tribunal, but 

does not include a return made pursuant to section 6020(b) of the 

Internal Revenue Code of 1986, or a similar State or local law. 

* * * * * * * 

(c)(1) Except as provided in subsection (a)(3)(B) of this section, 

the debtor shall be discharged from a debt of a kind specified in 

paragraph (2), (4), ø(6), or (15)¿ or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, 

and after notice and a hearing, the court determines such debt to 

237 

be excepted from discharge under paragraph (2), (4), ø(6), or (15)¿ 

or (6), as the case may be, of subsection (a) of this section. 

* * * * * * * 

(e) Any institution-affiliated party of øa insured¿ an insured 

depository institution shall be considered to be acting in a fiduciary 

capacity with respect to the purposes of subsection (a)(4) or (11). 

§ 524. Effect of discharge 

(a) A discharge in a case under this title— (1) * * * 

* * * * * * * 

(3) operates as an injunction against the commencement or 

continuation of an action, the employment of process, or an act, 

to collect or recover from, or offset against, property of the 

debtor of the kind specified in section 541(a)(2) of this title that 

is acquired after the commencement of the case, on account of 

any allowable community claim, except a community claim 

that is excepted from discharge under øsection 523, 1228(a)(1), 

or 1328(a)(1) of this title, or that¿ section 523, 1228(a)(1), or 

1328(a)(1), or that would be so excepted, determined in accordance with the provisions of sections 523(c) and 523(d) of this 

title, in a case concerning the debtor’s spouse commenced on 

the date of the filing of the petition in the case concerning the 

debtor, whether or not discharge of the debt based on such 

community claim is waived. 

* * * * * * * 

(c) An agreement between a holder of a claim and the debtor, 

the consideration for which, in whole or in part, is based on a debt 

that is dischargeable in a case under this title is enforceable only 

to any extent enforceable under applicable nonbankruptcy law, 

whether or not discharge of such debt is waived, only if— (1) * * * 

ø(2)(A) such agreement contains a clear and conspicuous 

statement which advises the debtor that the agreement may be 

rescinded at any time prior to discharge or within sixty days 

after such agreement is filed with the court, whichever occurs 

later, by giving notice of rescission to the holder of such claim; 

and 

ø(B) such agreement contains a clear and conspicuous 

statement which advises the debtor that such agreement is not 

required under this title, under nonbankruptcy law, or under 

any agreement not in accordance with the provisions of this 

subsection;¿ 

(2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the 

agreement; 

* * * * * * * 

(i) The willful failure of a creditor to credit payments received 

under a plan confirmed under this title, unless the order confirming 

the plan is revoked, the plan is in default, or the creditor has not 

received payments required to be made under the plan in the manner required by the plan (including crediting the amounts required 

under the plan), shall constitute a violation of an injunction under 

238 

subsection (a)(2) if the act of the creditor to collect and failure to 

credit payments in the manner required by the plan caused material 

injury to the debtor. 

(j) Subsection (a)(2) does not operate as an injunction against 

an act by a creditor that is the holder of a secured claim, if— (1) such creditor retains a security interest in real property 

that is the principal residence of the debtor; 

(2) such act is in the ordinary course of business between 

the creditor and the debtor; and 

(3) such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit 

of in rem relief to enforce the lien. 

(k)(1) The disclosures required under subsection (c)(2) shall consist of the disclosure statement described in paragraph (3), completed as required in that paragraph, together with the agreement 

specified in subsection (c), statement, declaration, motion and order 

described, respectively, in paragraphs (4) through (8), and shall be 

the only disclosures required in connection with entering into such 

agreement. 

(2) Disclosures made under paragraph (1) shall be made clearly 

and conspicuously and in writing. The terms ‘‘Amount Reaffirmed’’ and ‘‘Annual Percentage Rate’’ shall be disclosed more conspicuously than other terms, data or information provided in connection 

with this disclosure, except that the phrases ‘‘Before agreeing to reaffirm a debt, review these important disclosures’’ and ‘‘Summary of 

Reaffirmation Agreement’’ may be equally conspicuous. Disclosures 

may be made in a different order and may use terminology different 

from that set forth in paragraphs (2) through (8), except that the 

terms ‘‘Amount Reaffirmed’’ and ‘‘Annual Percentage Rate’’ must be 

used where indicated. 

(3) The disclosure statement required under this paragraph 

shall consist of the following: 

(A) The statement: ‘‘Part A: Before agreeing to reaffirm a 

debt, review these important disclosures:’’; 

(B) Under the heading ‘‘Summary of Reaffirmation Agreement’’, the statement: ‘‘This Summary is made pursuant to the 

requirements of the Bankruptcy Code’’; 

(C) The ‘‘Amount Reaffirmed’’, using that term, which shall 

be—

(i) the total amount of debt that the debtor agrees to reaffirm by entering into an agreement of the kind specified 

in subsection (c), and 

(ii) the total of any fees and costs accrued as of the date 

of the disclosure statement, related to such total amount. 

(D) In conjunction with the disclosure of the ‘‘Amount Reaffirmed’’, the statements—

(i) ‘‘The amount of debt you have agreed to reaffirm’’; 

and 

(ii) ‘‘Your credit agreement may obligate you to pay additional amounts which may come due after the date of this 

disclosure. Consult your credit agreement.’’. 

(E) The ‘‘Annual Percentage Rate’’, using that term, which 

shall be disclosed as—

(i) if, at the time the petition is filed, the debt is an extension of credit under an open end credit plan, as the 

239 

terms ‘‘credit’’ and ‘‘open end credit plan’’ are defined in 

section 103 of the Truth in Lending Act, then—

(I) the annual percentage rate determined under 

paragraphs (5) and (6) of section 127(b) of the Truth 

in Lending Act, as applicable, as disclosed to the debtor in the most recent periodic statement prior to entering into an agreement of the kind specified in subsection (c) or, if no such periodic statement has been 

given to the debtor during the prior 6 months, the annual percentage rate as it would have been so disclosed 

at the time the disclosure statement is given to the 

debtor, or to the extent this annual percentage rate is 

not readily available or not applicable, then 

(II) the simple interest rate applicable to the 

amount reaffirmed as of the date the disclosure statement is given to the debtor, or if different simple interest rates apply to different balances, the simple interest 

rate applicable to each such balance, identifying the 

amount of each such balance included in the amount 

reaffirmed, or 

(III) if the entity making the disclosure elects, to 

disclose the annual percentage rate under subclause (I) 

and the simple interest rate under subclause (II); or 

(ii) if, at the time the petition is filed, the debt is an 

extension of credit other than under an open end credit 

plan, as the terms ‘‘credit’’ and ‘‘open end credit plan’’ are 

defined in section 103 of the Truth in Lending Act, then—

(I) the annual percentage rate under section 

128(a)(4) of the Truth in Lending Act, as disclosed to 

the debtor in the most recent disclosure statement given 

to the debtor prior to the entering into an agreement of 

the kind specified in subsection (c) with respect to the 

debt, or, if no such disclosure statement was given to 

the debtor, the annual percentage rate as it would have 

been so disclosed at the time the disclosure statement 

is given to the debtor, or to the extent this annual percentage rate is not readily available or not applicable, 

then 

(II) the simple interest rate applicable to the 

amount reaffirmed as of the date the disclosure statement is given to the debtor, or if different simple interest rates apply to different balances, the simple interest 

rate applicable to each such balance, identifying the 

amount of such balance included in the amount reaffirmed, or 

(III) if the entity making the disclosure elects, to 

disclose the annual percentage rate under (I) and the 

simple interest rate under (II). 

(F) If the underlying debt transaction was disclosed as a 

variable rate transaction on the most recent disclosure given 

under the Truth in Lending Act, by stating ‘‘The interest rate 

on your loan may be a variable interest rate which changes 

from time to time, so that the annual percentage rate disclosed 

here may be higher or lower.’’. 

240 

(G) If the debt is secured by a security interest which has 

not been waived in whole or in part or determined to be void 

by a final order of the court at the time of the disclosure, by disclosing that a security interest or lien in goods or property is 

asserted over some or all of the debts the debtor is reaffirming 

and listing the items and their original purchase price that are 

subject to the asserted security interest, or if not a purchasemoney security interest then listing by items or types and the 

original amount of the loan. 

(H) At the election of the creditor, a statement of the repayment schedule using 1 or a combination of the following—

(i) by making the statement: ‘‘Your first payment in the 

amount of $lll is due on lll but the future payment 

amount may be different. Consult your reaffirmation agreement or credit agreement, as applicable.’’, and stating the 

amount of the first payment and the due date of that payment in the places provided; 

(ii) by making the statement: ‘‘Your payment schedule 

will be:’’, and describing the repayment schedule with the 

number, amount, and due dates or period of payments 

scheduled to repay the debts reaffirmed to the extent then 

known by the disclosing party; or 

(iii) by describing the debtor’s repayment obligations 

with reasonable specificity to the extent then known by the 

disclosing party. 

(I) The following statement: ‘‘Note: When this disclosure refers to what a creditor ‘may’ do, it does not use the word ‘may’

to give the creditor specific permission. The word ‘may’ is used 

to tell you what might occur if the law permits the creditor to 

take the action. If you have questions about your reaffirming a 

debt or what the law requires, consult with the attorney who 

helped you negotiate this agreement reaffirming a debt. If you 

don’t have an attorney helping you, the judge will explain the 

effect of your reaffirming a debt when the hearing on the reaffirmation agreement is held.’’. 

(J)(i) The following additional statements: 

‘‘Reaffirming a debt is a serious financial decision. The law requires you to take certain steps to make sure the decision is in your 

best interest. If these steps are not completed, the reaffirmation 

agreement is not effective, even though you have signed it. 

‘‘1. Read the disclosures in this Part A carefully. Consider 

the decision to reaffirm carefully. Then, if you want to reaffirm, 

sign the reaffirmation agreement in Part B (or you may use a 

separate agreement you and your creditor agree on). 

‘‘2. Complete and sign Part D and be sure you can afford 

to make the payments you are agreeing to make and have received a copy of the disclosure statement and a completed and 

signed reaffirmation agreement. 

‘‘3. If you were represented by an attorney during the negotiation of your reaffirmation agreement, the attorney must have 

signed the certification in Part C. 

‘‘4. If you were not represented by an attorney during the 

negotiation of your reaffirmation agreement, you must have 

completed and signed Part E. 

241 

‘‘5. The original of this disclosure must be filed with the 

court by you or your creditor. If a separate reaffirmation agreement (other than the one in Part B) has been signed, it must 

be attached. ‘‘6. If you were represented by an attorney during the negotiation of your reaffirmation agreement, your reaffirmation 

agreement becomes effective upon filing with the court unless 

the reaffirmation is presumed to be an undue hardship as explained in Part D. ‘‘7. If you were not represented by an attorney during the 

negotiation of your reaffirmation agreement, it will not be effective unless the court approves it. The court will notify you of the 

hearing on your reaffirmation agreement. You must attend this 

hearing in bankruptcy court where the judge will review your 

reaffirmation agreement. The bankruptcy court must approve 

your reaffirmation agreement as consistent with your best interests, except that no court approval is required if your reaffirmation agreement is for a consumer debt secured by a mortgage, 

deed of trust, security deed, or other lien on your real property, 

like your home. 

‘‘Your right to rescind (cancel) your reaffirmation agreement. 

You may rescind (cancel) your reaffirmation agreement at any time 

before the bankruptcy court enters a discharge order, or before the 

expiration of the 60-day period that begins on the date your reaffirmation agreement is filed with the court, whichever occurs later. To 

rescind (cancel) your reaffirmation agreement, you must notify the 

creditor that your reaffirmation agreement is rescinded (or canceled). ‘‘What are your obligations if you reaffirm the debt? A reaffirmed debt remains your personal legal obligation. It is not discharged in your bankruptcy case. That means that if you default on 

your reaffirmed debt after your bankruptcy case is over, your creditor may be able to take your property or your wages. Otherwise, 

your obligations will be determined by the reaffirmation agreement 

which may have changed the terms of the original agreement. For 

example, if you are reaffirming an open end credit agreement, the 

creditor may be permitted by that agreement or applicable law to 

change the terms of that agreement in the future under certain conditions. 

‘‘Are you required to enter into a reaffirmation agreement by 

any law? No, you are not required to reaffirm a debt by any law. 

Only agree to reaffirm a debt if it is in your best interest. Be sure 

you can afford the payments you agree to make. 

‘‘What if your creditor has a security interest or lien? Your 

bankruptcy discharge does not eliminate any lien on your property. 

A ‘lien’ is often referred to as a security interest, deed of trust, mortgage or security deed. Even if you do not reaffirm and your personal 

liability on the debt is discharged, because of the lien your creditor 

may still have the right to take the security property if you do not 

pay the debt or default on it. If the lien is on an item of personal 

property that is exempt under your State’s law or that the trustee 

has abandoned, you may be able to redeem the item rather than reaffirm the debt. To redeem, you make a single payment to the creditor equal to the current value of the security property, as agreed by 

the parties or determined by the court.’’. 

242 

(ii) In the case of a reaffirmation under subsection (m)(2), 

numbered paragraph 6 in the disclosures required by clause (i) 

of this subparagraph shall read as follows: 

‘‘6. If you were represented by an attorney during the negotiation of your reaffirmation agreement, your reaffirmation 

agreement becomes effective upon filing with the court.’’. 

(4) The form of such agreement required under this paragraph 

shall consist of the following: 

‘‘Part B: Reaffirmation Agreement. I (we) agree to reaffirm the 

debts arising under the credit agreement described below. 

‘‘Brief description of credit agreement: 

‘‘Description of any changes to the credit agreement made as 

part of this reaffirmation agreement: 

‘‘Signature: Date: 

‘‘Borrower: 

‘‘Co-borrower, if also reaffirming these debts: 

‘‘Accepted by creditor: 

‘‘Date of creditor acceptance:’’. 

(5) The declaration shall consist of the following: 

(A) The following certification: 

‘‘Part C: Certification by Debtor’s Attorney (If Any). 

‘‘I hereby certify that (1) this agreement represents a fully informed and voluntary agreement by the debtor; (2) this agreement 

does not impose an undue hardship on the debtor or any dependent 

of the debtor; and (3) I have fully advised the debtor of the legal 

effect and consequences of this agreement and any default under 

this agreement. 

‘‘Signature of Debtor’s Attorney: Date:’’. 

(B) If a presumption of undue hardship has been established with respect to such agreement, such certification shall 

state that in the opinion of the attorney, the debtor is able to 

make the payment. 

(C) In the case of a reaffirmation agreement under subsection 

(m)(2), subparagraph (B) is not applicable. 

(6)(A) The statement in support of such agreement, which the 

debtor shall sign and date prior to filing with the court, shall consist of the following: 

‘‘Part D: Debtor’s Statement in Support of Reaffirmation Agreement. 

‘‘1. I believe this reaffirmation agreement will not impose an 

undue hardship on my dependents or me. I can afford to make the 

payments on the reaffirmed debt because my monthly income (take 

home pay plus any other income received) is $lll, and my actual 

current monthly expenses including monthly payments on postbankruptcy debt and other reaffirmation agreements total $lll, 

leaving $lll to make the required payments on this reaffirmed 

debt. I understand that if my income less my monthly expenses does 

not leave enough to make the payments, this reaffirmation agreement is presumed to be an undue hardship on me and must be reviewed by the court. However, this presumption may be overcome if 

I explain to the satisfaction of the court how I can afford to make 

the payments here: lll. 

‘‘2. I received a copy of the Reaffirmation Disclosure Statement 

in Part A and a completed and signed reaffirmation agreement.’’. 

243 

(B) Where the debtor is represented by an attorney and is reaffirming a debt owed to a creditor defined in section 19(b)(1)(A)(iv) 

of the Federal Reserve Act, the statement of support of the reaffirmation agreement, which the debtor shall sign and date prior to filing 

with the court, shall consist of the following: ‘‘I believe this reaffirmation agreement is in my financial interest. I can afford to make the payments on the reaffirmed debt. I received a copy of the Reaffirmation Disclosure Statement in Part A 

and a completed and signed reaffirmation agreement.’’. (7) The motion that may be used if approval of such agreement 

by the court is required in order for it to be effective, shall be signed 

and dated by the movant and shall consist of the following: ‘‘Part E: Motion for Court Approval (To be completed only if the 

debtor is not represented by an attorney.). I (we), the debtor(s), affirm the following to be true and correct: ‘‘I am not represented by an attorney in connection with this reaffirmation agreement. ‘‘I believe this reaffirmation agreement is in my best interest 

based on the income and expenses I have disclosed in my Statement 

in Support of this reaffirmation agreement, and because (provide 

any additional relevant reasons the court should consider): ‘‘Therefore, I ask the court for an order approving this reaffirmation agreement.’’. (8) The court order, which may be used to approve such agreement, shall consist of the following: ‘‘Court Order: The court grants the debtor’s motion and approves the reaffirmation agreement described above.’’. (l) Notwithstanding any other provision of this title the following shall apply: 

(1) A creditor may accept payments from a debtor before 

and after the filing of an agreement of the kind specified in subsection (c) with the court. 

(2) A creditor may accept payments from a debtor under 

such agreement that the creditor believes in good faith to be effective. 

(3) The requirements of subsections (c)(2) and (k) shall be 

satisfied if disclosures required under those subsections are 

given in good faith. 

(m)(1) Until 60 days after an agreement of the kind specified in 

subsection (c) is filed with the court (or such additional period as 

the court, after notice and a hearing and for cause, orders before the 

expiration of such period), it shall be presumed that such agreement 

is an undue hardship on the debtor if the debtor’s monthly income 

less the debtor’s monthly expenses as shown on the debtor’s completed and signed statement in support of such agreement required 

under subsection (k)(6)(A) is less than the scheduled payments on 

the reaffirmed debt. This presumption shall be reviewed by the 

court. The presumption may be rebutted in writing by the debtor if 

the statement includes an explanation that identifies additional 

sources of funds to make the payments as agreed upon under the 

terms of such agreement. If the presumption is not rebutted to the 

satisfaction of the court, the court may disapprove such agreement. 

No agreement shall be disapproved without notice and a hearing to 

the debtor and creditor, and such hearing shall be concluded before 

the entry of the debtor’s discharge. 

244 

(2) This subsection does not apply to reaffirmation agreements 

where the creditor is a credit union, as defined in section 

19(b)(1)(A)(iv) of the Federal Reserve Act. 

§ 525. Protection against discriminatory treatment 

(a) * * * 

* * * * * * * 

(c)(1) A governmental unit that operates a student grant or 

loan program and a person engaged in a business that includes the 

making of loans guaranteed or insured under a student loan program may not deny a student grant, loan, loan guarantee, or loan 

insurance to a person that is or has been a debtor under this title 

or a bankrupt or debtor under the Bankruptcy Act, or another person with whom the debtor or bankrupt has been associated, because the debtor or bankrupt is or has been a debtor under this 

title or a bankrupt or debtor under the Bankruptcy Act, has been 

insolvent before the commencement of a case under this title or 

during the pendency of the case but before the debtor is granted 

or denied a discharge, or has not paid a debt that is dischargeable 

in the case under this title or that was discharged under the Bankruptcy Act. 

(2) In this section, ‘‘student loan program’’ means øthe program 

operated under part B, D, or E of¿ any program operated under 

title IV of the Higher Education Act of 1965 or a similar program 

operated under State or local law. 

§ 526. Restrictions on debt relief agencies 

(a) A debt relief agency shall not—

(1) fail to perform any service that such agency informed an 

assisted person or prospective assisted person it would provide 

in connection with a case or proceeding under this title; 

(2) make any statement, or counsel or advise any assisted 

person or prospective assisted person to make a statement in a 

document filed in a case or proceeding under this title, that is 

untrue and misleading, or that upon the exercise of reasonable 

care, should have been known by such agency to be untrue or 

misleading; 

(3) misrepresent to any assisted person or prospective assisted person, directly or indirectly, affirmatively or by material 

omission, with respect to—

(A) the services that such agency will provide to such 

person; or 

(B) the benefits and risks that may result if such person becomes a debtor in a case under this title; or 

(4) advise an assisted person or prospective assisted person 

to incur more debt in contemplation of such person filing a case 

under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing 

for or representing a debtor in a case under this title. 

(b) Any waiver by any assisted person of any protection or right 

provided under this section shall not be enforceable against the 

debtor by any Federal or State court or any other person, but may 

be enforced against a debt relief agency. 

245 

(c)(1) Any contract for bankruptcy assistance between a debt relief agency and an assisted person that does not comply with the 

material requirements of this section, section 527, or section 528 

shall be void and may not be enforced by any Federal or State court 

or by any other person, other than such assisted person. 

(2) Any debt relief agency shall be liable to an assisted person 

in the amount of any fees or charges in connection with providing 

bankruptcy assistance to such person that such debt relief agency 

has received, for actual damages, and for reasonable attorneys’ fees 

and costs if such agency is found, after notice and a hearing, to 

have— (A) intentionally or negligently failed to comply with any 

provision of this section, section 527, or section 528 with respect 

to a case or proceeding under this title for such assisted person; 

(B) provided bankruptcy assistance to an assisted person in 

a case or proceeding under this title that is dismissed or converted to a case under another chapter of this title because of 

such agency’s intentional or negligent failure to file any required document including those specified in section 521; or 

(C) intentionally or negligently disregarded the material requirements of this title or the Federal Rules of Bankruptcy Procedure applicable to such agency. 

(3) In addition to such other remedies as are provided under 

State law, whenever the chief law enforcement officer of a State, or 

an official or agency designated by a State, has reason to believe 

that any person has violated or is violating this section, the State— (A) may bring an action to enjoin such violation; 

(B) may bring an action on behalf of its residents to recover 

the actual damages of assisted persons arising from such violation, including any liability under paragraph (2); and 

(C) in the case of any successful action under subparagraph 

(A) or (B), shall be awarded the costs of the action and reasonable attorneys’ fees as determined by the court. 

(4) The district courts of the United States for districts located 

in the State shall have concurrent jurisdiction of any action under 

subparagraph (A) or (B) of paragraph (3). 

(5) Notwithstanding any other provision of Federal law and in 

addition to any other remedy provided under Federal or State law, 

if the court, on its own motion or on the motion of the United States 

trustee or the debtor, finds that a person intentionally violated this 

section, or engaged in a clear and consistent pattern or practice of 

violating this section, the court may—

(A) enjoin the violation of such section; or 

(B) impose an appropriate civil penalty against such person. 

(d) No provision of this section, section 527, or section 528 

shall—

(1) annul, alter, affect, or exempt any person subject to such 

sections from complying with any law of any State except to the 

extent that such law is inconsistent with those sections, and 

then only to the extent of the inconsistency; or 

(2) be deemed to limit or curtail the authority or ability—

(A) of a State or subdivision or instrumentality thereof, 

to determine and enforce qualifications for the practice of 

law under the laws of that State; or 

246 

(B) of a Federal court to determine and enforce the 

qualifications for the practice of law before that court. 

§ 527. Disclosures 

(a) A debt relief agency providing bankruptcy assistance to an 

assisted person shall provide—

(1) the written notice required under section 342(b)(1); and 

(2) to the extent not covered in the written notice described 

in paragraph (1), and not later than 3 business days after the 

first date on which a debt relief agency first offers to provide 

any bankruptcy assistance services to an assisted person, a 

clear and conspicuous written notice advising assisted persons 

that—

(A) all information that the assisted person is required 

to provide with a petition and thereafter during a case 

under this title is required to be complete, accurate, and 

truthful; 

(B) all assets and all liabilities are required to be completely and accurately disclosed in the documents filed to 

commence the case, and the replacement value of each asset 

as defined in section 506 must be stated in those documents 

where requested after reasonable inquiry to establish such 

value; 

(C) current monthly income, the amounts specified in 

section 707(b)(2), and, in a case under chapter 13 of this 

title, disposable income (determined in accordance with section 707(b)(2)), are required to be stated after reasonable 

inquiry; and 

(D) information that an assisted person provides during their case may be audited pursuant to this title, and 

that failure to provide such information may result in dismissal of the case under this title or other sanction, including a criminal sanction. 

(b) A debt relief agency providing bankruptcy assistance to an 

assisted person shall provide each assisted person at the same time 

as the notices required under subsection (a)(1) the following statement, to the extent applicable, or one substantially similar. The 

statement shall be clear and conspicuous and shall be in a single 

document separate from other documents or notices provided to the 

assisted person: 

‘‘IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER. 

‘‘If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help 

in some localities from a bankruptcy petition preparer who is not an 

attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN 

CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW 

MUCH IT WILL COST. Ask to see the contract before you hire anyone. 

‘‘The following information helps you understand what must be 

done in a routine bankruptcy case to help you evaluate how much 

247 

service you need. Although bankruptcy can be complex, many cases 

are routine. 

‘‘Before filing a bankruptcy case, either you or your attorney 

should analyze your eligibility for different forms of debt relief 

available under the Bankruptcy Code and which form of relief is 

most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, 

documents called a Petition, Schedules and Statement of Financial 

Affairs, as well as in some cases a Statement of Intention need to 

be prepared correctly and filed with the bankruptcy court. You will 

have to pay a filing fee to the bankruptcy court. Once your case 

starts, you will have to attend the required first meeting of creditors 

where you may be questioned by a court official called a ‘trustee’

and by creditors. 

‘‘If you choose to file a chapter 7 case, you may be asked by a 

creditor to reaffirm a debt. You may want help deciding whether to 

do so. A creditor is not permitted to coerce you into reaffirming your 

debts. 

‘‘If you choose to file a chapter 13 case in which you repay your 

creditors what you can afford over 3 to 5 years, you may also want 

help with preparing your chapter 13 plan and with the confirmation 

hearing on your plan which will be before a bankruptcy judge. 

‘‘If you select another type of relief under the Bankruptcy Code 

other than chapter 7 or chapter 13, you will want to find out what 

should be done from someone familiar with that type of relief. 

‘‘Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy 

court, but only attorneys, not bankruptcy petition preparers, can 

give you legal advice.’’. 

(c) Except to the extent the debt relief agency provides the required information itself after reasonably diligent inquiry of the assisted person or others so as to obtain such information reasonably 

accurately for inclusion on the petition, schedules or statement of financial affairs, a debt relief agency providing bankruptcy assistance 

to an assisted person, to the extent permitted by nonbankruptcy law, 

shall provide each assisted person at the time required for the notice 

required under subsection (a)(1) reasonably sufficient information 

(which shall be provided in a clear and conspicuous writing) to the 

assisted person on how to provide all the information the assisted 

person is required to provide under this title pursuant to section 

521, including—

(1) how to value assets at replacement value, determine current monthly income, the amounts specified in section 707(b)(2) 

and, in a chapter 13 case, how to determine disposable income 

in accordance with section 707(b)(2) and related calculations; 

(2) how to complete the list of creditors, including how to 

determine what amount is owed and what address for the creditor should be shown; and 

(3) how to determine what property is exempt and how to 

value exempt property at replacement value as defined in section 506. 

(d) A debt relief agency shall maintain a copy of the notices required under subsection (a) of this section for 2 years after the date 

on which the notice is given the assisted person. 

248 

§ 528. Requirements for debt relief agencies 

(a) A debt relief agency shall—

(1) not later than 5 business days after the first date on 

which such agency provides any bankruptcy assistance services 

to an assisted person, but prior to such assisted person’s petition under this title being filed, execute a written contract with 

such assisted person that explains clearly and conspicuously—

(A) the services such agency will provide to such assisted person; and 

(B) the fees or charges for such services, and the terms 

of payment; 

(2) provide the assisted person with a copy of the fully executed and completed contract; 

(3) clearly and conspicuously disclose in any advertisement 

of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public (whether in general media, 

seminars or specific mailings, telephonic or electronic messages, 

or otherwise) that the services or benefits are with respect to 

bankruptcy relief under this title; and 

(4) clearly and conspicuously use the following statement in 

such advertisement: ‘‘We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.’’ or a 

substantially similar statement. 

(b)(1) An advertisement of bankruptcy assistance services or of 

the benefits of bankruptcy directed to the general public includes—

(A) descriptions of bankruptcy assistance in connection with 

a chapter 13 plan whether or not chapter 13 is specifically mentioned in such advertisement; and 

(B) statements such as ‘‘federally supervised repayment 

plan’’ or ‘‘Federal debt restructuring help’’ or other similar 

statements that could lead a reasonable consumer to believe 

that debt counseling was being offered when in fact the services 

were directed to providing bankruptcy assistance with a chapter 

13 plan or other form of bankruptcy relief under this title. 

(2) An advertisement, directed to the general public, indicating 

that the debt relief agency provides assistance with respect to credit 

defaults, mortgage foreclosures, eviction proceedings, excessive debt, 

debt collection pressure, or inability to pay any consumer debt 

shall—

(A) disclose clearly and conspicuously in such advertisement that the assistance may involve bankruptcy relief under 

this title; and 

(B) include the following statement: ‘‘We are a debt relief 

agency. We help people file for bankruptcy relief under the 

Bankruptcy Code.’’ or a substantially similar statement. 

SUBCHAPTER III—THE ESTATE 

§ 541. Property of the estate 

(a) * * * 

(b) Property of the estate does not include—

(1) * * * 

* * * * * * * 

249 

(4) any interest of the debtor in liquid or gaseous hydrocarbons to the extent that— (A) * * * 

(B)(i) * * * 

(ii) but for the operation of this paragraph, the estate 

could include the interest referred to in clause (i) only by 

virtue of section 365 or 542 of this title; øor¿ 

(5) funds placed in an education individual retirement account (as defined in section 530(b)(1) of the Internal Revenue 

Code of 1986) not later than 365 days before the date of the filing of the petition in a case under this title, but— (A) only if the designated beneficiary of such account 

was a child, stepchild, grandchild, or stepgrandchild of the 

debtor for the taxable year for which funds were placed in 

such account; 

(B) only to the extent that such funds— (i) are not pledged or promised to any entity in 

connection with any extension of credit; and 

(ii) are not excess contributions (as described in 

section 4973(e) of the Internal Revenue Code of 1986); 

and 

(C) in the case of funds placed in all such accounts 

having the same designated beneficiary not earlier than 

720 days nor later than 365 days before such date, only so 

much of such funds as does not exceed $5,000; 

(6) funds used to purchase a tuition credit or certificate or 

contributed to an account in accordance with section 

529(b)(1)(A) of the Internal Revenue Code of 1986 under a 

qualified State tuition program (as defined in section 529(b)(1) 

of such Code) not later than 365 days before the date of the filing of the petition in a case under this title, but— (A) only if the designated beneficiary of the amounts 

paid or contributed to such tuition program was a child, 

stepchild, grandchild, or stepgrandchild of the debtor for 

the taxable year for which funds were paid or contributed; 

(B) with respect to the aggregate amount paid or contributed to such program having the same designated beneficiary, only so much of such amount as does not exceed the 

total contributions permitted under section 529(b)(7) of 

such Code with respect to such beneficiary, as adjusted beginning on the date of the filing of the petition in a case 

under this title by the annual increase or decrease (rounded 

to the nearest tenth of 1 percent) in the education expenditure category of the Consumer Price Index prepared by the 

Department of Labor; and 

(C) in the case of funds paid or contributed to such 

program having the same designated beneficiary not earlier 

than 720 days nor later than 365 days before such date, 

only so much of such funds as does not exceed $5,000; 

(7) any amount—

(A) withheld by an employer from the wages of employees for payment as contributions—

(i) to—

(I) an employee benefit plan that is subject to 

title I of the Employee Retirement Income Security 

250 

Act of 1974 or under an employee benefit plan 

which is a governmental plan under section 414(d) 

of the Internal Revenue Code of 1986; 

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or 

(III) a tax-deferred annuity under section 

403(b) of the Internal Revenue Code of 1986; 

except that such amount under this subparagraph 

shall not constitute disposable income as defined in 

section 1325(b)(2); or 

(ii) to a health insurance plan regulated by State 

law whether or not subject to such title; or 

(B) received by an employer from employees for payment as contributions— (i) to—

(I) an employee benefit plan that is subject to 

title I of the Employee Retirement Income Security 

Act of 1974 or under an employee benefit plan 

which is a governmental plan under section 414(d) 

of the Internal Revenue Code of 1986; 

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or 

(III) a tax-deferred annuity under section 

403(b) of the Internal Revenue Code of 1986; 

except that such amount under this subparagraph 

shall not constitute disposable income, as defined in 

section 1325(b)(2); or 

(ii) to a health insurance plan regulated by State 

law whether or not subject to such title; 

(8) subject to subchapter III of chapter 5, any interest of the 

debtor in property where the debtor pledged or sold tangible 

personal property (other than securities or written or printed 

evidences of indebtedness or title) as collateral for a loan or advance of money given by a person licensed under law to make 

such loans or advances, where— (A) the tangible personal property is in the possession 

of the pledgee or transferee; 

(B) the debtor has no obligation to repay the money, redeem the collateral, or buy back the property at a stipulated price; and 

(C) neither the debtor nor the trustee have exercised 

any right to redeem provided under the contract or State 

law, in a timely manner as provided under State law and 

section 108(b); or 

ø(5)¿ (9) any interest in cash or cash equivalents that constitute proceeds of a sale by the debtor of a money order that 

is made—

(A) * * * 

* * * * * * * 

(e) In determining whether any of the relationships specified in 

paragraph (5)(A) or (6)(A) of subsection (b) exists, a legally adopted 

child of an individual (and a child who is a member of an individual’s household, if placed with such individual by an authorized 

placement agency for legal adoption by such individual), or a foster 

child of an individual (if such child has as the child’s principal 

251 

place of abode the home of the debtor and is a member of the debtor’s household) shall be treated as a child of such individual by 

blood. 

(f) Notwithstanding any other provision of this title, property 

that is held by a debtor that is a corporation described in section 

501(c)(3) of the Internal Revenue Code of 1986 and exempt from tax 

under section 501(a) of such Code may be transferred to an entity 

that is not such a corporation, but only under the same conditions 

as would apply if the debtor had not filed a case under this title. 

* * * * * * * 

§ 545. Statutory liens 

The trustee may avoid the fixing of a statutory lien on property 

of the debtor to the extent that such lien—

(1) * * * 

(2) is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the 

case, whether or not such a purchaser exists, except in any case 

in which a purchaser is a purchaser described in section 6323 

of the Internal Revenue Code of 1986, or in any other similar 

provision of State or local law; 

* * * * * * * 

§ 546. Limitations on avoiding powers 

(a) * * * 

* * * * * * * 

ø(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—

ø(1) such a seller may not reclaim any such goods unless 

such seller demands in writing reclamation of such goods—

ø(A) before 10 days after receipt of such goods by the 

debtor; or 

ø(B) if such 10-day period expires after the commencement of the case, before 20 days after receipt of such goods 

by the debtor; and 

ø(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—

ø(A) grants the claim of such a seller priority as a 

claim of a kind specified in section 503(b) of this title; or 

ø(B) secures such claim by a lien.¿ 

(c)(1) Except as provided in subsection (d) of this section and 

in section 507(c), and subject to the prior rights of a holder of a security interest in such goods or the proceeds thereof, the rights and 

powers of the trustee under sections 544(a), 545, 547, and 549 are 

subject to the right of a seller of goods that has sold goods to the 

debtor, in the ordinary course of such seller’s business, to reclaim 

such goods if the debtor has received such goods while insolvent, 

252 

within 45 days before the date of the commencement of a case under 

this title, but such seller may not reclaim such goods unless such 

seller demands in writing reclamation of such goods—

(A) not later than 45 days after the date of receipt of such 

goods by the debtor; or 

(B) not later than 20 days after the date of commencement 

of the case, if the 45-day period expires after the commencement 

of the case. 

(2) If a seller of goods fails to provide notice in the manner described in paragraph (1), the seller still may assert the rights contained in section 503(b)(9). 

* * * * * * * 

(e) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 

548(b) of this title, the trustee may not avoid a transfer that is a 

margin payment, as defined in section 101, 741, or 761 of this title, 

or settlement payment, as defined in section 101 or 741 of this 

title, made by or to a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or 

securities clearing agency, that is made before the commencement 

of the case, except under section 548(a)(1)(A) of this title. 

(f) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 

548(b) of this title, the trustee may not avoid a transfer that is a 

margin payment, as defined in section 741 or 761 of this title, or 

settlement payment, as defined in section 741 of this title, made by 

or to a repo participant or financial participant, in connection with 

a repurchase agreement and that is made before the commencement of the case, except under section 548(a)(1)(A) of this title. 

(g) Notwithstanding sections 544, 545, 547, 548(a)(1)(B) and 

548(b) of this title, the trustee may not avoid a transfer øunder a 

swap agreement¿, made by or to a swap participant or financial 

participant, øin connection with a swap agreement¿ under or in 

connection with any swap agreement and that is made before the 

commencement of the case, except under section 548(a)(1)(A) of this 

title. 

ø(g)¿ (h) Notwithstanding the rights and powers of a trustee 

under sections 544(a), 545, 547, 549, and 553, if the court determines on a motion by the trustee made not later than 120 days 

after the date of the order for relief in a case under chapter 11 of 

this title and after notice and a hearing, that a return is in the best 

interests of the estate, the debtor, with the consent of a creditor 

and subject to the prior rights of holders of security interests in such 

goods or the proceeds of such goods, may return goods shipped to 

the debtor by the creditor before the commencement of the case, 

and the creditor may offset the purchase price of such goods 

against any claim of the creditor against the debtor that arose before the commencement of the case. 

(i)(1) Notwithstanding paragraphs (2) and (3) of section 545, 

the trustee may not avoid a warehouseman’s lien for storage, transportation, or other costs incidental to the storage and handling of 

goods. 

(2) The prohibition under paragraph (1) shall be applied in a 

manner consistent with any State statute applicable to such lien 

that is similar to section 7–209 of the Uniform Commercial Code, 

as in effect on the date of enactment of the Bankruptcy Abuse PreVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00256 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
253 

vention and Consumer Protection Act of 2005, or any successor to 

such section 7–209. 

(j) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 

548(b) the trustee may not avoid a transfer made by or to a master 

netting agreement participant under or in connection with any master netting agreement or any individual contract covered thereby 

that is made before the commencement of the case, except under section 548(a)(1)(A) and except to the extent that the trustee could otherwise avoid such a transfer made under an individual contract 

covered by such master netting agreement. 

§ 547. Preferences 

(a) * * * 

(b) Except as provided in øsubsection (c)¿ subsections (c) and 

(i) of this section, the trustee may avoid any transfer of an interest 

of the debtor in property—

(1) * * * 

* * * * * * * 

(c) The trustee may not avoid under this section a transfer—

(1) * * * 

ø(2) to the extent that such transfer was—

ø(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; 

ø(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and 

ø(C) made according to ordinary business terms;¿ 

(2) to the extent that such transfer was in payment of a 

debt incurred by the debtor in the ordinary course of business 

or financial affairs of the debtor and the transferee, and such 

transfer was— (A) made in the ordinary course of business or financial affairs of the debtor and the transferee; or 

(B) made according to ordinary business terms; 

(3) that creates a security interest in property acquired by 

the debtor—

(A) * * * 

(B) that is perfected on or before ø20¿ 30 days after 

the debtor receives possession of such property; 

* * * * * * * 

ø(7) to the extent such transfer was a bona fide payment 

of a debt to a spouse, former spouse, or child of the debtor, for 

alimony to, maintenance for, or support of such spouse or child, 

in connection with a separation agreement, divorce decree or 

other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or 

property settlement agreement, but not to the extent that such 

debt—

ø(A) is assigned to another entity, voluntarily, by operation of law, or otherwise; or 

ø(B) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the 

nature of alimony, maintenance or support; or¿ 

254 

(7) to the extent such transfer was a bona fide payment of 

a debt for a domestic support obligation; 

(8) if, in a case filed by an individual debtor whose debts 

are primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than 

$600ø.¿; or 

(9) if, in a case filed by a debtor whose debts are not primarily consumer debts, the aggregate value of all property that 

constitutes or is affected by such transfer is less than $5,000. 

* * * * * * * 

(e)(1) * * * 

(2) For the purposes of this section, except as provided in paragraph (3) of this subsection, a transfer is made—

(A) at the time such transfer takes effect between the 

transferor and the transferee, if such transfer is perfected at, 

or within ø10¿ 30 days after, such time, except as provided in 

subsection (c)(3)(B); 

(B) at the time such transfer is perfected, if such transfer 

is perfected after such ø10¿ 30 days; or 

(C) immediately before the date of the filing of the petition, 

if such transfer is not perfected at the later of—

(i) * * * 

(ii) ø10¿ 30 days after such transfer takes effect between the transferor and the transferee. 

* * * * * * * 

(h) The trustee may not avoid a transfer if such transfer was 

made as a part of an alternative repayment schedule between the 

debtor and any creditor of the debtor created by an approved nonprofit budget and credit counseling agency. 

(i) If the trustee avoids under subsection (b) a transfer made between 90 days and 1 year before the date of the filing of the petition, 

by the debtor to an entity that is not an insider for the benefit of 

a creditor that is an insider, such transfer shall be considered to be 

avoided under this section only with respect to the creditor that is 

an insider. 

§ 548. Fraudulent transfers and obligations 

(a)(1) The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) 

of an interest of the debtor in property, or any obligation (including 

any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred 

on or within øone year¿ 2 years before the date of the filing of the 

petition, if the debtor voluntarily or involuntarily— (A) * * * 

* * * * * * * 

(B)(i) * * * 

(ii)(I) * * * 

(II) was engaged in business or a transaction, or was about 

to engage in business or a transaction, for which any property 

remaining with the debtor was an unreasonably small capital; 

øor¿ 

255 

(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 maturedø.¿; or 

(IV) made such transfer to or for the benefit of an insider, 

or incurred such obligation to or for the benefit of an insider, 

under an employment contract and not in the ordinary course 

of business. 

* * * * * * * 

(b) The trustee of a partnership debtor may avoid any transfer 

of an interest of the debtor in property, or any obligation incurred 

by the debtor, that was made or incurred on or within øone year¿ 

2 years before the date of the filing of the petition, to a general 

partner in the debtor, if the debtor was insolvent on the date such 

transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation. 

* * * * * * * 

(d)(1) * * * 

(2) In this section—

(A) * * * 

(B) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities 

clearing agency that receives a margin payment, as defined in 

section 101, 741, or 761 of this title, or settlement payment, as 

defined in section 101 or 741 of this title, takes for value to the 

extent of such payment; 

(C) a repo participant or financial participant that receives 

a margin payment, as defined in section 741 or 761 of this 

title, or settlement payment, as defined in section 741 of this 

title, in connection with a repurchase agreement, takes for 

value to the extent of such payment; øand¿ 

(D) a swap participant or financial participant that receives a transfer in connection with a swap agreement takes 

for value to the extent of such transferø.¿; and 

(E) a master netting agreement participant that receives a 

transfer in connection with a master netting agreement or any 

individual contract covered thereby takes for value to the extent 

of such transfer, except that, with respect to a transfer under 

any individual contract covered thereby, to the extent that such 

master netting agreement participant otherwise did not take (or 

is otherwise not deemed to have taken) such transfer for value. 

* * * * * * * 

(e)(1) In addition to any transfer that the trustee may otherwise 

avoid, the trustee may avoid any transfer of an interest of the debtor 

in property that was made on or within 10 years before the date of 

the filing of the petition, if—

(A) such transfer was made to a self-settled trust or similar 

device; 

(B) such transfer was by the debtor; 

(C) the debtor is a beneficiary of such trust or similar device; and 

(D) the debtor made such transfer with actual intent to 

hinder, delay, or defraud any entity to which the debtor was or 

256 

became, on or after the date that such transfer was made, indebted. 

(2) For the purposes of this subsection, a transfer includes a 

transfer made in anticipation of any money judgment, settlement, 

civil penalty, equitable order, or criminal fine incurred by, or which 

the debtor believed would be incurred by— (A) any violation of the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 

78c(a)(47))), any State securities laws, or any regulation or 

order issued under Federal securities laws or State securities 

laws; or 

(B) fraud, deceit, or manipulation in a fiduciary capacity 

or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act 

of 1934 (15 U.S.C. 78l and 78o(d)) or under section 6 of the Securities Act of 1933 (15 U.S.C. 77f). 

* * * * * * * 

§ 549. Postpetition transactions 

(a) * * * 

* * * * * * * 

(c) The trustee may not avoid under subsection (a) of this section a transfer of an interest in real property to a good faith purchaser without knowledge of the commencement of the case and for 

present fair equivalent value unless a copy or notice of the petition 

was filed, where a transfer of an interest in such real property may 

be recorded to perfect such transfer, before such transfer is so perfected that a bona fide purchaser of øsuch property¿ such real 

property, against whom applicable law permits such transfer to be 

perfected, could not acquire an interest that is superior to øthe interest¿ such interest of such good faith purchaser. A good faith purchaser without knowledge of the commencement of the case and for 

less than present fair equivalent value has a lien on the property 

transferred to the extent of any present value given, unless a copy 

or notice of the petition was so filed before such transfer was so 

perfected. 

* * * * * * * 

§ 552. Postpetition effect of security interest 

(a) * * * 

(b)(1) Except as provided in sections 363, 506(c), 522, 544, 545, 

547, and 548 of this title, if the debtor and an entity entered into 

a security agreement before the commencement of the case and if 

the security interest created by such security agreement extends to 

property of the debtor acquired before the commencement of the 

case and to proceeds, øproduct¿ products, offspring, or profits of 

such property, then such security interest extends to such proceeds, 

øproduct¿ products, offspring, or profits acquired by the estate 

after the commencement of the case to the extent provided by such 

security agreement and by applicable nonbankruptcy law, except to 

any extent that the court, after notice and a hearing and based on 

the equities of the case, orders otherwise. 

* * * * * * * 

257 

§ 553. Setoff 

(a) Except as otherwise provided in this section and in sections 

362 and 363 of this title, this title does not affect any right of a 

creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title 

against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that—

(1) * * * 

(2) such claim was transferred, by an entity other than the 

debtor, to such creditor—

(A) * * * 

(B)(i) * * * 

(ii) while the debtor was insolvent (except for a setoff 

of a kind described in section 362(b)(6), 362(b)(7), 

362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561); or 

(3) the debt owed to the debtor by such creditor was incurred by such creditor—

(A) * * * 

* * * * * * * 

(C) for the purpose of obtaining a right of setoff 

against the debtor (except for a setoff of a kind described 

in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 

556, 559, 560, or 561). 

(b)(1) Except with respect to a setoff of a kind described in section 362(b)(6), 362(b)(7), ø362(b)(14),¿ 362(b)(17), 362(b)(27), 555, 

556, 559, 560, 561, 365(h), 546(h), or 365(i)(2) of this title, if a creditor offsets a mutual debt owing to the debtor against a claim 

against the debtor on or within 90 days before the date of the filing 

of the petition, then the trustee may recover from such creditor the 

amount so offset to the extent that any insufficiency on the date 

of such setoff is less than the insufficiency on the later of—

(A) * * * 

* * * * * * * 

ø§ 555. Contractual right to liquidate a securities contract¿ 

§ 555. Contractual right to liquidate, terminate, or accelerate 

a securities contract 

The exercise of a contractual right of a stockbroker, financial 

institution, financial participant, or securities clearing agency to 

cause the øliquidation¿ liquidation, termination, or acceleration of 

a securities contract, as defined in section 741 of this title, because 

of a condition of the kind specified in section 365(e)(1) of this title 

shall not be stayed, avoided, or otherwise limited by operation of 

any provision of this title or by order of a court or administrative 

agency in any proceeding under this title unless such order is authorized under the provisions of the Securities Investor Protection 

Act of 1970 or any statute administered by the Securities and Exchange Commission. øAs used in this section, the term ‘‘contractual 

right’’ includes a right set forth in a rule or bylaw of a national securities exchange, a national securities association, or a securities 

clearing agency.¿ As used in this section, the term ‘‘contractual 

right’’ includes a right set forth in a rule or bylaw of a derivatives 

clearing organization (as defined in the Commodity Exchange Act), 

258 

a multilateral clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a national 

securities exchange, a national securities association, a securities 

clearing agency, a contract market designated under the Commodity 

Exchange Act, a derivatives transaction execution facility registered 

under the Commodity Exchange Act, or a board of trade (as defined 

in the Commodity Exchange Act), or in a resolution of the governing 

board thereof, and a right, whether or not in writing, arising under 

common law, under law merchant, or by reason of normal business 

practice. 

ø§ 556. Contractual right to liquidate a commodities contract 

or forward contract¿ 

§ 556. Contractual right to liquidate, terminate, or accelerate 

a commodities contract or forward contract 

The contractual right of a commodity broker, financial participant, or forward contract merchant to cause the øliquidation¿ liquidation, termination, or acceleration of a commodity contract, as 

defined in section 761 of this title, or forward contract because of 

a condition of the kind specified in section 365(e)(1) of this title, 

and the right to a variation or maintenance margin payment received from a trustee with respect to open commodity contracts or 

forward contracts, shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by the order of 

a court in any proceeding under this title. øAs used in this section, 

the term ‘‘contractual right’’ includes a right set forth in a rule or 

bylaw of a clearing organization or contract market or in a resolution of the governing board thereof and a right,¿ As used in this 

section, the term ‘‘contractual right’’ includes a right set forth in a 

rule or bylaw of a derivatives clearing organization (as defined in 

the Commodity Exchange Act), a multilateral clearing organization 

(as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the Commodity Exchange Act, a derivatives transaction execution facility registered under the Commodity Exchange 

Act, or a board of trade (as defined in the Commodity Exchange 

Act) or in a resolution of the governing board thereof and a right, 

whether or not evidenced in writing, arising under common law, 

under law merchant or by reason of normal business practice. 

* * * * * * * 

ø§ 559. Contractual right to liquidate a repurchase agreement¿ 

§ 559. Contractual right to liquidate, terminate, or accelerate 

a repurchase agreement 

The exercise of a contractual right of a repo participant or financial participant to cause the øliquidation¿ liquidation, termination, or acceleration of a repurchase agreement because of a condition of the kind specified in section 365(e)(1) of this title shall not 

be stayed, avoided, or otherwise limited by operation of any provision of this title or by order of a court or administrative agency in 

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259 

broker or securities clearing agency, such order is authorized under 

the provisions of the Securities Investor Protection Act of 1970 or 

any statute administered by the Securities and Exchange Commission. In the event that a repo participant or financial participant 

liquidates one or more repurchase agreements with a debtor and 

under the terms of one or more such agreements has agreed to deliver assets subject to repurchase agreements to the debtor, any excess of the market prices received on liquidation of such assets (or 

if any such assets are not disposed of on the date of liquidation of 

such repurchase agreements, at the prices available at the time of 

liquidation of such repurchase agreements from a generally recognized source or the most recent closing bid quotation from such a 

source) over the sum of the stated repurchase prices and all expenses in connection with the liquidation of such repurchase agreements shall be deemed property of the estate, subject to the available rights of setoff. øAs used in this section, the term ‘‘contractual 

right’’ includes a right set forth in a rule or bylaw, applicable to 

each party to the repurchase agreement, of a national securities exchange, a national securities association, or a securities clearing 

agency, and a right,¿ As used in this section, the term ‘‘contractual 

right’’ includes a right set forth in a rule or bylaw of a derivatives 

clearing organization (as defined in the Commodity Exchange Act), 

a multilateral clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a national 

securities exchange, a national securities association, a securities 

clearing agency, a contract market designated under the Commodity 

Exchange Act, a derivatives transaction execution facility registered 

under the Commodity Exchange Act, or a board of trade (as defined 

in the Commodity Exchange Act) or in a resolution of the governing 

board thereof and a right, whether or not evidenced in writing, 

arising under common law, under law merchant or by reason of 

normal business practice. 

ø§ 560. Contractual right to terminate a swap agreement¿ 

§ 560. Contractual right to liquidate, terminate, or accelerate 

a swap agreement 

The exercise of any contractual right of any swap participant 

or financial participant to cause the øtermination of a swap agreement¿ liquidation, termination, or acceleration of one or more swap 

agreements because of a condition of the kind specified in section 

365(e)(1) of this title or to offset or net out any termination values 

or payment amounts arising under or øin connection with any 

swap agreement¿ in connection with the termination, liquidation, 

or acceleration of one or more swap agreements shall not be stayed, 

avoided, or otherwise limited by operation of any provision of this 

title or by order of a court or administrative agency in any proceeding under this title. øAs used in this section, the term ‘‘contractual right’’ includes a right,¿ As used in this section, the term ‘‘contractual right’’ includes a right set forth in a rule or bylaw of a derivatives clearing organization (as defined in the Commodity Exchange Act), a multilateral clearing organization (as defined in the 

Federal Deposit Insurance Corporation Improvement Act of 1991), a 

national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the 

260 

Commodity Exchange Act, a derivatives transaction execution facility registered under the Commodity Exchange Act, or a board of 

trade (as defined in the Commodity Exchange Act) or in a resolution 

of the governing board thereof and a right, whether or not evidenced in writing, arising under common law, under law merchant, 

or by reason of normal business practice. 

§ 561. Contractual right to terminate, liquidate, accelerate, 

or offset under a master netting agreement and 

across contracts; proceedings under chapter 15 

(a) Subject to subsection (b), the exercise of any contractual 

right, because of a condition of the kind specified in section 

365(e)(1), to cause the termination, liquidation, or acceleration of or 

to offset or net termination values, payment amounts, or other 

transfer obligations arising under or in connection with one or more 

(or the termination, liquidation, or acceleration of one or more)— (1) securities contracts, as defined in section 741(7); 

(2) commodity contracts, as defined in section 761(4); 

(3) forward contracts; 

(4) repurchase agreements; 

(5) swap agreements; or 

(6) master netting agreements, 

shall not be stayed, avoided, or otherwise limited by operation of 

any provision of this title or by any order of a court or administrative agency in any proceeding under this title. 

(b)(1) A party may exercise a contractual right described in subsection (a) to terminate, liquidate, or accelerate only to the extent 

that such party could exercise such a right under section 555, 556, 

559, or 560 for each individual contract covered by the master netting agreement in issue. 

(2) If a debtor is a commodity broker subject to subchapter IV 

of chapter 7— (A) a party may not net or offset an obligation to the debtor 

arising under, or in connection with, a commodity contract 

traded on or subject to the rules of a contract market designated 

under the Commodity Exchange Act or a derivatives transaction 

execution facility registered under the Commodity Exchange Act 

against any claim arising under, or in connection with, other 

instruments, contracts, or agreements listed in subsection (a) except to the extent that the party has positive net equity in the 

commodity accounts at the debtor, as calculated under such 

subchapter; and 

(B) another commodity broker may not net or offset an obligation to the debtor arising under, or in connection with, a 

commodity contract entered into or held on behalf of a customer 

of the debtor and traded on or subject to the rules of a contract 

market designated under the Commodity Exchange Act or a derivatives transaction execution facility registered under the 

Commodity Exchange Act against any claim arising under, or 

in connection with, other instruments, contracts, or agreements 

listed in subsection (a). 

(3) No provision of subparagraph (A) or (B) of paragraph (2) 

shall prohibit the offset of claims and obligations that arise under—

(A) a cross-margining agreement or similar arrangement 

that has been approved by the Commodity Futures Trading 

261 

Commission or submitted to the Commodity Futures Trading 

Commission under paragraph (1) or (2) of section 5c(c) of the 

Commodity Exchange Act and has not been abrogated or rendered ineffective by the Commodity Futures Trading Commission; or 

(B) any other netting agreement between a clearing organization (as defined in section 761) and another entity that has 

been approved by the Commodity Futures Trading Commission. 

(c) As used in this section, the term ‘‘contractual right’’ includes 

a right set forth in a rule or bylaw of a derivatives clearing organization (as defined in the Commodity Exchange Act), a multilateral 

clearing organization (as defined in the Federal Deposit Insurance 

Corporation Improvement Act of 1991), a national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the Commodity Exchange 

Act, a derivatives transaction execution facility registered under the 

Commodity Exchange Act, or a board of trade (as defined in the 

Commodity Exchange Act) or in a resolution of the governing board 

thereof, and a right, whether or not evidenced in writing, arising 

under common law, under law merchant, or by reason of normal 

business practice. 

(d) Any provisions of this title relating to securities contracts, 

commodity contracts, forward contracts, repurchase agreements, 

swap agreements, or master netting agreements shall apply in a 

case under chapter 15, so that enforcement of contractual provisions 

of such contracts and agreements in accordance with their terms 

will not be stayed or otherwise limited by operation of any provision 

of this title or by order of a court in any case under this title, and 

to limit avoidance powers to the same extent as in a proceeding 

under chapter 7 or 11 of this title (such enforcement not to be limited based on the presence or absence of assets of the debtor in the 

United States). 

§ 562. Timing of damage measurement in connection with 

swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements 

(a) If the trustee rejects a swap agreement, securities contract 

(as defined in section 741), forward contract, commodity contract 

(as defined in section 761), repurchase agreement, or master netting 

agreement pursuant to section 365(a), or if a forward contract merchant, stockbroker, financial institution, securities clearing agency, 

repo participant, financial participant, master netting agreement 

participant, or swap participant liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of 

the earlier of—

(1) the date of such rejection; or 

(2) the date or dates of such liquidation, termination, or acceleration. 

(b) If there are not any commercially reasonable determinants 

of value as of any date referred to in paragraph (1) or (2) of subsection (a), damages shall be measured as of the earliest subsequent 

date or dates on which there are commercially reasonable determinants of value. 

262 

(c) For the purposes of subsection (b), if damages are not measured as of the date or dates of rejection, liquidation, termination, or 

acceleration, and the forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant or the trustee objects to the timing of the measurement of 

damages—

(1) the trustee, in the case of an objection by a forward contract merchant, stockbroker, financial institution, securities 

clearing agency, repo participant, financial participant, master 

netting agreement participant, or swap participant; or 

(2) the forward contract merchant, stockbroker, financial 

institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap 

participant, in the case of an objection by the trustee, 

has the burden of proving that there were no commercially reasonable determinants of value as of such date or dates. 

CHAPTER 7—LIQUIDATION 

SUBCHAPTER I—OFFICERS AND ADMINISTRATION 

Sec. 

701. Interim trustee. 

* * * * * * * 

ø707. Dismissal.¿ 

707. Dismissal of a case or conversion to a case under chapter 11 or 13. 

SUBCHAPTER II—COLLECTION, LIQUIDATION, AND DISTRIBUTION OF THE 

ESTATE 

* * * * * * * 

ø728. Special tax provisions.¿ 

SUBCHAPTER III—STOCKBROKER LIQUIDATION 

* * * * * * * 

753. Stockbroker liquidation and forward contract merchants, commodity brokers, 

stockbrokers, financial institutions, financial participants, securities 

clearing agencies, swap participants, repo participants, and master netting agreement participants. 

SUBCHAPTER IV—COMMODITY BROKER LIQUIDATION 

* * * * * * * 

767. Commodity broker liquidation and forward contract merchants, commodity 

brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants. 

* * * * * * * 

SUBCHAPTER I—OFFICERS AND ADMINISTRATION 

* * * * * * * 

§ 704. Duties of trustee 

(a) The trustee shall—

(1) * * * 

* * * * * * * 

(8) if the business of the debtor is authorized to be operated, file with the court, with the United States trustee, and 

with any governmental unit charged with responsibility for colVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00266 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
263 

lection or determination of any tax arising out of such operation, periodic reports and summaries of the operation of such 

business, including a statement of receipts and disbursements, 

and such other information as the United States trustee or the 

court requires; øand¿ 

(9) make a final report and file a final account of the administration of the estate with the court and with the United 

States trusteeø.¿; 

(10) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (c); 

(11) if, at the time of the commencement of the case, the 

debtor (or any entity designated by the debtor) served as the administrator (as defined in section 3 of the Employee Retirement 

Income Security Act of 1974) of an employee benefit plan, continue to perform the obligations required of the administrator; 

and 

(12) use all reasonable and best efforts to transfer patients 

from a health care business that is in the process of being 

closed to an appropriate health care business that—

(A) is in the vicinity of the health care business that is 

closing; 

(B) provides the patient with services that are substantially similar to those provided by the health care business 

that is in the process of being closed; and 

(C) maintains a reasonable quality of care. 

(b)(1) With respect to a debtor who is an individual in a case 

under this chapter—

(A) the United States trustee (or the bankruptcy administrator, if any) shall review all materials filed by the debtor and, 

not later than 10 days after the date of the first meeting of 

creditors, file with the court a statement as to whether the debtor’s case would be presumed to be an abuse under section 

707(b); and 

(B) not later than 5 days after receiving a statement under 

subparagraph (A), the court shall provide a copy of the statement to all creditors. 

(2) The United States trustee (or bankruptcy administrator, if 

any) shall, not later than 30 days after the date of filing a statement 

under paragraph (1), either file a motion to dismiss or convert 

under section 707(b) or file a statement setting forth the reasons the 

United States trustee (or the bankruptcy administrator, if any) does 

not consider such a motion to be appropriate, if the United States 

trustee (or the bankruptcy administrator, if any) determines that the 

debtor’s case should be presumed to be an abuse under section 

707(b) and the product of the debtor’s current monthly income, multiplied by 12 is not less than—

(A) in the case of a debtor in a household of 1 person, the 

median family income of the applicable State for 1 earner; or 

(B) in the case of a debtor in a household of 2 or more individuals, the highest median family income of the applicable 

State for a family of the same number or fewer individuals. 

(c)(1) In a case described in subsection (a)(10) to which subsection (a)(10) applies, the trustee shall—

264 

(A)(i) provide written notice to the holder of the claim described in subsection (a)(10) of such claim and of the right of 

such holder to use the services of the State child support enforcement agency established under sections 464 and 466 of the 

Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the 

case under this title; 

(ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; and 

(iii) include in the notice provided under clause (i) an explanation of the rights of such holder to payment of such claim 

under this chapter; 

(B)(i) provide written notice to such State child support enforcement agency of such claim; and 

(ii) include in the notice provided under clause (i) the 

name, address, and telephone number of such holder; and 

(C) at such time as the debtor is granted a discharge under 

section 727, provide written notice to such holder and to such 

State child support enforcement agency of—

(i) the granting of the discharge; 

(ii) the last recent known address of the debtor; 

(iii) the last recent known name and address of the 

debtor’s employer; and 

(iv) the name of each creditor that holds a claim that— (I) is not discharged under paragraph (2), (4), or 

(14A) of section 523(a); or 

(II) was reaffirmed by the debtor under section 

524(c). 

(2)(A) The holder of a claim described in subsection (a)(10) or 

the State child support enforcement agency of the State in which 

such holder resides may request from a creditor described in paragraph (1)(C)(iv) the last known address of the debtor. 

(B) Notwithstanding any other provision of law, a creditor that 

makes a disclosure of a last known address of a debtor in connection with a request made under subparagraph (A) shall not be liable by reason of making such disclosure. 

* * * * * * * 

§ 706. Conversion 

(a) * * * 

* * * * * * * 

(c) The court may not convert a case under this chapter to a 

case under chapter 12 or 13 of this title unless the debtor requests 

or consents to such conversion. 

* * * * * * * 

ø§ 707. Dismissal¿ 

§ 707. Dismissal of a case or conversion to a case under chapter 11 or 13 

(a) * * * 

(b)(1) After notice and a hearing, the court, on its own motion 

or on a motion by the United States trustee, øbut not at the reVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00268 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
265 

quest or suggestion of¿ trustee (or bankruptcy administrator, if 

any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a 

case under chapter 11 or 13 of this title, if it finds that the granting 

of relief would be øa substantial abuse¿ an abuse of the provisions 

of this chapter. øThere shall be a presumption in favor of granting 

the relief requested by the debtor.¿ In making a determination 

whether to dismiss a case under this section, the court may not 

take into consideration whether a debtor has made, or continues to 

make, charitable contributions (that meet the definition of ‘‘charitable contribution’’ under section 548(d)(3)) to any qualified religious or charitable entity or organization (as that term is defined 

in section 548(d)(4)). 

(2)(A)(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the 

court shall presume abuse exists if the debtor’s current monthly income reduced by the amounts determined under clauses (ii), (iii), 

and (iv), and multiplied by 60 is not less than the lesser of—

(I) 25 percent of the debtor’s nonpriority unsecured claims 

in the case, or $6,000, whichever is greater; or 

(II) $10,000. 

(ii)(I) The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses 

issued by the Internal Revenue Service for the area in which the 

debtor resides, as in effect on the date of the order for relief, for the 

debtor, the dependents of the debtor, and the spouse of the debtor 

in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor, or the dependents of the debtor. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts. In addition, the debtor’s monthly expenses shall include the debtor’s reasonably necessary expenses incurred to maintain the safety of the 

debtor and the family of the debtor from family violence as identified under section 309 of the Family Violence Prevention and Services Act, or other applicable Federal law. The expenses included in 

the debtor’s monthly expenses described in the preceding sentence 

shall be kept confidential by the court. In addition, if it is demonstrated that it is reasonable and necessary, the debtor’s monthly 

expenses may also include an additional allowance for food and 

clothing of up to 5 percent of the food and clothing categories as 

specified by the National Standards issued by the Internal Revenue 

Service. 

(II) In addition, the debtor’s monthly expenses may include, if 

applicable, the continuation of actual expenses paid by the debtor 

that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the 

debtor’s immediate family (including parents, grandparents, siblings, children, and grandchildren of the debtor, the dependents of 

the debtor, and the spouse of the debtor in a joint case who is not 

266 

a dependent) and who is unable to pay for such reasonable and necessary expenses. 

(III) In addition, for a debtor eligible for chapter 13, the debtor’s monthly expenses may include the actual administrative expenses of administering a chapter 13 plan for the district in which 

the debtor resides, up to an amount of 10 percent of the projected 

plan payments, as determined under schedules issued by the Executive Office for United States Trustees. 

(IV) In addition, the debtor’s monthly expenses may include the 

actual expenses for each dependent child less than 18 years of age, 

not to exceed $1,500 per year per child, to attend a private or public 

elementary or secondary school if the debtor provides documentation 

of such expenses and a detailed explanation of why such expenses 

are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or 

Other Necessary Expenses referred to in subclause (I). 

(V) In addition, the debtor’s monthly expenses may include an 

allowance for housing and utilities, in excess of the allowance specified by the Local Standards for housing and utilities issued by the 

Internal Revenue Service, based on the actual expenses for home energy costs if the debtor provides documentation of such actual expenses and demonstrates that such actual expenses are reasonable 

and necessary. 

(iii) The debtor’s average monthly payments on account of secured debts shall be calculated as the sum of—

(I) the total of all amounts scheduled as contractually due 

to secured creditors in each month of the 60 months following 

the date of the petition; and 

(II) any additional payments to secured creditors necessary 

for the debtor, in filing a plan under chapter 13 of this title, 

to maintain possession of the debtor’s primary residence, motor 

vehicle, or other property necessary for the support of the debtor 

and the debtor’s dependents, that serves as collateral for secured debts; 

divided by 60. 

(iv) The debtor’s expenses for payment of all priority claims (including priority child support and alimony claims) shall be calculated as the total amount of debts entitled to priority, divided by 

60. 

(B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special 

circumstances, such as a serious medical condition or a call or 

order to active duty in the Armed Forces, to the extent such special 

circumstances that justify additional expenses or adjustments of 

current monthly income for which there is no reasonable alternative. 

(ii) In order to establish special circumstances, the debtor shall 

be required to itemize each additional expense or adjustment of income and to provide—

(I) documentation for such expense or adjustment to income; and 

(II) a detailed explanation of the special circumstances that 

make such expenses or adjustment to income necessary and reasonable. 

267 

(iii) The debtor shall attest under oath to the accuracy of any 

information provided to demonstrate that additional expenses or adjustments to income are required. 

(iv) The presumption of abuse may only be rebutted if the additional expenses or adjustments to income referred to in clause (i) 

cause the product of the debtor’s current monthly income reduced by 

the amounts determined under clauses (ii), (iii), and (iv) of subparagraph (A) when multiplied by 60 to be less than the lesser of— (I) 25 percent of the debtor’s nonpriority unsecured claims, or $6,000, whichever is greater; or (II) $10,000. 

(C) As part of the schedule of current income and expenditures 

required under section 521, the debtor shall include a statement of 

the debtor’s current monthly income, and the calculations that determine whether a presumption arises under subparagraph (A)(i), 

that show how each such amount is calculated. 

(D) Subparagraphs (A) through (C) shall not apply, and the 

court may not dismiss or convert a case based on any form of means 

testing, if the debtor is a disabled veteran (as defined in section 

3741(1) of title 38), and the indebtedness occurred primarily during 

a period during which he or she was— (i) on active duty (as defined in section 101(d)(1) of title 

10); or 

(ii) performing a homeland defense activity (as defined in 

section 901(1) of title 32). 

(3) In considering under paragraph (1) whether the granting of 

relief would be an abuse of the provisions of this chapter in a case 

in which the presumption in subparagraph (A)(i) of such paragraph 

does not arise or is rebutted, the court shall consider— (A) whether the debtor filed the petition in bad faith; or 

(B) the totality of the circumstances (including whether the 

debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor’s financial situation demonstrates abuse. 

(4)(A) The court, on its own initiative or on the motion of a 

party in interest, in accordance with the procedures described in 

rule 9011 of the Federal Rules of Bankruptcy Procedure, may order 

the attorney for the debtor to reimburse the trustee for all reasonable 

costs in prosecuting a motion filed under section 707(b), including 

reasonable attorneys’ fees, if—

(i) a trustee files a motion for dismissal or conversion under 

this subsection; and 

(ii) the court—

(I) grants such motion; and 

(II) finds that the action of the attorney for the debtor 

in filing a case under this chapter violated rule 9011 of the 

Federal Rules of Bankruptcy Procedure. 

(B) If the court finds that the attorney for the debtor violated 

rule 9011 of the Federal Rules of Bankruptcy Procedure, the court, 

on its own initiative or on the motion of a party in interest, in accordance with such procedures, may order—

(i) the assessment of an appropriate civil penalty against 

the attorney for the debtor; and 

(ii) the payment of such civil penalty to the trustee, the 

United States trustee (or the bankruptcy administrator, if any). 

268 

(C) The signature of an attorney on a petition, pleading, or 

written motion shall constitute a certification that the attorney 

has— (i) performed a reasonable investigation into the circumstances that gave rise to the petition, pleading, or written 

motion; and 

(ii) determined that the petition, pleading, or written motion— (I) is well grounded in fact; and 

(II) is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing 

law and does not constitute an abuse under paragraph (1). 

(D) The signature of an attorney on the petition shall constitute 

a certification that the attorney has no knowledge after an inquiry 

that the information in the schedules filed with such petition is incorrect. 

(5)(A) Except as provided in subparagraph (B) and subject to 

paragraph (6), the court, on its own initiative or on the motion of 

a party in interest, in accordance with the procedures described in 

rule 9011 of the Federal Rules of Bankruptcy Procedure, may award 

a debtor all reasonable costs (including reasonable attorneys’ fees) 

in contesting a motion filed by a party in interest (other than a 

trustee or United States trustee (or bankruptcy administrator, if 

any)) under this subsection if— (i) the court does not grant the motion; and 

(ii) the court finds that— (I) the position of the party that filed the motion violated rule 9011 of the Federal Rules of Bankruptcy Procedure; or 

(II) the attorney (if any) who filed the motion did not 

comply with the requirements of clauses (i) and (ii) of paragraph (4)(C), and the motion was made solely for the purpose of coercing a debtor into waiving a right guaranteed 

to the debtor under this title. 

(B) A small business that has a claim of an aggregate amount 

less than $1,000 shall not be subject to subparagraph (A)(ii)(I). 

(C) For purposes of this paragraph—

(i) the term ‘‘small business’’ means an unincorporated 

business, partnership, corporation, association, or organization 

that—

(I) has fewer than 25 full-time employees as determined 

on the date on which the motion is filed; and 

(II) is engaged in commercial or business activity; and 

(ii) the number of employees of a wholly owned subsidiary 

of a corporation includes the employees of—

(I) a parent corporation; and 

(II) any other subsidiary corporation of the parent corporation. 

(6) Only the judge or United States trustee (or bankruptcy administrator, if any) may file a motion under section 707(b), if the 

current monthly income of the debtor, or in a joint case, the debtor 

and the debtor’s spouse, as of the date of the order for relief, when 

multiplied by 12, is equal to or less than—

(A) in the case of a debtor in a household of 1 person, the 

median family income of the applicable State for 1 earner; 

269 

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable 

State for a family of the same number or fewer individuals; or 

(C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable 

State for a family of 4 or fewer individuals, plus $525 per 

month for each individual in excess of 4. 

(7)(A) No judge, United States trustee (or bankruptcy administrator, if any), trustee, or other party in interest may file a motion 

under paragraph (2) if the current monthly income of the debtor, including a veteran (as that term is defined in section 101 of title 38), 

and the debtor’s spouse combined, as of the date of the order for relief when multiplied by 12, is equal to or less than—

(i) in the case of a debtor in a household of 1 person, the 

median family income of the applicable State for 1 earner; 

(ii) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable 

State for a family of the same number or fewer individuals; or 

(iii) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable 

State for a family of 4 or fewer individuals, plus $525 per 

month for each individual in excess of 4. 

(B) In a case that is not a joint case, current monthly income 

of the debtor’s spouse shall not be considered for purposes of subparagraph (A) if—

(i)(I) the debtor and the debtor’s spouse are separated under 

applicable nonbankruptcy law; or 

(II) the debtor and the debtor’s spouse are living separate 

and apart, other than for the purpose of evading subparagraph 

(A); and 

(ii) the debtor files a statement under penalty of perjury—

(I) specifying that the debtor meets the requirement of 

subclause (I) or (II) of clause (i); and 

(II) disclosing the aggregate, or best estimate of the aggregate, amount of any cash or money payments received 

from the debtor’s spouse attributed to the debtor’s current 

monthly income. 

(c)(1) In this subsection—

(A) the term ‘‘crime of violence’’ has the meaning given such 

term in section 16 of title 18; and 

(B) the term ‘‘drug trafficking crime’’ has the meaning given 

such term in section 924(c)(2) of title 18. 

(2) Except as provided in paragraph (3), after notice and a 

hearing, the court, on a motion by the victim of a crime of violence 

or a drug trafficking crime, may when it is in the best interest of 

the victim dismiss a voluntary case filed under this chapter by a 

debtor who is an individual if such individual was convicted of 

such crime. 

(3) The court may not dismiss a case under paragraph (2) if the 

debtor establishes by a preponderance of the evidence that the filing 

of a case under this chapter is necessary to satisfy a claim for a domestic support obligation. 

270 

SUBCHAPTER II—COLLECTION, LIQUIDATION, AND 

DISTRIBUTION OF THE ESTATE 

* * * * * * * 

§ 722. Redemption 

An individual debtor may, whether or not the debtor has 

waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if 

such property is exempted under section 522 of this title or has 

been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such 

holder that is secured by such lien in full at the time of redemption. 

* * * * * * * 

§ 724. Treatment of certain liens 

(a) * * * 

(b) Property in which the estate has an interest and that is 

subject to a lien that is not avoidable under this title (other than 

to the extent that there is a properly perfected unavoidable tax lien 

arising in connection with an ad valorem tax on real or personal 

property of the estate) and that secures an allowed claim for a tax, 

or proceeds of such property, shall be distributed—

(1) * * * 

(2) second, to any holder of a claim of a kind specified in 

section 507(a)(1) (except that such expenses, other than claims 

for wages, salaries, or commissions that arise after the date of 

the filing of the petition, shall be limited to expenses incurred 

under chapter 7 of this title and shall not include expenses incurred under chapter 11 of this title), 507(a)(2), 507(a)(3), 

507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this title, to the 

extent of the amount of such allowed tax claim that is secured 

by such tax lien; 

* * * * * * * 

(e) Before subordinating a tax lien on real or personal property 

of the estate, the trustee shall—

(1) exhaust the unencumbered assets of the estate; and 

(2) in a manner consistent with section 506(c), recover from 

property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving or disposing of such 

property. 

(f) Notwithstanding the exclusion of ad valorem tax liens under 

this section and subject to the requirements of subsection (e), the following may be paid from property of the estate which secures a tax 

lien, or the proceeds of such property: 

(1) Claims for wages, salaries, and commissions that are 

entitled to priority under section 507(a)(4). 

(2) Claims for contributions to an employee benefit plan entitled to priority under section 507(a)(5). 

* * * * * * * 

271 

§ 726. Distribution of property of the estate 

(a) Except as provided in section 510 of this title, property of 

the estate shall be distributed—

(1) first, in payment of claims of the kind specified in, and 

in the order specified in, section 507 of this title, proof of which 

is timely filed under section 501 of this title or tardily filed 

øbefore the date on which the trustee commences distribution 

under this section;¿ on or before the earlier of—

(A) the date that is 10 days after the mailing to creditors of the summary of the trustee’s final report; or 

(B) the date on which the trustee commences final distribution under this section; 

* * * * * * * 

(b) Payment on claims of a kind specified in paragraph (1), (2), 

(3), (4), (5), (6), (7), or (8) of section 507(a) of this title, or in paragraph (2), (3), (4), or (5) of subsection (a) of this section, shall be 

made pro rata among claims of the kind specified in each such particular paragraph, except that in a case that has been converted to 

this chapter under section ø1009,¿ 1112, 1208, or 1307 of this title, 

a claim allowed under section 503(b) of this title incurred under 

this chapter after such conversion has priority over a claim allowed 

under section 503(b) of this title incurred under any other chapter 

of this title or under this chapter before such conversion and over 

any expenses of a custodian superseded under section 543 of this 

title. 

* * * * * * * 

§ 727. Discharge 

(a) The court shall grant the debtor a discharge, unless— (1) * * * 

* * * * * * * 

(8) the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, 

or 476 of the Bankruptcy Act, in a case commenced within 

øsix¿ 8 years before the date of the filing of the petition; 

(9) the debtor has been granted a discharge under section 

1228 or 1328 of this title, or under section 660 or 661 of the 

Bankruptcy Act, in a case commenced within six years before 

the date of the filing of the petition, unless payments under 

the plan in such case totaled at least—

(A) * * * 

(B)(i) * * * 

(ii) the plan was proposed by the debtor in good faith, 

and was the debtor’s best effort; øor¿ 

(10) the court approves a written waiver of discharge executed by the debtor after the order for relief under this 

chapterø.¿; 

(11) after filing the petition, the debtor failed to complete 

an instructional course concerning personal financial management described in section 111, except that this paragraph shall 

not apply with respect to a debtor who is a person described in 

section 109(h)(4) or who resides in a district for which the 

United States trustee (or the bankruptcy administrator, if any) 

272 

determines that the approved instructional courses are not adequate to service the additional individuals who would otherwise 

be required to complete such instructional courses under this 

section (The United States trustee (or the bankruptcy administrator, if any) who makes a determination described in this 

paragraph shall review such determination not later than 1 

year after the date of such determination, and not less frequently than annually thereafter.); or 

(12) the court after notice and a hearing held not more 

than 10 days before the date of the entry of the order granting 

the discharge finds that there is reasonable cause to believe 

that— (A) section 522(q)(1) may be applicable to the debtor; 

and 

(B) there is pending any proceeding in which the debtor may be found guilty of a felony of the kind described in 

section 522(q)(1)(A) or liable for a debt of the kind described in section 522(q)(1)(B). 

* * * * * * * 

(d) On request of the trustee, a creditor, or the United States 

trustee, and after notice and a hearing, the court shall revoke a 

discharge granted under subsection (a) of this section if— (1) * * * 

(2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be 

property of the estate, and knowingly and fraudulently failed 

to report the acquisition of or entitlement to such property, or 

to deliver or surrender such property to the trustee; øor¿ 

(3) the debtor committed an act specified in subsection 

(a)(6) of this sectionø.¿; or 

(4) the debtor has failed to explain satisfactorily— (A) a material misstatement in an audit referred to in 

section 586(f) of title 28; or 

(B) a failure to make available for inspection all necessary accounts, papers, documents, financial records, files, 

and all other papers, things, or property belonging to the 

debtor that are requested for an audit referred to in section 

586(f) of title 28. 

* * * * * * * 

ø§ 728. Special tax provisions 

ø(a) For the purposes of any State or local law imposing a tax 

on or measured by income, the taxable period of a debtor that is 

an individual shall terminate on the date of the order for relief 

under this chapter, unless the case was converted under section 

1112 or 1208 of this title. 

ø(b) Notwithstanding any State or local law imposing a tax on 

or measured by income, the trustee shall make tax returns of income for the estate of an individual debtor in a case under this 

chapter or for a debtor that is a corporation in a case under this 

chapter only if such estate or corporation has net taxable income 

for the entire period after the order for relief under this chapter 

during which the case is pending. If such entity has such income, 

or if the debtor is a partnership, then the trustee shall make and 

273 

file a return of income for each taxable period during which the 

case was pending after the order for relief under this chapter. 

ø(c) If there are pending a case under this chapter concerning 

a partnership and a case under this chapter concerning a partner 

in such partnership, a governmental unit’s claim for any unpaid liability of such partner for a State or local tax on or measured by 

income, to the extent that such liability arose from the inclusion in 

such partner’s taxable income of earnings of such partnership that 

were not withdrawn by such partner, is a claim only against such 

partnership. 

ø(d) Notwithstanding section 541 of this title, if there are 

pending a case under this chapter concerning a partnership and a 

case under this chapter concerning a partner in such partnership, 

then any State or local tax refund or reduction of tax of such partner that would have otherwise been property of the estate of such 

partner under section 541 of this title— ø(1) is property of the estate of such partnership to the extent that such tax refund or reduction of tax is fairly 

apportionable to losses sustained by such partnership and not 

reimbursed by such partner; and 

ø(2) is otherwise property of the estate of such partner.¿ 

SUBCHAPTER III—STOCKBROKER LIQUIDATION 

§ 741. Definitions for this subchapter 

In this subchapter— (1) * * * 

* * * * * * * 

ø(7) ‘‘securities contract’’ means contract for the purchase, 

sale, or loan of a security, including an option for the purchase 

or sale of a security, certificate of deposit, or group or index of 

securities (including any interest therein or based on the value 

thereof), or any option entered into on a national securities exchange relating to foreign currencies, or the guarantee of any 

settlement of cash or securities by or to a securities clearing 

agency;¿ 

(7) ‘‘securities contract’’—

(A) means—

(i) a contract for the purchase, sale, or loan of a security, a certificate of deposit, a mortgage loan or any 

interest in a mortgage loan, a group or index of securities, certificates of deposit, or mortgage loans or interests therein (including an interest therein or based on 

the value thereof), or option on any of the foregoing, including an option to purchase or sell any such security, 

certificate of deposit, mortgage loan, interest, group or 

index, or option, and including any repurchase or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or 

index, or option; 

(ii) any option entered into on a national securities 

exchange relating to foreign currencies; 

(iii) the guarantee by or to any securities clearing 

agency of a settlement of cash, securities, certificates of 

deposit, mortgage loans or interests therein, group or 

274 

index of securities, or mortgage loans or interests therein (including any interest therein or based on the value 

thereof), or option on any of the foregoing, including an 

option to purchase or sell any such security, certificate 

of deposit, mortgage loan, interest, group or index, or 

option; 

(iv) any margin loan; 

(v) any other agreement or transaction that is similar to an agreement or transaction referred to in this 

subparagraph; 

(vi) any combination of the agreements or transactions referred to in this subparagraph; 

(vii) any option to enter into any agreement or 

transaction referred to in this subparagraph; 

(viii) a master agreement that provides for an 

agreement or transaction referred to in clause (i), (ii), 

(iii), (iv), (v), (vi), or (vii), together with all supplements 

to any such master agreement, without regard to 

whether the master agreement provides for an agreement or transaction that is not a securities contract 

under this subparagraph, except that such master 

agreement shall be considered to be a securities contract under this subparagraph only with respect to 

each agreement or transaction under such master 

agreement that is referred to in clause (i), (ii), (iii), (iv), 

(v), (vi), or (vii); or 

(ix) any security agreement or arrangement or 

other credit enhancement related to any agreement or 

transaction referred to in this subparagraph, including 

any guarantee or reimbursement obligation by or to a 

stockbroker, securities clearing agency, financial institution, or financial participant in connection with any 

agreement or transaction referred to in this subparagraph, but not to exceed the damages in connection 

with any such agreement or transaction, measured in 

accordance with section 562; and 

(B) does not include any purchase, sale, or repurchase 

obligation under a participation in a commercial mortgage 

loan; 

* * * * * * * 

§ 752. Customer property 

(a) The trustee shall distribute customer property ratably to customers on the basis and to the extent of such customers’ allowed net 

equity claims and in priority to all other claims, except claims of 

the kind specified in section ƒ507(a)(1)≈ 507(a)(2) of this title that 

are attributable to the administration of such customer property. 

* * * * * * * 

275 

§ 753. Stockbroker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial 

institutions, financial participants, securities 

clearing agencies, swap participants, repo participants, and master netting agreement participants 

Notwithstanding any other provision of this title, the exercise of 

rights by a forward contract merchant, commodity broker, stockbroker, financial institution, financial participant, securities clearing agency, swap participant, repo participant, or master netting 

agreement participant under this title shall not affect the priority of 

any unsecured claim it may have after the exercise of such rights. 

SUBCHAPTER IV—COMMODITY BROKER LIQUIDATION 

§ 761. Definitions for this subchapter 

In this subchapter—

(1) * * * 

* * * * * * * 

(4) ‘‘commodity contract’’ means—

(A) * * * 

* * * * * * * 

(D) with respect to a clearing organization, contract for 

the purchase or sale of a commodity for future delivery on, 

or subject to the rules of, a contract market or board of 

trade that is cleared by such clearing organization, or commodity option traded on, or subject to the rules of, a contract market or board of trade that is cleared by such 

clearing organization; øor¿ 

* * * * * * * 

(F) any other agreement or transaction that is similar 

to an agreement or transaction referred to in this paragraph; 

(G) any combination of the agreements or transactions 

referred to in this paragraph; 

(H) any option to enter into an agreement or transaction referred to in this paragraph; 

(I) a master agreement that provides for an agreement 

or transaction referred to in subparagraph (A), (B), (C), (D), 

(E), (F), (G), or (H), together with all supplements to such 

master agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is 

not a commodity contract under this paragraph, except that 

the master agreement shall be considered to be a commodity contract under this paragraph only with respect to 

each agreement or transaction under the master agreement 

that is referred to in subparagraph (A), (B), (C), (D), (E), 

(F), (G), or (H); or 

(J) any security agreement or arrangement or other 

credit enhancement related to any agreement or transaction 

referred to in this paragraph, including any guarantee or 

reimbursement obligation by or to a commodity broker or 

financial participant in connection with any agreement or 

transaction referred to in this paragraph, but not to exceed 

276 

the damages in connection with any such agreement or 

transaction, measured in accordance with section 562; 

* * * * * * * 

§ 766. Treatment of customer property 

(a) * * * 

* * * * * * * 

(h) Except as provided in subsection (b) of this section, the 

trustee shall distribute customer property ratably to customers on 

the basis and to the extent of such customers’ allowed net equity 

claims, and in priority to all other claims, except claims of a kind 

specified in section ƒ507(a)(1)≈ 507(a)(2) of this title that are attributable to the administration of customer property. Such distribution 

shall be in the form of—

(1) * * * 

* * * * * * * 

(i) If the debtor is a clearing organization, the trustee shall distribute—

(1) customer property, other than member property, ratably 

to customers on the basis and to the extent of such customers’

allowed net equity claims based on such customers’ accounts 

other than proprietary accounts, and in priority to all other 

claims, except claims of a kind specified in section ƒ507(a)(1)≈ 

507(a)(2) of this title that are attributable to the administration 

of such customer property; and 

(2) member property ratably to customers on the basis and 

to the extent of such customers’ allowed net equity claims based 

on such customers’ proprietary accounts, and in priority to all 

other claims, except claims of a kind specified in section 

ƒ507(a)(1)≈ 507(a)(2) of this title that are attributable to the administration of member property or customer property. 

* * * * * * * 

§ 767. Commodity broker liquidation and forward contract 

merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities 

clearing agencies, swap participants, repo participants, and master netting agreement participants 

Notwithstanding any other provision of this title, the exercise of 

rights by a forward contract merchant, commodity broker, stockbroker, financial institution, financial participant, securities clearing agency, swap participant, repo participant, or master netting 

agreement participant under this title shall not affect the priority of 

any unsecured claim it may have after the exercise of such rights. 

* * * * * * * 

CHAPTER 9—ADJUSTMENT OF DEBTS OF A 

MUNICIPALITY 

* * * * * * * 

277 

SUBCHAPTER I—GENERAL PROVISIONS 

§ 901. Applicability of other sections of this title 

(a) Sections 301, 344, 347(b), 349, 350(b), 361, 362, 364(c), 

364(d), 364(e), 364(f), 365, 366, 501, 502, 503, 504, 506, ø507(a)(1)¿ 

507(a)(2), 509, 510, 524(a)(1), 524(a)(2), 544, 545, 546, 547, 548, 

549(a), 549(c), 549(d), 550, 551, 552, 553, 555, 556, 557, 559, 560, 

561, 562, 1102, 1103, 1109, 1111(b), 1122, 1123(a)(1), 1123(a)(2), 

1123(a)(3), 1123(a)(4), 1123(a)(5), 1123(b), 1123(d), 1124, 1125, 

1126(a), 1126(b), 1126(c), 1126(e), 1126(f), 1126(g), 1127(d), 1128, 

1129(a)(2), 1129(a)(3), 1129(a)(6), 1129(a)(8), 1129(a)(10), 

1129(b)(1), 1129(b)(2)(A), 1129(b)(2)(B), 1142(b), 1143, 1144, and 

1145 of this title apply in a case under this chapter. 

* * * * * * * 

SUBCHAPTER II—ADMINISTRATION 

§ 921. Petition and proceedings relating to petition 

(a) * * * 

* * * * * * * 

(d) If the petition is not dismissed under subsection (c) of this 

section, the court shall order relief under this chapter notwithstanding section 301(b). 

* * * * * * * 

SUBCHAPTER III—THE PLAN 

* * * * * * * 

§ 943. Confirmation 

(a) * * * 

(b) The court shall confirm the plan if—

(1) * * * 

* * * * * * * 

(5) except to the extent that the holder of a particular 

claim has agreed to a different treatment of such claim, the 

plan provides that on the effective date of the plan each holder 

of a claim of a kind specified in section ø507(a)(1)¿ 507(a)(2) 

of this title will receive on account of such claim cash equal to 

the allowed amount of such claim; 

* * * * * * * 

CHAPTER 11—REORGANIZATION 

* * * * * * * 

SUBCHAPTER I—OFFICERS AND ADMINISTRATION 

Sec. 

1101. Definitions for this chapter. 

* * * * * * * 

1115. Property of the estate. 

1116. Duties of trustee or debtor in possession in small business cases. 

* * * * * * * 

278 

SUBCHAPTER I—OFFICERS AND ADMINISTRATION 

* * * * * * * 

§ 1102. Creditors’ and equity security holders’ committees 

(a)(1) * * * 

* * * * * * * 

(3) On request of a party in interest in a case in which the 

debtor is a small business debtor and for cause, the court may 

order that a committee of creditors not be appointed. 

(4) On request of a party in interest and after notice and a 

hearing, the court may order the United States trustee to change the 

membership of a committee appointed under this subsection, if the 

court determines that the change is necessary to ensure adequate 

representation of creditors or equity security holders. The court may 

order the United States trustee to increase the number of members 

of a committee to include a creditor that is a small business concern 

(as described in section 3(a)(1) of the Small Business Act), if the 

court determines that the creditor holds claims (of the kind represented by the committee) the aggregate amount of which, in comparison to the annual gross revenue of that creditor, is disproportionately large. 

(b)(1) * * * 

* * * * * * * 

(3) A committee appointed under subsection (a) shall— (A) provide access to information for creditors who— (i) hold claims of the kind represented by that committee; and 

(ii) are not appointed to the committee; 

(B) solicit and receive comments from the creditors described in subparagraph (A); and 

(C) be subject to a court order that compels any additional 

report or disclosure to be made to the creditors described in subparagraph (A). 

* * * * * * * 

§ 1104. Appointment of trustee or examiner 

(a) At any time after the commencement of the case but before 

confirmation of a plan, on request of a party in interest or the 

United States trustee, and after notice and a hearing, the court 

shall order the appointment of a trustee—

(1) for cause, including fraud, dishonesty, incompetence, or 

gross mismanagement of the affairs of the debtor by current 

management, either before or after the commencement of the 

case, or similar cause, but not including the number of holders 

of securities of the debtor or the amount of assets or liabilities 

of the debtor; øor¿ 

(2) if such appointment is in the interests of creditors, any 

equity security holders, and other interests of the estate, without regard to the number of holders of securities of the debtor 

or the amount of assets or liabilities of the debtorø.¿; or 

(3) if grounds exist to convert or dismiss the case under section 1112, but the court determines that the appointment of a 

279 

trustee or an examiner is in the best interests of creditors and 

the estate. 

(b)(1) Except as provided in section 1163 of this title, on the 

request of a party in interest made not later than 30 days after the 

court orders the appointment of a trustee under subsection (a), the 

United States trustee shall convene a meeting of creditors for the 

purpose of electing one disinterested person to serve as trustee in 

the case. The election of a trustee shall be conducted in the manner 

provided in subsections (a), (b), and (c) of section 702 of this title. 

(2)(A) If an eligible, disinterested trustee is elected at a meeting 

of creditors under paragraph (1), the United States trustee shall file 

a report certifying that election. 

(B) Upon the filing of a report under subparagraph (A)— (i) the trustee elected under paragraph (1) shall be considered to have been selected and appointed for purposes of this 

section; and 

(ii) the service of any trustee appointed under subsection (d) 

shall terminate. 

(C) The court shall resolve any dispute arising out of an election 

described in subparagraph (A). 

* * * * * * * 

(e) The United States trustee shall move for the appointment of 

a trustee under subsection (a) if there are reasonable grounds to suspect that current members of the governing body of the debtor, the 

debtor’s chief executive or chief financial officer, or members of the 

governing body who selected the debtor’s chief executive or chief financial officer, participated in actual fraud, dishonesty, or criminal 

conduct in the management of the debtor or the debtor’s public financial reporting. 

§ 1106. Duties of trustee and examiner 

(a) A trustee shall—

ø(1) perform the duties of a trustee specified in sections 

704(2), 704(5), 704(7), 704(8), and 704(9) of this title;¿ 

(1) perform the duties of the trustee, as specified in paragraphs (2), (5), (7), (8), (9), (10), (11), and (12) of section 704; 

* * * * * * * 

(6) for any year for which the debtor has not filed a tax 

return required by law, furnish, without personal liability, 

such information as may be required by the governmental unit 

with which such tax return was to be filed, in light of the condition of the debtor’s books and records and the availability of 

such information; øand¿ 

(7) after confirmation of a plan, file such reports as are 

necessary or as the court ordersø.¿; and 

(8) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (c). 

* * * * * * * 

(c)(1) In a case described in subsection (a)(8) to which subsection (a)(8) applies, the trustee shall—

(A)(i) provide written notice to the holder of the claim described in subsection (a)(8) of such claim and of the right of 

280 

such holder to use the services of the State child support enforcement agency established under sections 464 and 466 of the 

Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the 

case under this title; and 

(ii) include in the notice required by clause (i) the address 

and telephone number of such State child support enforcement 

agency; 

(B)(i) provide written notice to such State child support enforcement agency of such claim; and 

(ii) include in the notice required by clause (i) the name, 

address, and telephone number of such holder; and 

(C) at such time as the debtor is granted a discharge under 

section 1141, provide written notice to such holder and to such 

State child support enforcement agency of— (i) the granting of the discharge; 

(ii) the last recent known address of the debtor; 

(iii) the last recent known name and address of the 

debtor’s employer; and 

(iv) the name of each creditor that holds a claim that— (I) is not discharged under paragraph (2), (4), or 

(14A) of section 523(a); or 

(II) was reaffirmed by the debtor under section 

524(c). 

(2)(A) The holder of a claim described in subsection (a)(8) or the 

State child enforcement support agency of the State in which such 

holder resides may request from a creditor described in paragraph 

(1)(C)(iv) the last known address of the debtor. 

(B) Notwithstanding any other provision of law, a creditor that 

makes a disclosure of a last known address of a debtor in connection with a request made under subparagraph (A) shall not be liable by reason of making such disclosure. 

* * * * * * * 

§ 1112. Conversion or dismissal 

(a) * * * 

ø(b) Except as provided in subsection (c) of this section, on request of a party in interest or the United States trustee or bankruptcy administrator, and after notice and a hearing, the court may 

convert a case under this chapter to a case under chapter 7 of this 

title or may dismiss a case under this chapter, whichever is in the 

best interest of creditors and the estate, for cause, including— ø(1) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation; 

ø(2) inability to effectuate a plan; 

ø(3) unreasonable delay by the debtor that is prejudicial to 

creditors; 

ø(4) failure to propose a plan under section 1121 of this 

title within any time fixed by the court; 

ø(5) denial of confirmation of every proposed plan and denial of a request made for additional time for filing another 

plan or a modification of a plan; 

ø(6) revocation of an order of confirmation under section 

1144 of this title, and denial of confirmation of another plan 

or a modified plan under section 1129 of this title; 

281 

ø(7) inability to effectuate substantial consummation of a 

confirmed plan; 

ø(8) material default by the debtor with respect to a confirmed plan; 

ø(9) termination of a plan by reason of the occurrence of 

a condition specified in the plan; or 

ø(10) nonpayment of any fees or charges required under 

chapter 123 of title 28.¿ 

(b)(1) Except as provided in paragraph (2) of this subsection, 

subsection (c) of this section, and section 1104(a)(3), on request of 

a party in interest, and after notice and a hearing, absent unusual 

circumstances specifically identified by the court that establish that 

the requested conversion or dismissal is not in the best interests of 

creditors and the estate, the court shall convert a case under this 

chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, if 

the movant establishes cause. 

(2) The relief provided in paragraph (1) shall not be granted 

absent unusual circumstances specifically identified by the court 

that establish that such relief is not in the best interests of creditors 

and the estate, if the debtor or another party in interest objects and 

establishes that—

(A) there is a reasonable likelihood that a plan will be confirmed within the timeframes established in sections 1121(e) 

and 1129(e) of this title, or if such sections do not apply, within 

a reasonable period of time; and 

(B) the grounds for granting such relief include an act or 

omission of the debtor other than under paragraph (4)(A)—

(i) for which there exists a reasonable justification for 

the act or omission; and 

(ii) that will be cured within a reasonable period of 

time fixed by the court. 

(3) The court shall commence the hearing on a motion under 

this subsection not later than 30 days after filing of the motion, and 

shall decide the motion not later than 15 days after commencement 

of such hearing, unless the movant expressly consents to a continuance for a specific period of time or compelling circumstances prevent the court from meeting the time limits established by this paragraph. 

(4) For purposes of this subsection, the term ‘‘cause’’ includes—

(A) substantial or continuing loss to or diminution of the 

estate and the absence of a reasonable likelihood of rehabilitation; 

(B) gross mismanagement of the estate; 

(C) failure to maintain appropriate insurance that poses a 

risk to the estate or to the public; 

(D) unauthorized use of cash collateral substantially harmful to 1 or more creditors; 

(E) failure to comply with an order of the court; 

(F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter; 

(G) failure to attend the meeting of creditors convened 

under section 341(a) or an examination ordered under rule 

282 

2004 of the Federal Rules of Bankruptcy Procedure without 

good cause shown by the debtor; 

(H) failure timely to provide information or attend meetings 

reasonably requested by the United States trustee (or the bankruptcy administrator, if any); 

(I) failure timely to pay taxes owed after the date of the 

order for relief or to file tax returns due after the date of the 

order for relief; 

(J) failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of 

the court; 

(K) failure to pay any fees or charges required under chapter 123 of title 28; 

(L) revocation of an order of confirmation under section 

1144; 

(M) inability to effectuate substantial consummation of a 

confirmed plan; 

(N) material default by the debtor with respect to a confirmed plan; 

(O) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and 

(P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the 

petition. 

* * * * * * * 

§ 1114. Payment of insurance benefits to retired employees 

(a) * * * 

* * * * * * * 

(d) The court, upon a motion by any party in interest, and after 

notice and a hearing, shall øappoint¿ order the appointment of a 

committee of retired employees if the debtor seeks to modify or not 

pay the retiree benefits or if the court otherwise determines that 

it is appropriate, to serve as the authorized representative, under 

this section, of those persons receiving any retiree benefits not covered by a collective bargaining agreement. The United States trustee shall appoint any such committee. 

* * * * * * * 

(l) If the debtor, during the 180-day period ending on the date 

of the filing of the petition—

(1) modified retiree benefits; and 

(2) was insolvent on the date such benefits were modified; 

the court, on motion of a party in interest, and after notice and a 

hearing, shall issue an order reinstating as of the date the modification was made, such benefits as in effect immediately before such 

date unless the court finds that the balance of the equities clearly 

favors such modification. 

ø(l)¿ (m) This section shall not apply to any retiree, or the 

spouse or dependents of such retiree, if such retiree’s gross income 

for the twelve months preceding the filing of the bankruptcy petition equals or exceeds $250,000, unless such retiree can demonstrate to the satisfaction of the court that he is unable to obtain 

health, medical, life, and disability coverage for himself, his spouse, 

283 

and his dependents who would otherwise be covered by the employer’s insurance plan, comparable to the coverage provided by the 

employer on the day before the filing of a petition under this title. 

§ 1115. Property of the estate 

(a) In a case in which the debtor is an individual, property of 

the estate includes, in addition to the property specified in section 

541—

(1) all property of the kind specified in section 541 that the 

debtor acquires after the commencement of the case but before 

the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13, whichever occurs first; and 

(2) earnings from services performed by the debtor after the 

commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13, 

whichever occurs first. 

(b) Except as provided in section 1104 or a confirmed plan or 

order confirming a plan, the debtor shall remain in possession of all 

property of the estate. 

§ 1116. Duties of trustee or debtor in possession in small business cases 

In a small business case, a trustee or the debtor in possession, 

in addition to the duties provided in this title and as otherwise required by law, shall—

(1) append to the voluntary petition or, in an involuntary 

case, file not later than 7 days after the date of the order for 

relief—

(A) its most recent balance sheet, statement of operations, cash-flow statement, and Federal income tax return; 

or 

(B) a statement made under penalty of perjury that no 

balance sheet, statement of operations, or cash-flow statement has been prepared and no Federal tax return has 

been filed; 

(2) attend, through its senior management personnel and 

counsel, meetings scheduled by the court or the United States 

trustee, including initial debtor interviews, scheduling conferences, and meetings of creditors convened under section 341 

unless the court, after notice and a hearing, waives that requirement upon a finding of extraordinary and compelling circumstances; 

(3) timely file all schedules and statements of financial affairs, unless the court, after notice and a hearing, grants an extension, which shall not extend such time period to a date later 

than 30 days after the date of the order for relief, absent extraordinary and compelling circumstances; 

(4) file all postpetition financial and other reports required 

by the Federal Rules of Bankruptcy Procedure or by local rule 

of the district court; 

(5) subject to section 363(c)(2), maintain insurance customary and appropriate to the industry; 

(6)(A) timely file tax returns and other required government 

filings; and 

284 

(B) subject to section 363(c)(2), timely pay all taxes entitled 

to administrative expense priority except those being contested 

by appropriate proceedings being diligently prosecuted; and 

(7) allow the United States trustee, or a designated representative of the United States trustee, to inspect the debtor’s 

business premises, books, and records at reasonable times, after 

reasonable prior written notice, unless notice is waived by the 

debtor. 

SUBCHAPTER II—THE PLAN 

§ 1121. Who may file a plan 

(a) * * * 

* * * * * * * 

(d) øOn¿ (1) Subject to paragraph (2), on request of a party in 

interest made within the respective periods specified in subsections 

(b) and (c) of this section and after notice and a hearing, the court 

may for cause reduce or increase the 120-day period or the 180-day 

period referred to in this section. 

(2)(A) The 120-day period specified in paragraph (1) may not 

be extended beyond a date that is 18 months after the date of the 

order for relief under this chapter. 

(B) The 180-day period specified in paragraph (1) may not be 

extended beyond a date that is 20 months after the date of the order 

for relief under this chapter. 

ø(e) In a case in which the debtor is a small business and 

elects to be considered a small business— ø(1) only the debtor may file a plan until after 100 days 

after the date of the order for relief under this chapter; 

ø(2) all plans shall be filed within 160 days after the date 

of the order for relief; and 

ø(3) on request of a party in interest made within the respective periods specified in paragraphs (1) and (2) and after 

notice and a hearing, the court may— ø(A) reduce the 100-day period or the 160-day period 

specified in paragraph (1) or (2) for cause; and 

ø(B) increase the 100-day period specified in paragraph (1) if the debtor shows that the need for an increase 

is caused by circumstances for which the debtor should not 

be held accountable.¿ 

(e) In a small business case—

(1) only the debtor may file a plan until after 180 days 

after the date of the order for relief, unless that period is—

(A) extended as provided by this subsection, after notice 

and a hearing; or 

(B) the court, for cause, orders otherwise; 

(2) the plan and a disclosure statement (if any) shall be 

filed not later than 300 days after the date of the order for relief; and 

(3) the time periods specified in paragraphs (1) and (2), 

and the time fixed in section 1129(e) within which the plan 

shall be confirmed, may be extended only if—

(A) the debtor, after providing notice to parties in interest (including the United States trustee), demonstrates by a 

preponderance of the evidence that it is more likely than 

285 

not that the court will confirm a plan within a reasonable 

period of time; 

(B) a new deadline is imposed at the time the extension 

is granted; and 

(C) the order extending time is signed before the existing deadline has expired. 

* * * * * * * 

§ 1123. Contents of plan 

(a) Notwithstanding any otherwise applicable nonbankruptcy 

law, a plan shall—

(1) designate, subject to section 1122 of this title, classes 

of claims, other than claims of a kind specified in section 

ø507(a)(1), 507(a)(2)¿ 507(a)(2), 507(a)(3), or 507(a)(8) of this 

title, and classes of interests; 

* * * * * * * 

(6) provide for the inclusion in the charter of the debtor, 

if the debtor is a corporation, or of any corporation referred to 

in paragraph (5)(B) or (5)(C) of this subsection, of a provision 

prohibiting the issuance of nonvoting equity securities, and 

providing, as to the several classes of securities possessing voting power, an appropriate distribution of such power among 

such classes, including, in the case of any class of equity securities having a preference over another class of equity securities with respect to dividends, adequate provisions for the election of directors representing such preferred class in the event 

of default in the payment of such dividends; øand¿ 

(7) contain only provisions that are consistent with the interests of creditors and equity security holders and with public 

policy with respect to the manner of selection of any officer, director, or trustee under the plan and any successor to such officer, director, or trusteeø.¿; and 

(8) in a case in which the debtor is an individual, provide 

for the payment to creditors under the plan of all or such portion of earnings from personal services performed by the debtor 

after the commencement of the case or other future income of 

the debtor as is necessary for the execution of the plan. 

* * * * * * * 

§ 1124. Impairment of claims or interests 

Except as provided in section 1123(a)(4) of this title, a class of 

claims or interests is impaired under a plan unless, with respect 

to each claim or interest of such class, the plan—

(1) * * * 

(2) notwithstanding any contractual provision or applicable 

law that entitles the holder of such claim or interest to demand 

or receive accelerated payment of such claim or interest after 

the occurrence of a default—

(A) cures any such default that occurred before or 

after the commencement of the case under this title, other 

than a default of a kind specified in section 365(b)(2) of 

286 

this title or of a kind that section 365(b)(2) expressly does 

not require to be cured; 

* * * * * * * 

(C) compensates the holder of such claim or interest 

for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such 

applicable law; øand¿ 

(D) if such claim or such interest arises from any failure to perform a nonmonetary obligation, other than a default arising from failure to operate a nonresidential real 

property lease subject to section 365(b)(1)(A), compensates 

the holder of such claim or such interest (other than the 

debtor or an insider) for any actual pecuniary loss incurred 

by such holder as a result of such failure; and 

ø(D)¿ (E) does not otherwise alter the legal, equitable, 

or contractual rights to which such claim or interest entitles the holder of such claim or interest. 

§ 1125. Postpetition disclosure and solicitation 

(a) In this section—

(1) ‘‘adequate information’’ means information of a kind, 

and in sufficient detail, as far as is reasonably practicable in 

light of the nature and history of the debtor and the condition 

of the debtor’s books and records, including a discussion of the 

potential material Federal tax consequences of the plan to the 

debtor, any successor to the debtor, and a hypothetical investor 

typical of the holders of claims or interests in the case, that 

would enable øa hypothetical reasonable investor typical of 

holders of claims or interests¿ such a hypothetical investor of 

the relevant class to make an informed judgment about the 

plan, but adequate information need not include such information about any other possible or proposed plan and in determining whether a disclosure statement provides adequate information, the court shall consider the complexity of the case, the 

benefit of additional information to creditors and other parties 

in interest, and the cost of providing additional information; 

and 

* * * * * * * 

ø(f) Notwithstanding subsection (b), in a case in which the 

debtor has elected under section 1121(e) to be considered a small 

business—

ø(1) the court may conditionally approve a disclosure statement subject to final approval after notice and a hearing; 

ø(2) acceptances and rejections of a plan may be solicited 

based on a conditionally approved disclosure statement as long 

as the debtor provides adequate information to each holder of 

a claim or interest that is solicited, but a conditionally approved disclosure statement shall be mailed at least 10 days 

prior to the date of the hearing on confirmation of the plan; 

and 

ø(3) a hearing on the disclosure statement may be combined with a hearing on confirmation of a plan.¿ 

(f) Notwithstanding subsection (b), in a small business case—

287 

(1) the court may determine that the plan itself provides 

adequate information and that a separate disclosure statement 

is not necessary; 

(2) the court may approve a disclosure statement submitted 

on standard forms approved by the court or adopted under section 2075 of title 28; and 

(3)(A) the court may conditionally approve a disclosure 

statement subject to final approval after notice and a hearing; 

(B) acceptances and rejections of a plan may be solicited 

based on a conditionally approved disclosure statement if the 

debtor provides adequate information to each holder of a claim 

or interest that is solicited, but a conditionally approved disclosure statement shall be mailed not later than 25 days before the 

date of the hearing on confirmation of the plan; and 

(C) the hearing on the disclosure statement may be combined with the hearing on confirmation of a plan. 

(g) Notwithstanding subsection (b), an acceptance or rejection of 

the plan may be solicited from a holder of a claim or interest if such 

solicitation complies with applicable nonbankruptcy law and if such 

holder was solicited before the commencement of the case in a manner complying with applicable nonbankruptcy law. 

* * * * * * * 

§ 1127. Modification of plan 

(a) * * * 

* * * * * * * 

(e) If the debtor is an individual, the plan may be modified at 

any time after confirmation of the plan but before the completion of 

payments under the plan, whether or not the plan has been substantially consummated, upon request of the debtor, the trustee, the 

United States trustee, or the holder of an allowed unsecured claim, 

to—

(1) increase or reduce the amount of payments on claims of 

a particular class provided for by the plan; 

(2) extend or reduce the time period for such payments; or 

(3) alter the amount of the distribution to a creditor whose 

claim is provided for by the plan to the extent necessary to take 

account of any payment of such claim made other than under 

the plan. 

(f)(1) Sections 1121 through 1128 and the requirements of section 1129 apply to any modification under subsection (a). 

(2) The plan, as modified, shall become the plan only after there 

has been disclosure under section 1125 as the court may direct, notice and a hearing, and such modification is approved. 

* * * * * * * 

§ 1129. Confirmation of plan 

(a) The court shall confirm a plan only if all of the following 

requirements are met: 

(1) * * * 

* * * * * * * 

288 

(9) Except to the extent that the holder of a particular 

claim has agreed to a different treatment of such claim, the 

plan provides that— (A) with respect to a claim of a kind specified in section ø507(a)(1) or 507(a)(2)¿ 507(a)(2) or 507(a)(3) of this 

title, on the effective date of the plan, the holder of such 

claim will receive on account of such claim cash equal to 

the allowed amount of such claim; 

(B) with respect to a class of claims of a kind specified 

in section ø507(a)(3)¿ 507(a)(1), 507(a)(4), 507(a)(5), 

507(a)(6), or 507(a)(7) of this title, each holder of a claim 

of such class will receive— (i) * * * 

(ii) if such class has not accepted the plan, cash on 

the effective date of the plan equal to the allowed 

amount of such claim; øand¿ 

(C) with respect to a claim of a kind specified in section 507(a)(8) of this title, the holder of such claim will receive on account of such claim ødeferred cash payments, 

over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date 

of the plan, equal to the allowed amount of such claim.¿ 

regular installment payments in cash— (i) of a total value, as of the effective date of the 

plan, equal to the allowed amount of such claim; 

(ii) over a period ending not later than 5 years 

after the date of the order for relief under section 301, 

302, or 303; and 

(iii) in a manner not less favorable than the most 

favored nonpriority unsecured claim provided for by 

the plan (other than cash payments made to a class of 

creditors under section 1122(b)); and 

(D) with respect to a secured claim which would otherwise meet the description of an unsecured claim of a governmental unit under section 507(a)(8), but for the secured 

status of that claim, the holder of that claim will receive on 

account of that claim, cash payments, in the same manner 

and over the same period, as prescribed in subparagraph 

(C). 

* * * * * * * 

(14) If the debtor is required by a judicial or administrative 

order, or by statute, to pay a domestic support obligation, the 

debtor has paid all amounts payable under such order or such 

statute for such obligation that first become payable after the 

date of the filing of the petition. 

(15) In a case in which the debtor is an individual and in 

which the holder of an allowed unsecured claim objects to the 

confirmation of the plan— (A) the value, as of the effective date of the plan, of the 

property to be distributed under the plan on account of 

such claim is not less than the amount of such claim; or 

(B) the value of the property to be distributed under the 

plan is not less than the projected disposable income of the 

debtor (as defined in section 1325(b)(2)) to be received during the 5-year period beginning on the date that the first 

289 

payment is due under the plan, or during the period for 

which the plan provides payments, whichever is longer. 

(16) All transfers of property of the plan shall be made in 

accordance with any applicable provisions of nonbankruptcy 

law that govern the transfer of property by a corporation or 

trust that is not a moneyed, business, or commercial corporation or trust. 

(b)(1) * * * 

(2) For the purpose of this subsection, the condition that a plan 

be fair and equitable with respect to a class includes the following 

requirements: 

(A) * * * 

(B) With respect to a class of unsecured claims— (i) * * * 

(ii) the holder of any claim or interest that is junior to 

the claims of such class will not receive or retain under the 

plan on account of such junior claim or interest any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115, subject to the requirements of subsection (a)(14) of this section. 

* * * * * * * 

(e) In a small business case, the court shall confirm a plan that 

complies with the applicable provisions of this title and that is filed 

in accordance with section 1121(e) not later than 45 days after the 

plan is filed unless the time for confirmation is extended in accordance with section 1121(e)(3). 

SUBCHAPTER III—POSTCONFIRMATION MATTERS 

§ 1141. Effect of confirmation 

(a) * * * 

* * * * * * * 

(d)(1) * * * 

(2) øThe confirmation of a plan does not discharge an individual debtor¿ A discharge under this chapter does not discharge 

a debtor who is an individual from any debt excepted from discharge under section 523 of this title. 

* * * * * * * 

(5) In a case in which the debtor is an individual—

(A) unless after notice and a hearing the court orders otherwise for cause, confirmation of the plan does not discharge any 

debt provided for in the plan until the court grants a discharge 

on completion of all payments under the plan; 

(B) at any time after the confirmation of the plan, and after 

notice and a hearing, the court may grant a discharge to the 

debtor who has not completed payments under the plan if—

(i) the value, as of the effective date of the plan, of 

property actually distributed under the plan on account of 

each allowed unsecured claim is not less than the amount 

that would have been paid on such claim if the estate of the 

debtor had been liquidated under chapter 7 on such date; 

and 

290 

(ii) modification of the plan under section 1127 is not 

practicable; and 

(C) unless after notice and a hearing held not more than 

10 days before the date of the entry of the order granting the 

discharge, the court finds that there is no reasonable cause to 

believe that—

(i) section 522(q)(1) may be applicable to the debtor; 

and 

(ii) there is pending any proceeding in which the debtor 

may be found guilty of a felony of the kind described in section 522(q)(1)(A) or liable for a debt of the kind described 

in section 522(q)(1)(B). 

(6) Notwithstanding paragraph (1), the confirmation of a plan 

does not discharge a debtor that is a corporation from any debt—

(A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, or 

owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute; 

or 

(B) for a tax or customs duty with respect to which the 

debtor—

(i) made a fraudulent return; or 

(ii) willfully attempted in any manner to evade or to 

defeat such tax or such customs duty. 

* * * * * * * 

§ 1146. Special tax provisions 

ø(a) For the purposes of any State or local law imposing a tax 

on or measured by income, the taxable period of a debtor that is 

an individual shall terminate on the date of the order for relief 

under this chapter, unless the case was converted under section 

706 of this title. 

ø(b) The trustee shall make a State or local tax return of income for the estate of an individual debtor in a case under this 

chapter for each taxable period after the order for relief under this 

chapter during which the case is pending.¿ 

ø(c)¿ (a) The issuance, transfer, or exchange of a security, or 

the making or delivery of an instrument of transfer under a plan 

confirmed under section 1129 of this title, may not be taxed under 

any law imposing a stamp tax or similar tax. 

ø(d)¿ (b) The court may authorize the proponent of a plan to 

request a determination, limited to questions of law, by a State or 

local governmental unit charged with responsibility for collection or 

determination of a tax on or measured by income, of the tax effects, 

under section 346 of this title and under the law imposing such 

tax, of the plan. In the event of an actual controversy, the court 

may declare such effects after the earlier of— (1) * * * 

* * * * * * * 

SUBCHAPTER IV—RAILROAD REORGANIZATION 

* * * * * * * 

291 

§ 1170. Abandonment of railroad line 

(a) * * * 

* * * * * * * 

(e)(1) In authorizing any abandonment of a railroad line under 

this section, the court shall require the rail carrier to provide a fair 

arrangement at least as protective of the interests of employees as 

that established under øsection 11347¿ section 11326(a) of title 49. 

* * * * * * * 

§ 1172. Contents of plan 

(a) * * * 

* * * * * * * 

(c)(1) In approving an application under subsection (b) of this 

section, the Board shall require the rail carrier to provide a fair arrangement at least as protective of the interests of employees as 

that established under øsection 11347¿ section 11326(a) of title 49. 

* * * * * * * 

CHAPTER 12—ADJUSTMENT OF DEBTS OF A FAMILY 

FARMER OR FISHERMAN WITH REGULAR ANNUAL INCOME 

* * * * * * * 

SUBCHAPTER I—OFFICERS, ADMINISTRATION, AND THE 

ESTATE 

* * * * * * * 

§ 1202. Trustee 

(a) * * * 

(b) The trustee shall—

(1) * * * 

* * * * * * * 

(4) ensure that the debtor commences making timely payments required by a confirmed plan; øand¿ 

(5) if the debtor ceases to be a debtor in possession, perform the duties specified in sections 704(8), 1106(a)(1), 

1106(a)(2), 1106(a)(6), 1106(a)(7), and 1203ø.¿; and 

(6) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (c). 

(c)(1) In a case described in subsection (b)(6) to which subsection (b)(6) applies, the trustee shall— (A)(i) provide written notice to the holder of the claim described in subsection (b)(6) of such claim and of the right of 

such holder to use the services of the State child support enforcement agency established under sections 464 and 466 of the 

Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the 

case under this title; and 

292 

(ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; 

(B)(i) provide written notice to such State child support enforcement agency of such claim; and 

(ii) include in the notice provided under clause (i) the 

name, address, and telephone number of such holder; and 

(C) at such time as the debtor is granted a discharge under 

section 1228, provide written notice to such holder and to such 

State child support enforcement agency of—

(i) the granting of the discharge; 

(ii) the last recent known address of the debtor; 

(iii) the last recent known name and address of the 

debtor’s employer; and 

(iv) the name of each creditor that holds a claim that—

(I) is not discharged under paragraph (2), (4), or 

(14A) of section 523(a); or 

(II) was reaffirmed by the debtor under section 

524(c). 

(2)(A) The holder of a claim described in subsection (b)(6) or the 

State child support enforcement agency of the State in which such 

holder resides may request from a creditor described in paragraph 

(1)(C)(iv) the last known address of the debtor. 

(B) Notwithstanding any other provision of law, a creditor that 

makes a disclosure of a last known address of a debtor in connection with a request made under subparagraph (A) shall not be liable by reason of making that disclosure. 

§ 1203. Rights and powers of debtor 

Subject to such limitations as the court may prescribe, a debtor 

in possession shall have all the rights, other than the right to compensation under section 330, and powers, and shall perform all the 

functions and duties, except the duties specified in paragraphs (3) 

and (4) of section 1106(a), of a trustee serving in a case under 

chapter 11, including operating the debtor’s farm or commercial 

fishing operation. 

* * * * * * * 

§ 1206. Sales free of interests 

After notice and a hearing, in addition to the authorization 

contained in section 363(f), the trustee in a case under this chapter 

may sell property under section 363(b) and (c) free and clear of any 

interest in such property of an entity other than the estate øif the 

property is farmland or farm equipment¿ if the property is farmland, farm equipment, or property used to carry out a commercial 

fishing operation (including a commercial fishing vessel), except 

that the proceeds of such sale shall be subject to such interest. 

* * * * * * * 

§ 1208. Conversion or dismissal 

(a) * * * 

* * * * * * * 

293 

(c) On request of a party in interest, and after notice and a 

hearing, the court may dismiss a case under this chapter for cause, 

including—

(1) * * * 

* * * * * * * 

(8) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; øor¿ 

(9) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitationø.¿; and 

(10) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of 

the petition. 

* * * * * * * 

SUBCHAPTER II—THE PLAN 

* * * * * * * 

§ 1222. Contents of plan 

(a) The plan shall—

(1) * * * 

ø(2) provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of 

this title, unless the holder of a particular claim agrees to a 

different treatment of such claim; and¿ 

(2) provide for the full payment, in deferred cash payments, 

of all claims entitled to priority under section 507, unless—

(A) the claim is a claim owed to a governmental unit 

that arises as a result of the sale, transfer, exchange, or 

other disposition of any farm asset used in the debtor’s 

farming operation, in which case the claim shall be treated 

as an unsecured claim that is not entitled to priority under 

section 507, but the debt shall be treated in such manner 

only if the debtor receives a discharge; or 

(B) the holder of a particular claim agrees to a different treatment of that claim; 

(3) if the plan classifies claims and interests, provide the 

same treatment for each claim or interest within a particular 

class unless the holder of a particular claim or interest agrees 

to less favorable treatmentø.¿; and 

(4) notwithstanding any other provision of this section, a 

plan may provide for less than full payment of all amounts 

owed for a claim entitled to priority under section 507(a)(1)(B) 

only if the plan provides that all of the debtor’s projected disposable income for a 5-year period beginning on the date that 

the first payment is due under the plan will be applied to make 

payments under the plan. 

(b) Subject to subsections (a) and (c) of this section, the plan 

may—

(1) * * * 

* * * * * * * 

(10) provide for the vesting of property of the estate, on 

confirmation of the plan or at a later time, in the debtor or in 

any other entity; øand¿ 

294 

(11) provide for the payment of interest accruing after the 

date of the filing of the petition on unsecured claims that are 

nondischargeable under section 1228(a), except that such interest may be paid only to the extent that the debtor has disposable 

income available to pay such interest after making provision for 

full payment of all allowed claims; and 

ø(11)¿ (12) include any other appropriate provision not inconsistent with this title. 

* * * * * * * 

§ 1225. Confirmation of plan 

(a) Except as provided in subsection (b), the court shall confirm 

a plan if—

(1) * * * 

* * * * * * * 

(5) with respect to each allowed secured claim provided for 

by the plan— (A) * * * 

* * * * * * * 

(C) the debtor surrenders the property securing such 

claim to such holder; øand¿ 

(6) the debtor will be able to make all payments under the 

plan and to comply with the planø.¿; and 

(7) the debtor has paid all amounts that are required to be 

paid under a domestic support obligation and that first become 

payable after the date of the filing of the petition if the debtor 

is required by a judicial or administrative order, or by statute, 

to pay such domestic support obligation. 

(b)(1) If the trustee or the holder of an allowed unsecured 

claim objects to the confirmation of the plan, then the court may 

not approve the plan unless, as of the effective date of the plan—

(A) the value of the property to be distributed under the 

plan on account of such claim is not less than the amount of 

such claim; øor¿ 

(B) the plan provides that all of the debtor’s projected disposable income to be received in the three-year period, or such 

longer period as the court may approve under section 1222(c), 

beginning on the date that the first payment is due under the 

plan will be applied to make payments under the planø.¿; or 

(C) the value of the property to be distributed under the 

plan in the 3-year period, or such longer period as the court 

may approve under section 1222(c), beginning on the date that 

the first distribution is due under the plan is not less than the 

debtor’s projected disposable income for such period. 

(2) For purposes of this subsection, ‘‘disposable income’’ means 

income which is received by the debtor and which is not reasonably 

necessary to be expended—

(A) for the maintenance or support of the debtor or a dependent of the debtor or for a domestic support obligation that 

first becomes payable after the date of the filing of the petition; 

or 

* * * * * * * 

295 

§ 1226. Payments 

(a) * * * 

(b) Before or at the time of each payment to creditors under 

the plan, there shall be paid—

(1) any unpaid claim of the kind specified in section 

ø507(a)(1)¿ 507(a)(2) of this title; and 

* * * * * * * 

§ 1228. Discharge 

(a) øAs¿ Subject to subsection (d), as soon as practicable after 

completion by the debtor of all payments under the plan, and in 

the case of a debtor who is required by a judicial or administrative 

order, or by statute, to pay a domestic support obligation, after such 

debtor certifies that all amounts payable under such order or such 

statute that are due on or before the date of the certification (including amounts due before the petition was filed, but only to the extent 

provided for by the plan) have been paid, other than payments to 

holders of allowed claims provided for under section 1222(b)(5) or 

1222(b)(10) of this title, unless the court approves a written waiver 

of discharge executed by the debtor after the order for relief under 

this chapter, the court shall grant the debtor a discharge of all 

debts provided for by the plan allowed under section 503 of this 

title or disallowed under section 502 of this title, except any debt—

(1) * * * 

* * * * * * * 

(b) øAt¿ Subject to subsection (d), at any time after the confirmation of the plan and after notice and a hearing, the court may 

grant a discharge to a debtor that has not completed payments 

under the plan only if— (1) * * * 

* * * * * * * 

(f) The court may not grant a discharge under this chapter unless the court after notice and a hearing held not more than 10 days 

before the date of the entry of the order granting the discharge finds 

that there is no reasonable cause to believe that—

(1) section 522(q)(1) may be applicable to the debtor; and 

(2) there is pending any proceeding in which the debtor 

may be found guilty of a felony of the kind described in section 

522(q)(1)(A) or liable for a debt of the kind described in section 

522(q)(1)(B). 

§ 1229. Modification of plan after confirmation 

(a) * * * 

* * * * * * * 

(d) A plan may not be modified under this section—

(1) to increase the amount of any payment due before the 

plan as modified becomes the plan; 

(2) by anyone except the debtor, based on an increase in the 

debtor’s disposable income, to increase the amount of payments 

to unsecured creditors required for a particular month so that 

the aggregate of such payments exceeds the debtor’s disposable 

income for such month; or 

296 

(3) in the last year of the plan by anyone except the debtor, 

to require payments that would leave the debtor with insufficient funds to carry on the farming operation after the plan is 

completed. 

* * * * * * * 

§ 1231. Special tax provisions 

ø(a) For the purpose of any State or local law imposing a tax 

on or measured by income, the taxable period of a debtor that is 

an individual shall terminate on the date of the order for relief 

under this chapter, unless the case was converted under section 

706 of this title. 

ø(b) The trustee shall make a State or local tax return of income for the estate of an individual debtor in a case under this 

chapter for each taxable period after the order for relief under this 

chapter during which the case is pending.¿ 

ø(c)¿ (a) The issuance, transfer, or exchange of a security, or 

the making or delivery of an instrument of transfer under a plan 

confirmed under section 1225 of this title, may not be taxed under 

any law imposing a stamp tax or similar tax. 

ø(d)¿ (b) The court may authorize the proponent of a plan to 

request a determination, limited to questions of law, by øa State 

or local governmental unit¿ any governmental unit charged with responsibility for collection or determination of a tax on or measured 

by income, of the tax effects, under section 346 of this title and 

under the law imposing such tax, of the plan. In the event of an 

actual controversy, the court may declare such effects after the earlier of— (1) * * * 

* * * * * * * 

CHAPTER 13—ADJUSTMENT OF DEBTS OF AN 

INDIVIDUAL WITH REGULAR INCOME 

SUBCHAPTER I—OFFICERS, ADMINISTRATION, AND THE ESTATE 

Sec. 

1301. Stay of action against codebtor. 

* * * * * * * 

1308. Filing of prepetition tax returns. 

* * * * * * * 

SUBCHAPTER I—OFFICERS, ADMINISTRATION, AND THE 

ESTATE 

* * * * * * * 

§ 1302. Trustee 

(a) * * * 

(b) The trustee shall—

(1) * * * 

* * * * * * * 

(4) advise, other than on legal matters, and assist the 

debtor in performance under the plan; øand¿ 

297 

(5) ensure that the debtor commences making timely payments under section 1326 of this titleø.¿; and 

(6) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (d). 

* * * * * * * 

(d)(1) In a case described in subsection (b)(6) to which subsection (b)(6) applies, the trustee shall—

(A)(i) provide written notice to the holder of the claim described in subsection (b)(6) of such claim and of the right of 

such holder to use the services of the State child support enforcement agency established under sections 464 and 466 of the 

Social Security Act for the State in which such holder resides, 

for assistance in collecting child support during and after the 

case under this title; and 

(ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; 

(B)(i) provide written notice to such State child support enforcement agency of such claim; and 

(ii) include in the notice provided under clause (i) the 

name, address, and telephone number of such holder; and 

(C) at such time as the debtor is granted a discharge under 

section 1328, provide written notice to such holder and to such 

State child support enforcement agency of—

(i) the granting of the discharge; 

(ii) the last recent known address of the debtor; 

(iii) the last recent known name and address of the 

debtor’s employer; and 

(iv) the name of each creditor that holds a claim that— (I) is not discharged under paragraph (2) or (4) of 

section 523(a); or 

(II) was reaffirmed by the debtor under section 

524(c). 

(2)(A) The holder of a claim described in subsection (b)(6) or the 

State child support enforcement agency of the State in which such 

holder resides may request from a creditor described in paragraph 

(1)(C)(iv) the last known address of the debtor. 

(B) Notwithstanding any other provision of law, a creditor that 

makes a disclosure of a last known address of a debtor in connection with a request made under subparagraph (A) shall not be liable by reason of making that disclosure. 

* * * * * * * 

§ 1307. Conversion or dismissal 

(a) * * * 

* * * * * * * 

(c) Except as provided in subsection (e) of this section, on request of a party in interest or the United States trustee and after 

notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case 

under this chapter, whichever is in the best interests of creditors 

and the estate, for cause, including—

298 

(1) * * * 

* * * * * * * 

(9) only on request of the United States trustee, failure of 

the debtor to file, within fifteen days, or such additional time 

as the court may allow, after the filing of the petition commencing such case, the information required by paragraph (1) 

of section 521; øor¿ 

(10) only on request of the United States trustee, failure 

to timely file the information required by paragraph (2) of section 521ø.¿; or 

(11) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of 

the petition. 

* * * * * * * 

(e) Upon the failure of the debtor to file a tax return under section 1308, on request of a party in interest or the United States 

trustee and after notice and a hearing, the court shall dismiss a 

case or convert a case under this chapter to a case under chapter 

7 of this title, whichever is in the best interest of the creditors and 

the estate. 

ø(e)¿ (f) The court may not convert a case under this chapter 

to a case under chapter 7, 11, or 12 of this title if the debtor is a 

farmer, unless the debtor requests such conversion. 

ø(f)¿ (g) Notwithstanding any other provision of this section, a 

case may not be converted to a case under another chapter of this 

title unless the debtor may be a debtor under such chapter. 

§ 1308. Filing of prepetition tax returns 

(a) Not later than the day before the date on which the meeting 

of the creditors is first scheduled to be held under section 341(a), 

if the debtor was required to file a tax return under applicable nonbankruptcy law, the debtor shall file with appropriate tax authorities all tax returns for all taxable periods ending during the 4-year 

period ending on the date of the filing of the petition. 

(b)(1) Subject to paragraph (2), if the tax returns required by 

subsection (a) have not been filed by the date on which the meeting 

of creditors is first scheduled to be held under section 341(a), the 

trustee may hold open that meeting for a reasonable period of time 

to allow the debtor an additional period of time to file any unfiled 

returns, but such additional period of time shall not extend beyond—

(A) for any return that is past due as of the date of the filing of the petition, the date that is 120 days after the date of 

that meeting; or 

(B) for any return that is not past due as of the date of the 

filing of the petition, the later of—

(i) the date that is 120 days after the date of that meeting; or 

(ii) the date on which the return is due under the last 

automatic extension of time for filing that return to which 

the debtor is entitled, and for which request is timely made, 

in accordance with applicable nonbankruptcy law. 

(2) After notice and a hearing, and order entered before the tolling of any applicable filing period determined under this subsection, 

299 

if the debtor demonstrates by a preponderance of the evidence that 

the failure to file a return as required under this subsection is attributable to circumstances beyond the control of the debtor, the 

court may extend the filing period established by the trustee under 

this subsection for— (A) a period of not more than 30 days for returns described 

in paragraph (1); and 

(B) a period not to extend after the applicable extended due 

date for a return described in paragraph (2). 

(c) For purposes of this section, the term ‘‘return’’ includes a return prepared pursuant to subsection (a) or (b) of section 6020 of the 

Internal Revenue Code of 1986, or a similar State or local law, or 

a written stipulation to a judgment or a final order entered by a 

nonbankruptcy tribunal. 

SUBCHAPTER II—THE PLAN 

* * * * * * * 

§ 1322. Contents of plan 

(a) The plan shall— (1) * * * 

(2) provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of 

this title, unless the holder of a particular claim agrees to a 

different treatment of such claim; øand¿ 

(3) if the plan classifies claims, provide the same treatment for each claim within a particular classø.¿; and 

(4) notwithstanding any other provision of this section, a 

plan may provide for less than full payment of all amounts 

owed for a claim entitled to priority under section 507(a)(1)(B) 

only if the plan provides that all of the debtor’s projected disposable income for a 5-year period beginning on the date that 

the first payment is due under the plan will be applied to make 

payments under the plan. 

(b) Subject to subsections (a) and (c) of this section, the plan 

may— (1) * * * 

* * * * * * * 

(9) provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any 

other entity; øand¿ 

(10) provide for the payment of interest accruing after the 

date of the filing of the petition on unsecured claims that are 

nondischargeable under section 1328(a), except that such interest may be paid only to the extent that the debtor has disposable 

income available to pay such interest after making provision for 

full payment of all allowed claims; and 

ø(10)¿ (11) include any other appropriate provision not inconsistent with this title. 

* * * * * * * 

ø(d) The plan may not provide for payments over a period that 

is longer than three years, unless the court, for cause, approves a 

longer period, but the court may not approve a period that is longer 

than five years.¿ 

300 

(d)(1) If the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than— (A) in the case of a debtor in a household of 1 person, the 

median family income of the applicable State for 1 earner; 

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable 

State for a family of the same number or fewer individuals; or 

(C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable 

State for a family of 4 or fewer individuals, plus $525 per 

month for each individual in excess of 4, 

the plan may not provide for payments over a period that is longer 

than 5 years. 

(2) If the current monthly income of the debtor and the debtor’s 

spouse combined, when multiplied by 12, is less than— (A) in the case of a debtor in a household of 1 person, the 

median family income of the applicable State for 1 earner; 

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable 

State for a family of the same number or fewer individuals; or 

(C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable 

State for a family of 4 or fewer individuals, plus $525 per 

month for each individual in excess of 4, 

the plan may not provide for payments over a period that is longer 

than 3 years, unless the court, for cause, approves a longer period, 

but the court may not approve a period that is longer than 5 years. 

* * * * * * * 

(f) A plan may not materially alter the terms of a loan described in section 362(b)(19) and any amounts required to repay 

such loan shall not constitute ‘‘disposable income’’ under section 

1325. 

* * * * * * * 

§ 1324. Confirmation hearing 

øAfter¿ (a) Except as provided in subsection (b) and after notice, the court shall hold a hearing on confirmation of the plan. A 

party in interest may object to confirmation of the plan. 

(b) The hearing on confirmation of the plan may be held not 

earlier than 20 days and not later than 45 days after the date of 

the meeting of creditors under section 341(a), unless the court determines that it would be in the best interests of the creditors and the 

estate to hold such hearing at an earlier date and there is no objection to such earlier date. 

§ 1325. Confirmation of plan 

(a) Except as provided in subsection (b), the court shall confirm 

a plan if—

(1) * * * 

* * * * * * * 

(5) with respect to each allowed secured claim provided for 

by the plan—

(A) * * * 

301 

(B)ø(i) the plan provides that the holder of such claim 

retain the lien securing such claim; and¿ (i) the plan provides that—

(I) the holder of such claim retain the lien securing 

such claim until the earlier of— (aa) the payment of the underlying debt determined under nonbankruptcy law; or 

(bb) discharge under section 1328; and 

(II) if the case under this chapter is dismissed or 

converted without completion of the plan, such lien 

shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law; 

(ii) the value, as of the effective date of the plan, of 

property to be distributed under the plan on account of 

such claim is not less than the allowed amount of such 

claim; øor¿ and 

(iii) if—

(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and 

(II) the holder of the claim is secured by personal 

property, the amount of such payments shall not be less 

than an amount sufficient to provide to the holder of 

such claim adequate protection during the period of the 

plan; or 

(C) the debtor surrenders the property securing such 

claim to such holder; øand¿ 

(6) the debtor will be able to make all payments under the 

plan and to comply with the planø.¿; 

(7) the action of the debtor in filing the petition was in good 

faith; 

(8) the debtor has paid all amounts that are required to be 

paid under a domestic support obligation and that first become 

payable after the date of the filing of the petition if the debtor 

is required by a judicial or administrative order, or by statute, 

to pay such domestic support obligation; and 

(9) the debtor has filed all applicable Federal, State, and 

local tax returns as required by section 1308. 

For purposes of paragraph (5), section 506 shall not apply to a 

claim described in that paragraph if the creditor has a purchase 

money security interest securing the debt that is the subject of the 

claim, the debt was incurred within the 910-day preceding the date 

of the filing of the petition, and the collateral for that debt consists 

of a motor vehicle (as defined in section 30102 of title 49) acquired 

for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 

1-year period preceding that filing. 

(b)(1) If the trustee or the holder of an allowed unsecured 

claim objects to the confirmation of the plan, then the court may 

not approve the plan unless, as of the effective date of the plan—

(A) the value of the property to be distributed under the 

plan on account of such claim is not less than the amount of 

such claim; or 

(B) the plan provides that all of the debtor’s projected disposable income to be received in the øthree-year period¿ appliVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00305 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
302 

cable commitment period beginning on the date that the first 

payment is due under the plan will be applied to make payments to unsecured creditors under the plan. 

ø(2) For purposes of this subsection, ‘‘disposable income’’ means 

income which is received by the debtor and which is not reasonably 

necessary to be expended— ø(A) for the maintenance or support of the debtor or a dependent of the debtor, including charitable contributions (that 

meet the definition of ‘‘charitable contribution’’ under section 

548(d)(3)) to a qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)) in an 

amount not to exceed 15 percent of the gross income of the 

debtor for the year in which the contributions are made; and 

ø(B) if the debtor is engaged in business, for the payment 

of expenditures necessary for the continuation, preservation, 

and operation of such business.¿ 

(2) For purposes of this subsection, the term ‘‘disposable income’’ means current monthly income received by the debtor 

(other than child support payments, foster care payments, or 

disability payments for a dependent child made in accordance 

with applicable nonbankruptcy law to the extent reasonably 

necessary to be expended for such child) less amounts reasonably necessary to be expended— (A)(i) for the maintenance or support of the debtor or 

a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition 

is filed; and 

(ii) for charitable contributions (that meet the definition of ‘‘charitable contribution’’ under section 548(d)(3) to 

a qualified religious or charitable entity or organization (as 

defined in section 548(d)(4)) in an amount not to exceed 15 

percent of gross income of the debtor for the year in which 

the contributions are made; and 

(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business. 

(3) Amounts reasonably necessary to be expended under 

paragraph (2) shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2), if the debtor has current 

monthly income, when multiplied by 12, greater than—

(A) in the case of a debtor in a household of 1 person, 

the median family income of the applicable State for 1 

earner; 

(B) in the case of a debtor in a household of 2, 3, or 

4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or 

(C) in the case of a debtor in a household exceeding 4 

individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 

per month for each individual in excess of 4. 

(4) For purposes of this subsection, the ‘‘applicable commitment 

period’’—

(A) subject to subparagraph (B), shall be—

(i) 3 years; or 

303 

(ii) not less than 5 years, if the current monthly income 

of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than— (I) in the case of a debtor in a household of 1 person, the median family income of the applicable State 

for 1 earner; 

(II) in the case of a debtor in a household of 2, 3, 

or 4 individuals, the highest median family income of 

the applicable State for a family of the same number 

or fewer individuals; or 

(III) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of 

the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess 

of 4; and 

(B) may be less than 3 or 5 years, whichever is applicable 

under subparagraph (A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period. 

* * * * * * * 

§ 1326. Payments 

ø(a)(1) Unless the court orders otherwise, the debtor shall commence making the payments proposed by a plan within 30 days 

after the plan is filed. 

ø(2) A payment made under this subsection shall be retained 

by the trustee until confirmation or denial of confirmation of a 

plan. If a plan is confirmed, the trustee shall distribute any such 

payment in accordance with the plan as soon as practicable. If a 

plan is not confirmed, the trustee shall return any such payment 

to the debtor, after deducting any unpaid claim allowed under section 503(b) of this title.¿ 

(a)(1) Unless the court orders otherwise, the debtor shall commence making payments not later than 30 days after the date of the 

filing of the plan or the order for relief, whichever is earlier, in the 

amount—

(A) proposed by the plan to the trustee; 

(B) scheduled in a lease of personal property directly to the 

lessor for that portion of the obligation that becomes due after 

the order for relief, reducing the payments under subparagraph 

(A) by the amount so paid and providing the trustee with evidence of such payment, including the amount and date of payment; and 

(C) that provides adequate protection directly to a creditor 

holding an allowed claim secured by personal property to the 

extent the claim is attributable to the purchase of such property 

by the debtor for that portion of the obligation that becomes due 

after the order for relief, reducing the payments under subparagraph (A) by the amount so paid and providing the trustee with 

evidence of such payment, including the amount and date of 

payment. 

(2) A payment made under paragraph (1)(A) shall be retained 

by the trustee until confirmation or denial of confirmation. If a plan 

is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. If a plan is not 

304 

confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to 

paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b). 

(3) Subject to section 363, the court may, upon notice and a 

hearing, modify, increase, or reduce the payments required under 

this subsection pending confirmation of a plan. 

(4) Not later than 60 days after the date of filing of a case 

under this chapter, a debtor retaining possession of personal property subject to a lease or securing a claim attributable in whole or 

in part to the purchase price of such property shall provide the lessor or secured creditor reasonable evidence of the maintenance of 

any required insurance coverage with respect to the use or ownership of such property and continue to do so for so long as the debtor 

retains possession of such property. 

(b) Before or at the time of each payment to creditors under 

the plan, there shall be paid— (1) any unpaid claim of the kind specified in section 

ø507(a)(1)¿ 507(a)(2) of this title; øand¿ 

(2) if a standing trustee appointed under section 586(b) of 

title 28 is serving in the case, the percentage fee fixed for such 

standing trustee under section 586(e)(1)(B) of title 28ø.¿; and 

(3) if a chapter 7 trustee has been allowed compensation 

due to the conversion or dismissal of the debtor’s prior case pursuant to section 707(b), and some portion of that compensation 

remains unpaid in a case converted to this chapter or in the 

case dismissed under section 707(b) and refiled under this 

chapter, the amount of any such unpaid compensation, which 

shall be paid monthly—

(A) by prorating such amount over the remaining duration of the plan; and 

(B) by monthly payments not to exceed the greater of—

(i) $25; or 

(ii) the amount payable to unsecured nonpriority 

creditors, as provided by the plan, multiplied by 5 percent, and the result divided by the number of months 

in the plan. 

* * * * * * * 

(d) Notwithstanding any other provision of this title—

(1) compensation referred to in subsection (b)(3) is payable 

and may be collected by the trustee under that paragraph, even 

if such amount has been discharged in a prior case under this 

title; and 

(2) such compensation is payable in a case under this chapter only to the extent permitted by subsection (b)(3). 

* * * * * * * 

§ 1328. Discharge 

(a) øAs¿ Subject to subsection (d), as soon as practicable after 

completion by the debtor of all payments under the plan, and in 

the case of a debtor who is required by a judicial or administrative 

order, or by statute, to pay a domestic support obligation, after such 

debtor certifies that all amounts payable under such order or such 

statute that are due on or before the date of the certification (includVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00308 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
305 

ing amounts due before the petition was filed, but only to the extent 

provided for by the plan) have been paid, unless the court approves 

a written waiver of discharge executed by the debtor after the 

order for relief under this chapter, the court shall grant the debtor 

a discharge of all debts provided for by the plan or disallowed 

under section 502 of this title, except any debt— ø(1) provided for under section 1322(b)(5) of this title; 

ø(2) of the kind specified in paragraph (5), (8), or (9) of section 523(a) of this title; or 

ø(3) for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.¿ 

(1) provided for under section 1322(b)(5); 

(2) of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a); 

(3) for restitution, or a criminal fine, included in a sentence 

on the debtor’s conviction of a crime; or 

(4) for restitution, or damages, awarded in a civil action 

against the debtor as a result of willful or malicious injury by 

the debtor that caused personal injury to an individual or the 

death of an individual. 

(b) øAt¿ Subject to subsection (d), at any time after the confirmation of the plan and after notice and a hearing, the court may 

grant a discharge to a debtor that has not completed payments 

under the plan only if— (1) * * * 

* * * * * * * 

(f) Notwithstanding subsections (a) and (b), the court shall not 

grant a discharge of all debts provided for in the plan or disallowed 

under section 502, if the debtor has received a discharge— (1) in a case filed under chapter 7, 11, or 12 of this title 

during the 4-year period preceding the date of the order for relief under this chapter, or 

(2) in a case filed under chapter 13 of this title during the 

2-year period preceding the date of such order. 

(g)(1) The court shall not grant a discharge under this section 

to a debtor unless after filing a petition the debtor has completed 

an instructional course concerning personal financial management 

described in section 111. 

(2) Paragraph (1) shall not apply with respect to a debtor who 

is a person described in section 109(h)(4) or who resides in a district 

for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved instructional courses 

are not adequate to service the additional individuals who would 

otherwise be required to complete such instructional course by reason of the requirements of paragraph (1). 

(3) The United States trustee (or the bankruptcy administrator, 

if any) who makes a determination described in paragraph (2) shall 

review such determination not later than 1 year after the date of 

such determination, and not less frequently than annually thereafter. 

(h) The court may not grant a discharge under this chapter unless the court after notice and a hearing held not more than 10 days 

before the date of the entry of the order granting the discharge finds 

that there is no reasonable cause to believe that—

(1) section 522(q)(1) may be applicable to the debtor; and 

306 

(2) there is pending any proceeding in which the debtor 

may be found guilty of a felony of the kind described in section 

522(q)(1)(A) or liable for a debt of the kind described in section 

522(q)(1)(B). 

§ 1329. Modification of plan after confirmation 

(a) At any time after confirmation of the plan but before the 

completion of payments under such plan, the plan may be modified, 

upon request of the debtor, the trustee, or the holder of an allowed 

unsecured claim, to— (1) increase or reduce the amount of payments on claims 

of a particular class provided for by the plan; 

(2) extend or reduce the time for such payments; øor¿ 

(3) alter the amount of the distribution to a creditor whose 

claim is provided for by the plan to the extent necessary to 

take account of any payment of such claim other than under 

the planø.¿; or 

(4) reduce amounts to be paid under the plan by the actual 

amount expended by the debtor to purchase health insurance 

for the debtor (and for any dependent of the debtor if such dependent does not otherwise have health insurance coverage) if 

the debtor documents the cost of such insurance and demonstrates that— (A) such expenses are reasonable and necessary; 

(B)(i) if the debtor previously paid for health insurance, 

the amount is not materially larger than the cost the debtor 

previously paid or the cost necessary to maintain the lapsed 

policy; or 

(ii) if the debtor did not have health insurance, the 

amount is not materially larger than the reasonable cost 

that would be incurred by a debtor who purchases health 

insurance, who has similar income, expenses, age, and 

health status, and who lives in the same geographical location with the same number of dependents who do not otherwise have health insurance coverage; and 

(C) the amount is not otherwise allowed for purposes of 

determining disposable income under section 1325(b) of 

this title; 

and upon request of any party in interest, files proof that a 

health insurance policy was purchased. 

* * * * * * * 

(c) A plan modified under this section may not provide for payments over a period that expires after øthree years¿ the applicable 

commitment period under section 1325(b)(1)(B) after the time that 

the first payment under the original confirmed plan was due, unless the court, for cause, approves a longer period, but the court 

may not approve a period that expires after five years after such 

time. 

* * * * * * * 

CHAPTER 15—ANCILLARY AND OTHER CROSS-BORDER 

CASES 

Sec. 

1501. Purpose and scope of application. 

307 

SUBCHAPTER I—GENERAL PROVISIONS 

1502. Definitions. 

1503. International obligations of the United States. 

1504. Commencement of ancillary case. 

1505. Authorization to act in a foreign country. 

1506. Public policy exception. 

1507. Additional assistance. 

1508. Interpretation. 

SUBCHAPTER II—ACCESS OF FOREIGN REPRESENTATIVES AND 

CREDITORS TO THE COURT 

1509. Right of direct access. 

1510. Limited jurisdiction. 

1511. Commencement of case under section 301 or 303. 

1512. Participation of a foreign representative in a case under this title. 

1513. Access of foreign creditors to a case under this title. 

1514. Notification to foreign creditors concerning a case under this title. 

SUBCHAPTER III—RECOGNITION OF A FOREIGN PROCEEDING AND 

RELIEF 

1515. Application for recognition. 

1516. Presumptions concerning recognition. 

1517. Order granting recognition. 

1518. Subsequent information. 

1519. Relief that may be granted upon filing petition for recognition. 

1520. Effects of recognition of a foreign main proceeding. 

1521. Relief that may be granted upon recognition. 

1522. Protection of creditors and other interested persons. 

1523. Actions to avoid acts detrimental to creditors. 

1524. Intervention by a foreign representative. 

SUBCHAPTER IV—COOPERATION WITH FOREIGN COURTS AND FOREIGN 

REPRESENTATIVES 

1525. Cooperation and direct communication between the court and foreign courts or 

foreign representatives. 

1526. Cooperation and direct communication between the trustee and foreign courts 

or foreign representatives. 

1527. Forms of cooperation. 

SUBCHAPTER V—CONCURRENT PROCEEDINGS 

1528. Commencement of a case under this title after recognition of a foreign main 

proceeding. 

1529. Coordination of a case under this title and a foreign proceeding. 

1530. Coordination of more than 1 foreign proceeding. 

1531. Presumption of insolvency based on recognition of a foreign main proceeding. 

1532. Rule of payment in concurrent proceedings. 

§ 1501. Purpose and scope of application 

(a) The purpose of this chapter is to incorporate the Model Law 

on Cross-Border Insolvency so as to provide effective mechanisms for 

dealing with cases of cross-border insolvency with the objectives of—

(1) cooperation between—

(A) courts of the United States, United States trustees, 

trustees, examiners, debtors, and debtors in possession; and 

(B) the courts and other competent authorities of foreign countries involved in cross-border insolvency cases; 

(2) greater legal certainty for trade and investment; 

(3) fair and efficient administration of cross-border insolvencies that protects the interests of all creditors, and other interested entities, including the debtor; 

(4) protection and maximization of the value of the debtor’s 

assets; and 

308 

(5) facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment. 

(b) This chapter applies where—

(1) assistance is sought in the United States by a foreign 

court or a foreign representative in connection with a foreign 

proceeding; 

(2) assistance is sought in a foreign country in connection 

with a case under this title; 

(3) a foreign proceeding and a case under this title with respect to the same debtor are pending concurrently; or 

(4) creditors or other interested persons in a foreign country 

have an interest in requesting the commencement of, or participating in, a case or proceeding under this title. 

(c) This chapter does not apply to—

(1) a proceeding concerning an entity, other than a foreign 

insurance company, identified by exclusion in section 109(b); 

(2) an individual, or to an individual and such individual’s 

spouse, who have debts within the limits specified in section 

109(e) and who are citizens of the United States or aliens lawfully admitted for permanent residence in the United States; or 

(3) an entity subject to a proceeding under the Securities 

Investor Protection Act of 1970, a stockbroker subject to subchapter III of chapter 7 of this title, or a commodity broker subject to subchapter IV of chapter 7 of this title. 

(d) The court may not grant relief under this chapter with respect to any deposit, escrow, trust fund, or other security required 

or permitted under any applicable State insurance law or regulation 

for the benefit of claim holders in the United States. 

SUBCHAPTER I—GENERAL PROVISIONS 

§ 1502. Definitions 

For the purposes of this chapter, the term—

(1) ‘‘debtor’’ means an entity that is the subject of a foreign 

proceeding; 

(2) ‘‘establishment’’ means any place of operations where 

the debtor carries out a nontransitory economic activity; 

(3) ‘‘foreign court’’ means a judicial or other authority competent to control or supervise a foreign proceeding; 

(4) ‘‘foreign main proceeding’’ means a foreign proceeding 

pending in the country where the debtor has the center of its 

main interests; 

(5) ‘‘foreign nonmain proceeding’’ means a foreign proceeding, other than a foreign main proceeding, pending in a 

country where the debtor has an establishment; 

(6) ‘‘trustee’’ includes a trustee, a debtor in possession in a 

case under any chapter of this title, or a debtor under chapter 

9 of this title; 

(7) ‘‘recognition’’ means the entry of an order granting recognition of a foreign main proceeding or foreign nonmain proceeding under this chapter; and 

(8) ‘‘within the territorial jurisdiction of the United States’’, 

when used with reference to property of a debtor, refers to tangible property located within the territory of the United States 

309 

and intangible property deemed under applicable nonbankruptcy law to be located within that territory, including any 

property subject to attachment or garnishment that may properly be seized or garnished by an action in a Federal or State 

court in the United States. 

§ 1503. International obligations of the United States 

To the extent that this chapter conflicts with an obligation of 

the United States arising out of any treaty or other form of agreement to which it is a party with one or more other countries, the 

requirements of the treaty or agreement prevail. 

§ 1504. Commencement of ancillary case 

A case under this chapter is commenced by the filing of a petition for recognition of a foreign proceeding under section 1515. 

§ 1505. Authorization to act in a foreign country 

A trustee or another entity (including an examiner) may be authorized by the court to act in a foreign country on behalf of an estate created under section 541. An entity authorized to act under 

this section may act in any way permitted by the applicable foreign 

law. 

§ 1506. Public policy exception 

Nothing in this chapter prevents the court from refusing to take 

an action governed by this chapter if the action would be manifestly 

contrary to the public policy of the United States. 

§ 1507. Additional assistance 

(a) Subject to the specific limitations stated elsewhere in this 

chapter the court, if recognition is granted, may provide additional 

assistance to a foreign representative under this title or under other 

laws of the United States. 

(b) In determining whether to provide additional assistance 

under this title or under other laws of the United States, the court 

shall consider whether such additional assistance, consistent with 

the principles of comity, will reasonably assure—

(1) just treatment of all holders of claims against or interests in the debtor’s property; 

(2) protection of claim holders in the United States against 

prejudice and inconvenience in the processing of claims in such 

foreign proceeding; 

(3) prevention of preferential or fraudulent dispositions of 

property of the debtor; 

(4) distribution of proceeds of the debtor’s property substantially in accordance with the order prescribed by this title; and 

(5) if appropriate, the provision of an opportunity for a 

fresh start for the individual that such foreign proceeding concerns. 

§ 1508. Interpretation 

In interpreting this chapter, the court shall consider its international origin, and the need to promote an application of this 

chapter that is consistent with the application of similar statutes 

adopted by foreign jurisdictions. 

310 

SUBCHAPTER II—ACCESS OF FOREIGN REPRESENTATIVES 

AND CREDITORS TO THE COURT 

§ 1509. Right of direct access 

(a) A foreign representative may commence a case under section 

1504 by filing directly with the court a petition for recognition of a 

foreign proceeding under section 1515. 

(b) If the court grants recognition under section 1517, and subject to any limitations that the court may impose consistent with the 

policy of this chapter—

(1) the foreign representative has the capacity to sue and be 

sued in a court in the United States; 

(2) the foreign representative may apply directly to a court 

in the United States for appropriate relief in that court; and 

(3) a court in the United States shall grant comity or cooperation to the foreign representative. 

(c) A request for comity or cooperation by a foreign representative in a court in the United States other than the court which 

granted recognition shall be accompanied by a certified copy of an 

order granting recognition under section 1517. 

(d) If the court denies recognition under this chapter, the court 

may issue any appropriate order necessary to prevent the foreign 

representative from obtaining comity or cooperation from courts in 

the United States. 

(e) Whether or not the court grants recognition, and subject to 

sections 306 and 1510, a foreign representative is subject to applicable nonbankruptcy law. 

(f) Notwithstanding any other provision of this section, the failure of a foreign representative to commence a case or to obtain recognition under this chapter does not affect any right the foreign representative may have to sue in a court in the United States to collect 

or recover a claim which is the property of the debtor. 

§ 1510. Limited jurisdiction 

The sole fact that a foreign representative files a petition under 

section 1515 does not subject the foreign representative to the jurisdiction of any court in the United States for any other purpose. 

§ 1511. Commencement of case under section 301 or 303 

(a) Upon recognition, a foreign representative may commence—

(1) an involuntary case under section 303; or 

(2) a voluntary case under section 301 or 302, if the foreign 

proceeding is a foreign main proceeding. 

(b) The petition commencing a case under subsection (a) must 

be accompanied by a certified copy of an order granting recognition. 

The court where the petition for recognition has been filed must be 

advised of the foreign representative’s intent to commence a case 

under subsection (a) prior to such commencement. 

§ 1512. Participation of a foreign representative in a case 

under this title 

Upon recognition of a foreign proceeding, the foreign representative in the recognized proceeding is entitled to participate as a party 

in interest in a case regarding the debtor under this title. 

311 

§ 1513. Access of foreign creditors to a case under this title 

(a) Foreign creditors have the same rights regarding the commencement of, and participation in, a case under this title as domestic creditors. 

(b)(1) Subsection (a) does not change or codify present law as 

to the priority of claims under section 507 or 726, except that the 

claim of a foreign creditor under those sections shall not be given 

a lower priority than that of general unsecured claims without priority solely because the holder of such claim is a foreign creditor. 

(2)(A) Subsection (a) and paragraph (1) do not change or codify 

present law as to the allowability of foreign revenue claims or other 

foreign public law claims in a proceeding under this title. 

(B) Allowance and priority as to a foreign tax claim or other 

foreign public law claim shall be governed by any applicable tax 

treaty of the United States, under the conditions and circumstances 

specified therein. 

§ 1514. Notification to foreign creditors concerning a case 

under this title 

(a) Whenever in a case under this title notice is to be given to 

creditors generally or to any class or category of creditors, such notice shall also be given to the known creditors generally, or to creditors in the notified class or category, that do not have addresses in 

the United States. The court may order that appropriate steps be 

taken with a view to notifying any creditor whose address is not yet 

known. 

(b) Such notification to creditors with foreign addresses described in subsection (a) shall be given individually, unless the 

court considers that, under the circumstances, some other form of 

notification would be more appropriate. No letter or other formality 

is required. 

(c) When a notification of commencement of a case is to be given 

to foreign creditors, such notification shall— (1) indicate the time period for filing proofs of claim and 

specify the place for filing such proofs of claim; 

(2) indicate whether secured creditors need to file proofs of 

claim; and 

(3) contain any other information required to be included 

in such notification to creditors under this title and the orders 

of the court. 

(d) Any rule of procedure or order of the court as to notice or 

the filing of a proof of claim shall provide such additional time to 

creditors with foreign addresses as is reasonable under the circumstances. 

SUBCHAPTER III—RECOGNITION OF A FOREIGN 

PROCEEDING AND RELIEF 

§ 1515. Application for recognition 

(a) A foreign representative applies to the court for recognition 

of a foreign proceeding in which the foreign representative has been 

appointed by filing a petition for recognition. 

(b) A petition for recognition shall be accompanied by—

(1) a certified copy of the decision commencing such foreign 

proceeding and appointing the foreign representative; 

312 

(2) a certificate from the foreign court affirming the existence of such foreign proceeding and of the appointment of the 

foreign representative; or 

(3) in the absence of evidence referred to in paragraphs (1) 

and (2), any other evidence acceptable to the court of the existence of such foreign proceeding and of the appointment of the 

foreign representative. 

(c) A petition for recognition shall also be accompanied by a 

statement identifying all foreign proceedings with respect to the 

debtor that are known to the foreign representative. 

(d) The documents referred to in paragraphs (1) and (2) of subsection (b) shall be translated into English. The court may require 

a translation into English of additional documents. 

§ 1516. Presumptions concerning recognition 

(a) If the decision or certificate referred to in section 1515(b) indicates that the foreign proceeding is a foreign proceeding and that 

the person or body is a foreign representative, the court is entitled 

to so presume. 

(b) The court is entitled to presume that documents submitted 

in support of the petition for recognition are authentic, whether or 

not they have been legalized. 

(c) In the absence of evidence to the contrary, the debtor’s registered office, or habitual residence in the case of an individual, is 

presumed to be the center of the debtor’s main interests. 

§ 1517. Order granting recognition 

(a) Subject to section 1506, after notice and a hearing, an order 

recognizing a foreign proceeding shall be entered if—

(1) such foreign proceeding for which recognition is sought 

is a foreign main proceeding or foreign nonmain proceeding 

within the meaning of section 1502; 

(2) the foreign representative applying for recognition is a 

person or body; and 

(3) the petition meets the requirements of section 1515. 

(b) Such foreign proceeding shall be recognized—

(1) as a foreign main proceeding if it is pending in the 

country where the debtor has the center of its main interests; or 

(2) as a foreign nonmain proceeding if the debtor has an 

establishment within the meaning of section 1502 in the foreign 

country where the proceeding is pending. 

(c) A petition for recognition of a foreign proceeding shall be decided upon at the earliest possible time. Entry of an order recognizing a foreign proceeding constitutes recognition under this chapter. 

(d) The provisions of this subchapter do not prevent modification or termination of recognition if it is shown that the grounds for 

granting it were fully or partially lacking or have ceased to exist, 

but in considering such action the court shall give due weight to 

possible prejudice to parties that have relied upon the order granting recognition. A case under this chapter may be closed in the 

manner prescribed under section 350. 

313 

§ 1518. Subsequent information 

From the time of filing the petition for recognition of a foreign 

proceeding, the foreign representative shall file with the court 

promptly a notice of change of status concerning—

(1) any substantial change in the status of such foreign proceeding or the status of the foreign representative’s appointment; 

and 

(2) any other foreign proceeding regarding the debtor that 

becomes known to the foreign representative. 

§ 1519. Relief that may be granted upon filing petition for 

recognition 

(a) From the time of filing a petition for recognition until the 

court rules on the petition, the court may, at the request of the foreign representative, where relief is urgently needed to protect the assets of the debtor or the interests of the creditors, grant relief of a 

provisional nature, including—

(1) staying execution against the debtor’s assets; 

(2) entrusting the administration or realization of all or 

part of the debtor’s assets located in the United States to the 

foreign representative or another person authorized by the court, 

including an examiner, in order to protect and preserve the 

value of assets that, by their nature or because of other circumstances, are perishable, susceptible to devaluation or otherwise in jeopardy; and 

(3) any relief referred to in paragraph (3), (4), or (7) of section 1521(a). 

(b) Unless extended under section 1521(a)(6), the relief granted 

under this section terminates when the petition for recognition is 

granted. 

(c) It is a ground for denial of relief under this section that such 

relief would interfere with the administration of a foreign main proceeding. 

(d) The court may not enjoin a police or regulatory act of a governmental unit, including a criminal action or proceeding, under 

this section. 

(e) The standards, procedures, and limitations applicable to an 

injunction shall apply to relief under this section. 

(f) The exercise of rights not subject to the stay arising under 

section 362(a) pursuant to paragraph (6), (7), (17), or (27) of section 

362(b) or pursuant to section 362(n) shall not be stayed by any order 

of a court or administrative agency in any proceeding under this 

chapter. 

§ 1520. Effects of recognition of a foreign main proceeding 

(a) Upon recognition of a foreign proceeding that is a foreign 

main proceeding—

(1) sections 361 and 362 apply with respect to the debtor 

and the property of the debtor that is within the territorial jurisdiction of the United States; 

(2) sections 363, 549, and 552 apply to a transfer of an interest of the debtor in property that is within the territorial jurisdiction of the United States to the same extent that the sections would apply to property of an estate; 

314 

(3) unless the court orders otherwise, the foreign representative may operate the debtor’s business and may exercise the 

rights and powers of a trustee under and to the extent provided 

by sections 363 and 552; and 

(4) section 552 applies to property of the debtor that is 

within the territorial jurisdiction of the United States. 

(b) Subsection (a) does not affect the right to commence an individual action or proceeding in a foreign country to the extent necessary to preserve a claim against the debtor. 

(c) Subsection (a) does not affect the right of a foreign representative or an entity to file a petition commencing a case under this 

title or the right of any party to file claims or take other proper actions in such a case. 

§ 1521. Relief that may be granted upon recognition 

(a) Upon recognition of a foreign proceeding, whether main or 

nonmain, where necessary to effectuate the purpose of this chapter 

and to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, 

grant any appropriate relief, including— (1) staying the commencement or continuation of an individual action or proceeding concerning the debtor’s assets, 

rights, obligations or liabilities to the extent they have not been 

stayed under section 1520(a); 

(2) staying execution against the debtor’s assets to the extent it has not been stayed under section 1520(a); 

(3) suspending the right to transfer, encumber or otherwise 

dispose of any assets of the debtor to the extent this right has 

not been suspended under section 1520(a); 

(4) providing for the examination of witnesses, the taking 

of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities; 

(5) entrusting the administration or realization of all or 

part of the debtor’s assets within the territorial jurisdiction of 

the United States to the foreign representative or another person, including an examiner, authorized by the court; 

(6) extending relief granted under section 1519(a); and 

(7) granting any additional relief that may be available to 

a trustee, except for relief available under sections 522, 544, 

545, 547, 548, 550, and 724(a). 

(b) Upon recognition of a foreign proceeding, whether main or 

nonmain, the court may, at the request of the foreign representative, 

entrust the distribution of all or part of the debtor’s assets located 

in the United States to the foreign representative or another person, 

including an examiner, authorized by the court, provided that the 

court is satisfied that the interests of creditors in the United States 

are sufficiently protected. 

(c) In granting relief under this section to a representative of a 

foreign nonmain proceeding, the court must be satisfied that the relief relates to assets that, under the law of the United States, should 

be administered in the foreign nonmain proceeding or concerns information required in that proceeding. 

(d) The court may not enjoin a police or regulatory act of a governmental unit, including a criminal action or proceeding, under 

this section. 

315 

(e) The standards, procedures, and limitations applicable to an 

injunction shall apply to relief under paragraphs (1), (2), (3), and 

(6) of subsection (a). 

(f) The exercise of rights not subject to the stay arising under 

section 362(a) pursuant to paragraph (6), (7), (17), or (27) of section 

362(b) or pursuant to section 362(n) shall not be stayed by any order 

of a court or administrative agency in any proceeding under this 

chapter. 

§ 1522. Protection of creditors and other interested persons 

(a) The court may grant relief under section 1519 or 1521, or 

may modify or terminate relief under subsection (c), only if the interests of the creditors and other interested entities, including the 

debtor, are sufficiently protected. 

(b) The court may subject relief granted under section 1519 or 

1521, or the operation of the debtor’s business under section 

1520(a)(3), to conditions it considers appropriate, including the giving of security or the filing of a bond. 

(c) The court may, at the request of the foreign representative 

or an entity affected by relief granted under section 1519 or 1521, 

or at its own motion, modify or terminate such relief. 

(d) Section 1104(d) shall apply to the appointment of an examiner under this chapter. Any examiner shall comply with the qualification requirements imposed on a trustee by section 322. 

§ 1523. Actions to avoid acts detrimental to creditors 

(a) Upon recognition of a foreign proceeding, the foreign representative has standing in a case concerning the debtor pending 

under another chapter of this title to initiate actions under sections 

522, 544, 545, 547, 548, 550, 553, and 724(a). 

(b) When a foreign proceeding is a foreign nonmain proceeding, 

the court must be satisfied that an action under subsection (a) relates to assets that, under United States law, should be administered in the foreign nonmain proceeding. 

§ 1524. Intervention by a foreign representative 

Upon recognition of a foreign proceeding, the foreign representative may intervene in any proceedings in a State or Federal court 

in the United States in which the debtor is a party. 

SUBCHAPTER IV—COOPERATION WITH FOREIGN COURTS 

AND FOREIGN REPRESENTATIVES 

§ 1525. Cooperation and direct communication between the 

court and foreign courts or foreign representatives 

(a) Consistent with section 1501, the court shall cooperate to the 

maximum extent possible with a foreign court or a foreign representative, either directly or through the trustee. 

(b) The court is entitled to communicate directly with, or to request information or assistance directly from, a foreign court or a 

foreign representative, subject to the rights of a party in interest to 

notice and participation. 

316 

§ 1526. Cooperation and direct communication between the 

trustee and foreign courts or foreign representatives 

(a) Consistent with section 1501, the trustee or other person, including an examiner, authorized by the court, shall, subject to the 

supervision of the court, cooperate to the maximum extent possible 

with a foreign court or a foreign representative. 

(b) The trustee or other person, including an examiner, authorized by the court is entitled, subject to the supervision of the court, 

to communicate directly with a foreign court or a foreign representative. 

§ 1527. Forms of cooperation 

Cooperation referred to in sections 1525 and 1526 may be implemented by any appropriate means, including— (1) appointment of a person or body, including an examiner, to act at the direction of the court; 

(2) communication of information by any means considered 

appropriate by the court; 

(3) coordination of the administration and supervision of 

the debtor’s assets and affairs; 

(4) approval or implementation of agreements concerning 

the coordination of proceedings; and 

(5) coordination of concurrent proceedings regarding the 

same debtor. 

SUBCHAPTER V—CONCURRENT PROCEEDINGS 

§ 1528. Commencement of a case under this title after recognition of a foreign main proceeding 

After recognition of a foreign main proceeding, a case under another chapter of this title may be commenced only if the debtor has 

assets in the United States. The effects of such case shall be restricted to the assets of the debtor that are within the territorial jurisdiction of the United States and, to the extent necessary to implement cooperation and coordination under sections 1525, 1526, and 

1527, to other assets of the debtor that are within the jurisdiction 

of the court under sections 541(a) of this title, and 1334(e) of title 

28, to the extent that such other assets are not subject to the jurisdiction and control of a foreign proceeding that has been recognized 

under this chapter. 

§ 1529. Coordination of a case under this title and a foreign 

proceeding 

If a foreign proceeding and a case under another chapter of this 

title are pending concurrently regarding the same debtor, the court 

shall seek cooperation and coordination under sections 1525, 1526, 

and 1527, and the following shall apply: 

(1) If the case in the United States pending at the time the 

petition for recognition of such foreign proceeding is filed— (A) any relief granted under section 1519 or 1521 must 

be consistent with the relief granted in the case in the 

United States; and 

(B) section 1520 does not apply even if such foreign 

proceeding is recognized as a foreign main proceeding. 

317 

(2) If a case in the United States under this title commences after recognition, or after the date of the filing of the petition for recognition, of such foreign proceeding—

(A) any relief in effect under section 1519 or 1521 shall 

be reviewed by the court and shall be modified or terminated if inconsistent with the case in the United States; 

and 

(B) if such foreign proceeding is a foreign main proceeding, the stay and suspension referred to in section 

1520(a) shall be modified or terminated if inconsistent with 

the relief granted in the case in the United States. 

(3) In granting, extending, or modifying relief granted to a 

representative of a foreign nonmain proceeding, the court must 

be satisfied that the relief relates to assets that, under the laws 

of the United States, should be administered in the foreign 

nonmain proceeding or concerns information required in that 

proceeding. 

(4) In achieving cooperation and coordination under sections 1528 and 1529, the court may grant any of the relief authorized under section 305. 

§ 1530. Coordination of more than 1 foreign proceeding 

In matters referred to in section 1501, with respect to more than 

1 foreign proceeding regarding the debtor, the court shall seek cooperation and coordination under sections 1525, 1526, and 1527, 

and the following shall apply: 

(1) Any relief granted under section 1519 or 1521 to a representative of a foreign nonmain proceeding after recognition of 

a foreign main proceeding must be consistent with the foreign 

main proceeding. 

(2) If a foreign main proceeding is recognized after recognition, or after the filing of a petition for recognition, of a foreign 

nonmain proceeding, any relief in effect under section 1519 or 

1521 shall be reviewed by the court and shall be modified or 

terminated if inconsistent with the foreign main proceeding. 

(3) If, after recognition of a foreign nonmain proceeding, 

another foreign nonmain proceeding is recognized, the court 

shall grant, modify, or terminate relief for the purpose of facilitating coordination of the proceedings. 

§ 1531. Presumption of insolvency based on recognition of a 

foreign main proceeding 

In the absence of evidence to the contrary, recognition of a foreign main proceeding is, for the purpose of commencing a proceeding under section 303, proof that the debtor is generally not 

paying its debts as such debts become due. 

§ 1532. Rule of payment in concurrent proceedings 

Without prejudice to secured claims or rights in rem, a creditor 

who has received payment with respect to its claim in a foreign proceeding pursuant to a law relating to insolvency may not receive a 

payment for the same claim in a case under any other chapter of 

this title regarding the debtor, so long as the payment to other crediVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00321 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
318 

tors of the same class is proportionately less than the payment the 

creditor has already received. 

* * * * * * * 

TITLE 18, UNITED STATES CODE 

* * * * * * * 

PART I—CRIMES 

* * * * * * * 

CHAPTER 9—BANKRUPTCY 

Sec. 

151. Definition. 

* * * * * * * 

158. Designation of United States attorneys and agents of the Federal Bureau of 

Investigation to address abusive reaffirmations of debt and materially 

fraudulent statements in bankruptcy schedules. 

* * * * * * * 

§ 156. Knowing disregard of bankruptcy law or rule 

(a) DEFINITIONS.—In this section—

(1) the term ‘‘bankruptcy petition preparer’’ means a person, other than the debtor’s attorney or an employee of such 

an attorney, who prepares for compensation a document for 

filingø.¿; and 

(2) the term ‘‘document for filing’’ means a petition or any 

other document prepared for filing by a debtor in a United 

States bankruptcy court or a United States district court in 

connection with a case under øthis title¿ title 11. 

* * * * * * * 

§ 157. Bankruptcy fraud 

A person who, having devised or intending to devise a scheme 

or artifice to defraud and for the purpose of executing or concealing 

such a scheme or artifice or attempting to do so—

(1) files a petition under title 11, including a fraudulent 

involuntary bankruptcy petition under section 303 of such title; 

(2) files a document in a proceeding under title 11, including a fraudulent involuntary bankruptcy petition under section 

303 of such title; or 

(3) makes a false or fraudulent representation, claim, or 

promise concerning or in relation to a proceeding under title 

11, including a fraudulent involuntary bankruptcy petition 

under section 303 of such title, at any time before or after the 

filing of the petition, or in relation to a proceeding falsely asserted to be pending under such title, 

shall be fined under this title, imprisoned not more than 5 years, 

or both. 

319 

§ 158. Designation of United States attorneys and agents of 

the Federal Bureau of Investigation to address abusive reaffirmations of debt and materially fraudulent statements in bankruptcy schedules 

(a) IN GENERAL.—The Attorney General of the United States 

shall designate the individuals described in subsection (b) to have 

primary responsibility in carrying out enforcement activities in addressing violations of section 152 or 157 relating to abusive reaffirmations of debt. In addition to addressing the violations referred to in the preceding sentence, the individuals described under 

subsection (b) shall address violations of section 152 or 157 relating 

to materially fraudulent statements in bankruptcy schedules that 

are intentionally false or intentionally misleading. 

(b) UNITED STATES ATTORNEYS AND AGENTS OF THE FEDERAL

BUREAU OF INVESTIGATION.—The individuals referred to in subsection (a) are—

(1) the United States attorney for each judicial district of 

the United States; and 

(2) an agent of the Federal Bureau of Investigation for each 

field office of the Federal Bureau of Investigation. 

(c) BANKRUPTCY INVESTIGATIONS.—Each United States attorney 

designated under this section shall, in addition to any other responsibilities, have primary responsibility for carrying out the duties of 

a United States attorney under section 3057. 

(d) BANKRUPTCY PROCEDURES.—The bankruptcy courts shall 

establish procedures for referring any case that may contain a materially fraudulent statement in a bankruptcy schedule to the individuals designated under this section. 

* * * * * * * 

TITLE 28—UNITED STATES CODE 

* * * * * * * 

Part I—Organization of Courts 

* * * * * * * 

CHAPTER 6—BANKRUPTCY JUDGES 

* * * * * * * 

§ 152. Appointment of bankruptcy judges 

(a)(1) øThe United States court of appeals for the circuit shall 

appoint bankruptcy judges for the judicial districts established in 

paragraph (2) in such numbers as are established in such paragraph.¿ Each bankruptcy judge to be appointed for a judicial district, as provided in paragraph (2), shall be appointed by the court 

of appeals of the United States for the circuit in which such district 

is located. Such appointments shall be made after considering the 

recommendations of the Judicial Conference submitted pursuant to 

subsection (b). Each bankruptcy judge shall be appointed for a term 

of fourteen years, subject to the provisions of subsection (e). HowVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00323 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
320 

ever, upon the expiration of the term, a bankruptcy judge may, 

with the approval of the judicial council of the circuit, continue to 

perform the duties of the office until the earlier of the date which 

is 180 days after the expiration of the term or the date of the appointment of a successor. Bankruptcy judges shall serve as judicial 

officers of the United States district court established under Article 

III of the Constitution. 

(2) The bankruptcy judges appointed pursuant to this section shall be appointed for the several judicial districts as follows: 

Districts Judges 

* * * * * * * 

Georgia: 

Northern ................................................................................................... 8 

Middle ....................................................................................................... ø2¿ 3 

Southern ................................................................................................... 2 

øMiddle and Southern ............................................................................. 1¿ 

* * * * * * * 

CHAPTER 6—BANKRUPTCY JUDGES 

Sec. 

151. Designation of bankruptcy courts. 

* * * * * * * 

159. Bankruptcy statistics. 

* * * * * * * 

§ 157. Procedures 

(a) * * * 

(b)(1) * * * 

(2) Core proceedings include, but are not limited to—

(A) * * * 

* * * * * * * 

(N) orders approving the sale of property other than 

property resulting from claims brought by the estate 

against persons who have not filed claims against the estate; øand¿ 

(O) other proceedings affecting the liquidation of the 

assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claimsø.¿; and 

(P) recognition of foreign proceedings and other matters under chapter 15 of title 11. 

* * * * * * * 

§ 158. Appeals 

(a) * * * 

* * * * * * * 

(c)(1) øSubject to subsection (b),¿ Subject to subsections (b) and 

(d)(2), each appeal under subsection (a) shall be heard by a 3-judge 

panel of the bankruptcy appellate panel service established under 

subsection (b)(1) unless — (A) * * * 

* * * * * * * 

321 

(d)(1) The courts of appeals shall have jurisdiction of appeals 

from all final decisions, judgments, orders, and decrees entered 

under subsections (a) and (b) of this section. 

(2)(A) The appropriate court of appeals shall have jurisdiction 

of appeals described in the first sentence of subsection (a) if the 

bankruptcy court, the district court, or the bankruptcy appellate 

panel involved, acting on its own motion or on the request of a party 

to the judgment, order, or decree described in such first sentence, or 

all the appellants and appellees (if any) acting jointly, certify that—

(i) the judgment, order, or decree involves a question of law 

as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United 

States, or involves a matter of public importance; 

(ii) the judgment, order, or decree involves a question of 

law requiring resolution of conflicting decisions; or 

(iii) an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken; 

and if the court of appeals authorizes the direct appeal of the judgment, order, or decree. 

(B) If the bankruptcy court, the district court, or the bankruptcy 

appellate panel—

(i) on its own motion or on the request of a party, determines that a circumstance specified in clause (i), (ii), or (iii) of 

subparagraph (A) exists; or 

(ii) receives a request made by a majority of the appellants 

and a majority of appellees (if any) to make the certification described in subparagraph (A); 

then the bankruptcy court, the district court, or the bankruptcy appellate panel shall make the certification described in subparagraph 

(A). 

(C) The parties may supplement the certification with a short 

statement of the basis for the certification. 

(D) An appeal under this paragraph does not stay any proceeding of the bankruptcy court, the district court, or the bankruptcy 

appellate panel from which the appeal is taken, unless the respective 

bankruptcy court, district court, or bankruptcy appellate panel, or 

the court of appeals in which the appeal in pending, issues a stay 

of such proceeding pending the appeal. 

(E) Any request under subparagraph (B) for certification shall 

be made not later than 60 days after the entry of the judgment, 

order, or decree. 

§ 159. Bankruptcy statistics 

(a) The clerk of the district court, or the clerk of the bankruptcy 

court if one is certified pursuant to section 156(b) of this title, shall 

collect statistics regarding debtors who are individuals with primarily consumer debts seeking relief under chapters 7, 11, and 13 

of title 11. Those statistics shall be in a standardized format prescribed by the Director of the Administrative Office of the United 

States Courts (referred to in this section as the ‘‘Director’’). 

(b) The Director shall—

(1) compile the statistics referred to in subsection (a); 

(2) make the statistics available to the public; and 

322 

(3) not later than July 1, 2008, and annually thereafter, 

prepare, and submit to Congress a report concerning the information collected under subsection (a) that contains an analysis 

of the information. 

(c) The compilation required under subsection (b) shall—

(1) be itemized, by chapter, with respect to title 11; 

(2) be presented in the aggregate and for each district; and 

(3) include information concerning—

(A) the total assets and total liabilities of the debtors 

described in subsection (a), and in each category of assets 

and liabilities, as reported in the schedules prescribed pursuant to section 2075 of this title and filed by debtors; 

(B) the current monthly income, average income, and 

average expenses of debtors as reported on the schedules 

and statements that each such debtor files under sections 

521 and 1322 of title 11; 

(C) the aggregate amount of debt discharged in cases 

filed during the reporting period, determined as the difference between the total amount of debt and obligations of 

a debtor reported on the schedules and the amount of such 

debt reported in categories which are predominantly nondischargeable; 

(D) the average period of time between the date of the 

filing of the petition and the closing of the case for cases 

closed during the reporting period; 

(E) for cases closed during the reporting period—

(i) the number of cases in which a reaffirmation 

agreement was filed; and 

(ii)(I) the total number of reaffirmation agreements 

filed; 

(II) of those cases in which a reaffirmation agreement was filed, the number of cases in which the debtor was not represented by an attorney; and 

(III) of those cases in which a reaffirmation agreement was filed, the number of cases in which the reaffirmation agreement was approved by the court; 

(F) with respect to cases filed under chapter 13 of title 

11, for the reporting period—

(i)(I) the number of cases in which a final order 

was entered determining the value of property securing 

a claim in an amount less than the amount of the 

claim; and 

(II) the number of final orders entered determining 

the value of property securing a claim; 

(ii) the number of cases dismissed, the number of 

cases dismissed for failure to make payments under the 

plan, the number of cases refiled after dismissal, and 

the number of cases in which the plan was completed, 

separately itemized with respect to the number of modifications made before completion of the plan, if any; 

and 

(iii) the number of cases in which the debtor filed 

another case during the 6-year period preceding the filing; 

323 

(G) the number of cases in which creditors were fined 

for misconduct and any amount of punitive damages 

awarded by the court for creditor misconduct; and 

(H) the number of cases in which sanctions under rule 

9011 of the Federal Rules of Bankruptcy Procedure were 

imposed against debtor’s attorney or damages awarded 

under such Rule. 

* * * * * * * 

Part II—Department of Justice 

* * * * * * * 

CHAPTER 39—UNITED STATES TRUSTEES 

Sec. 

581. United States trustees. 

* * * * * * * 

589b. Bankruptcy data. 

* * * * * * * 

§ 586. Duties; supervision by Attorney General 

(a) Each United States trustee, within the region for which 

such United States trustee is appointed, shall—

(1) * * * 

* * * * * * * 

(3) supervise the administration of cases and trustees in 

cases under chapter 7, 11, 12, øor 13¿ 13, or 15 of title 11 by, 

whenever the United States trustee considers it to be appropriate—

(A) * * * 

* * * * * * * 

(G) monitoring the progress of cases under title 11 and 

taking such actions as the United States trustee deems to 

be appropriate to prevent undue delay in such progress; 

øand¿ 

(H) in small business cases (as defined in section 101 

of title 11), performing the additional duties specified in 

title 11 pertaining to such cases; and 

ø(H)¿ (I) monitoring applications filed under section 

327 of title 11 and, whenever the United States trustee 

deems it to be appropriate, filing with the court comments 

with respect to the approval of such applications; 

* * * * * * * 

(5) perform the duties prescribed for the United States 

trustee under title 11 and this title, and such duties consistent 

with title 11 and this title as the Attorney General may prescribe; øand¿ 

ø(6) make such reports as the Attorney General directs.¿ 

(6) make such reports as the Attorney General directs, including the results of audits performed under section 603(a) of 

the Bankruptcy Abuse Prevention and Consumer Protection Act 

of 2005; 

324 

(7) in each of such small business cases— (A) conduct an initial debtor interview as soon as practicable after the date of the order for relief but before the 

first meeting scheduled under section 341(a) of title 11, at 

which time the United States trustee shall— (i) begin to investigate the debtor’s viability; 

(ii) inquire about the debtor’s business plan; 

(iii) explain the debtor’s obligations to file monthly 

operating reports and other required reports; 

(iv) attempt to develop an agreed scheduling order; 

and 

(v) inform the debtor of other obligations; 

(B) if determined to be appropriate and advisable, visit 

the appropriate business premises of the debtor, ascertain 

the state of the debtor’s books and records, and verify that 

the debtor has filed its tax returns; and 

(C) review and monitor diligently the debtor’s activities, to identify as promptly as possible whether the debtor 

will be unable to confirm a plan; and 

(8) in any case in which the United States trustee finds material grounds for any relief under section 1112 of title 11, the 

United States trustee shall apply promptly after making that 

finding to the court for relief. 

* * * * * * * 

(d)(1) The Attorney General shall prescribe by rule qualifications for membership on the panels established by United States 

trustees under paragraph (a)(1) of this section, and qualifications 

for appointment under subsection (b) of this section to serve as 

standing trustee in cases under chapter 12 or 13 of title 11. The 

Attorney General may not require that an individual be an attorney in order to qualify for appointment under subsection (b) of this 

section to serve as standing trustee in cases under chapter 12 or 

13 of title 11. 

(2) A trustee whose appointment under subsection (a)(1) or 

under subsection (b) is terminated or who ceases to be assigned to 

cases filed under title 11, United States Code, may obtain judicial 

review of the final agency decision by commencing an action in the 

district court of the United States for the district for which the 

panel to which the trustee is appointed under subsection (a)(1), or 

in the district court of the United States for the district in which 

the trustee is appointed under subsection (b) resides, after first exhausting all available administrative remedies, which if the trustee 

so elects, shall also include an administrative hearing on the record. 

Unless the trustee elects to have an administrative hearing on the 

record, the trustee shall be deemed to have exhausted all administrative remedies for purposes of this paragraph if the agency fails 

to make a final agency decision within 90 days after the trustee requests administrative remedies. The Attorney General shall prescribe procedures to implement this paragraph. The decision of the 

agency shall be affirmed by the district court unless it is unreasonable and without cause based on the administrative record before 

the agency. 

(e)(1) * * * 

* * * * * * * 

325 

(3) After first exhausting all available administrative remedies, 

an individual appointed under subsection (b) may obtain judicial 

review of final agency action to deny a claim of actual, necessary 

expenses under this subsection by commencing an action in the district court of the United States for the district where the individual 

resides. The decision of the agency shall be affirmed by the district 

court unless it is unreasonable and without cause based upon the 

administrative record before the agency. 

(4) The Attorney General shall prescribe procedures to implement this subsection. 

(f)(1) The United States trustee for each district is authorized 

to contract with auditors to perform audits in cases designated by 

the United States trustee, in accordance with the procedures established under section 603(a) of the Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2005. 

(2)(A) The report of each audit referred to in paragraph (1) 

shall be filed with the court and transmitted to the United States 

trustee. Each report shall clearly and conspicuously specify any material misstatement of income or expenditures or of assets identified 

by the person performing the audit. In any case in which a material 

misstatement of income or expenditures or of assets has been reported, the clerk of the district court (or the clerk of the bankruptcy 

court if one is certified under section 156(b) of this title) shall give 

notice of the misstatement to the creditors in the case. 

(B) If a material misstatement of income or expenditures or of 

assets is reported, the United States trustee shall—

(i) report the material misstatement, if appropriate, to the 

United States Attorney pursuant to section 3057 of title 18; and 

(ii) if advisable, take appropriate action, including but not 

limited to commencing an adversary proceeding to revoke the 

debtor’s discharge pursuant to section 727(d) of title 11. 

* * * * * * * 

§ 589a. United States Trustee System Fund 

(a) * * * 

(b) For the purpose of recovering the cost of services of the 

United States Trustee System, there shall be deposited as offsetting collections to the appropriation ‘‘United States Trustee System 

Fund’’, to remain available until expended, the following—

ø(1) 27.42 percent of the fees collected under section 

1930(a)(1) of this title;¿ 

(1)(A) 40.63 percent of the fees collected under section 

1930(a)(1)(A) of this title; and 

(B) 70.00 percent of the fees collected under section 

1930(a)(1)(B); 

(2) øone-half¿ 75 percent of the fees collected under section 

1930(a)(3) of this title; 

* * * * * * * 

(4) øone-half¿ 100 percent of the fees collected under section 1930(a)(5) of this title; 

* * * * * * * 

326 

§ 589b. Bankruptcy data 

(a) RULES.—The Attorney General shall, within a reasonable 

time after the effective date of this section, issue rules requiring uniform forms for (and from time to time thereafter to appropriately 

modify and approve)—

(1) final reports by trustees in cases under chapters 7, 12, 

and 13 of title 11; and 

(2) periodic reports by debtors in possession or trustees in 

cases under chapter 11 of title 11. 

(b) REPORTS.—Each report referred to in subsection (a) shall be 

designed (and the requirements as to place and manner of filing 

shall be established) so as to facilitate compilation of data and maximum possible access of the public, both by physical inspection at 

one or more central filing locations, and by electronic access through 

the Internet or other appropriate media. 

(c) REQUIRED INFORMATION.—The information required to be 

filed in the reports referred to in subsection (b) shall be that which 

is in the best interests of debtors and creditors, and in the public 

interest in reasonable and adequate information to evaluate the efficiency and practicality of the Federal bankruptcy system. In issuing 

rules proposing the forms referred to in subsection (a), the Attorney 

General shall strike the best achievable practical balance between—

(1) the reasonable needs of the public for information about 

the operational results of the Federal bankruptcy system; 

(2) economy, simplicity, and lack of undue burden on persons with a duty to file reports; and 

(3) appropriate privacy concerns and safeguards. 

(d) FINAL REPORTS.—The uniform forms for final reports required under subsection (a) for use by trustees under chapters 7, 12, 

and 13 of title 11 shall, in addition to such other matters as are 

required by law or as the Attorney General in the discretion of the 

Attorney General shall propose, include with respect to a case under 

such title—

(1) information about the length of time the case was pending; 

(2) assets abandoned; 

(3) assets exempted; 

(4) receipts and disbursements of the estate; 

(5) expenses of administration, including for use under section 707(b), actual costs of administering cases under chapter 

13 of title 11; 

(6) claims asserted; 

(7) claims allowed; and 

(8) distributions to claimants and claims discharged without payment, 

in each case by appropriate category and, in cases under chapters 

12 and 13 of title 11, date of confirmation of the plan, each modification thereto, and defaults by the debtor in performance under 

the plan. 

(e) PERIODIC REPORTS.—The uniform forms for periodic reports 

required under subsection (a) for use by trustees or debtors in possession under chapter 11 of title 11 shall, in addition to such other 

matters as are required by law or as the Attorney General in the 

discretion of the Attorney General shall propose, include—

327 

(1) information about the industry classification, published 

by the Department of Commerce, for the businesses conducted 

by the debtor; 

(2) length of time the case has been pending; 

(3) number of full-time employees as of the date of the order 

for relief and at the end of each reporting period since the case 

was filed; 

(4) cash receipts, cash disbursements and profitability of 

the debtor for the most recent period and cumulatively since the 

date of the order for relief; 

(5) compliance with title 11, whether or not tax returns and 

tax payments since the date of the order for relief have been 

timely filed and made; 

(6) all professional fees approved by the court in the case 

for the most recent period and cumulatively since the date of the 

order for relief (separately reported, for the professional fees incurred by or on behalf of the debtor, between those that would 

have been incurred absent a bankruptcy case and those not); 

and 

(7) plans of reorganization filed and confirmed and, with 

respect thereto, by class, the recoveries of the holders, expressed 

in aggregate dollar values and, in the case of claims, as a percentage of total claims of the class allowed. 

* * * * * * * 

Part III—Court Officers and Employees 

* * * * * * * 

CHAPTER 57—GENERAL PROVISIONS APPLICABLE TO 

COURT OFFICERS AND EMPLOYEES 

* * * * * * * 

§ 960. Tax liability 

(a) Any officers and agents conducting any business under authority of a United States court shall be subject to all Federal, 

State and local taxes applicable to such business to the same extent as if it were conducted by an individual or corporation. 

(b) A tax under subsection (a) shall be paid on or before the due 

date of the tax under applicable nonbankruptcy law, unless—

(1) the tax is a property tax secured by a lien against property that is abandoned under section 554 of title 11, within a 

reasonable period of time after the lien attaches, by the trustee 

in a case under title 11; or 

(2) payment of the tax is excused under a specific provision 

of title 11. 

(c) In a case pending under chapter 7 of title 11, payment of a 

tax may be deferred until final distribution is made under section 

726 of title 11, if—

(1) the tax was not incurred by a trustee duly appointed or 

elected under chapter 7 of title 11; or 

(2) before the due date of the tax, an order of the court 

makes a finding of probable insufficiency of funds of the estate 

to pay in full the administrative expenses allowed under section 

328 

503(b) of title 11 that have the same priority in distribution 

under section 726(b) of title 11 as the priority of that tax. 

* * * * * * * 

Part IV—Jurisdiction and Venue 

* * * * * * * 

CHAPTER 85—DISTRICT COURTS; JURISDICTION 

* * * * * * * 

§ 1334. Bankruptcy cases and proceedings 

(a) * * * 

(b) øNotwithstanding¿ Except as provided in subsection (e)(2), 

and notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the 

district courts shall have original but not exclusive jurisdiction of 

all civil proceedings arising under title 11, or arising in or related 

to cases under title 11. 

(c)(1) øNothing in¿ Except with respect to a case under chapter 

15 of title 11, nothing in this section prevents a district court in the 

interest of justice, or in the interest of comity with State courts or 

respect for State law, from abstaining from hearing a particular 

proceeding arising under title 11 or arising in or related to a case 

under title 11. 

* * * * * * * 

(d) Any decision to abstain or not to abstain ømade under this 

subsection¿ made under subsection (c) (other than a decision not to 

abstain in a proceeding described in subsection (c)(2)) is not reviewable by appeal or otherwise by the court of appeals under section 

158(d), 1291, or 1292 of this title or by the Supreme Court of the 

United States under section 1254 of this title. øThis subsection¿ 

Subsection (c) and this subsection shall not be construed to limit 

the applicability of the stay provided for by section 362 of title 11, 

United States Code, as such section applies to an action affecting 

the property of the estate in bankruptcy. 

ø(e) The district court in which a case under title 11 is commenced or is pending shall have exclusive jurisdiction of all of the 

property, wherever located, of the debtor as of the commencement 

of such case, and of property of the estate.¿ 

(e) The district court in which a case under title 11 is commenced or is pending shall have exclusive jurisdiction—

(1) of all the property, wherever located, of the debtor as of 

the commencement of such case, and of property of the estate; 

and 

(2) over all claims or causes of action that involve construction of section 327 of title 11, United States Code, or rules relating to disclosure requirements under section 327. 

* * * * * * * 

CHAPTER 87—DISTRICT COURTS; VENUE 

* * * * * * * 

329 

§ 1409. Venue of proceedings arising under title 11 or arising 

in or related to cases under title 11 

(a) * * * 

(b) Except as provided in subsection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in 

or related to such case to recover a money judgment of or property 

worth less than $1,000 or a consumer debt of less than ø$5,000,¿ 

$15,000, or a debt (excluding a consumer debt) against a noninsider 

of less than $10,000, only in the district court for the district in 

which the defendant resides. 

ø§ 1410. Venue of cases ancillary to foreign proceedings 

ø(a) A case under section 304 of title 11 to enjoin the commencement or continuation of an action or proceeding in a State or 

Federal court, or the enforcement of a judgment, may be commenced only in the district court for the district where the State 

or Federal court sits in which is pending the action or proceeding 

against which the injunction is sought. 

ø(b) A case under section 304 of title 11 to enjoin the enforcement of a lien against a property, or to require the turnover of 

property of an estate, may be commenced only in the district court 

for the district in which such property is found. 

ø(c) A case under section 304 of title 11, other than a case 

specified in subsection (a) or (b) of this section, may be commenced only in the district court for the district in which is located the principal place of business in the United States, or 

the principal assets in the United States, of the estate that is 

the subject of such case.¿ 

§ 1410. Venue of cases ancillary to foreign proceedings 

A case under chapter 15 of title 11 may be commenced in the 

district court of the United States for the district—

(1) in which the debtor has its principal place of business 

or principal assets in the United States; 

(2) if the debtor does not have a place of business or assets 

in the United States, in which there is pending against the 

debtor an action or proceeding in a Federal or State court; or 

(3) in a case other than those specified in paragraph (1) or 

(2), in which venue will be consistent with the interests of justice and the convenience of the parties, having regard to the relief sought by the foreign representative. 

* * * * * * * 

Part V—Procedure 

* * * * * * * 

CHAPTER 123—FEES AND COSTS 

§ 1930. Bankruptcy fees 

(a) øNotwithstanding section 1915 of this title, the¿ The parties commencing a case under title 11 shall pay to the clerk of the 

district court or the clerk of the bankruptcy court, if one has been 

330 

certified pursuant to section 156(b) of this title, the following filing 

fees: 

ø(1) For a case commenced under chapter 7 or 13 of title 11, $155.¿ 

(1) For a case commenced under— (A) chapter 7 of title 11, $200; and 

(B) chapter 13 of title 11, $150. 

* * * * * * * 

(3) For a case commenced under chapter 11 of title 11 that 

doesnot concern a railroad, as defined in section 101 of title 11, 

ø$800¿ $1000. 

* * * * * * * 

(f)(1) Under the procedures prescribed by the Judicial Conference of the United States, the district court or the bankruptcy 

court may waive the filing fee in a case under chapter 7 of title 11 

for an individual if the court determines that such individual has 

income less than 150 percent of the income official poverty line (as 

defined by the Office of Management and Budget, and revised annually in accordance with section 673(2) of the Omnibus Budget 

Reconciliation Act of 1981) applicable to a family of the size involved and is unable to pay that fee in installments. For purposes 

of this paragraph, the term ‘‘filing fee’’ means the filing fee required by subsection (a), or any other fee prescribed by the Judicial 

Conference under subsections (b) and (c) that is payable to the 

clerk upon the commencement of a case under chapter 7. 

(2) The district court or the bankruptcy court may waive for 

such debtors other fees prescribed under subsections (b) and (c). 

(3) This subsection does not restrict the district court or the 

bankruptcy court from waiving, in accordance with Judicial Conference policy, fees prescribed under this section for other debtors 

and creditors. 

* * * * * * * 

CHAPTER 131—RULES OF COURTS 

* * * * * * * 

§ 2075. Bankruptcy rules 

The Supreme Court shall have the power to prescribe by general rules, the forms of process, writs, pleadings, and motions, and 

the practice and procedure in cases under title 11. Such rules shall 

not abridge, enlarge, or modify any substantive right. The Supreme 

Court shall transmit to Congress not later than May 1 of the year 

in which a rule prescribed under this section is to become effective 

a copy of the proposed rule. The rule shall take effect no earlier 

than December 1 of the year in which it is transmitted to Congress 

unless otherwise provided by law. The bankruptcy rules promulgated under this section shall prescribe a form for the statement required under section 707(b)(2)(C) of title 11 and may provide general rules on the content of such statement. 

* * * * * * * 

331 

SECTION 406 OF THE JUDICIARY APPROPRIATIONS ACT, 

1990 

SEC. 406. (a) * * * 

(b) All fees as shall be hereafter collected for any service not 

of a kind described in any of the items enumerated as items 1 

through 7 and as items 9 through 18, as in effect on November 21, 

1989, of the bankruptcy miscellaneous fee schedule prescribed by 

the Judicial Conference of the United States øpursuant to 28 

U.S.C. section 1930(b) and 33.87 percent of the fees hereafter collected under 28 U.S.C. section 1930(a)(1) and 25 percent of the fees 

hererafter collected under 28 U.S.C. section 1930(a)(3) shall be deposited as offsetting receipts to the fund established under 28 

U.S.C. section 1931¿ under section 1930(b) of title 28, United States 

Code, 31.25 of the fees collected under section 1930(a)(1)(A) of that 

title, 30.00 percent of the fees collected under section 1930(a)(1)(B) 

of that title, and 25 percent of the fees collected under section 

1930(a)(3) of that title shall be deposited as offsetting receipts to the 

fund established under section 1931 of that title and shall remain 

available to the Judiciary until expended to reimburse any appropriation for the amount paid out of such appropriation for expenses 

of the Courts of Appeals, District Courts, and other Judicial Services and the Administrative Office of the United States Courts. The 

Judicial Conference shall report to the Committees on Appropriations of the House of Representatives and the Senate on a quarterly basis beginning on the first day of each fiscal year regarding 

the sums deposited in said fund. 

* * * * * * * 

FEDERAL DEPOSIT INSURANCE ACT 

* * * * * * * 

SEC. 11. (a) * * * 

* * * * * * * 

(e) PROVISIONS RELATING TO CONTRACTS ENTERED INTO BE- FORE APPOINTMENT OF CONSERVATOR OR RECEIVER.— (1) * * * 

* * * * * * * 

(8) CERTAIN QUALIFIED FINANCIAL CONTRACTS.— (A) RIGHTS OF PARTIES TO CONTRACTS.—Subject to 

øparagraph (10)¿ paragraphs (9) and (10) of this subsection and notwithstanding any other provision of this 

Act (other than subsection (d)(9) of this section and section 

13(e)), any other Federal law, or the law of any State, no 

person shall be stayed or prohibited from exercising— (i) any right øto cause the termination or liquidation¿ such person has to cause the termination, liquidation, or acceleration of any qualified financial contract with an insured depository institution which 

arises upon the appointment of the Corporation as receiver for such institution at any time after such appointment; 

332 

ø(ii) any right under any security arrangement relating to any contract or agreement described in clause 

(i); or¿ 

(ii) any right under any security agreement or arrangement or other credit enhancement related to one 

or more qualified financial contracts described in 

clause (i); 

* * * * * * * 

(C) CERTAIN TRANSFERS NOT AVOIDABLE.— (i) IN GENERAL.—Notwithstanding paragraph (11), 

section 5242 of the Revised Statutes of the United 

States or any other Federal or State law relating to the 

avoidance of preferential or fraudulent transfers, the 

Corporation, whether acting as such or as conservator 

or receiver of an insured depository institution, may 

not avoid any transfer of money or other property in 

connection with any qualified financial contract with 

an insured depository institution. 

* * * * * * * 

(D) CERTAIN CONTRACTS AND AGREEMENTS DEFINED.— For purposes of this øsubsection—¿ subsection, the following definitions shall apply: 

(i) QUALIFIED FINANCIAL CONTRACT.—The term ‘‘qualified financial contract’’ means any securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, and any similar 

agreement that the Corporation determines by regulation, resolution, or order to be a qualified financial 

contract for purposes of this paragraph. 

ø(ii) SECURITIES CONTRACT.—The term ‘‘securities 

contract’’—

ø(I) has the meaning given to such term in 

section 741 of title 11, United States Code, except 

that the term ‘‘security’’ (as used in such section) 

shall be deemed to include any mortgage loan, any 

mortgage-related security (as defined in section 

3(a)(41) of the Securities Exchange Act of 1934), 

and any interest in any mortgage loan or mortgage-related security; and 

ø(II) does not include any participation in a 

commercial mortgage loan unless the Corporation 

determines by regulation, resolution, or order to 

include any such participation within the meaning 

of such term. 

ø(iii) COMMODITY CONTRACT.—The term ‘‘commodity contract’’ has the meaning given to such term 

in section 761 of title 11, United States Code. 

ø(iv) FORWARD CONTRACT.—The term ‘‘forward 

contract’’ has the meaning given to such term in section 101 of title 11, United States Code. 

ø(v) REPURCHASE AGREEMENT.—The term ‘‘repurchase agreement’’—

ø(I) has the meaning given to such term in 

section 101 of title 11, the United States Code, exVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00336 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
333 

cept that the items (as described in such section) 

which may be subject to any such agreement shall 

be deemed to include mortgage-related securities 

(as such term is defined in section 3(a)(41) of the 

Securities Exchange Act of 1934), any mortgage 

loan, and any interest in any mortgage loan; and 

ø(II) does not include any participation in a 

commercial mortgage loan unless the Corporation 

determines by regulation, resolution, or order to 

include any such participation within the meaning 

of such term. 

ø(vi) SWAP AGREEMENT.—The term ‘‘swap agreement’’—

ø(I) means any agreement, including the 

terms and conditions incorporated by reference in 

any such agreement, which is a rate swap agreement, basis swap, commodity swap, forward rate 

agreement, interest rate future, interest rate option purchased, forward foreign exchange agreement, rate cap agreement, rate floor agreement, 

rate collar agreement, currency swap agreement, 

cross-currency rate swap agreement, currency future, or currency option purchased or any other 

similar agreement, and 

ø(II) includes any combination of such agreements and any option to enter into any such 

agreement. 

ø(vii) TREATMENT OF MASTER AGREEMENT AS 1

SWAP AGREEMENT.—Any master agreement for any 

agreements described in clause (vi)(I) together with all 

supplements to such master agreement shall be treated as 1 swap agreement. 

ø(viii) TRANSFER.—The term ‘‘transfer’’ has the 

meaning given to such term in section 101 of title 11, 

United States Code.¿ 

(ii) SECURITIES CONTRACT.—The term ‘‘securities 

contract’’—

(I) means a contract for the purchase, sale, or 

loan of a security, a certificate of deposit, a mortgage loan, or any interest in a mortgage loan, a 

group or index of securities, certificates of deposit, 

or mortgage loans or interests therein (including 

any interest therein or based on the value thereof) 

or any option on any of the foregoing, including 

any option to purchase or sell any such security, 

certificate of deposit, mortgage loan, interest, group 

or index, or option, and including any repurchase 

or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or index, or option; 

(II) does not include any purchase, sale, or repurchase obligation under a participation in a 

commercial mortgage loan unless the Corporation 

determines by regulation, resolution, or order to inVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00337 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
334 

clude any such agreement within the meaning of 

such term; 

(III) means any option entered into on a national securities exchange relating to foreign currencies; 

(IV) means the guarantee by or to any securities clearing agency of any settlement of cash, securities, certificates of deposit, mortgage loans or interests therein, group or index of securities, certificates of deposit, or mortgage loans or interests 

therein (including any interest therein or based on 

the value thereof) or option on any of the foregoing, 

including any option to purchase or sell any such 

security, certificate of deposit, mortgage loan, interest, group or index, or option; 

(V) means any margin loan; 

(VI) means any other agreement or transaction 

that is similar to any agreement or transaction referred to in this clause; 

(VII) means any combination of the agreements or transactions referred to in this clause; 

(VIII) means any option to enter into any 

agreement or transaction referred to in this clause; 

(IX) means a master agreement that provides 

for an agreement or transaction referred to in subclause (I), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a securities contract under this 

clause, except that the master agreement shall be 

considered to be a securities contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (III), (IV), (V), (VI), (VII), 

or (VIII); and 

(X) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in this clause, 

including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in this clause. 

(iii) COMMODITY CONTRACT.—The term ‘‘commodity 

contract’’ means—

(I) with respect to a futures commission merchant, a contract for the purchase or sale of a commodity for future delivery on, or subject to the 

rules of, a contract market or board of trade; 

(II) with respect to a foreign futures commission merchant, a foreign future; 

(III) with respect to a leverage transaction 

merchant, a leverage transaction; 

(IV) with respect to a clearing organization, a 

contract for the purchase or sale of a commodity 

for future delivery on, or subject to the rules of, a 

335 

contract market or board of trade that is cleared 

by such clearing organization, or commodity option traded on, or subject to the rules of, a contract 

market or board of trade that is cleared by such 

clearing organization; 

(V) with respect to a commodity options dealer, 

a commodity option; 

(VI) any other agreement or transaction that is 

similar to any agreement or transaction referred to 

in this clause; 

(VII) any combination of the agreements or 

transactions referred to in this clause; 

(VIII) any option to enter into any agreement 

or transaction referred to in this clause; 

(IX) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a commodity contract under this 

clause, except that the master agreement shall be 

considered to be a commodity contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (II), (III), (IV), (V), (VI), 

(VII), or (VIII); or 

(X) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in this clause, including 

any guarantee or reimbursement obligation in connection with any agreement or transaction referred 

to in this clause. 

(iv) FORWARD CONTRACT.—The term ‘‘forward contract’’ means—

(I) a contract (other than a commodity contract) for the purchase, sale, or transfer of a commodity or any similar good, article, service, right, 

or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with 

a maturity date more than 2 days after the date 

the contract is entered into, including, a repurchase transaction, reverse repurchase transaction, 

consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, 

unallocated transaction, or any other similar 

agreement; 

(II) any combination of agreements or transactions referred to in subclauses (I) and (III); 

(III) any option to enter into any agreement or 

transaction referred to in subclause (I) or (II); 

(IV) a master agreement that provides for an 

agreement or transaction referred to in subclauses 

(I), (II), or (III), together with all supplements to 

336 

any such master agreement, without regard to 

whether the master agreement provides for an 

agreement or transaction that is not a forward 

contract under this clause, except that the master 

agreement shall be considered to be a forward contract under this clause only with respect to each 

agreement or transaction under the master agreement that is referred to in subclause (I), (II), or 

(III); or 

(V) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in subclause (I), (II), 

(III), or (IV), including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in any such subclause. 

(v) REPURCHASE AGREEMENT.—The term ‘‘repurchase agreement’’ (which definition also applies to a reverse repurchase agreement)—

(I) means an agreement, including related 

terms, which provides for the transfer of one or 

more certificates of deposit, mortgage-related securities (as such term is defined in the Securities Exchange Act of 1934), mortgage loans, interests in 

mortgage-related securities or mortgage loans, eligible bankers’ acceptances, qualified foreign government securities or securities that are direct obligations of, or that are fully guaranteed by, the 

United States or any agency of the United States 

against the transfer of funds by the transferee of 

such certificates of deposit, eligible bankers’ acceptances, securities, mortgage loans, or interests with 

a simultaneous agreement by such transferee to 

transfer to the transferor thereof certificates of deposit, eligible bankers’ acceptances, securities, 

mortgage loans, or interests as described above, at 

a date certain not later than 1 year after such 

transfers or on demand, against the transfer of 

funds, or any other similar agreement; 

(II) does not include any repurchase obligation 

under a participation in a commercial mortgage 

loan unless the Corporation determines by regulation, resolution, or order to include any such participation within the meaning of such term; 

(III) means any combination of agreements or 

transactions referred to in subclauses (I) and (IV); 

(IV) means any option to enter into any agreement or transaction referred to in subclause (I) or 

(III); 

(V) means a master agreement that provides 

for an agreement or transaction referred to in subclause (I), (III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement provides for 

an agreement or transaction that is not a repurVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00340 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
337 

chase agreement under this clause, except that the 

master agreement shall be considered to be a repurchase agreement under this subclause only 

with respect to each agreement or transaction 

under the master agreement that is referred to in 

subclause (I), (III), or (IV); and 

(VI) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in subclause 

(I), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

For purposes of this clause, the term ‘‘qualified foreign 

government security’’ means a security that is a direct 

obligation of, or that is fully guaranteed by, the central 

government of a member of the Organization for Economic Cooperation and Development (as determined by 

regulation or order adopted by the appropriate Federal 

banking authority). 

(vi) SWAP AGREEMENT.—The term ‘‘swap agreement’’ means—

(I) any agreement, including the terms and 

conditions incorporated by reference in any such 

agreement, which is an interest rate swap, option, 

future, or forward agreement, including a rate 

floor, rate cap, rate collar, cross-currency rate 

swap, and basis swap; a spot, same day-tomorrow, 

tomorrow-next, forward, or other foreign exchange 

or precious metals agreement; a currency swap, option, future, or forward agreement; an equity index 

or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or 

forward agreement; a total return, credit spread or 

credit swap, option, future, or forward agreement; 

a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, 

weather derivative, or weather option; 

(II) any agreement or transaction that is similar to any other agreement or transaction referred 

to in this clause and that is of a type that has 

been, is presently, or in the future becomes, the 

subject of recurrent dealings in the swap markets 

(including terms and conditions incorporated by 

reference in such agreement) and that is a forward, swap, future, or option on one or more rates, 

currencies, commodities, equity securities or other 

equity instruments, debt securities or other debt instruments, quantitative measures associated with 

an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or 

economic consequence, or economic or financial indices or measures of economic or financial risk or 

value; 

338 

(III) any combination of agreements or transactions referred to in this clause; 

(IV) any option to enter into any agreement or 

transaction referred to in this clause; 

(V) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), or (IV), together with all supplements 

to any such master agreement, without regard to 

whether the master agreement contains an agreement or transaction that is not a swap agreement 

under this clause, except that the master agreement shall be considered to be a swap agreement 

under this clause only with respect to each agreement or transaction under the master agreement 

that is referred to in subclause (I), (II), (III), or 

(IV); and 

(VI) any security agreement or arrangement or 

other credit enhancement related to any agreements or transactions referred to in subclause (I), 

(II), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

Such term is applicable for purposes of this subsection 

only and shall not be construed or applied so as to 

challenge or affect the characterization, definition, or 

treatment of any swap agreement under any other statute, regulation, or rule, including the Securities Act of 

1933, the Securities Exchange Act of 1934, the Public 

Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, 

the Investment Advisers Act of 1940, the Securities Investor Protection Act of 1970, the Commodity Exchange 

Act, the Gramm-Leach-Bliley Act, and the Legal Certainty for Bank Products Act of 2000. 

(vii) TREATMENT OF MASTER AGREEMENT AS ONE

AGREEMENT.—Any master agreement for any contract 

or agreement described in any preceding clause of this 

subparagraph (or any master agreement for such master agreement or agreements), together with all supplements to such master agreement, shall be treated as a 

single agreement and a single qualified financial contract. If a master agreement contains provisions relating to agreements or transactions that are not themselves qualified financial contracts, the master agreement shall be deemed to be a qualified financial contract only with respect to those transactions that are 

themselves qualified financial contracts. 

(viii) TRANSFER.—The term ‘‘transfer’’ means every 

mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with 

property or with an interest in property, including retention of title as a security interest and foreclosure of 

the depository institution’s equity of redemption. 

339 

(E) CERTAIN PROTECTIONS IN EVENT OF APPOINTMENT

OF CONSERVATOR.—Notwithstanding any other provision of 

this Act (øother than paragraph (12) of this subsection, 

subsection (d)(9)¿ other than subsections (d)(9) and (e)(10) 

of this section, and section 13(e) of this Act), any other 

Federal law, or the law of any State, no person shall be 

stayed or prohibited from exercising— (i) * * * 

ø(ii) any right under any security arrangement relating to such qualified financial contracts; or¿ 

(ii) any right under any security agreement or arrangement or other credit enhancement related to one 

or more qualified financial contracts described in 

clause (i); 

* * * * * * * 

(F) CLARIFICATION.—No provision of law shall be construed as limiting the right or power of the Corporation, or 

authorizing any court or agency to limit or delay, in any 

manner, the right or power of the Corporation to transfer 

any qualified financial contract in accordance with paragraphs (9) and (10) of this subsection or to disaffirm or repudiate any such contract in accordance with subsection 

(e)(1) of this section. 

(G) WALKAWAY CLAUSES NOT EFFECTIVE.— (i) IN GENERAL.—Notwithstanding the provisions 

of subparagraphs (A) and (E), and sections 403 and 

404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, no walkaway clause shall be 

enforceable in a qualified financial contract of an insured depository institution in default. 

(ii) WALKAWAY CLAUSE DEFINED.—For purposes of 

this subparagraph, the term ‘‘walkaway clause’’ means 

a provision in a qualified financial contract that, after 

calculation of a value of a party’s position or an 

amount due to or from 1 of the parties in accordance 

with its terms upon termination, liquidation, or acceleration of the qualified financial contract, either does 

not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in 

part solely because of such party’s status as a nondefaulting party. 

(H) RECORDKEEPING REQUIREMENTS.—The Corporation, in consultation with the appropriate Federal banking 

agencies and the National Credit Union Administration 

Board, may prescribe regulations requiring more detailed 

recordkeeping by any insured depository institution with respect to qualified financial contracts (including market 

valuations) only if such insured depository institution is in 

a troubled condition (as such term is defined by the Corporation pursuant to section 32). 

ø(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.—In 

making any transfer of assets or liabilities of a depository institution in default which includes any qualified financial contract, the conservator or receiver for such depository institution 

shall either—

340 

ø(A) transfer to 1 depository institution (other than a 

depository institution in default)— ø(i) all qualified financial contracts between— ø(I) any person or any affiliate of such person; 

and 

ø(II) the depository institution in default; 

ø(ii) all claims of such person or any affiliate of 

such person against such depository institution under 

any such contract (other than any claim which, under 

the terms of any such contract, is subordinated to the 

claims of general unsecured creditors of such institution); 

ø(iii) all claims of such depository institution 

against such person or any affiliate of such person 

under any such contract; and 

ø(iv) all property securing any claim described in 

clause (ii) or (iii) under any such contract; or 

ø(B) transfer none of the financial contracts, claims, or 

property referred to in subparagraph (A) (with respect to 

such person and any affiliate of such person).¿ 

(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.— (A) IN GENERAL.—In making any transfer of assets or 

liabilities of a depository institution in default which includes any qualified financial contract, the conservator or 

receiver for such depository institution shall either— (i) transfer to one financial institution, other than 

a financial institution for which a conservator, receiver, trustee in bankruptcy, or other legal custodian 

has been appointed or which is otherwise the subject of 

a bankruptcy or insolvency proceeding— (I) all qualified financial contracts between 

any person or any affiliate of such person and the 

depository institution in default; 

(II) all claims of such person or any affiliate 

of such person against such depository institution 

under any such contract (other than any claim 

which, under the terms of any such contract, is 

subordinated to the claims of general unsecured 

creditors of such institution); 

(III) all claims of such depository institution 

against such person or any affiliate of such person 

under any such contract; and 

(IV) all property securing or any other credit 

enhancement for any contract described in subclause (I) or any claim described in subclause (II) 

or (III) under any such contract; or 

(ii) transfer none of the qualified financial contracts, claims, property or other credit enhancement referred to in clause (i) (with respect to such person and 

any affiliate of such person). 

(B) TRANSFER TO FOREIGN BANK, FOREIGN FINANCIAL

INSTITUTION, OR BRANCH OR AGENCY OF A FOREIGN BANK

OR FINANCIAL INSTITUTION.—In transferring any qualified 

financial contracts and related claims and property under 

subparagraph (A)(i), the conservator or receiver for the deVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00344 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
341 

pository institution shall not make such transfer to a foreign bank, financial institution organized under the laws of 

a foreign country, or a branch or agency of a foreign bank 

or financial institution unless, under the law applicable to 

such bank, financial institution, branch or agency, to the 

qualified financial contracts, and to any netting contract, 

any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts, the contractual rights of the parties to such qualified 

financial contracts, netting contracts, security agreements 

or arrangements, or other credit enhancements are enforceable substantially to the same extent as permitted under 

this section. 

(C) TRANSFER OF CONTRACTS SUBJECT TO THE RULES

OF A CLEARING ORGANIZATION.—In the event that a conservator or receiver transfers any qualified financial contract 

and related claims, property, and credit enhancements pursuant to subparagraph (A)(i) and such contract is cleared 

by or subject to the rules of a clearing organization, the 

clearing organization shall not be required to accept the 

transferee as a member by virtue of the transfer. 

(D) DEFINITIONS.—For purposes of this paragraph, the 

term ‘‘financial institution’’ means a broker or dealer, a depository institution, a futures commission merchant, or any 

other institution, as determined by the Corporation by regulation to be a financial institution, and the term ‘‘clearing 

organization’’ has the same meaning as in section 402 of 

the Federal Deposit Insurance Corporation Improvement 

Act of 1991. 

(10) NOTIFICATION OF TRANSFER.—

(A) IN GENERAL.—If— (i) the conservator or receiver for an insured depository institution in default makes any transfer of 

the assets and liabilities of such institution; and 

(ii) the transfer includes any qualified financial 

contract, 

øthe conservator or receiver shall use such conservator’s or 

receiver’s best efforts to notify any person who is a party 

to any such contract of such transfer by 12:00, noon (local 

time) on the business day following such transfer.¿ the 

conservator or receiver shall notify any person who is a 

party to any such contract of such transfer by 5:00 p.m. 

(eastern time) on the business day following the date of the 

appointment of the receiver in the case of a receivership, or 

the business day following such transfer in the case of a 

conservatorship. 

(B) CERTAIN RIGHTS NOT ENFORCEABLE.—

(i) RECEIVERSHIP.—A person who is a party to a 

qualified financial contract with an insured depository 

institution may not exercise any right that such person 

has to terminate, liquidate, or net such contract under 

paragraph (8)(A) of this subsection or section 403 or 

404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental 

to the appointment of a receiver for the depository instiVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00345 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
342 

tution (or the insolvency or financial condition of the 

depository institution for which the receiver has been 

appointed)—

(I) until 5:00 p.m. (eastern time) on the business day following the date of the appointment of 

the receiver; or 

(II) after the person has received notice that 

the contract has been transferred pursuant to 

paragraph (9)(A). 

(ii) CONSERVATORSHIP.—A person who is a party 

to a qualified financial contract with an insured depository institution may not exercise any right that such 

person has to terminate, liquidate, or net such contract 

under paragraph (8)(E) of this subsection or section 

403 or 404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental to the appointment of a conservator for the depository institution (or the insolvency or financial condition of the depository institution for which the conservator has been appointed). 

(iii) NOTICE.—For purposes of this paragraph, the 

Corporation as receiver or conservator of an insured 

depository institution shall be deemed to have notified 

a person who is a party to a qualified financial contract with such depository institution if the Corporation has taken steps reasonably calculated to provide 

notice to such person by the time specified in subparagraph (A). 

(C) TREATMENT OF BRIDGE BANKS.—The following institutions shall not be considered to be a financial institution for which a conservator, receiver, trustee in bankruptcy, or other legal custodian has been appointed or 

which is otherwise the subject of a bankruptcy or insolvency 

proceeding for purposes of paragraph (9): 

(i) A bridge bank. 

(ii) A depository institution organized by the Corporation, for which a conservator is appointed either—

(I) immediately upon the organization of the 

institution; or 

(II) at the time of a purchase and assumption 

transaction between the depository institution and 

the Corporation as receiver for a depository institution in default. 

ø(B)¿ (D) BUSINESS DAY DEFINED.—For purposes of 

this paragraph, the term ‘‘business day’’ means any day 

other than any Saturday, Sunday, or any day on which either the New York Stock Exchange or the Federal Reserve 

Bank of New York is closed. 

(11) DISAFFIRMANCE OR REPUDIATION OF QUALIFIED FINANCIAL CONTRACTS.—In exercising the rights of disaffirmance or 

repudiation of a conservator or receiver with respect to any 

qualified financial contract to which an insured depository institution is a party, the conservator or receiver for such institution shall either—

343 

(A) disaffirm or repudiate all qualified financial contracts between— (i) any person or any affiliate of such person; and 

(ii) the depository institution in default; or 

(B) disaffirm or repudiate none of the qualified financial contracts referred to in subparagraph (A) (with respect 

to such person or any affiliate of such person). 

ø(11)¿ (12) CERTAIN SECURITY INTERESTS NOT AVOIDABLE.— No provision of this subsection shall be construed as permitting the avoidance of any legally enforceable or perfected security interest in any of the assets of any depository institution 

except where such an interest is taken in contemplation of the 

institution’s insolvency or with the intent to hinder, delay, or 

defraud the institution or the creditors of such institution. 

ø(12)¿ (13) AUTHORITY TO ENFORCE CONTRACTS.—

(A) IN GENERAL.—The conservator or receiver may enforce any contract, other than a director’s or officer’s liability insurance contract or a depository institution bond, entered into by the depository institution notwithstanding 

any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by 

reason of, insolvency or the appointment of or the exercise 

of rights or powers by a conservator or receiver. 

* * * * * * * 

ø(13)¿ (14) EXCEPTION FOR FEDERAL RESERVE AND FEDERAL

HOME LOAN BANKS.—No provision of this subsection shall apply 

with respect to—

(A) * * * 

* * * * * * * 

ø(14)¿ (15) SELLING CREDIT CARD ACCOUNTS RECEIVABLE.—

(A) * * * 

* * * * * * * 

ø(15)¿ (16) CERTAIN CREDIT CARD CUSTOMER LISTS PRO- TECTED.—

(A) * * * 

* * * * * * * 

(17) SAVINGS CLAUSE.—The meanings of terms used in this 

subsection are applicable for purposes of this subsection only, 

and shall not be construed or applied so as to challenge or affect the characterization, definition, or treatment of any similar 

terms under any other statute, regulation, or rule, including the 

Gramm-Leach-Bliley Act, the Legal Certainty for Bank Products Act of 2000, the securities laws (as that term is defined in 

section 3(a)(47) of the Securities Exchange Act of 1934), and the 

Commodity Exchange Act. 

* * * * * * * 

SEC. 13. (a) * * * 

* * * * * * * 

(e) AGREEMENTS AGAINST INTERESTS OF CORPORATION.— (1) * * * 

ø(2) PUBLIC DEPOSITS.—An agreement to provide for the 

lawful collateralization of deposits of a Federal, State, or local 

344 

governmental entity or of any depositor referred to in section 

11(a)(2) shall not be deemed to be invalid pursuant to paragraph (1)(B) solely because such agreement was not executed 

contemporaneously with the acquisition of the collateral or 

with any changes in the collateral made in accordance with 

such agreement.¿ 

(2) EXEMPTIONS FROM CONTEMPORANEOUS EXECUTION RE- QUIREMENT.—An agreement to provide for the lawful 

collateralization of— (A) deposits of, or other credit extension by, a Federal, 

State, or local governmental entity, or of any depositor referred to in section 11(a)(2), including an agreement to provide collateral in lieu of a surety bond; 

(B) bankruptcy estate funds pursuant to section 

345(b)(2) of title 11, United States Code; 

(C) extensions of credit, including any overdraft, from 

a Federal reserve bank or Federal home loan bank; or 

(D) one or more qualified financial contracts, as defined in section 11(e)(8)(D), 

shall not be deemed invalid pursuant to paragraph (1)(B) solely 

because such agreement was not executed contemporaneously 

with the acquisition of the collateral or because of pledges, delivery, or substitution of the collateral made in accordance with 

such agreement. 

* * * * * * * 

FEDERAL CREDIT UNION ACT 

TITLE II—SHARE INSURANCE 

* * * * * * * 

PAYMENT OF INSURANCE

SEC. 207. (a) * * * 

* * * * * * * 

(c) PROVISIONS RELATING TO CONTRACTS ENTERED INTO BEFORE APPOINTMENT OF CONSERVATOR OR LIQUIDATING AGENT.—

(1) * * * 

* * * * * * * 

(8) CERTAIN QUALIFIED FINANCIAL CONTRACTS.—

(A) RIGHTS OF PARTIES TO CONTRACTS.—Subject to 

øparagraph (12)¿ paragraphs (9) and (10) of this subsection and notwithstanding any other provision of this 

Act (other than subsection (b)(9) of this section and section 

208(a)(3)), any other Federal law, or the law of any State, 

no person shall be stayed or prohibited from exercising—

(i) any right øto cause the termination or liquidation¿ such person has to cause the termination, liquidation, or acceleration of any qualified financial contract with an insured credit union which arises upon 

the appointment of the Board as liquidating agent for 

such credit union at any time after such appointment; 

345 

ø(ii) any right under any security arrangement relating to any contract or agreement described in clause 

(i); or¿ 

(ii) any right under any security agreement or arrangement or other credit enhancement related to 1 or 

more qualified financial contracts described in clause 

(i); 

* * * * * * * 

(C) CERTAIN TRANSFERS NOT AVOIDABLE.— (i) IN GENERAL.—Notwithstanding paragraph (11), 

section 5242 of the Revised Statutes of the United 

States or any other Federal or State law relating to the 

avoidance of preferential or fraudulent transfers, the 

Board, whether acting as such or as conservator or liquidating agent of an insured credit union, may not 

avoid any transfer of money or other property in connection with any qualified financial contract with an 

insured credit union. 

* * * * * * * 

(D) CERTAIN CONTRACTS AND AGREEMENTS DEFINED.— For purposes of this øsubsection—¿ subsection, the following definitions shall apply: 

(i) QUALIFIED FINANCIAL CONTRACT.—The term ‘‘qualified financial contract’’ means any securities contract, forward contract, repurchase agreement, and 

any similar agreement that the Board determines by 

regulation, resolution, or order to be a qualified financial contract for purposes of this paragraph. 

ø(ii) SECURITIES CONTRACT.—The term ‘‘securities 

contract’’—

ø(I) has the meaning given to such term in 

section 741 of title 11, United States Code, except 

that the term ‘‘security’’ (as used in such section) 

shall be deemed to include any mortgage loan, any 

mortgage-related security (as defined in section 

3(a)(41) of the Securities Exchange Act of 1934, 

and any interest in any mortgage loan or mortgage-related security; and 

ø(II) does not include any participation in a 

commercial mortgage loan unless the Board determines by regulation, resolution, or order to include any such participation within the meaning 

of such term. 

ø(iii) FORWARD CONTRACT.—The term ‘‘forward 

contract’’ has the meaning given to such term in section 101 of title 11, United States Code. 

ø(iv) REPURCHASE AGREEMENT.—The term ‘‘repurchase agreement’’—

ø(I) has the meaning given to such term in 

section 101 of title 11, the United States Code, except that the items (as described in such section) 

which may be subject to any such agreement shall 

be deemed to include mortgage-related securities 

(as such term is defined in section 3(a)(41) of the 

346 

Securities Exchange Act of 1934, any mortgage 

loan, and any interest in any mortgage loan; and 

ø(II) does not include any participation in a 

commercial mortgage loan unless the Board determines by regulation, resolution, or order to include any such participation within the meaning 

of such term. 

ø(v) TRANSFER.—The term ‘‘transfer’’ has the 

meaning given to such term in section 101 of title 11, 

United States Code.¿ 

(ii) SECURITIES CONTRACT.—The term ‘‘securities 

contract’’—

(I) means a contract for the purchase, sale, or 

loan of a security, a certificate of deposit, a mortgage loan, or any interest in a mortgage loan, a 

group or index of securities, certificates of deposit, 

or mortgage loans or interests therein (including 

any interest therein or based on the value thereof) 

or any option on any of the foregoing, including 

any option to purchase or sell any such security, 

certificate of deposit, mortgage loan, interest, group 

or index, or option, and including any repurchase 

or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or index, or option; 

(II) does not include any purchase, sale, or repurchase obligation under a participation in a 

commercial mortgage loan unless the Board determines by regulation, resolution, or order to include 

any such agreement within the meaning of such 

term; 

(III) means any option entered into on a national securities exchange relating to foreign currencies; 

(IV) means the guarantee by or to any securities clearing agency of any settlement of cash, securities, certificates of deposit, mortgage loans or interests therein, group or index of securities, certificates of deposit, or mortgage loans or interests 

therein (including any interest therein or based on 

the value thereof) or option on any of the foregoing, 

including any option to purchase or sell any such 

security, certificate of deposit, mortgage loan, interest, group or index, or option; 

(V) means any margin loan; 

(VI) means any other agreement or transaction 

that is similar to any agreement or transaction referred to in this clause; 

(VII) means any combination of the agreements or transactions referred to in this clause; 

(VIII) means any option to enter into any 

agreement or transaction referred to in this clause; 

(IX) means a master agreement that provides 

for an agreement or transaction referred to in subclause (I), (III), (IV), (V), (VI), (VII), or (VIII), toVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00350 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
347 

gether with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a securities contract under this 

clause, except that the master agreement shall be 

considered to be a securities contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (III), (IV), (V), (VI), (VII), 

or (VIII); and 

(X) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in this clause, 

including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in this clause. 

(iii) COMMODITY CONTRACT.—The term ‘‘commodity 

contract’’ means—

(I) with respect to a futures commission merchant, a contract for the purchase or sale of a commodity for future delivery on, or subject to the 

rules of, a contract market or board of trade; 

(II) with respect to a foreign futures commission merchant, a foreign future; 

(III) with respect to a leverage transaction 

merchant, a leverage transaction; 

(IV) with respect to a clearing organization, a 

contract for the purchase or sale of a commodity 

for future delivery on, or subject to the rules of, a 

contract market or board of trade that is cleared 

by such clearing organization, or commodity option traded on, or subject to the rules of, a contract 

market or board of trade that is cleared by such 

clearing organization; 

(V) with respect to a commodity options dealer, 

a commodity option; 

(VI) any other agreement or transaction that is 

similar to any agreement or transaction referred to 

in this clause; 

(VII) any combination of the agreements or 

transactions referred to in this clause; 

(VIII) any option to enter into any agreement 

or transaction referred to in this clause; 

(IX) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a commodity contract under this 

clause, except that the master agreement shall be 

considered to be a commodity contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is reVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00351 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
348 

ferred to in subclause (I), (II), (III), (IV), (V), (VI), 

(VII), or (VIII); or 

(X) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in this clause, including 

any guarantee or reimbursement obligation in connection with any agreement or transaction referred 

to in this clause. 

(iv) FORWARD CONTRACT.—The term ‘‘forward contract’’ means— (I) a contract (other than a commodity contract) for the purchase, sale, or transfer of a commodity or any similar good, article, service, right, 

or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with 

a maturity date more than 2 days after the date 

the contract is entered into, including, a repurchase transaction, reverse repurchase transaction, 

consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, 

unallocated transaction, or any other similar 

agreement; 

(II) any combination of agreements or transactions referred to in subclauses (I) and (III); 

(III) any option to enter into any agreement or 

transaction referred to in subclause (I) or (II); 

(IV) a master agreement that provides for an 

agreement or transaction referred to in subclauses 

(I), (II), or (III), together with all supplements to 

any such master agreement, without regard to 

whether the master agreement provides for an 

agreement or transaction that is not a forward 

contract under this clause, except that the master 

agreement shall be considered to be a forward contract under this clause only with respect to each 

agreement or transaction under the master agreement that is referred to in subclause (I), (II), or 

(III); or 

(V) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in subclause (I), (II), 

(III), or (IV), including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in any such subclause. 

(v) REPURCHASE AGREEMENT.—The term ‘‘repurchase agreement’’ (which definition also applies to a reverse repurchase agreement)— (I) means an agreement, including related 

terms, which provides for the transfer of one or 

more certificates of deposit, mortgage-related securities (as such term is defined in the Securities Exchange Act of 1934), mortgage loans, interests in 

mortgage-related securities or mortgage loans, eliVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00352 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
349 

gible bankers’ acceptances, qualified foreign government securities or securities that are direct obligations of, or that are fully guaranteed by, the 

United States or any agency of the United States 

against the transfer of funds by the transferee of 

such certificates of deposit, eligible bankers’ acceptances, securities, mortgage loans, or interests with 

a simultaneous agreement by such transferee to 

transfer to the transferor thereof certificates of deposit, eligible bankers’ acceptances, securities, 

mortgage loans, or interests as described above, at 

a date certain not later than 1 year after such 

transfers or on demand, against the transfer of 

funds, or any other similar agreement; 

(II) does not include any repurchase obligation 

under a participation in a commercial mortgage 

loan unless the Board determines by regulation, 

resolution, or order to include any such participation within the meaning of such term; 

(III) means any combination of agreements or 

transactions referred to in subclauses (I) and (IV); 

(IV) means any option to enter into any agreement or transaction referred to in subclause (I) or 

(III); 

(V) means a master agreement that provides 

for an agreement or transaction referred to in subclause (I), (III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement provides for 

an agreement or transaction that is not a repurchase agreement under this clause, except that the 

master agreement shall be considered to be a repurchase agreement under this subclause only 

with respect to each agreement or transaction 

under the master agreement that is referred to in 

subclause (I), (III), or (IV); and 

(VI) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in subclause 

(I), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

For purposes of this clause, the term ‘‘qualified foreign 

government security’’ means a security that is a direct 

obligation of, or that is fully guaranteed by, the central 

government of a member of the Organization for Economic Cooperation and Development (as determined by 

regulation or order adopted by the appropriate Federal 

banking authority). 

(vi) SWAP AGREEMENT.—The term ‘‘swap agreement’’ means— (I) any agreement, including the terms and 

conditions incorporated by reference in any such 

agreement, which is an interest rate swap, option, 

350 

future, or forward agreement, including a rate 

floor, rate cap, rate collar, cross-currency rate 

swap, and basis swap; a spot, same day-tomorrow, 

tomorrow-next, forward, or other foreign exchange 

or precious metals agreement; a currency swap, option, future, or forward agreement; an equity index 

or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or 

forward agreement; a total return, credit spread or 

credit swap, option, future, or forward agreement; 

a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, 

weather derivative, or weather option; 

(II) any agreement or transaction that is similar to any other agreement or transaction referred 

to in this clause and that is of a type that has 

been, is presently, or in the future becomes, the 

subject of recurrent dealings in the swap markets 

(including terms and conditions incorporated by 

reference in such agreement) and that is a forward, swap, future, or option on one or more rates, 

currencies, commodities, equity securities or other 

equity instruments, debt securities or other debt instruments, quantitative measures associated with 

an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or 

economic consequence, or economic or financial indices or measures of economic or financial risk or 

value; 

(III) any combination of agreements or transactions referred to in this clause; 

(IV) any option to enter into any agreement or 

transaction referred to in this clause; 

(V) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), or (IV), together with all supplements 

to any such master agreement, without regard to 

whether the master agreement contains an agreement or transaction that is not a swap agreement 

under this clause, except that the master agreement shall be considered to be a swap agreement 

under this clause only with respect to each agreement or transaction under the master agreement 

that is referred to in subclause (I), (II), (III), or 

(IV); and 

(VI) any security agreement or arrangement or 

other credit enhancement related to any agreements or transactions referred to in subclause (I), 

(II), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

Such term is applicable for purposes of this subsection 

only and shall not be construed or applied so as to 

challenge or affect the characterization, definition, or 

351 

treatment of any swap agreement under any other statute, regulation, or rule, including the Securities Act of 

1933, the Securities Exchange Act of 1934, the Public 

Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, 

the Investment Advisers Act of 1940, the Securities Investor Protection Act of 1970, the Commodity Exchange 

Act, the Gramm-Leach-Bliley Act, and the Legal Certainty for Bank Products Act of 2000. 

(vii) TREATMENT OF MASTER AGREEMENT AS ONE

AGREEMENT.—Any master agreement for any contract 

or agreement described in any preceding clause of this 

subparagraph (or any master agreement for such master agreement or agreements), together with all supplements to such master agreement, shall be treated as a 

single agreement and a single qualified financial contract. If a master agreement contains provisions relating to agreements or transactions that are not themselves qualified financial contracts, the master agreement shall be deemed to be a qualified financial contract only with respect to those transactions that are 

themselves qualified financial contracts. 

(viii) TRANSFER.—The term ‘‘transfer’’ means every 

mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with 

property or with an interest in property, including retention of title as a security interest and foreclosure of 

the depository institution’s equity of redemption. 

(E) CERTAIN PROTECTIONS IN EVENT OF APPOINTMENT

OF CONSERVATOR.—Notwithstanding any other provision of 

this Act (øother than paragraph (12) of this subsection, 

subsection (b)(9)¿ other than subsections (b)(9) and (c)(10) 

of this section, and section 208(a)(3) of this Act), any other 

Federal law, or the law of any State, no person shall be 

stayed or prohibited from exercising— (i) * * * 

ø(ii) any right under any security arrangement relating to such qualified financial contracts; or¿ 

(ii) any right under any security agreement or arrangement or other credit enhancement related to 1 or 

more qualified financial contracts described in clause 

(i); 

* * * * * * * 

(F) CLARIFICATION.—No provision of law shall be construed as limiting the right or power of the Board, or authorizing any court or agency to limit or delay, in any manner, the right or power of the Board to transfer any qualified financial contract in accordance with paragraphs (9) 

and (10) of this subsection or to disaffirm or repudiate any 

such contract in accordance with subsection (c)(1) of this 

section. 

(G) WALKAWAY CLAUSES NOT EFFECTIVE.— (i) IN GENERAL.—Notwithstanding the provisions 

of subparagraphs (A) and (E), and sections 403 and 

404 of the Federal Deposit Insurance Corporation ImVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00355 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
352 

provement Act of 1991, no walkaway clause shall be 

enforceable in a qualified financial contract of an insured credit union in default. 

(ii) WALKAWAY CLAUSE DEFINED.—For purposes of 

this subparagraph, the term ‘‘walkaway clause’’ means 

a provision in a qualified financial contract that, after 

calculation of a value of a party’s position or an 

amount due to or from 1 of the parties in accordance 

with its terms upon termination, liquidation, or acceleration of the qualified financial contract, either does 

not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in 

part solely because of such party’s status as a nondefaulting party. 

(H) RECORDKEEPING REQUIREMENTS.—The Board, in 

consultation with the appropriate Federal banking agencies, may prescribe regulations requiring more detailed recordkeeping by any insured credit union with respect to 

qualified financial contracts (including market valuations) 

only if such insured credit union is in a troubled condition 

(as such term is defined by the Board pursuant to section 

212). 

ø(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.—In 

making any transfer of assets or liabilities of a credit union in 

default which includes any qualified financial contract, the conservator or liquidating agent for such credit union shall either—

ø(A) transfer to 1 credit union (other than a credit 

union in default)—

ø(i) all qualified financial contracts between—

ø(I) any person or any affiliate of such person; 

and 

ø(II) the credit union in default; 

ø(ii) all claims of such person or any affiliate of 

such person against such credit union under any such 

contract (other than any claim which, under the terms 

of any such contract, is subordinated to the claims of 

general unsecured creditors of such credit union); 

ø(iii) all claims of such credit union against such 

person or any affiliate of such person under any such 

contract; and 

ø(iv) all property securing any claim described in 

clause (ii) or (iii) under any such contract; or 

ø(B) transfer none of the financial contracts, claims, or 

property referred to in subparagraph (A) (with respect to 

such person and any affiliate of such person).¿ 

(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.—

(A) IN GENERAL.—In making any transfer of assets or 

liabilities of a credit union in default which includes any 

qualified financial contract, the conservator or liquidating 

agent for such credit union shall either—

(i) transfer to 1 financial institution, other than a 

financial institution for which a conservator, receiver, 

trustee in bankruptcy, or other legal custodian has 

353 

been appointed or which is otherwise the subject of a 

bankruptcy or insolvency proceeding—

(I) all qualified financial contracts between 

any person or any affiliate of such person and the 

credit union in default; 

(II) all claims of such person or any affiliate 

of such person against such credit union under 

any such contract (other than any claim which, 

under the terms of any such contract, is subordinated to the claims of general unsecured creditors 

of such credit union); 

(III) all claims of such credit union against 

such person or any affiliate of such person under 

any such contract; and 

(IV) all property securing or any other credit 

enhancement for any contract described in subclause (I) or any claim described in subclause (II) 

or (III) under any such contract; or 

(ii) transfer none of the qualified financial contracts, claims, property or other credit enhancement referred to in clause (i) (with respect to such person and 

any affiliate of such person). 

(B) TRANSFER TO FOREIGN BANK, FOREIGN FINANCIAL

INSTITUTION, OR BRANCH OR AGENCY OF A FOREIGN BANK

OR FINANCIAL INSTITUTION.—In transferring any qualified 

financial contracts and related claims and property under 

subparagraph (A)(i), the conservator or liquidating agent 

for the credit union shall not make such transfer to a foreign bank, financial institution organized under the laws of 

a foreign country, or a branch or agency of a foreign bank 

or financial institution unless, under the law applicable to 

such bank, financial institution, branch or agency, to the 

qualified financial contracts, and to any netting contract, 

any security agreement or arrangement or other credit enhancement related to 1 or more qualified financial contracts, the contractual rights of the parties to such qualified 

financial contracts, netting contracts, security agreements 

or arrangements, or other credit enhancements are enforceable substantially to the same extent as permitted under 

this section. 

(C) TRANSFER OF CONTRACTS SUBJECT TO THE RULES

OF A CLEARING ORGANIZATION.—In the event that a conservator or liquidating agent transfers any qualified financial 

contract and related claims, property, and credit enhancements pursuant to subparagraph (A)(i) and such contract is 

cleared by or subject to the rules of a clearing organization, 

the clearing organization shall not be required to accept the 

transferee as a member by virtue of the transfer. 

(D) DEFINITIONS.—For purposes of this paragraph—

(i) the term ‘‘financial institution’’ means a broker 

or dealer, a depository institution, a futures commission merchant, a credit union, or any other institution, 

as determined by the Board by regulation to be a financial institution; and 

354 

(ii) the term ‘‘clearing organization’’ has the same 

meaning as in section 402 of the Federal Deposit Insurance Corporation Improvement Act of 1991. 

(10) NOTIFICATION OF TRANSFER.— (A) IN GENERAL.—If— (i) * * * 

(ii) the transfer includes any qualified financial 

contract, 

øthe conservator or liquidating agent shall use such conservator’s or liquidating agent’s best efforts to notify any 

person who is a party to any such contract of such transfer 

by 12:00, noon (local time), on the business day following 

such transfer.¿ the conservator or liquidating agent shall 

notify any person who is a party to any such contract of 

such transfer by 5:00 p.m. (eastern time) on the business 

day following the date of the appointment of the liquidating 

agent in the case of a liquidation, or the business day following such transfer in the case of a conservatorship. 

(B) CERTAIN RIGHTS NOT ENFORCEABLE.—

(i) LIQUIDATION.—A person who is a party to a 

qualified financial contract with an insured credit 

union may not exercise any right that such person has 

to terminate, liquidate, or net such contract under 

paragraph (8)(A) of this subsection or section 403 or 

404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental 

to the appointment of a liquidating agent for the credit 

union institution (or the insolvency or financial condition of the credit union for which the liquidating agent 

has been appointed)—

(I) until 5:00 p.m. (eastern time) on the business day following the date of the appointment of 

the liquidating agent; or 

(II) after the person has received notice that 

the contract has been transferred pursuant to 

paragraph (9)(A). 

(ii) CONSERVATORSHIP.—A person who is a party 

to a qualified financial contract with an insured credit 

union may not exercise any right that such person has 

to terminate, liquidate, or net such contract under 

paragraph (8)(E) of this subsection or section 403 or 

404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental 

to the appointment of a conservator for the credit union 

or the insolvency or financial condition of the credit 

union for which the conservator has been appointed). 

(iii) NOTICE.—For purposes of this paragraph, the 

Board as conservator or liquidating agent of an insured credit union shall be deemed to have notified a 

person who is a party to a qualified financial contract 

with such credit union if the Board has taken steps 

reasonably calculated to provide notice to such person 

by the time specified in subparagraph (A). 

(C) TREATMENT OF BRIDGE BANKS.—The following institutions shall not be considered to be a financial instituVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00358 Fmt 6659 Sfmt 6603 E:\HR\OC\HR031P1.XXX HR031P1
355 

tion for which a conservator, receiver, trustee in bankruptcy, or other legal custodian has been appointed or 

which is otherwise the subject of a bankruptcy or insolvency 

proceeding for purposes of paragraph (9): 

(i) A bridge bank. 

(ii) A credit union organized by the Board, for 

which a conservator is appointed either— (I) immediately upon the organization of the 

credit union; or 

(II) at the time of a purchase and assumption 

transaction between the credit union and the 

Board as receiver for a credit union in default. 

ø(B)¿ (D) BUSINESS DAY DEFINED.—For purposes of 

this paragraph, the term ‘‘business day’’ means any day 

other than any Saturday, Sunday, or any day on which either the New York Stock Exchange or the Federal Reserve 

Bank of New York is closed. 

(11) DISAFFIRMANCE OR REPUDIATION OF QUALIFIED FINANCIAL CONTRACTS.—In exercising the rights of disaffirmance or 

repudiation of a conservator or liquidating agent with respect 

to any qualified financial contract to which an insured credit 

union is a party, the conservator or liquidating agent for such 

credit union shall either—

(A) disaffirm or repudiate all qualified financial contracts between—

(i) any person or any affiliate of such person; and 

(ii) the credit union in default; or 

(B) disaffirm or repudiate none of the qualified financial contracts referred to in subparagraph (A) (with respect 

to such person or any affiliate of such person). 

ø(11)¿ (12) CERTAIN SECURITY INTERESTS NOT AVOIDABLE.—

No provision of this subsection shall be construed as permitting the avoidance of any legally enforceable or perfected security interest in any of the assets of any credit union except 

where such an interest is taken in contemplation of the credit 

union’s insolvency or with the intent to hinder, delay, or defraud the credit union or the creditors of such credit union. 

ø(12)¿ (13) AUTHORITY TO ENFORCE CONTRACTS.—

(A) IN GENERAL.—The conservator or liquidating agent 

may enforce any contract, other than a director’s or officer’s liability insurance contract or a credit union bond, entered into by the credit union notwithstanding any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by reason 

of, insolvency or the appointment of or the exercise of 

rights or powers by a conservator or liquidating agent. 

* * * * * * * 

ø(13)¿ (14) EXCEPTION FOR FEDERAL RESERVE AND FEDERAL

HOME LOAN BANKS.—No provision of this subsection shall apply 

with respect to—

(A) * * * 

* * * * * * * 

(15) SAVINGS CLAUSE.—The meanings of terms used in this 

subsection are applicable for purposes of this subsection only, 

356 

and shall not be construed or applied so as to challenge or affect the characterization, definition, or treatment of any similar 

terms under any other statute, regulation, or rule, including the 

Gramm-Leach-Bliley Act, the Legal Certainty for Bank Products Act of 2000, the securities laws (as that term is defined in 

section (a)(47) of the Securities Exchange Act of 1934), and the 

Commodity Exchange Act. 

* * * * * * * 

FEDERAL DEPOSIT INSURANCE CORPORATION 

IMPROVEMENT ACT OF 1991 

* * * * * * * 

TITLE IV—MISCELLANEOUS 

PROVISIONS 

Subtitle A—Payment System Risk 

Reduction 

CHAPTER 1—BILATERAL AND CLEARING 

ORGANIZATION NETTING 

* * * * * * * 

SEC. 402. DEFINITIONS. 

For purposes of this chapter—

(1) * * * 

* * * * * * * 

(2) CLEARING ORGANIZATION.—The term ‘‘clearing organization’’ means a clearinghouse, clearing association, clearing corporation, or similar organization—

(A) that provides clearing, netting, or settlement services for its members and—

(i) * * * 

(ii) which is registered as a clearing agency under 

the Securities Exchange Act of 1934, or is exempt from 

such registration by order of the Securities and Exchange Commission; or 

(B) that is registered as a derivatives clearing organization under section 5b of the Commodity Exchange Act, 

that has been granted an exemption under section 4(c)(1) of 

the Commodity Exchange Act, or that is a multilateral 

clearing organization (as defined in section 408 of this Act). 

* * * * * * * 

(6) DEPOSITORY INSTITUTION.—The term ‘‘depository institution’’ means—

(A) a depository institution as defined in section 

19(b)(1)(A) of the Federal Reserve Act (other than clause 

(vii)); 

ø(B) a branch or agency as defined in section 1(b) of 

the International Banking Act of 1978;¿ 

357 

(B) an uninsured national bank or an uninsured State 

bank that is a member of the Federal Reserve System, if the 

national bank or State member bank is not eligible to make 

application to become an insured bank under section 5 of 

the Federal Deposit Insurance Act; 

(C) a branch or agency of a foreign bank, a foreign 

bank and any branch or agency of the foreign bank, or the 

foreign bank that established the branch or agency, as 

those terms are defined in section 1(b) of the International 

Banking Act of 1978; 

ø(C)¿ (D) a corporation chartered under section 25(a) 

of the Federal Reserve Act; or 

ø(D)¿ (E) a corporation having an agreement or undertaking with the Board of Governors of the Federal Reserve 

System under section 25 of the Federal Reserve Act. 

* * * * * * * 

(11) MEMBER.—The term ‘‘member’’ means a member of or 

participant in a clearing organization, and includes the clearing organization and any other clearing organization with 

which such clearing organization has a netting contract. 

* * * * * * * 

(14) NETTING CONTRACT.—

(A) IN GENERAL.—The term ‘‘netting contract’’—

ø(i) means a contract or agreement between 2 or 

more financial institutions or members, that—

ø(I) is governed by the laws of the United 

States, any State, or any political subdivision of 

any State, and 

ø(II) provides for netting present or future 

payment obligations or payment entitlements (including liquidation or close-out values relating to 

the obligations or entitlements) among the parties 

to the agreement; and¿ 

(i) means a contract or agreement between 2 or 

more financial institutions, clearing organizations, or 

members that provides for netting present or future 

payment obligations or payment entitlements (including liquidation or close out values relating to such obligations or entitlements) among the parties to the agreement; and 

* * * * * * * 

(15) PAYMENT.—The term ‘‘payment’’ means a payment of 

United States dollars, another currency, or a composite currency, and a noncash delivery, including a payment or delivery 

to liquidate an unmatured obligation. 

SEC. 403. BILATERAL NETTING. 

ø(a) GENERAL RULE.—Notwithstanding any other provision of 

law, the covered contractual payment obligations and the covered 

contractual payment entitlements between any 2 financial institutions shall be netted in accordance with, and subject to the conditions of, the terms of any applicable netting contract.¿ 

(a) GENERAL RULE.—Notwithstanding any other provision of 

State or Federal law (other than paragraphs (8)(E), (8)(F), and 

358 

(10)(B) of section 11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal 

Credit Union Act, or any order authorized under section 5(b)(2) of 

the Securities Investor Protection Act of 1970), the covered contractual payment obligations and the covered contractual payment entitlements between any 2 financial institutions shall be netted in accordance with, and subject to the conditions of, the terms of any applicable netting contract (except as provided in section 561(b)(2) of 

title 11, United States Code). 

* * * * * * * 

(f) ENFORCEABILITY OF SECURITY AGREEMENTS.—The provisions of any security agreement or arrangement or other credit enhancement related to one or more netting contracts between any 2 

financial institutions shall be enforceable in accordance with their 

terms (except as provided in section 561(b)(2) of title 11, United 

States Code), and shall not be stayed, avoided, or otherwise limited 

by any State or Federal law (other than paragraphs (8)(E), (8)(F), 

and (10)(B) of section 11(e) of the Federal Deposit Insurance Act, 

paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal Credit Union Act, and section 5(b)(2) of the Securities Investor 

Protection Act of 1970). 

SEC. 404. CLEARING ORGANIZATION NETTING. 

ø(a) GENERAL NETTING RULE.—Notwithstanding any other provision of law, the covered contractual payment obligations and covered contractual payment entitlements of a member of a clearing 

organization to and from all other members of a clearing organization shall be netted in accordance with and subject to the conditions of any applicable netting contract.¿ 

(a) GENERAL RULE.—Notwithstanding any other provision of 

State or Federal law (other than paragraphs (8)(E), (8)(F), and 

(10)(B) of section 11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal 

Credit Union Act, and any order authorized under section 5(b)(2) of 

the Securities Investor Protection Act of 1970), the covered contractual payment obligations and the covered contractual payment entitlements of a member of a clearing organization to and from all 

other members of a clearing organization shall be netted in accordance with and subject to the conditions of any applicable netting 

contract (except as provided in section 561(b)(2) of title 11, United 

States Code). 

* * * * * * * 

(h) ENFORCEABILITY OF SECURITY AGREEMENTS.—The provisions of any security agreement or arrangement or other credit enhancement related to one or more netting contracts between any 2 

members of a clearing organization shall be enforceable in accordance with their terms (except as provided in section 561(b)(2) of title 

11, United States Code), and shall not be stayed, avoided, or otherwise limited by any State or Federal law (other than paragraphs 

(8)(E), (8)(F), and (10)(B) of section 11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) 

of the Federal Credit Union Act, and section 5(b)(2) of the Securities 

Investor Protection Act of 1970). 

* * * * * * * 

359 

SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL 

BANKS, UNINSURED FEDERAL BRANCHES AND AGENCIES, 

CERTAIN UNINSURED STATE MEMBER BANKS, AND EDGE 

ACT CORPORATIONS. 

(a) IN GENERAL.—Notwithstanding any other provision of law, 

paragraphs (8), (9), (10), and (11) of section 11(e) of the Federal Deposit Insurance Act shall apply to an uninsured national bank or 

uninsured Federal branch or Federal agency, a corporation chartered under section 25A of the Federal Reserve Act, or an uninsured 

State member bank which operates, or operates as, a multilateral 

clearing organization pursuant to section 409 of this Act, except that 

for such purpose— (1) any reference to the ‘‘Corporation as receiver’’ or ‘‘the receiver or the Corporation’’ shall refer to the receiver appointed 

by the Comptroller of the Currency in the case of an uninsured 

national bank or uninsured Federal branch or agency, or to the 

receiver appointed by the Board of Governors of the Federal Reserve System in the case of a corporation chartered under section 25A of the Federal Reserve Act or an uninsured State member bank; 

(2) any reference to the ‘‘Corporation’’ (other than in section 

11(e)(8)(D) of such Act), the ‘‘Corporation, whether acting as 

such or as conservator or receiver’’, a ‘‘receiver’’, or a ‘‘conservator’’ shall refer to the receiver or conservator appointed by the 

Comptroller of the Currency in the case of an uninsured national bank or uninsured Federal branch or agency, or to the 

receiver or conservator appointed by the Board of Governors of 

the Federal Reserve System in the case of a corporation chartered under section 25A of the Federal Reserve Act or an uninsured State member bank; and 

(3) any reference to an ‘‘insured depository institution’’ or 

‘‘depository institution’’ shall refer to an uninsured national 

bank, an uninsured Federal branch or Federal agency, a corporation chartered under section 25A of the Federal Reserve 

Act, or an uninsured State member bank which operates, or operates as, a multilateral clearing organization pursuant to section 409 of this Act. 

(b) LIABILITY.—The liability of a receiver or conservator of an 

uninsured national bank, uninsured Federal branch or agency, a 

corporation chartered under section 25A of the Federal Reserve Act, 

or an uninsured State member bank which operates, or operates as, 

a multilateral clearing organization pursuant to section 409 of this 

Act, shall be determined in the same manner and subject to the 

same limitations that apply to receivers and conservators of insured 

depository institutions under section 11(e) of the Federal Deposit Insurance Act. 

(c) REGULATORY AUTHORITY.—

(1) IN GENERAL.—The Comptroller of the Currency in the 

case of an uninsured national bank or uninsured Federal 

branch or agency and the Board of Governors of the Federal Reserve System in the case of a corporation chartered under section 25A of the Federal Reserve Act, or an uninsured State 

member bank that operates, or operates as, a multilateral clearing organization pursuant to section 409 of this Act, in consultation with the Federal Deposit Insurance Corporation, may 

each promulgate regulations solely to implement this section. 

360 

(2) SPECIFIC REQUIREMENT.—In promulgating regulations, 

limited solely to implementing paragraphs (8), (9), (10), and 

(11) of section 11(e) of the Federal Deposit Insurance Act, the 

Comptroller of the Currency and the Board of Governors of the 

Federal Reserve System each shall ensure that the regulations 

generally are consistent with the regulations and policies of the 

Federal Deposit Insurance Corporation adopted pursuant to the 

Federal Deposit Insurance Act. 

(d) DEFINITIONS.—For purposes of this section, the terms ‘‘Federal branch’’, ‘‘Federal agency’’, and ‘‘foreign bank’’ have the same 

meanings as in section 1(b) of the International Banking Act of 

1978. 

SEC. ø407¿ 407A. NATIONAL EMERGENCIES. 

The provisions of this subtitle may not be construed to limit 

the authority of the President under the Trading With the Enemy 

Act (50 U.S.C. App. 1 et seq.) or the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.). 

* * * * * * * 

SECURITIES INVESTOR PROTECTION ACT OF 1970 

* * * * * * * 

SEC. 5. PROTECTION OF CUSTOMERS. 

(a) * * * 

(b) COURT ACTION.—

(1) * * * 

(2) JURISDICTION AND POWERS OF COURT.—

(A) * * * 

* * * * * * * 

(C) EXCEPTION FROM STAY.— (i) Notwithstanding section 362 of title 11, United 

States Code, neither the filing of an application under 

subsection (a)(3) nor any order or decree obtained by 

SIPC from the court shall operate as a stay of any contractual rights of a creditor to liquidate, terminate, or 

accelerate a securities contract, commodity contract, 

forward contract, repurchase agreement, swap agreement, or master netting agreement, as those terms are 

defined in sections 101, 741, and 761 of title 11, United 

States Code, to offset or net termination values, payment amounts, or other transfer obligations arising 

under or in connection with one or more of such contracts or agreements, or to foreclose on any cash collateral pledged by the debtor, whether or not with respect 

to one or more of such contracts or agreements. 

(ii) Notwithstanding clause (i), such application, 

order, or decree may operate as a stay of the foreclosure 

on, or disposition of, securities collateral pledged by the 

debtor, whether or not with respect to one or more of 

such contracts or agreements, securities sold by the 

debtor under a repurchase agreement, or securities lent 

under a securities lending agreement. 

361 

(iii) As used in this subparagraph, the term ‘‘contractual right’’ includes a right set forth in a rule or 

bylaw of a national securities exchange, a national securities association, or a securities clearing agency, a 

right set forth in a bylaw of a clearing organization or 

contract market or in a resolution of the governing 

board thereof, and a right, whether or not in writing, 

arising under common law, under law merchant, or by 

reason of normal business practice. 

* * * * * * * 

SEC. 6. GENERAL PROVISIONS OF A LIQUIDATION PROCEEDING. 

(a) * * * 

* * * * * * * 

(e) COSTS AND EXPENSES OF ADMINISTRATION.—All costs and 

expenses of administration of the estate of the debtor and of the 

liquidation proceeding shall be borne by the general estate of the 

debtor to the extent it is sufficient therefor, and the priorities of 

distribution from the general estate shall be as provided in section 

726 of title 11 of the United States Code. Costs and expenses of administration shall include payments pursuant to section 8(e) and 

section 9(c)(1) (to the extent such payments recovered securities 

which were apportioned to the general estate pursuant to subsection (d)) and costs and expenses of SIPC employees utilized by 

the trustee pursuant to section 7(a)(2). All funds advanced by SIPC 

to a trustee for such costs and expenses of administration shall be 

recouped from the general estate under section ø507(a)(1)¿ 

507(a)(2) of title 11 of the United States Code. 

* * * * * * * 

SECTION 302 OF THE BANKRUPTCY JUDGES, UNITED 

STATES TRUSTEES, AND FAMILY FARMER BANKRUPTCY ACT OF 1986 

SEC. 302. EFFECTIVE DATES; APPLICATION OF AMENDMENTS. 

(a) * * * 

* * * * * * * 

ø(f) REPEAL OF CHAPTER 12 OF TITLE 11.—Chapter 12 of title 

11 of the United States Code is repealed on October 1, 1998. All 

cases commenced or pending under chapter 12 of title 11, United 

States Code, and all matters and proceedings in or relating to such 

cases, shall be conducted and determined under such chapter as if 

such chapter had not been repealed. The substantive rights of parties in connection with such cases, matters, and proceedings shall 

continue to be governed under the laws applicable to such cases, 

matters, and proceedings as if such chapter had not been repealed.¿ 

TRUTH IN LENDING ACT 

* * * * * * * 

362 

CHAPTER 2—CREDIT TRANSACTIONS 

* * * * * * * 

§ 127. Open end consumer credit plans 

(a) * * * 

* * * * * * * 

(b) The creditor of any account under an open end consumer 

credit plan shall transmit to the obligor, for each billing cycle at 

the end of which there is an outstanding balance in that account 

or with respect to which a finance charge is imposed, a statement 

setting forth each of the following items to the extent applicable: 

(1) * * * 

* * * * * * * 

(11)(A) In the case of an open end credit plan that requires 

a minimum monthly payment of not more than 4 percent of the 

balance on which finance charges are accruing, the following 

statement, located on the front of the billing statement, disclosed clearly and conspicuously: ‘‘Minimum Payment Warning: 

Making only the minimum payment will increase the interest 

you pay and the time it takes to repay your balance. For example, making only the typical 2% minimum monthly payment on 

a balance of $1,000 at an interest rate of 17% would take 88 

months to repay the balance in full. For an estimate of the time 

it would take to repay your balance, making only minimum 

payments, call this toll-free number: llllll.’’ (the blank 

space to be filled in by the creditor). 

(B) In the case of an open end credit plan that requires a 

minimum monthly payment of more than 4 percent of the balance on which finance charges are accruing, the following statement, in a prominent location on the front of the billing statement, disclosed clearly and conspicuously: ‘‘Minimum Payment 

Warning: Making only the required minimum payment will increase the interest you pay and the time it takes to repay your 

balance. Making a typical 5% minimum monthly payment on a 

balance of $300 at an interest rate of 17% would take 24 

months to repay the balance in full. For an estimate of the time 

it would take to repay your balance, making only minimum 

monthly payments, call this toll-free number: llllll.’’

(the blank space to be filled in by the creditor). 

(C) Notwithstanding subparagraphs (A) and (B), in the 

case of a creditor with respect to which compliance with this 

title is enforced by the Federal Trade Commission, the following 

statement, in a prominent location on the front of the billing 

statement, disclosed clearly and conspicuously: ‘‘Minimum Payment Warning: Making only the required minimum payment 

will increase the interest you pay and the time it takes to repay 

your balance. For example, making only the typical 5% minimum monthly payment on a balance of $300 at an interest rate 

of 17% would take 24 months to repay the balance in full. For 

an estimate of the time it would take to repay your balance, 

making only minimum monthly payments, call the Federal 

Trade Commission at this toll-free number: llllll.’’ (the 

blank space to be filled in by the creditor). A creditor who is 

363 

subject to this subparagraph shall not be subject to subparagraph (A) or (B). 

(D) Notwithstanding subparagraph (A), (B), or (C), in complying with any such subparagraph, a creditor may substitute 

an example based on an interest rate that is greater than 17 

percent. Any creditor that is subject to subparagraph (B) may 

elect to provide the disclosure required under subparagraph (A) 

in lieu of the disclosure required under subparagraph (B). 

(E) The Board shall, by rule, periodically recalculate, as 

necessary, the interest rate and repayment period under subparagraphs (A), (B), and (C). 

(F)(i) The toll-free telephone number disclosed by a creditor 

or the Federal Trade Commission under subparagraph (A), (B), 

or (G), as appropriate, may be a toll-free telephone number established and maintained by the creditor or the Federal Trade 

Commission, as appropriate, or may be a toll-free telephone 

number established and maintained by a third party for use by 

the creditor or multiple creditors or the Federal Trade Commission, as appropriate. The toll-free telephone number may connect consumers to an automated device through which consumers may obtain information described in subparagraph (A), 

(B), or (C), by inputting information using a touch-tone telephone or similar device, if consumers whose telephones are not 

equipped to use such automated device are provided the opportunity to be connected to an individual from whom the information described in subparagraph (A), (B), or (C), as applicable, 

may be obtained. A person that receives a request for information described in subparagraph (A), (B), or (C) from an obligor 

through the toll-free telephone number disclosed under subparagraph (A), (B), or (C), as applicable, shall disclose in response 

to such request only the information set forth in the table promulgated by the Board under subparagraph (H)(i). 

(ii)(I) The Board shall establish and maintain for a period 

not to exceed 24 months following the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 

a toll-free telephone number, or provide a toll-free telephone 

number established and maintained by a third party, for use by 

creditors that are depository institutions (as defined in section 

3 of the Federal Deposit Insurance Act), including a Federal 

credit union or State credit union (as defined in section 101 of 

the Federal Credit Union Act), with total assets not exceeding 

$250,000,000. The toll-free telephone number may connect consumers to an automated device through which consumers may 

obtain information described in subparagraph (A) or (B), as applicable, by inputting information using a touch-tone telephone 

or similar device, if consumers whose telephones are not 

equipped to use such automated device are provided the opportunity to be connected to an individual from whom the information described in subparagraph (A) or (B), as applicable, may 

be obtained. A person that receives a request for information described in subparagraph (A) or (B) from an obligor through the 

toll-free telephone number disclosed under subparagraph (A) or 

(B), as applicable, shall disclose in response to such request 

only the information set forth in the table promulgated by the 

Board under subparagraph (H)(i). The dollar amount contained 

364 

in this subclause shall be adjusted according to an indexing 

mechanism established by the Board. 

(II) Not later than 6 months prior to the expiration of the 

24-month period referenced in subclause (I), the Board shall 

submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of 

the House of Representatives a report on the program described 

in subclause (I). 

(G) The Federal Trade Commission shall establish and 

maintain a toll-free number for the purpose of providing to consumers the information required to be disclosed under subparagraph (C). 

(H) The Board shall—

(i) establish a detailed table illustrating the approximate number of months that it would take to repay an outstanding balance if a consumer pays only the required minimum monthly payments and if no other advances are 

made, which table shall clearly present standardized information to be used to disclose the information required to be 

disclosed under subparagraph (A), (B), or (C), as applicable; 

(ii) establish the table required under clause (i) by assuming—

(I) a significant number of different annual percentage rates; 

(II) a significant number of different account balances; 

(III) a significant number of different minimum 

payment amounts; and 

(IV) that only minimum monthly payments are 

made and no additional extensions of credit are obtained; and 

(iii) promulgate regulations that provide instructional 

guidance regarding the manner in which the information 

contained in the table established under clause (i) should 

be used in responding to the request of an obligor for any 

information required to be disclosed under subparagraph 

(A), (B), or (C). 

(I) The disclosure requirements of this paragraph do not 

apply to any charge card account, the primary purpose of which 

is to require payment of charges in full each month. 

(J) A creditor that maintains a toll-free telephone number 

for the purpose of providing customers with the actual number 

of months that it will take to repay the customer’s outstanding 

balance is not subject to the requirements of subparagraph (A) 

or (B). 

(K) A creditor that maintains a toll-free telephone number 

for the purpose of providing customers with the actual number 

of months that it will take to repay an outstanding balance 

shall include the following statement on each billing statement: 

‘‘Making only the minimum payment will increase the interest 

you pay and the time it takes to repay your balance. For more 

information, call this toll-free number: llll.’’ (the blank 

space to be filled in by the creditor). 

365 

(12) If a late payment fee is to be imposed due to the failure 

of the obligor to make payment on or before a required payment 

due date, the following shall be stated clearly and conspicuously on the billing statement: 

(A) The date on which that payment is due or, if different, the earliest date on which a late payment fee may 

be charged. 

(B) The amount of the late payment fee to be imposed 

if payment is made after such date. 

(c) DISCLOSURE IN CREDIT AND CHARGE CARD APPLICATIONS

AND SOLICITATIONS.— (1) * * * 

* * * * * * * 

(6) ADDITIONAL NOTICE CONCERNING ‘‘INTRODUCTORY

RATES’’.—

(A) IN GENERAL.—Except as provided in subparagraph 

(B), an application or solicitation to open a credit card account and all promotional materials accompanying such 

application or solicitation for which a disclosure is required 

under paragraph (1), and that offers a temporary annual 

percentage rate of interest, shall— (i) use the term ‘‘introductory’’ in immediate proximity to each listing of the temporary annual percentage rate applicable to such account, which term shall 

appear clearly and conspicuously; 

(ii) if the annual percentage rate of interest that 

will apply after the end of the temporary rate period 

will be a fixed rate, state in a clear and conspicuous 

manner in a prominent location closely proximate to 

the first listing of the temporary annual percentage 

rate (other than a listing of the temporary annual percentage rate in the tabular format described in section 

122(c)), the time period in which the introductory period will end and the annual percentage rate that will 

apply after the end of the introductory period; and 

(iii) if the annual percentage rate that will apply 

after the end of the temporary rate period will vary in 

accordance with an index, state in a clear and conspicuous manner in a prominent location closely proximate to the first listing of the temporary annual percentage rate (other than a listing in the tabular format 

prescribed by section 122(c)), the time period in which 

the introductory period will end and the rate that will 

apply after that, based on an annual percentage rate 

that was in effect within 60 days before the date of 

mailing the application or solicitation. 

(B) EXCEPTION.—Clauses (ii) and (iii) of subparagraph 

(A) do not apply with respect to any listing of a temporary 

annual percentage rate on an envelope or other enclosure in 

which an application or solicitation to open a credit card 

account is mailed. 

(C) CONDITIONS FOR INTRODUCTORY RATES.—An application or solicitation to open a credit card account for 

which a disclosure is required under paragraph (1), and 

that offers a temporary annual percentage rate of interest 

366 

shall, if that rate of interest is revocable under any circumstance or upon any event, clearly and conspicuously 

disclose, in a prominent manner on or with such application or solicitation—

(i) a general description of the circumstances that 

may result in the revocation of the temporary annual 

percentage rate; and 

(ii) if the annual percentage rate that will apply 

upon the revocation of the temporary annual percentage rate—

(I) will be a fixed rate, the annual percentage 

rate that will apply upon the revocation of the temporary annual percentage rate; or 

(II) will vary in accordance with an index, the 

rate that will apply after the temporary rate, based 

on an annual percentage rate that was in effect 

within 60 days before the date of mailing the application or solicitation. 

(D) DEFINITIONS.—In this paragraph—

(i) the terms ‘‘temporary annual percentage rate of 

interest’’ and ‘‘temporary annual percentage rate’’ mean 

any rate of interest applicable to a credit card account 

for an introductory period of less than 1 year, if that 

rate is less than an annual percentage rate that was in 

effect within 60 days before the date of mailing the application or solicitation; and 

(ii) the term ‘‘introductory period’’ means the maximum time period for which the temporary annual percentage rate may be applicable. 

(E) RELATION TO OTHER DISCLOSURE REQUIREMENTS.—

Nothing in this paragraph may be construed to supersede 

subsection (a) of section 122, or any disclosure required by 

paragraph (1) or any other provision of this subsection. 

(7) INTERNET-BASED SOLICITATIONS.—

(A) IN GENERAL.—In any solicitation to open a credit 

card account for any person under an open end consumer 

credit plan using the Internet or other interactive computer 

service, the person making the solicitation shall clearly and 

conspicuously disclose—

(i) the information described in subparagraphs (A) 

and (B) of paragraph (1); and 

(ii) the information described in paragraph (6). 

(B) FORM OF DISCLOSURE.—The disclosures required by 

subparagraph (A) shall be—

(i) readily accessible to consumers in close proximity to the solicitation to open a credit card account; 

and 

(ii) updated regularly to reflect the current policies, 

terms, and fee amounts applicable to the credit card 

account. 

(C) DEFINITIONS.—For purposes of this paragraph—

(i) the term ‘‘Internet’’ means the international 

computer network of both Federal and non-Federal 

interoperable packet switched data networks; and 

367 

(ii) the term ‘‘interactive computer service’’ means 

any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically 

a service or system that provides access to the Internet 

and such systems operated or services offered by libraries or educational institutions. 

* * * * * * * 

(h) PROHIBITION ON CERTAIN ACTIONS FOR FAILURE TO INCUR

FINANCE CHARGES.—A creditor of an account under an open end 

consumer credit plan may not terminate an account prior to its expiration date solely because the consumer has not incurred finance 

charges on the account. Nothing in this subsection shall prohibit a 

creditor from terminating an account for inactivity in 3 or more 

consecutive months. 

SEC. 127A. DISCLOSURE REQUIREMENTS FOR OPEN END CONSUMER 

CREDIT PLANS SECURED BY THE CONSUMER’S PRINCIPAL DWELLING. 

(a) APPLICATION DISCLOSURES.—In the case of any open end 

consumer credit plan which provides for any extension of credit 

which is secured by the consumer’s principal dwelling, the creditor 

shall make the following disclosures in accordance with subsection 

(b): 

(1) * * * 

* * * * * * * 

(13) STATEMENT REGARDING øCONSULTATION OF TAX ADVI- SOR.—A statement that the¿ TAX DEDUCTIBILITY.—A statement 

that— (A) the consumer should consult a tax advisor regarding the deductibility of interest and charges under the 

planø.¿; and 

(B) in any case in which the extension of credit exceeds 

the fair market value (as defined under the Internal Revenue Code of 1986) of the dwelling, the interest on the portion of the credit extension that is greater than the fair 

market value of the dwelling is not tax deductible for Federal income tax purposes. 

* * * * * * * 

§ 128. Consumer credit not under open end credit plans 

(a) For each consumer credit transaction other than under an 

open end credit plan, the creditor shall disclose each of the following items, to the extent applicable: 

(1) * * * 

* * * * * * * 

(15) In the case of a consumer credit transaction that is secured by the principal dwelling of the consumer, in which the 

extension of credit may exceed the fair market value of the 

dwelling, a clear and conspicuous statement that—

(A) the interest on the portion of the credit extension 

that is greater than the fair market value of the dwelling 

is not tax deductible for Federal income tax purposes; and 

368 

(B) the consumer should consult a tax adviser for further information regarding the deductibility of interest and 

charges. 

(b)(1) * * * 

* * * * * * * 

(3) In the case of a credit transaction described in paragraph 

(15) of subsection (a), disclosures required by that paragraph shall 

be made to the consumer at the time of application for such extension of credit. 

* * * * * * * 

CHAPTER 3—CREDIT ADVERTISING 

* * * * * * * 

§ 144. Advertising of credit other than open end plans 

(a) * * * 

* * * * * * * 

(e) Each advertisement to which this section applies that relates 

to a consumer credit transaction that is secured by the principal 

dwelling of a consumer in which the extension of credit may exceed 

the fair market value of the dwelling, and which advertisement is 

disseminated in paper form to the public or through the Internet, 

as opposed to by radio or television, shall clearly and conspicuously 

state that—

(1) the interest on the portion of the credit extension that 

is greater than the fair market value of the dwelling is not tax 

deductible for Federal income tax purposes; and 

(2) the consumer should consult a tax adviser for further 

information regarding the deductibility of interest and charges. 

* * * * * * * 

SEC. 147. ADVERTISING OF OPEN END CONSUMER CREDIT PLANS SECURED BY THE CONSUMER’S PRINCIPAL DWELLING. 

(a) * * * 

(b) TAX DEDUCTIBILITY.—øIf any¿ 

(1) IN GENERAL.—If any advertisement described in subsection (a) contains a statement that any interest expense 

incurred with respect to the plan is or may be tax deductible, 

the advertisement shall not be misleading with respect to such 

deductibility. 

(2) CREDIT IN EXCESS OF FAIR MARKET VALUE.—Each advertisement described in subsection (a) that relates to an extension of credit that may exceed the fair market value of the 

dwelling, and which advertisement is disseminated in paper 

form to the public or through the Internet, as opposed to by 

radio or television, shall include a clear and conspicuous statement that—

(A) the interest on the portion of the credit extension 

that is greater than the fair market value of the dwelling 

is not tax deductible for Federal income tax purposes; and 

369 

(B) the consumer should consult a tax adviser for further information regarding the deductibility of interest and 

charges. 

* * * * * * * 

370 

COMMITTEE JURISDICTION LETTERS


256DD1.eps
371 


256DD2.eps
372 


256EE.eps
373

MARKUP TRANSCRIPT

BUSINESS MEETING 

MARCH 16, 2005

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:07 a.m., in Room 

2141, Rayburn House Office Building, Hon. F. James Sensenbrenner, Jr. [Chairman of the Committee] presiding. 

Chairman SENSENBRENNER. The Committee will be in order, and 

a working quorum is present. 

Pursuant to notice, I now call up the bill Senate 256, the ‘‘Bankruptcy Abuse and Consumer Protection Act of 2005,’’ for purposes 

of markup and move its favorable recommendation to the House. 

Without objection, the bill will be considered as read and open for 

amendment at any point. 

[The bill, S. 256, the ‘‘Bankruptcy Abuse and Consumer Protection Act of 2005,’’ is not reprinted here but can be accessed at 

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109l

conglbills&docid=f:s256rfh.txt.pdf:] 

Chairman SENSENBRENNER. And the Chair recognizes himself for 

5 minutes to explain the bill. 

Today we consider a bill with an extensive history before this 

Committee and the Congress. S. 256, the ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2005’’ represents the culmination of nearly 8 years of intense and detailed consideration by 

this Committee. Over the course of the last four Congresses, this 

legislation has benefitted immensely from an exhaustive hearing 

and amendment process as well as meaningful bipartisan and bicameral negotiations. 

Last week, the Senate passed this legislation by a vote of 74 to 

25, marking the fifth time that body has registered its overwhelming support for bankruptcy reform legislation in the last four 

Congresses. The House has also repeatedly expressed its overwhelming support. To date, the House has passed bankruptcy reform measures on eight occasions since the 105th Congress. This 

legislation reflects the product of intensive process before this Committee. Over the past four Congresses, the Judiciary Committee 

and the Subcommittee on Commercial and Administrative Law 

have held 18 hearings on the need for bankruptcy reform, 11 of 

which were devoted specifically to predecessors of S. 256. In addition, the Senate Judiciary Committee has held 11 hearings on 

bankruptcy reform, including a hearing held last month. 

During the 106th Congress, this Committee entertained 59 

amendments over the course of a 5-day markup on H.R. 833, which 

included 29 recorded votes. Of these amendments, 27 were agreed 

to. On the floor, 11 more amendments were considered. After passage on the House floor during the 106th Congress, conferees spent 

nearly 7 months engaged in an informal conference to reconcile differences between the House- and Senate-passed versions of bankruptcy reform legislation. During the 107th Congress, this Committee considered an additional 18 amendments during the course 

374 

of its markup on S. 256 predecessor, and five more amendments 

were considered on the House floor. 

After House passage of bankruptcy reform legislation in the 

107th Congress, conferees formally met on three occasions and ultimately agreed, after an 11-month period of negotiation, to a bipartisan conference report. Finally, during the last Congress, the Judiciary Committee entertained nine amendments to bankruptcy legislation, and the House considered five more. 

It’s no secret that I will strongly encourage Members of this 

Committee to vigorously oppose all amendments to S. 256 as 

passed by the Senate based on this extensive record. The reasons 

are obvious. As the record makes clear, this legislation is the product of exhaustive consideration by the Congress. It is a well-crafted 

package of extensive bipartisan and bicameral negotiation and 

compromise. 

As introduced, the bill is substantively identical to legislation 

that passed the House by an overwhelming vote margin, not on one 

but on two occasions in the last Congress. Although the Senatepassed bill we consider today includes a series of amendments, 

they all received bipartisan support and many were agreed to by 

unanimous consent. 

Second, and perhaps most importantly, the need for bankruptcy 

reform is long overdue and crucial to our Nation’s economy and the 

well-being of our citizens. Every day that goes by without these reforms, more abuse and fraud goes undetected. Every abusive bankruptcy filing adversely affects hard-working Americans in the form 

of higher interest rates and increased cost of goods and services. 

America’s economy should not suffer any longer from the billions 

of dollars of losses associated with profligate and abusive bankruptcy filings. We need to close the so-called mansion loophole now. 

We need to ensure that deadbeat parents can no longer use bankruptcy to shed their child and spousal support obligations. We need 

to make Chapter 12, a specialized form of bankruptcy relief for 

family farmers, a permanent component of the Bankruptcy Code 

and need to extend that relief to family fishermen. And we need 

to enact important administrative reforms by direct appeals, 

streamlined reorganization procedures, and additional bankruptcy 

judges that will reduce unnecessary burdens upon the current system by those who must administer and use it. 

In short, we need to restore a measure of personal responsibility 

and accountability to the bankruptcy system, and S. 256 advances 

this crucial goal. I will, accordingly, urge my colleagues to report 

this bill without amendment. 

I yield back the balance of my time and recognize the gentleman 

from Michigan for 5 minutes. 

Mr. CONYERS. Thank you, Mr. Chairman and Members. This is 

the first time I’ve heard us urge that amendments be rejected before they’ve even been named, identified, or offered. So I suppose 

this is a very serious effort as the majority continues their assault 

on the American consumer. Last month, and starting from this 

Committee, we passed into law special interest class legislation—

class action legislation which slams the door on court statehouses 

for millions of individuals harmed by fraud, deception, civil rights, 

and labor abuses. 

375 

Now, today we take up the bankruptcy bill which massively tilts 

the playing field in favor of credit card companies and against ordinary workers and families. 

Last year, nearly 1.5 million ordinary working individuals filed 

for bankruptcy. Their average income was less than $25,000, and 

the principal causes for their filings were layoffs and medical bills. 

In my judgment, it would be a grave mistake to punish these individuals while rewarding credit card companies and business lobbyists at a time when corporate greed is being reported regularly and 

has already destroyed or harmed the lives of millions of American 

workers. 

To those who think the bill is a fair compromise that only punishes wealthy debtors, then check on how this bill gives creditors 

massive new rights to bring threatening motions against low-income debtors, how the bill permits credit card companies to reclaim 

common household goods, if anybody would want them, of little 

value to anybody but themselves but very important to the debtor’s 

family. 

Check in this legislation we are considering how it makes next 

to impossible for people below the poverty line to keep their house 

or their car in bankruptcy. For those who might think that the bill 

protects alimony and child support problems in families, look and 

see if they find where the bill, as I have found, creates major new 

categories of non-dischargeable debt that compete directly against 

the collection of child support and alimony payments; whether 

they’re—we’re aware of the fact the bill allows landlords to evict 

even battered women without bankruptcy court approval, even if 

the eviction poses a threat to the woman’s physical well-being. 

If you think the bill cracks down on creditor abuse, then look 

again because the bill does absolutely nothing to discourage abusive, underage lending, nothing to discourage reckless lending to 

the developmentally disabled, nothing to regulate the price of socalled sub-prime lending to persons with no means or little ability 

to repay their debt, and nothing to crack down on unscrupulous 

payday lenders that prey on the members of our Armed Forces. 

The bill—does the bill fix the problems of homestead exemption 

abuse? Well, look again, because there we don’t repeal or even cap 

homestead—the homestead exemption. The bill does nothing to 

prevent the very worst abuses of the Bankruptcy Code, for example, avoiding claims for bilking seniors out of billions of dollars of 

their life savings or denying workers their hard-earned pension 

payments. It ignores in this legislation, after all these years, the 

asset trust loophole whereby high-income individuals stash away 

millions of dollars in special trusts to avoid their debts in bankruptcy as we go after ordinary workers who may have been forced 

into bankruptcy by medical bills. 

I urge every Member of this Committee to reconsider the reallife consequences of what we’re doing in one of the worst consumer 

bills I have ever had the sorrow to have to speak against in this 

Committee. This is a bad bill. The time has come that we stop writing these bills for credit card companies and that these businesses 

that use their political muscle must be stopped. Here’s a great 

place to do it today. 

I thank the Chairman. 

376 

Chairman SENSENBRENNER. The time of the gentleman has expired. Without objection, all Members may insert opening statements in the record at this point. 

Are there amendments? 

Mr. WATT. Mr. Chairman? 

Mr. CANNON. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Utah. 

Mr. CANNON. If I could enter into colloquy with the Chairman, 

I am pleased that we are reporting this legislation today, but I 

would note that the bankruptcy judgeship numbers in the Senate 

bill are outdated and do not reflect the current numbers submitted 

by the Judicial Conference this year. Additional judgeships are 

sorely needed in a number of districts across the country, including 

in my State of Utah. I am wondering, Mr. Chairman, if we can deal 

with this issue in some manner, either a technical bill or a freestanding bill, and if the Chairman will commit to doing that in the 

near future. 

Chairman SENSENBRENNER. Would the gentleman yield? 

Mr. CANNON. Certainly. 

Chairman SENSENBRENNER. It is the hope of the Chairman that 

additional judgeships and not just bankruptcy judges can be dealt 

with later on this year in response to an updated Judicial Conference recommendation where the judgeships are needed, and this 

includes article III judges as well. 

Mr. CANNON. Thank you, Mr. Chairman. I yield back. 

Mr. CONYERS. Mr. Chairman? 

Chairman SENSENBRENNER. Are there amendments? 

Mr. WATT. Mr. Chairman? 

Mr. CONYERS. I have an amendment. 

Chairman SENSENBRENNER. The gentleman from Michigan. The 

clerk will report the amendment. 

The CLERK. Amendment to S. 256 offered by Mr. Conyers, page 

687, after line 18, insert the following: ‘‘(and make such technical 

and conforming change as may be appropriate’’——

Mr. CONYERS. Mr. Chairman, I ask that the amendment be considered as read. 

Chairman SENSENBRENNER. Without objection. 

[The amendment follows:] 

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Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. CONYERS. Thank you very much. 

Ladies and gentlemen of the Committee, this is going to be the 

amendment that just checks where we all are and what the temperature is in the room. This is an amendment in support of our 

military personnel to crack down on unscrupulous payday lenders 

that circle our military bases, who target members of our armed 

services with high interest rate loans. It would deny these companies a claim in bankruptcy where they make a loan secured by a 

military paycheck, pension, or disability payment if the annual interest rate and fees exceed 36 percent a year, a number that I don’t 

think anybody in this room would even think twice about signing 

up for. 

This is happening to our military personnel as we meet today. 

The military service constitutes a significant and real hardship for 

soldiers and their families that are called into action. We have had 

16,000 active-duty members of the military who’ve had to file for 

bankruptcy relief over a 12-month period. The Pentagon found that 

4 years ago nearly a third of all military families reported a drop 

in income, obviously, when a spouse was deployed. For members of 

the National Guard and Reserve, the rate was even higher. More 

than 40 percent reported lost income when a provider—a spouse 

provider was deployed to active duty. 

If you need another reason, it is this: The greedy payday lenders 

are directly and aggressively targeting our Nation’s armed services. 

The National Consumer Law Center report found that scores of 

consumer-abusing businesses directly target the active-duty military men and women daily. These payday lenders are the loan 

sharks of the 21st century that offer small, short-term loans at interest rates that are incredible. They use deceptive names, like 

‘‘Force One Lending,’’ ‘‘Armed Forces Loans.’’ They go after military 

members because they know they have a steady source of income, 

small as it is, and many of these military members are young, have 

family obligations, and are often strapped for cash and are easy to 

find. 

During a time of war, it’s imperative that we go to the extra mile 

to protect the men and women of our armed forces. These individuals face not only the challenge of protecting our country, but the 

difficulty of managing their finances when they are called to service. When the Soldier and Sailors Relief Act can be used to delay 

tax payments, suspend legal proceedings, and reduce interest payments, none of the relief is automatic. Moreover, these protections 

only apply if the service member can establish that he or she has 

not been materially affected, quote-unquote, by being called to duty 

and ends as soon as the duty ends. Unlike the bankruptcy laws, 

the Relief Act buys some time, but not forgiveness. 

The last thing we should be doing is putting our military personnel into this kind of loan shark debacle, and I am urging the 

Members that if you want to disregard one of the Chairman’s requests that you vote down all amendments, that this be the one 

amendment that you do support. And I return my time. 

Ms. WATERS. Mr. Chairman, on the amendment? Mr. Chairman? 

Mr. CANNON. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Utah. 

381 

Mr. CANNON. Thank you, Mr. Chairman. 

Let me first express——

Chairman SENSENBRENNER. Recognized for 5 minutes. 

Mr. CANNON. Thank you. Let me first of all express my concern 

for the issue raised by the gentleman from Michigan, which is a 

profoundly important issue. I’ve been surprised around the country 

at the proliferation of these check-cashing, lending institutions 

which I think are a terrible problem, and I would hope that the 

gentleman would recognize that I and all the Members of this full 

Committee recognize the problem that our servicemen have. It is 

a difficult problem, a complex problem. We deal with it here in 

Congress on many different levels. For instance, we’ve dealt with 

the pay issue with legislation here. In the past we have amended 

recently the servicemen—Servicemembers Civil Relief Act, and that 

provides for a cap on interest rates at 6 percent on debts incurred 

prior to a person’s active entry into military service and sets forth 

procedures for requesting a reduction and clarifies how that works. 

So we as a Congress, as a body, I don’t think there’s any question 

but that left and right, Republicans and Democrats, are all concerned about military and the burdens that they have as they serve 

our country. And so I want to first of all express my agreement 

with Mr. Conyers and about his expression of concern. 

But this is a complex issue, and as we deal with bankruptcy, I 

think we just need to be thoughtful and careful about how we deal 

with it. This amendment was included in Mr. Durbin’s amendment 

in the Senate, and that was defeated 38 to 58, not because people 

have a problem with military, but because of the complexity of the 

bill that we’re dealing with today. The Sessions amendment, which 

was submitted in lieu of the Durbin amendment, passed by 63 to 

32 on the other side. So we have dealt with the issue, I think, to 

some degree. But in this complex environment, I just think it’s important that we recognize that we need to get a bill passed today. 

And I suspect in the end much of this debate is going to be—and 

Mr. Conyers himself has pointed out that the issue here is, you 

know, are we going to do something with this bill, and the answer 

is America needs a bill, and we need a bill that we can get signed 

by the President, which means I think there ought to be a fairly 

high threshold before we make changes. 

There are protections in the current bill. It has a needs-based 

test which includes numerous safe harbors and exceptions for special circumstances. As amended, the special circumstances exception specifically mentions a debtor who is subject to a call or order 

to active duty in the armed services. As amended, the needs-based 

test has a special exception just for debtors who are disabled veterans if the indebtedness occurred primarily during a period when 

the debtor was on active duty or performing a homeland defense 

activity. 

As amended, the bill specifies that the absolute safe harbor from 

all types of dismissal motions under section 707(b) applies to a veteran, and, as amended, the bill excuses a debtor if he or she is on 

active military duty in a military combat zone from the mandatory 

credit counseling and financial management training requirements. 

I think we have done a number of things along this line. I think 

the bill is good. We can’t make—we can’t legislate a perfect bill 

382 

that is going to deal with all the circumstances of everybody in 

America. 

Mr. CONYERS. Would the gentleman, my friend, yield for a moment? 

Mr. CANNON. I would be pleased to yield to the gentleman. 

Mr. CONYERS. First of all, the Durbin bill—the Durbin amendment had lots of other things surrounded with it. That’s why I took 

it out. I took out the military exemption. 

Number two, tell me what it is you don’t like about exempting 

military people unequivocally, not playing around, from bankruptcy 

from these loan sharks? 

Mr. CANNON. Well, reclaiming my time, the gentleman has expressed the issue with great clarity. I appreciate that. And the answer is that all people who deal with debt have to have some responsibility. And a blanket exemption for any group, including a 

group as large as the military, I think is problematic. So what we 

need to do is deal with the possibilities for assisting and protecting 

them from extreme activities, but not removing any kind of personal responsibility from their lives which, as I understand your 

amendment, it would do. 

Ms. WATERS. Mr. Chairman? 

Mr. CANNON. Thank you, Mr. Chairman. I yield back. 

Ms. WATERS. On the amendment? 

Chairman SENSENBRENNER. Does the gentleman yield back? 

Mr. CANNON. I yield back, Mr. Chairman. 

Chairman SENSENBRENNER. The gentlewoman from California. 

Ms. WATERS. Thank you very much, Mr. Chairman. I am so 

pleased and so happy about John Conyers’ amendment. This is a 

subject that I’ve spent an awful lot of time on, and it’s a subject 

that needs to be addressed by the Congress of the United States. 

I am shocked that the gentleman from Utah could even come up 

with any excuses about why we can’t protect the military from 

these scavengers who surround our military bases and who 

place——

Mr. CANNON. Would the gentlelady yield? 

Ms. WATERS. No, I will not. Who place up neon signs about easy 

money, green money, come and get it as fast as you can. They have 

some of the most outrageous advertisements where they solicit our 

military. They have set them up as sitting ducks all over America 

at these military bases. They are paying between 400 and 1,000 

percent interest when you calculate it on a yearly basis. For those 

people who wave the red, white, and blue flag and talk about how 

much they love America, how much they care about our military, 

how much they want to be of assistance to our military families, 

and yet cannot take this bill, this bankruptcy legislation, which 

is—actually should be named the ‘‘Credit Card Company Protection 

Act of 2005,’’ and do something for our military is just shameful. 

It is outright shameful. 

And I want every Member of this Committee and everybody that 

is looking or listening to pay attention today to what is going on. 

We have a very simple amendment by John Conyers that would 

deal with the fact that military families are ladened with debt from 

these scavengers, many of whom are supporters of too many Members of Congress with their big military—with their big contributions, and who seem to have some measure of protection from the 

383 

Members of Congress who won’t go after them. Whether it is this 

Committee or the Financial Services Committee, for those people 

who will not stand up for our military against these scavengers, it 

needs to be noted everywhere, and the press needs to pay an awful 

lot of attention to this, because this is a way by which we could 

give them some kind of help. These are unsuspecting families. 

Do you know that we are recruiting young people who are 19 and 

20 and 21 years old who have never managed any money, who 

have never had any debt, who have never had any credit? And the 

first thing that happens to them, they go into the military, some 

at 21 years old, with a wife and maybe two children, find out that 

the military pay does not carry them to the end of the month, and 

there the scavengers are waiting for them with bait. And they lend 

them money, and they have to sign a personal check. And if they 

don’t come back within 2 weeks and pay that $200 or $300, then 

they threaten them with the personal check that they’re going to 

put them in jail if they don’t pay the money. 

And then they flip the loan if they can’t pay it, and they pile on 

more interest to it, and that’s where you get this 400 to 1,000 percent interest that piles up for these military people. 

Unfortunately, my friend on the opposite side of the aisle from 

Utah has no excuse, and that which he pointed to, to try and make 

you believe that there is some protection for the military is not protection. There’s nothing in this bill, unless we adopt John Conyers’

amendment, that would protect these poor military families from 

these scavengers and these people who are gouging them for the 

meager pay that they get to take care of their families. And to tell 

you the truth, whenever someone who votes against this amendment stands up and talks about how much they love the military, 

I’m going to call them out on it, and I’m going to call them out on 

the fact that they had an opportunity here today to do just a little 

something for these military families. 

These payday loan scavengers are the worst. 

Mr. CANNON. Would the gentle——

Ms. WATERS. No, I will not yield——

Mr. CONYERS. Would the gentlelady yield? 

Ms. WATERS. No, I will not yield. I will yield to the gentleman 

from Michigan. 

Mr. CONYERS. I just want to make it clear what you said about 

what’s in the bill helping military people get a break in bankruptcy. It applies only to the disabled military, only, and nobody 

else. So there is no protection in——

Ms. WATERS. On my own time, yes, Mr. Leader, I know. That’s 

why I wanted to make it clear, because the gentleman from Utah 

tried to confuse the public and make them think that somehow it 

was already covered. 

Now, anybody who says it’s too complicated, the bill, to cover 

them——

Chairman SENSENBRENNER. The time of——

Ms. WATERS.—does not make good sense. 

Chairman SENSENBRENNER.—the gentlewoman has expired. 

Ms. WATERS. And so I would ask everybody to please vote——

Chairman SENSENBRENNER. Who seeks recognition? 

Ms. WATERS.—for this amendment? 

384 

Chairman SENSENBRENNER. The gentleman from California, Mr. 

Issa. 

Mr. ISSA. Thank you, Mr. Chairman. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. ISSA. And I do rise—I won’t stand, but I do rise in opposition 

to this amendment. And if the gentlelady will take note, I am a 

veteran. My brother is a disabled veteran. And I have 40,000 Marines, more than half of whom are serving in Iraq right now. And 

looking at this piece—this amendment, I have serious reservations 

on its merit. And I would like to speak to that. This fairly narrow 

piece of legislation looks good until you see that it is not talking 

about interest. It is talking about interest and fees. With all due 

respect to the gentlelady’s example, if you were to borrow $200 for 

2 weeks and they were simply to charge you $2 as a fee as part 

of writing up the paperwork, which is not an insignificant thing, 

that’s 26 percent all by itself. 

The fact is that when you look at 36 percent—I have a problem 

with usury-type interest, but when you write a piece of legislation 

and you include fees on an extremely short-term loan—because if 

this were a 1-week loan on $200, and they said, well, you know, 

I’ll give you $198 today for your $200 promissory note, well, that’s 

52 percent. And that’s the practical reality that on small loans for 

short periods of time, a very small fee, a reasonable fee, particularly considering the potential risk, can, in fact, end up being in excess of what seems to be an extraordinarily high number. 

I would love to deal with this piece of legislation—or this amendment in another piece of legislation, and I’d love to deal with it in 

a way in which it would clearly still allow the small loans, if appropriate, to go to somebody without including the fee language which 

makes it essentially——

Mr. CONYERS. Would my friend——

Mr. ISSA.—impossible to make small loans——

Mr. CONYERS.—from California yield for one question. 

Mr. ISSA. I certainly would yield to——

Mr. CONYERS. And I thank you. Now, look, let’s be frank here. 

Let’s take the fee out of the amendment that I offered. Would you 

support it then? 

Mr. ISSA. I look forward to——

Mr. CONYERS. Would you support it then? 

Mr. ISSA. Reclaiming my time, I look forward to this type of reform being something that we work on in a comprehensive way. I 

would be more than happy to work with the gentleman to author 

a separate piece of legislation—I suspect the Chairman would help 

support it—that would look at these issues very specifically, as I 

said, without the fee or with some sort of a reasonable thing on the 

fee, and I think that would be wonderful. 

Mr. CANNON. Would the gentleman yield? 

Mr. ISSA. I would be glad to yield to the gentleman. 

Mr. CANNON. Thank you. I suspect that the place to deal with 

this would be the Servicemembers Civil Relief Act, and I think it’s 

highly appropriate to deal with it in that regard. 

If I might take another moment of the gentleman’s time? 

Mr. ISSA. Please. 

385 

Mr. CANNON. I appreciate the fact that Ms. Waters referred to 

me as ‘‘a friend’’ because I think that she is. We’ve gained a significant amount of respect for each other, and I appreciate that. I 

think that the debate cast in harsh terms like ‘‘shame’’ is unfortunate because this is not a matter of shame. This is a matter of policy, and there may be a difference of opinion about how policy affects the world. But I think, Mr. Issa, what you’re suggesting is 

that there needs to be ways for people to get credit who need credit. And the last thing we want to do on either side of the aisle is 

shove people out of the market either because the costs are too 

high or because the risks are so great that no one will take the 

cost. And so it’s, I believe, a much more complicated issue, as 

you’ve able expressed, Mr. Issa, than it is portrayed to be at this 

point. 

Let me just point out that 19-year-olds who enter the military, 

and older people, may be young, may be inexperienced, but they’re 

not dumb. And they have the ability to make decisions. And if we 

try and insulate them from the effects of the decisions, they will 

make bad decisions for their whole lives. I’ve trained my kids in 

their credit card usage—very painfully, I might point out, mostly 

for them. But if they don’t have some pain in their lives over these 

issues, they don’t learn. 

And I have enormous respect for the military, enormous respect 

for the young people who join the military. They come from all 

kinds of backgrounds and from all kinds of decision perspectives. 

And because of that, I think that we owe it to them to not include 

this——

Ms. JACKSON LEE. Mr. Chairman? 

Mr. CANNON.—amendment. I would request that the Committee 

vote against the amendment. 

Chairman SENSENBRENNER. The time belongs to the gentleman 

from California. 

Mr. ISSA. Reclaiming my time, and in conclusion, Mr. Chairman, 

I look forward to working with the gentleman from Michigan on 

these types of issues in the days to come, and will be voting against 

the amendment, urge my colleagues to vote against the amendment 

because this is not the right place, right time. But I would like us 

all to agree to work on this in the future, and I yield back. 

Chairman SENSENBRENNER. The gentleman from New York, Mr. 

Nadler. 

Mr. NADLER. Thank you, Mr. Chairman. 

Mr. Chairman, I very much urge support for the gentleman’s 

amendment. It illustrates just one of the imbalances in this bill, 

which is simply a collection of 60 or 70 different ways to stick one’s 

hands into the pockets of low- and middle-income people in a time 

of distress and take the money out and give it to the big banks and 

credit card companies. 

One of the things this bill does in many different ways it to make 

a discharge in bankruptcy more elusive. Making discharge in bankruptcy more elusive will make it harder for consumers to get a 

fresh start and continue to make consumer purchases, which is one 

of the mainsprings of our economy. Household debt has reached 

record levels. With that come more bankruptcies, but no serious 

economist would argue that a precipitous drop in consumer spending would help our economy. 

386 

Bankruptcy is a tradeoff. The safety net encourages risk taking 

in business, allows distressed families to remain in the economy, 

and maintains demand for products businesses must sell to survive. Bankruptcy doesn’t cause default any more than a hospital 

causes people to be sick. 

We have been told as a justification for this bill that bankruptcy 

is a free ride. The facts are the contrary. A debtor in Chapter 7 

must give up all non-exempt assets in order to obtain a discharge. 

Secured debts must be paid, or the property is subject to foreclosure. The bankruptcy remains on the debtor’s record for 10 

years, and the debtor may not refile for 6 years. It is harder to get 

a job, an apartment, or a loan. As a majority witness who had been 

a debtor told the Committee a few years ago, had she known the 

consequences of filing, she might not have done so. 

No one believes that people should avoid paying their debts if 

they can afford to do so. The question is, rather, does this bill make 

sense? Members should ask themselves why the overwhelming majority of bankruptcy professionals, scholars, trustees, creditor lawyers, corporation lawyers, and judges are appalled with this bill. 

There is a terrible disconnect between Congress and the people 

who actually have to make the system function. Regardless of their 

role or interest, they almost universally oppose this bill. Yet here 

in Congress, the demands of the special interests who have a stake 

in some provision in this bill are generally viewed as a great idea 

that requires no further consideration. 

Over the years, we have heard from, among other people, Ken 

Klee, one of the leading bankruptcy scholars and business bankruptcy lawyers in the country, former Republican bankruptcy counsel to this Committee. He has drafted Supreme Court briefs signed 

by Members of this House, and he strongly opposed the bill. 

We have heard from consumer rights organizations, women’s 

groups, child advocacy groups, unions, civil rights groups, and 

every national bankruptcy organization in the country that this bill 

will hurt consumers, businesses, families, children, employees, minorities, and the economy. It will raise costs to the system and disrupt the efficient management of bankruptcy proceedings. This bill 

would turn the Government into a debt collector for private industry. 

Let me remind you what George Wallace, a representative of the 

Creditors Coalition, told this Committee a few years ago. I asked 

him if he was familiar with the many ways under current law that 

a creditor could pursue his rights in bankruptcy, including obtaining documents, examining the debtor under oath, and objecting to 

a discharge of debts. He said, and I quote, ‘‘I have done these 

things, and they take a fair amount of time, and I bill my clients 

for them. They’re expensive.’’

I asked him, ‘‘Why should the Government spend money to do 

the job that creditors should be doing?’’ He responded, ‘‘Because it 

is a Government program. It is not the job of the creditor.’’

That’s what this bill is—a Government program for big banks 

who don’t want to spend their own money to collect their own 

debts, the debts that they freely entered into. Talk about welfare 

cheats. 

Mr. Chairman, we know, unfortunately, this bill is going to pass. 

It’s going to pass with a good number of votes. Someone asked me 

387 

the other day why he should vote against this bill despite the 

manifold demerits in the bill, when it was clear it was going to 

pass anyway. And I think that the answer is that when this bill 

really takes hold, 2, 3, 4 years down the road, when middle-income 

people, low-income people, our constituents, start finding out it’s 

impossible to get a fresh start, they cannot get out from under 

their credit card debts, they’re paying higher and higher interest 

rates, more and more money, it costs more money to file, there are 

more and more coercive instruments on the part of the creditor’s 

lawyers to force debtors to reaffirm debts and to surrender their 

rights, and the bankruptcy system becomes less and less usable for 

people, they’re going to ask, ‘‘Who the heck did this?’’ And I hope 

that Members of Congress—that too many Members of Congress 

won’t have to be ashamed in front of their constituents, as I am 

sure they will. 

So I urge adoption of this amendment and defeat of this bill because this is a day of shame, and when we pass it on the floor, it 

will be a day of worse shame that will probably go down in history 

as one of the worst days in the history of the Congress in this century. 

Thank you, Mr. Chairman. I yield back. 

Chairman SENSENBRENNER. The question—— Ms. JACKSON LEE. Mr. Chairman? Mr. Chairman? 

Chairman SENSENBRENNER. The gentlewoman from Texas, Ms. 

Jackson Lee. 

Ms. JACKSON LEE. Thank you very much, Mr. Chairman, and 

thank you for the opportunity to participate in the legislative process. And I do not say this with reflection on the responsibility that 

we have inasmuch as the Senate has moved forward on this legislation. But I will say the speed at which we’re now addressing this 

particular legislation, the speed in which it will find its way to the 

floor of the House, and the sense that I am getting from my colleagues on the other side of the aisle—and might I welcome two 

new Democrats who I see are sitting on this side. It gives us a good 

number. Thank you. Mr. Inglis, I am delighted, my Chairman. We 

welcome you and look forward to you supporting our amendments. 

But it gives me great hope and inspiration. 

But as I look at the speed in which we move to the floor of the 

House—I understand we might be on the floor as early as the beginning of April—might I simply say that the fix is in, that this is 

a prime example of class warfare, because this bill is wrapped with 

special interests. It clearly does not evidence thoughtfulness as it 

relates to the crux of the need for helping Americans save and 

helping Americans understand credit and balancing between Americans who consume credit and those who market credit. I would use 

a lesser word, but I think I’ll keep it at a level of sophistication at 

this point. 

I support the Conyers amendment, and I am so disappointed and 

saddened, frankly, by my colleagues who I know have spent time 

in Iraq and Afghanistan, and if they have spent time in Iraq and 

Afghanistan, they have spoken not only to young soldiers, but 

they’ve spoken to reservists, Mr. Chairman. If you speak to reservists, you will know that they have been taken out of their prime 

of their life or they have been called into battle in the midst of 

their life where they have wives or husbands or family responsiVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00391 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
388 

bility. In taking them out of their cycle of income, they have caused 

them to lose a major part of the breadwinner’s contribution to the 

family, jeopardized them and put them in the line for bankruptcy. 

Therefore, many of them have turned to the scavengers who have 

accelerated the rates on payday loans. It is a conspicuous and large 

problem. It saddens me to think that because it was associated 

with Senator Durbin rather than an issue that might have come 

to the attention of my colleagues on the other side of the aisle, and 

now in the wisdom of our Ranking Member, Mr. Conyers has put 

it forward as a single standing amendment, we can’t get the support. 

Allow me to put into the record the words of David Broder of The 

Washington Post. His headline says, ‘‘A Bankrupt ‘Reform,’ ’’—‘‘reform’’ in quotes. ‘‘A Bankrupt ‘Reform.’ ’’

This reform, which parades as an effort to stop folks from spending lavishly and then stiffing creditors by filing for bankruptcy protection, is a perfect illustration of how the political money system 

tilts the law against average Americans. The simple fact that for 

8 straight years it has gained a place on a crowded congressional 

calendar is testimony to the impact of the millions of dollars that 

banks and credit card companies have spent on lobbyists and campaign contributions. Two terms ago, it was $4 million that was utilized to lobby Members of Congress to vote for this legislation. I 

would imagine it is now double that amount. 

We have a long list of individuals who oppose this legislation, 

and the reason why it will pass with no amendments is because, 

as I said, the fix is in. The American middle class is the backbone 

of America, yet this bankrupt legislation is going to exercise a 

means test to stand in the doorway of disallowing individuals to 

come in and to file bankruptcy. 

One of the bloggers said, if this doesn’t teach Americans not to 

have medical emergencies or get laid off, I don’t know what will. 

Come to my city in 2003 and 2002, and watch the 4,000 Enron employees that were laid off, losing most of their livelihood, putting 

them in a dastardly downspin, causing them to lose their homes, 

having college students to come out of college, and simply driving 

them to the depths of depression. How you can pass this legislation 

in the light of devastation of our communities, middle class and 

others, is a tragedy. I would only hope that this particular amendment would reach the levels of common sense and have you think 

back on the soldiers that are now on the front line without the resources to pay their bills, taken advantage of by payday loans, and 

then being denied—having these payday loan—loaners come after 

them in a bankruptcy proceeding. 

This is a common-sense amendment. This legislation will listen 

to us today. It will almost sound like blah, blah, blah, blah, blah, 

because, in fact, the legislation will pass out of this Committee. 

Very few amendments will pass out of this Committee. And the 

theme of class warfare will again be victorious, as this makes its 

way to the floor of the House and the people of America will suffer——

Chairman SENSENBRENNER. The gentlewoman’s time has expired. 

Ms. JACKSON LEE. I hope the amendment passes. I yield back. 

389 

Chairman SENSENBRENNER. The question is on the Conyers 

amendment. Those in favor will say aye? Opposed, no? In the—— Mr. CONYERS. Mr. Chairman, may I demand a record vote? 

Chairman SENSENBRENNER. You may. The question is on agreeing to the Conyers amendment. Those in favor will, as your names 

are called, answer aye, those opposed, no, and the clerk will call 

the roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

[No response.] 

The CLERK. Mr. Smith? 

Mr. SMITH OF TEXAS. No. 

The CLERK. Mr. Smith, no. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

[No response.] 

The CLERK. Mr. Inglis? 

Mr. INGLIS. No. 

The CLERK. Mr. Inglis, no. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

[No response.] 

The CLERK. Mr. Issa? 

Mr. ISSA. No. 

The CLERK. Mr. Issa, no. Mr. Flake? 

Mr. FLAKE. No. 

The CLERK. Mr. Flake, no. Mr. Pence? 

Mr. PENCE. No. 

The CLERK. Mr. Pence, no. Mr. Forbes? 

[No response.] 

The CLERK. Mr. King? 

[No response.] 

The CLERK. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

Mr. BERMAN. Aye. 

390 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

[No response.] 

The CLERK. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

Ms. LOFGREN. Aye. 

The CLERK. Ms. Lofgren, aye. Ms. Jackson Lee? 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

[No response.] 

The CLERK. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Smith? 

Mr. SMITH OF WASHINGTON. Aye. 

The CLERK. Mr. Smith, aye. Mr. Van Hollen? 

Mr. VAN HOLLEN. Aye. 

The CLERK. Mr. Van Hollen, aye. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? The gentleman from North Carolina, Mr. 

Coble. 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. 

Chairman SENSENBRENNER. The gentleman from Alabama, Mr. 

Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. 

Chairman SENSENBRENNER. The gentleman from Florida, Mr. 

Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. 

Chairman SENSENBRENNER. The gentleman from Iowa, Mr. King. 

Mr. KING. No. 

The CLERK. Mr. King, no. 

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. 

Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. 

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. 

Scott? 

391 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their votes? If not, the clerk will report. 

[Pause.]. 

Chairman SENSENBRENNER. The gentleman from New York, Mr. 

Weiner? 

The CLERK. Mr. Chairman, Mr. Weiner is not recorded. 

Mr. WEINER. I vote aye. 

The CLERK. Mr. Weiner, aye. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? 

[No response.] 

Chairman SENSENBRENNER. The clerk will try again to report. 

The CLERK. Mr. Chairman, there are 15 ayes and 20 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. 

Are there further amendments? 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from North Carolina, 

Mr. Watt? 

Mr. WATT. Mr. Chairman, I wonder if I might be recognized to 

strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. WATT. I have some amendments, but there are a couple of 

things, points that I want to make that I really can’t make in the 

context of an amendment, and I don’t want to violate the rules. 

As the Ranking Member of the Subcommittee that this bill original—or some bankruptcy bill originally originated in, this one 

didn’t make it to our Subcommittee because of the expedited consideration. 

I just want to express generally the major concern that I have 

with this legislation, and I can’t do it in the context of an amendment because it would go so basically to the structure of the bill 

that it would just—basically dismantle the whole bill. 

The most troubling thing about this bill from my perspective—

and I’ve said it before, and I hope people are listening to it—is that 

at the outset we acknowledge that there were major abuses and 

problems in the bankruptcy system and that those abuses needed 

to be addressed across the board. 

Because the industry knew that it was going to be impossible to 

get a bill passed without cutting a deal with the consumer groups 

on behalf of the poorest people, basically what happened was a deal 

was cut to encourage the consumer groups to go away and be quiet, 

and that deal was that we would impose something called a means 

test, which basically exempts people below the means test from virtually every provision in this bill. 

The result of that is very troubling in this sense: First of all, it 

goes absolutely contrary to everything I have heard my Republican 

colleagues say they stand for related to individual responsibility because basically what it says is if you fall below the means test, you 

are going to be exempted from worrying about the abuses that you 

engage in and so, therefore, we’re just going to look the other way. 

392 

And so abuses that are taking place in the system now for people 

who fall below the means test can continue unabated. 

At the same time, people above the means test get a bunch of 

rules applied to them regardless of whether they are abusing the 

bankruptcy system or not. So the whole purpose that we set out to 

achieve to do bankruptcy reform was missed because of this means 

test thing. 

But a more troubling thing is a public policy concern that I think 

is just—is devastating because the effect of this means test is that 

you’re going to end up with two bankruptcy courts, in effect. You’re 

going to end up with a pauper’s bankruptcy court and a higher-income bankruptcy court, and it’s going to give judges and courts the 

authority to treat people so differently even though their problems 

in bankruptcy theoretically should be viewed as the same. 

It is so contrary to our whole system of principles that it is just 

troubling as a matter of public policy. 

Mr. CANNON. Would the gentleman yield? 

Mr. WATT. No, let me just——

Mr. CANNON. Because I agree with you. 

Mr. WATT. And I just—I couldn’t——

Chairman SENSENBRENNER. The time of the gentleman——

Mr. WATT. I ask unanimous consent for 30 seconds to take back 

the time that——

Chairman SENSENBRENNER. Without objection. 

Mr. WATT. I couldn’t—I couldn’t structure an amendment to deal 

with this, but I think the public needs to know how terrible a public policy we are creating in this bill. It has nothing to do with the 

content of the bill that you can amend and correct. But the structure of this bill is so contrary to everything that our legal system 

stands for and everything that our bankruptcy system has historically stood for that it is absolutely incredible. 

Chairman SENSENBRENNER. The time of——

Mr. CANNON. Mr. Chairman, I ask unanimous consent that the 

gentleman be granted another 30 seconds. 

Mr. WATT. And I’ll yield it to my gentleman friend——

Chairman SENSENBRENNER. Reluctantly, without objection. 

Mr. WATT. I yield it to my——

Mr. CANNON. I appreciate the yielding and also the Chairman’s 

willingness to go on. Let me just say that what Mr. Watt has said 

is profound, and it’s true, and it’s very important. We disagree only 

on the point of creating two courts. I think as a practical matter 

that may happen. I hope that our bankruptcy judges are not—don’t 

fall into that trap. But the issue truly for me is twofold here: personal responsibility—and a means test does exactly what Mr. Watt 

has suggested, and I think that’s a problem, but it’s a problem we 

have to deal with in a practical way. 

And so in the first place, a means test—or the individual responsibility is important. Secondly, availability of credit is important. 

That’s fundamentally important in this process——

Chairman SENSENBRENNER. The time of the gentleman has once 

again expired. 

Mr. WATT. I ask unanimous consent for 30 additional seconds 

and yield it to the gentleman from Utah. 

Chairman SENSENBRENNER. Without objection. 

393 

Mr. CANNON. And I will only finish by saying that the availability of credit to all people—you know, people start out poor in 

life. I started out very poor. Many people do. But the availability 

of credit is a way for people to get out of that trap, and in part, 

this bill is about reducing that cost. 

Thank you, Mr. Chairman. Thank you, Mr. Watt. 

Chairman SENSENBRENNER. The time of all of the gentlemen 

have really expired. 

By my calculation, we have approximately an hour’s worth of 

votes and a debate on a motion to recommit on the supplemental 

appropriation bill. And, thus, I think it is time to recess the Committee until either 12:30 or 30 minutes after the end of the last 

vote, whichever comes later. 

The Committee stands recessed. 

Mr. WATT. Did you say whichever comes later, Mr. Chairman? 

Chairman SENSENBRENNER. Yes, sir. 

[Recess.] 

AFTERNOON SESSION 

[12:47 p.m.] 

Chairman SENSENBRENNER. The Committee will be in order. A 

working quorum is present. 

When the Committee recessed for the lunch hour and the votes, 

pending was a motion to report the bill Senate 256 favorably to the 

House. Are there further amendments? The gentleman from North 

Carolina. 

Mr. WATT. Thank you, Mr. Chairman. I have an amendment at 

the desk. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Mr. WATT. Amendment 01a. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Mr. WATT. 01a. 

Chairman SENSENBRENNER. That’s ‘‘A’’ as in apple? 

Mr. WATT. Yes. 

The CLERK. Amendment to S. 256, offered by Mr. Watt and Mr. 

Delahunt——

Mr. WATT. Mr. Chairman, I ask unanimous consent——

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read. 

[The amendment follows:] 

394 

Chairman SENSENBRENNER. The gentleman from North Carolina 

is recognized for 5 minutes. 

Mr. WATT. Thank you, Mr. Chairman. And this actually follows 

very closely on with the Conyers amendment that was considered 

before we broke for the votes. 

I have the honor of serving both on this Judiciary Committee and 

on the Financial Services Committee, and Representative Miller 

from North Carolina and myself, also from North Carolina, have 

been trying to structure, in consultation with Republicans and 

Democrats, a bipartisan predatory lending bill in the Financial 

Services Committee so that we could create a national predatory 

lending standard. Some States have different standards, and we’re 

trying to craft something that will be either a national floor or a 

national standard. Depending on who you talk to, there’s some disagreement about whether it ought to be preemptive or not. 

But be that as it may, the gist of this amendment would be to 

exempt the predatory loans that have interest rates in excess of 50 

percent. The gentleman from California had some concerns about 

fees. This interest is solely about interest rates. It doesn’t involve 

fees. 

It’s surprising to know that there are extensions of credit which 

are made where the interest rate is above 50 percent per year. And 

this bill does nothing to address that, obviously. If we had had 

hearings, we probably would have determined—gotten into the 

record that during the 8 years since this legislation was first introduced, the number of credit card solicitations in this country has 

doubled to 5 billion a year. Between 1993 and 2000 consumers increased their credit from $77 billion to $3 trillion. During that 8- 

year period bankruptcy petitions increased by 17 percent. But credit card company profits increased by 163 percent. And while I don’t 

indict the entire credit card industry, we can’t ignore the evidence 

of exorbitant interest rates imposed on modest extensions of credit. 

Ordinary citizens desperate for help are being taken advantage of 

by companies charging from 300 to over 1,000 percent interest on 

some loans. 


A256B.eps
395 

And so I think this is a problem that needs to be addressed, and 

we need to not make people have to pay or acknowledge in bankruptcy these predatory loans that there is a growing agreement 

within the industry and outside the industry are just getting out 

of control and out of hand. 

Now, I heard very clearly that the Chairman is not desirous of 

having any amendments to this bill, so I am patently aware that 

all of this is perhaps a charade. But if there’s ever anything we’re 

going to do to the bill, I certainly hope that we will send this message that interest rates of over 50 percent per year just are unacceptable, and I would ask your support for this amendment in that 

regard. 

I yield back the balance of my time. 

Chairman SENSENBRENNER. The gentleman from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. 

Chairman SENSENBRENNER. Recognized for 5 minutes. 

Mr. CANNON. Thank you. May I just direct a question to the 

Chair and the Ranking Member? In the prior amendment, I think 

we heard virtually all of the general arguments. I understand there 

are some technical arguments that may relate to some of the future 

amendments. But we’ve heard most of the arguments that were 

made last cycle. 

Has the Chair and the Ranking Member, have you come to any 

kind of a conclusion about how many amendments we might expect 

today? 

Chairman SENSENBRENNER. Well, if the gentleman will yield, 

from the Chair’s standpoint I know of no amendments on the Republican side of the aisle. 

Mr. CANNON. We’re amazed at the discipline that you have created on this side. Do we have any——

Mr. WATT. If the gentleman would yield, I will tell him how 

many I have. 

Mr. CANNON. Please. 

Mr. WATT. That’s all I can speak for. I think I have six. And actually, a lot of them relate to things that have occurred in the interim since we started considering this bill 8 years ago. I mean, 

you all’s argument has been that there’s no need to make any—to 

have any hearings, but there are substantial changed conditions 

that have taken place over the—over the period of time that we’ve 

been debating this bill. And this bill has been kind of marching in 

place, same construct, same problems, same concerns, but times 

have changed. And some of those times involve industry practices 

such as increased predatory lending that hopefully all of us agree 

are just unacceptable. And if we had gone to a hearing and a markup in our Subcommittee, or—well, I understand you all started this 

bill on the other side so that you wouldn’t make any amendments 

over here. But if somebody had had some hearings on it, maybe 

some of these things could have been done. 

Mr. CANNON. Well, reclaiming my time, if I might, Mr. Watt, just 

ask a question. When you talk about preemption, that refers to 

the—if there’s a State interest limit law that is higher than 50 percent, then you would preempt that with this bill? I doubt that there 

are any State laws with a 50 percent rate, but when you mention 

preemption, that is, preempting State law, that is what you’re referring to, I take it? 

396 

Mr. WATT. No, that’s—I was actually giving you all background 

about other things that are going on. This deals with outstanding 

loans that have interest rates of 50 percent or above. 

Mr. CANNON. Okay. 

Mr. WATT. It’s not about preemption or non-preemption. We’re 

going to deal with that issue when we do the general predatory 

lending bill in the Financial Services Committee. This is about 

bankruptcy and—— Mr. CANNON. But it would—— Mr. WATT.—whether you discharge loans that have interest rates 

above 50 percent or don’t do that. 

Mr. CANNON. Let me just urge my colleagues to vote against the 

amendment. In the first place, on the Senate this was debated and 

a similar amendment with a 30-percent usury cap was voted down 

24 to 74. I guess——

Mr. WATT. That’s why we raised it. 

Mr. CANNON. Pardon me. I guess part of the problem is what Mr. 

Issa talked about earlier, which is how do you calculate the interest 

rate when you’ve got costs involved and if you——

Mr. WATT. Would the gentleman yield? 

Mr. CANNON. In just a moment. I think Mr. Issa pointed out that if you take a $2 fee on a $200 loan for a week because it’s a paycheck loan, that is a 100%—or, no, it’s a very high interest rate. 

And so—it’s 52. I’ve got to do the numbers here. I’m not as quick 

as you, Darrell. 

So I am concerned about that. I don’t think the amendment does 

what the gentleman would like it to do, which is, I think we have 

a general agreement that personal responsibility is significant, and 

people need to be responsible for what kind of loans they are. In 

our market what we—what I’m trying to do here is create a market 

for loans where people get much, much lower-cost capital because 

they are responsible for themselves. And I have a few seconds left. 

I’d be happy to yield. 

Mr. WATT. I thank the gentleman for yielding. I would just point 

out to him that this says nothing about fees. This is all about interest rates. And if the credit card companies and the lenders don’t 

know how to calculate interest, we’re in real, real trouble. We know 

what interest is. And if the construct of the bill really dealt with 

personal responsibility for everybody, I mean, we had that discussion before we——

Mr. CANNON. Could I reclaim my time just briefly on this point? 

Because what will happen then is that short-term lenders will raise 

their costs, their fees, and so you’ll have a lower interest rate. I 

mean, how do we deal with that for the record here today? Since 

what will happen is you’ll get a higher fee——

Chairman SENSENBRENNER. The gentleman——

Mr. WATT. Would the gentleman yield? I ask unanimous consent 

for 30 additional seconds. 

Chairman SENSENBRENNER. Without objection. 

Mr. WATT. So I can answer to the—answer the question that was 

asked. Does the gentleman yield? 

Mr. CANNON. Certainly. 

Mr. WATT. I would just say to you that we are dealing with an 

existing problem, not what happens in the future. These are outstanding loans, not prospective loans, right? 

397 

Mr. CANNON. But people will make loans this week and next 

week and the week after that, and as soon as we pass this law, I 

think——

Mr. WATT. I mean, you——

Mr. CANNON. I would urge the Members of the Committee to reject this amendment. Thank you. I yield back. 

Chairman SENSENBRENNER. The gentleman——

Mr. DELAHUNT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman’s time has expired. 

The gentleman from Massachusetts, Mr. Delahunt. 

Mr. DELAHUNT. I mean, as I sit here listening to the debate, I 

think Mr. Watt has been very clear that this does not involve fees. 

It doesn’t involve penalties. It simply involves interest. I mean, 

we’re talking about 50 percent interest. And we should remind ourselves that, you know, 3-month Treasury bills are now about 2.75 

percent, a 30-year mortgage is 5.6 percent. How can we really in 

good conscience reject this? I mean, 50 percent interest, I mean, 

that’s—that’s Mafia figures. I mean, this should be the—let’s crack 

down on the Mafia amendment offered by the gentleman from 

North Carolina. I mean, this isn’t interest. Maybe you’re right. This 

isn’t interest. This is the vig. 

Mr. CANNON. Would the gentleman yield just for a question? 

Mr. DELAHUNT. Of course. 

Mr. CANNON. I don’t have to go cash my check—in fact, I think 

ours is—mine is done electronically. But many, many people in 

America are doing that. Are you familiar with that system and 

what’s going on there? I mean, I don’t understand how this quite 

general language helps poor people who are in a State where they 

need to get a check cashed or have some other very short-term, 

high-cost credit? 

Mr. DELAHUNT. Reclaiming my time, because the gentleman has 

been very clear, I think, in indicating that those costs, as you just 

described them now, are not part of the calculation that goes into 

interest. Now, we talked a lot about personal responsibility, and I 

concur. But I think why we have a division in terms of whether 

this bill is good sound policy is that there has been no discussion 

about corporate responsibility. 

Mr. WATT. Would the gentleman yield for a second? 

Mr. DELAHUNT. I yield. 

Mr. WATT. I just want to make clear, you make it sound like I’m 

trying to do something to help poor people. If somebody poor is 

abusing the bankruptcy system—I made this point before we left 

for lunch—I think that’s a real problem with this bill. There’s really no way to deal with that because you’ve exempted them under 

the means test. 

This is about personal responsibility or corporate responsibility of 

lenders that are charging 50 percent per year, and so it’s not about 

personal responsibility of individuals. I don’t think it is reasonable 

for lenders to be charging 50 percent a year. And so to turn the 

question to one as if it’s about personal responsibility of individuals 

is to just acknowledge that personal responsibility or corporate responsibility of lenders is somehow sacrosanct and off limits; whereas, personal responsibility of individuals is the highest priority. 

398 

I just don’t understand that. That doesn’t fit in my value system. 

Now, if it fits in yours, then I think you ought to vote against this 

amendment. 

Mr. DELAHUNT. Reclaiming my time, I think what we’re saying 

to those lenders that have no scruples, have no parameters, just go 

to it, by rejecting this amendment. And again, we’re talking about 

50-percent interest. We’re saying the door is open, do whatever you 

want. And it sends a message to the American people that large 

credit companies do not have to be concerned because Congress is 

with them and supports them, and yet somebody who has an income of $25,000 a year and is trying to pay off a credit card bill 

of $10,000, given the kind of interest rates that we all know are 

assessed, as well as the fees and the penalties, they can’t do it. 

Chairman SENSENBRENNER. Does the gentleman yield back? 

Mr. DELAHUNT. I yield back. 

Ms. JACKSON LEE. Mr. Chairman? 

Chairman SENSENBRENNER. The gentlewoman from Texas. 

Ms. JACKSON LEE. Mr. Chairman, let me rise to support the gentleman from North Carolina’s and Mr. Delahunt’s amendment on 

predatory lending and utilize the terminology that I used earlier 

today, which is the unfortunateness of this legislation being a poster child for class warfare. 

The middle class happened to be known as the backbone of 

America. These predatory lending incidences or opportunities really 

do confront the working and middle class, particularly in African 

American communities and other communities that happen to be 

minority or urban-centered. And it would seem, if this is going to 

be a bill that talks about responsibility, that we should take responsibility for the abusive, usurious rates that plague communities who are attempting to secure, whether it be loans to pay off 

other bills or whether it be to take advantage of a credit system 

that allows them to buy furniture or to secure a property, we 

should be responsible for allowing the recklessness of this system 

to burden individuals who are simply trying to participate in the 

American dream. And then they wind up waking up one morning 

with a family of four or six or seven or eight, and the property that 

they bought or the washing machine that they thought they would 

get, making payments on a weekly basis or a monthly basis because of the way they have to do it, maybe their income, maybe 

they are the working poor, maybe they are lower middle class, and 

then to come up against this usurious rate, some catastrophic incident has occurred, a medical need, a divorce, and they wind up 

with this debt. And the bulk of the debt is interest. 

If we are trying to put forward legislation that is thoughtful and 

really does answer the concerns of those who are coming to the 

debtors court, if we want to take away all of the jurisdiction of the 

judges which might look at this burdensome process, then this is 

an appropriate amendment. 

So I’d ask my colleagues in the course of their deliberation—and, 

again, the fix is in, but we’re going to process ourselves through the 

process. I think the gentlemen’s—plural—Mr. Watt and Mr. 

Delahunt’s amendment is completely appropriate because it does 

provide some balance to this legislation for those who would be severely burdened by usurious rates not of their causing, because 

they attempted simply to participate in this credit system and to 

399 

pay off debts by getting another loan or to buy furniture or to buy 

property. 

With that, I yield back my time. 

Mr. CANNON. Would the gentlelady yield? Would the gentlelady 

yield? 

Ms. JACKSON LEE. I’d be happy to yield for an inquiry. 

Mr. CANNON. I’d actually just like to make a couple comments. 

You have a little bit of time left, and that would save an extra 5 

minutes, I think, of time, if—— Ms. JACKSON LEE. I’m yielding to the gentleman. 

Mr. CANNON. Thank you. I appreciate that. 

You know, we have a really interesting discussion here, and I expressed my appreciation earlier for what Mr. Watt said, which I 

thought was very, very thoughtful. To add to that, people are poor 

for many reasons. The biggest reason for being poor is because people are young, because they’re getting their education, they’re getting started, they’re maybe having a family early. Many, many people started out life poor. There are other reasons—people who have 

mental incapacity or who have lack of education. A lot of things affect poverty. 

In the environment of personal responsibility, what I want to see 

and what I think this bill does to a very large degree is create a 

market that is unfettered, and in that market people have choices, 

and they have a choice to prepare themselves for good credit and 

lower-cost credit over time. You expect as a young person to pay 

more for your credit than you do when you’re older and you have 

more opportunities because you’ve been careful with your credit. 

It seems to me that that’s the core of the kind of debate that we 

ought to be dealing with here. 

Ms. JACKSON LEE. Would the gentleman—I’d like to reclaim my 

time. 

Mr. CANNON. Could I make just one other comment? 

Ms. JACKSON LEE. If you’d make it quickly. I want to reclaim my 

time. 

Mr. CANNON. You’re almost out. Thank you. I—— Ms. JACKSON LEE. I have to respond to the gentleman on that 

point. I didn’t not hear Mr. Watt’s earlier point. But let me just say 

this: Your focus on responsibility is somewhat distorted. People are 

vulnerable in coming to the bankruptcy courts because they’ve been 

taken advantage by the bombardment of credit cards, with no criteria, usurious rates, and a system of capitalism that encourages 

people to purchase. I don’t know how you can—I believe in personal 

responsibility as well. But when you issue out credit cards like 

candy, when you don’t allow people to pay for a rent-a-car with 

cash, and every system of government or every process of purchase 

people are asking for a credit card, then you are building us on a 

house of cards of credit. And, therefore, I think it is wrong to suggest that people are irresponsible or should be responsible when 

they are being victimized by this onslaught of credit card poisoning. 

And so I would simply say this bill is unbalanced, Mr. Chairman, 

and it needs to be balanced toward those who are victimized by 

those who use them as simply puppets to their system. 

Thank you for the credit cards that do good things, but let them 

realize that this bill does not regulate them. It just allows them to 

burden and to up the usurious rates and——

400 

Chairman SENSENBRENNER. The time of the gentlewoman has expired. 

Ms. JACKSON LEE. I thank the Chairman for his indulgence. I 

yield back. 

Chairman SENSENBRENNER. The question is on the amendment 

offered by the gentleman from North Carolina, Mr. Watt. Those in 

favor will say aye? Opposed, no? The noes appear to have it. 

Mr. WATT. Mr. Chairman, I ask for a recorded vote. 

Chairman SENSENBRENNER. A recorded vote will be ordered. 

Those in favor of the Watt amendment will, as your names are 

called, answer aye, those opposed, no, and the clerk will call the 

roll. 

Mr. WATT. Mr. Chairman, do we have a quorum, a voting 

quorum on an amendment? 

Chairman SENSENBRENNER. We have a working quorum, which 

is 14. 

Mr. WATT. Is that enough to vote on an amendment? I don’t 

know. I’m not——

Chairman SENSENBRENNER. Yes. A working quorum is necessary 

to debate and vote on amendments. A reporting quorum, which is 

21, is necessary to report the bill. 

The clerk will call the roll. The question is on the Watt amendment. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. Mr. Smith? 

Mr. SMITH OF TEXAS. No. 

The CLERK. Mr. Smith, no. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

[No response.] 

The CLERK. Mr. Inglis? 

[No response.] 

The CLERK. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

[No response.] 

The CLERK. Mr. Issa? 

Mr. ISSA. No. 

The CLERK. Mr. Issa, no. Mr. Flake? 

[No response.] 

401 

The CLERK. Mr. Pence? 

[No response.] 

The CLERK. Mr. Forbes? 

[No response.] 

The CLERK. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

[No response.] 

The CLERK. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. Ms. Waters? 

[No response.] 

The CLERK. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

[No response.] 

The CLERK. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Smith? 

[No response.] 

The CLERK. Mr. Van Hollen? 

[No response.] 

The CLERK. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Are there Members who wish to cast 

or change their vote? The gentleman from Wisconsin, Mr. Green. 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? If not, the clerk will report. 

402 

The CLERK. Mr. Chairman, there are 9 ayes and 15 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. 

Are there further amendments? 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from North Carolina, 

Mr. Watt. 

Mr. WATT. Mr. Chairman, I have an amendment at the desk. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Mr. WATT. Watt 02. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to S. 256, offered by Mr. Watt—— Mr. WATT. I ask unanimous consent the amendment be considered as read. 

Chairman SENSENBRENNER. The gentleman will hold off until the 

amendment is at least distributed to some Members. 

The CLERK. On page 10—— Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read. 

[The amendment follows:] 

Chairman SENSENBRENNER. And the gentleman is recognized for 

5 minutes. 

Mr. WATT. Thank you, Mr. Chairman. And my good friend from 

Utah couldn’t have provided a more appropriate segue into this 

amendment than to remind us that most people are poor because 

they are young and uneducated. And this amendment goes directly 

to that point. 

Under the current version of this bill, school expenses for minor 

children up to $1,500 per child annually are allowable as expenses 

under the means test. My amendment expands——

Chairman SENSENBRENNER. The gentleman will suspend. We 

have a problem with your microphone. 

Mr. WATT. That is probably a blessing, considered a blessing by 

most people. 

Chairman SENSENBRENNER. Well, we do have the court reporter 

to record your comments for posterity. 

[Pause.] 

Mr. WATT. Are we okay? Testing. ‘‘O, say can you see’’——


A256C.eps
403 

[Laughter.] 

Chairman SENSENBRENNER. I think the gentleman from North 

Carolina is auditioning for a free ticket to the Nationals to sing the 

National Anthem there. 

Mr. WATT. I was trying to see if you all would stand. 

Chairman SENSENBRENNER. The gentleman is recognized. 

[Laughter.] 

Mr. WATT. Trying to get people to stand, Mr. Chairman. That’s 

all. 

I’m not sure where you all ceased to hear me, but I wanted to 

thank my friend from Utah for setting the stage for this amendment by reminding us that most people are poor because they are 

young and uneducated. The current version of the bill allows up to 

$1,500 per child for school expenses under the means test. However, most college-age students remain dependent on their parents 

and rely upon parental support to attend college or other postsecondary institutions. A college degree is a valuable investment? I 

think Mister—my good friend from Utah would agree with that, 

and often is the key for lower-income Americans to break the cycle 

of poverty. 

Unfortunately, the average cost of a year’s tuition, room and 

board, and fees at a private college last year was $22,541. The average cost of a year’s tuition, room and board, and fees at a public university last year was $8,470. That information, by the way, 

comes from the College Board, not from me. I didn’t make it up. 

For 2004–2005 school year, tuition fees in 4-year public universities 

soared at 11 percent, while at private universities they rose 6 percent, according to the College Board. And if I can just give you a 

personal experience, when my kids went to college, the increase in 

their tuition from 1 year to the next was more than I paid per year 

to go to the State university that I went to. So that gives you some 

appreciation that I have some personal appreciation for this. 

So all we’re doing is trying to get you all to allow us to help people break this cycle of poverty that my good friend from Utah referred to that keeps so many people poor, and not visit the sins of 

parents—if you think that incurring debt and going into bankruptcy is a sin, don’t visit the sins of the parents on the children, 

because then you are punishing other folks who—they didn’t incur 

these debts. 

So, please, consider this amendment and I ask for your support 

and yield back. Sorry I serenaded you. 

Chairman SENSENBRENNER. The gentleman from Utah. 

Mr. CANNON. Thank you. I enjoyed——

Chairman SENSENBRENNER. He does not have to sing, by the 

way. 

Mr. CANNON. I enjoyed the music, but Mel does this a lot better 

than I do so I’m not going to sing. Thank you. 

I appreciate what the gentleman is saying. College costs have 

gone up. Just two points. 

One is that this eliminates any kind of cap—there’s a $1,500 cap 

in the current bill, and it’s for essentially adults. Now, I grant you 

that 18-year-olds are young people, but, again, I hope that my children have a rough experience with the world as they get to be 18 

and beyond so that they realize that there’s nothing out there to 

protect them other than their own wit and capabilities and that 

404 

Government, I think, is not a very good protector. And so I would 

urge people to vote against this amendment. This is a finely crafted 

bill. I think what we have in the bill is really a very appropriate 

number, and while I’d like to be able to solve all the problems of 

everyone in the world of getting access to education, we’ve done 

much with Pell grants and with loans and other support, and I 

think that the place to deal with that issue is not in this bill but 

in other aspects of what we’re doing here in Congress generally. 

So I would urge people to vote against this amendment and yield 

back the balance of my time. 

Chairman SENSENBRENNER. The question is on the Watt amendment. Those in favor will say aye? Opposed, no? The noes appear 

to have it. 

Mr. WATT. Mr. Chairman, I ask for a recorded vote. 

Chairman SENSENBRENNER. A recorded vote will be ordered. 

Those in favor of the Watt amendment will, as your names are 

called, answer aye, those opposed, no, and the clerk will call the 

roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

[No response.] 

The CLERK. Mr. Smith? 

[No response.] 

The CLERK. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

[No response.] 

The CLERK. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. Mr. Inglis? 

[No response.] 

The CLERK. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

[No response.] 

The CLERK. Mr. Issa? 

Mr. ISSA. No. 

The CLERK. Mr. Issa, no. Mr. Flake? 

[No response.] 

The CLERK. Mr. Pence? 

[No response.] 

The CLERK. Mr. Forbes? 

[No response.] 

The CLERK. Mr. King? 

405 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

[No response.] 

The CLERK. Mr. Boucher? 

Mr. BOUCHER. No. 

The CLERK. Mr. Boucher, no. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. Ms. Waters? 

[No response.] 

The CLERK. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Smith? 

[No response.] 

The CLERK. Mr. Van Hollen? 

[No response.] 

The CLERK. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members who wish to cast or change 

their votes? The gentleman from North Carolina, Mr. Coble. 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. 

Chairman SENSENBRENNER. The gentleman from Florida, Mr. 

Keller. 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. 

Chairman SENSENBRENNER. The gentleman from Wisconsin, Mr. 

Green. 

Mr. GREEN. No. 

406 

The CLERK. Mr. Green, no. 

Chairman SENSENBRENNER. The gentleman from California, Mr. 

Lungren. 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 10 ayes and 17 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. 

Are there further amendments? 

Mr. WATT. Mr. Chairman, may I be recognized for a unanimous 

consent request? 

Chairman SENSENBRENNER. The gentleman from North Carolina, 

for what purpose do you seek recognition? 

Mr. WATT. To ask unanimous consent to insert in the record at 

this point a copy of a report entitled ‘‘Robbing Perkins to Pay Pell: 

The Bush College Aid Proposal,’’ and a letter from Ranking Member Obey and Ranking Member George Miller talking about the results of that report. 

Chairman SENSENBRENNER. Without objection, the material referred to by the gentleman from North Carolina will be included in 

the record. 

[The material referred to follows:] 

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418 

Mr. NADLER. Mr. Chairman? 

Chairman SENSENBRENNER. Are there further amendments? The 

gentleman from New York, Mr. Nadler. 

Mr. NADLER. Thank you, Mr. Chairman. I have an amendment 

at the desk, Nadler number 1. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Mr. NADLER. Nadler number 1. 

The CLERK. Amendment to S. 256 offered by Mr. Nadler. At an 

appropriate place, insert the following (‘‘and’’——

Mr. NADLER. Mr. Chairman, move to dispense with the reading. 

Chairman SENSENBRENNER. Let’s look at it first. 

Mr. NADLER. Okay. 

The CLERK. ‘‘(and make such technical and conforming changes 

as may be appropriate): Section—Nondischargeability of debts incurred through violations of civil rights laws. (a) Debts incurred 

through violations of civil rights laws.—Section 523(a) of title 11, 

United States Code, as amended by section 224, is amended—(1) 

in paragraph (18) by strike ‘or’ at the end; (2) in paragraph (19) 

by striking the period at the end and inserting’’——

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read. 

[The amendment follows:] 

419 

Amendment to S. 256

Offered by Mr. Nadler

At an appropriate place, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 SEC. ll. NONDISCHARGEABILITY OF DEBTS INCURRED

2 THROUGH VIOLATIONS OF CIVIL RIGHTS

3 LAWS.

4 (a) DEBTS INCURRED THROUGH VIOLATIONS OF

5 CIVIL RIGHTS LAWS.—Section 523(a) of title 11, United

6 States Code, as amended by section 224, is amended—

7 (1) in paragraph (18) by striking ‘‘or’’ at the

8 end;

9 (2) in paragraph (19) by striking the period at

10 the end and inserting ‘‘; or’’; and

11 (3) by adding at the end the following:

12 ‘‘(20) that results from any judgment, order,

13 consent order, or decree entered in any Federal or

14 State court, or contained in any settlement agree15 ment entered into by the debtor (including any

16 court-ordered damages, fine, penalty, or attorney fee

17 or cost owed by the debtor), that arises from—


A256E.AAB
420 

2

1 ‘‘(A) the violation by the debtor of any of2 fense described in section 244 (relating to dis3 crimination against a person wearing the uni4 form of the Armed Forces), section 245 (relat5 ing to federally protected rights), section 246

6 (relating to the deprivation of relief benefits),

7 section 247 (relating to damage to religious

8 property; obstruction of persons in the free ex9 ercise of religious beliefs), or section 248 (relat10 ing to the freedom of access to clinic en11 trances), of title 18, United States Code;

12 ‘‘(B) an offense under State law that con13 sists of conduct that would be a civil rights

14 crime described in subparagraph (A) of this

15 paragraph;

16 ‘‘(C) a violation under section 1983 of title

17 42 of the United States Code, or

18 ‘‘(D) the intentional actions of the debtor

19 that violate a valid court order enforcing a civil

20 rights law described in subparagraphs (A) or

21 (B) of this paragraph.’’.

22 (b) RESTITUTION.—Section 523(a)(13) of title 11,

23 United States Code, is amended by inserting ‘‘or under

24 the criminal law of a State’’ after ‘‘title 18’’.


A256E.AAC
421 

Chairman SENSENBRENNER. The gentleman from Utah? 

Mr. NADLER. Excuse me. Don’t I have a chance to explain the 

bill. 

Chairman SENSENBRENNER. The gentleman from Utah? 

Mr. CANNON. Mr. Chairman, I would like to reserve a point of 

order. 

Chairman SENSENBRENNER. The gentleman—a point of order is 

reserved. The gentleman is recognized for 5 minutes. 

Mr. NADLER. Thank you, Mr. Chairman. 

This amendment would make debts arising from civil—from 

judgments from civil rights violations nondischargeable. The 

amendment includes every civil rights violation listed in the Federal criminal code, any civil judgment arising under a civil rights 

violation, including a section 1983 action, which is to say a judgment against someone for violating someone’s civil rights under 

color of law, or an intentional violation of a valid court order enforcing a civil rights law described in the amendment. It also includes offenses under State law that consist of conduct that would 

be a civil rights crime described in the Federal criminal codes. Finally, it repairs an omission in the current code that makes fines 

and restitution ordered under the Federal criminal code nondischargeable, but does not make fines and restitution ordered 

under State law nondischargeable. My amendment would add the 

State law. 

So if you violate the right to vote, the right to work, the rights 

of a person wearing the uniform of the United States military, the 

right to the free exercise of religion, the right of freedom of access 

to clinic entrances, or any other federally protected civil rights, you 

will not be able to abuse the Bankruptcy Code either to escape your 

debts or to force your victims to chase you across the country 

through bankruptcy courts trying to collect lawful judgments. 

We know that is a common strategy, and even where it fails, the 

uncertainty in the law gives the tort feasors the opportunity to inflict more damage and more expense on their victims. This bill expands the types of nondischargeable debts. It makes nondischargeable even small cash advances leading up to the filing of a case. 

It’s not enough money to keep your kids in Huggies, Mr. Chairman, 

but we’re protecting the helpless credit card companies. 

If you use—anyway, this is the wrong page. This amendment 

simply makes all these different judgments arising from State or 

Federal civil rights violations not dischargeable in bankruptcy, including violations of 1983, which is a violation of civil rights under 

color of law, and that’s an abuse of the code and we should not 

allow it, and I urge the amendment. 

Chairman SENSENBRENNER. Does the gentleman from Utah insist upon his point of order? 

Mr. CANNON. Thank you, Mr. Chairman. I’d make a point of 

order that the amendment does not amend a specific section or specific text. 

Chairman SENSENBRENNER. You wish to argue in favor of your 

point of order? 

Mr. NADLER. I don’t understand the point of order. What do you 

mean it doesn’t amend a specific section? 

Chairman SENSENBRENNER. The gentleman from Utah has the 

right to argue in favor of his point of order. 

422 

Mr. NADLER. I’m just asking a question. 

Mr. CANNON. I think it’s fairly obvious. The amendment on its 

face says that ‘‘at the appropriate place insert,’’ and makes—I believe that the rules of Committee——

Mr. NADLER. It doesn’t say that. 

Mr. CANNON. No, the amendment says ‘‘at an appropriate place 

insert the following (and make such technical and conforming 

changes as may be appropriate.’’ I believe the rules of the Committee require that an amendment specifically amend a section or 

particular language within a section. 

Mr. NADLER. Mr. Chairman? 

Chairman SENSENBRENNER. Does the gentleman from New York 

wish to be heard in opposition to the point of order? 

Mr. NADLER. Yes. This——

Chairman SENSENBRENNER. Or does he wish to concede the point 

of order? 

Mr. NADLER. No. I wish to contest the point of order. This is a 

standard form of amendment. We do it all the time in this Committee, and I’m not aware of the rule you’re talking about. And if 

there is such a rule, it’s never enforced. This is a standard form 

that is done every week in this Committee. If you look at all the 

amendments we’ve done, probably half of them are done in this 

form. 

Chairman SENSENBRENNER. Well, the Chair is prepared to rule. 

Mr. WATT. Mr. Chairman, may I be heard? 

Chairman SENSENBRENNER. The Chair is prepared to rule. Chapter 27 of Deschler’s Precedents, Section 1.2/8, says that an amendment must contain instructions to the clerk as to the portion of the 

text it seeks to amend. This amendment does not do that, and the 

Chair is prepared to sustain the point of order——

Mr. NADLER. Mr. Chairman, I’ll withdraw the amendment. It’ll 

be resubmitted in a few minutes. 

Chairman SENSENBRENNER. Okay. The amendment——

Mr. NADLER. In proper form. 

Chairman SENSENBRENNER. The amendment is withdrawn. 

Are there further amendments? 

Mr. NADLER. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from New York. 

Mr. NADLER. I have an—now, let me make sure that this is 

drafted in the same—not in the same way. No, it’s okay. 

I have an amendment at the desk, amendment number 2. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Mr. NADLER. Number 2. 

Chairman SENSENBRENNER. The clerk will report Nadler number 

2. 

The CLERK. Amendment to S. 256, offered by Mr. Nadler, ‘‘Page 

213, line 11, strike the close quotation marks and the period at the 

end.’’

‘‘Page 213, after Line 11, inst the following (and make such technical and conforming changes as may be appropriate):’’

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read. 

[The amendment follows:] 

423 

Amendment to S. 256

Offered by Mr. Nadler

Page 213, line 11, strike the close quotation marks

and the period at the end.

Page 213, after line 11, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 ‘‘(iii) The court may extend the time periods specified

2 in this paragraph if the debtor establishes by clear and

3 convincing evidence that an extension is justified by cir4 cumstances beyond the debtor’s control that were not fore5 seeable on the date of the order for relief.’’.

Page 218, line 9, strike ‘‘The’’ and insert ‘‘Unless

the debtor establishes by clear and convincing evidence

that there are circumstances beyond the debtor’s control

that were not foreseeable on the date of the order of relief, the’’.

Page 218, line 12, strike ‘‘The’’ and insert ‘‘Unless

the debtor establishes by clear and convincing evidence

that there are circumstances beyond the debtor’s control


A256F.AAB
424 

2

that were not foreseeable on the date of the order of relief, the’’.

Page 223, after line 17, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 ‘‘(5) The court may extend the time period specified

2 in paragraph (2) if the debtor establishes by clear and con3 vincing evidence that an extension is justified by cir4 cumstances beyond the debtor’s control that were not fore5 seeable on the date the assurance of payment was due.

Page 229, line 23, strike the close quotation marks

and the period at the end.

Page 233, line 5, insert ‘‘(a)’’ before ‘‘In’’,

Page 234, after line 23, insert the following:

6 ‘‘(b) The court may extend the time periods specified

7 in paragraphs (1) and (3) of subsection (a) if the debtor

8 establishes by clear and convincing evidence that an exten9 sion is justified by circumstances that there are beyond


A256F.AAC
425 

3

1 the debtor’s control that were not foreseeable on the date

2 of the order of relief.’’.

Page 236, line 4, strike ‘‘and’’ at the end.

Page 236, after line 4, insert the following (and

make such technical and conforming changes as may be

appropriate):

3 ‘‘(C) the debtor establishes by clear and

4 convincing evidence that an extension is justi5 fied by circumstances beyond the debtor’s con6 trol that were not foreseeable on the date of the

7 order of relief; and’’.

Page 231, line 15, insert ‘‘or the debtor establishes

by clear and convincing evidence that an extension is justified by circumstances beyond the debtor’s control that

were not foreseeable on the date of the order for relief’’

after ‘‘1121(e)(3)’’.


A256F.AAD
426 

Chairman SENSENBRENNER. And the gentleman from New York 

is recognized for 5 minutes. 

Mr. NADLER. Thank you. Thank you, Mr. Chairman. 

Mr. Chairman, the Judiciary Committee has received testimony 

from many sources, most recently from the Commercial Law 

League of America, the Nation’s oldest creditors rights organization, that the business provisions in this bill will destroy businesses, especially small businesses. The substitute—that is, this 

amendment—would correct this problem by giving distressed companies the needed flexibility that will enable many of them to reorganize successfully as opposed to liquidate in a Chapter 11 proceeding. 

Organized labor has also spoken out against the small business 

provisions of this bill because they recognize that a failed reorganization hits workers the hardest. They’re the ones who lose their 

jobs. They’re the ones who lose their benefits. They’re the ones who 

see their pensions evaporate. 

If you have had a large and small business bankruptcy in your 

district, you know what happens when a company goes under. Preserving value in a company through successful rehabilitation where 

it is possible benefits everyone—the employees, the creditors, the 

communities. This bill, however, has rigid and inflexible deadlines 

that is not found in the current code, especially those dealing with 

the time in which a company may propose a plan of reorganization. 

It also places absolute limits on the time in which a business must 

decide whether to assume or reject a commercial lease, even if they 

are current in their rent payments. That limit could prove disastrous in cases involving businesses with hundreds of stores. Does 

anyone know about the Kmart bankruptcy or the Cinema Multiplex 

bankruptcies? How would arbitrary deadlines have affected those 

cases? 

Other arbitrary rules that would force the conversion of a case 

to liquidation are dangerous to our economy and to American business, especially small businesses. When this bill first appeared in 

1997, everyone was singing ‘‘Happy days are here again.’’ There 

were few fears that massive bankruptcies in our airline industry, 

the collapse of much of our tech industry, the implosion of such 

market bellwethers as Enron and WorldCom or the coal or steel industries were just over the horizon. 

It would be foolhardy for the Members of this Committee to ignore what is going on in the real world just because we have voted 

for this bill in the past. In the case of these business provisions, 

they could mean the loss of thousands of jobs, the unnecessary liquidation as opposed to reorganization of valuable and still viable 

businesses, and the loss of business and value for trade creditors 

and communities. 

Let’s take an example from the business pages—from the financial pages. The last time we marked up this bill, I noted that that 

morning’s New York Times had reported that United Airlines was 

seeking an extension on its April 8th deadline for filing a plan of 

reorganization until October 6th. Why were they seeking this extension? According to the report, the extra time would give United 

the chance to gauge the consequences of any war with Iraq on the 

airline industry, unquote. 

427 

Is there anyone here other than one of United’s competitors who 

does not think that that made sense at that time? Would we have 

wanted to insist that United file a plan without getting a handle 

on what is about to happen? Would the Members of the Committee 

prefer to just liquidate the whole thing? 

According to the Times, ‘‘The Air Transport Association said in 

a report yesterday that a long conflict could prompt the industry 

to cut 70,000 more jobs on top of the 100,000 lost since the September 11th attacks in 2001.’’ It said, ‘‘Several carriers could be 

forced in bankruptcy along with United and US Airways, which 

had filed for Chapter 11 protection last summer.’’ In fact, an ATA 

spokesman was quoted in the London Financial Times as stating 

that the war could add another $4 billion to airline losses on top 

of the $5.7 billion forecast and cut a further 2,200 daily flights. 

In court papers, United requested the extension to avoid premature formulation of a Chapter 11 plan and to ensure that the 

formulated plan takes into account the interests of the company, its 

employees, and its creditors. That was then. 

Judge Weidoff is still keeping United in the air and people are 

still working. Could you imagine what would have happened if we 

had tied his hands the way this bill would? Is there any doubt 

what would have happened to that case? United would have been 

liquidated, the employees laid off, and the creditors not gotten their 

debts repaid. Shouldn’t the law allow courts to review the facts and 

decide whether or not such flexibility as in the Bankruptcy Code 

has long required in the best interest of the creditors and the estate? 

Mr. Chairman, our job is to make the system work better, not 

to wreck it. Chapter 11 is a model that other countries are trying 

to emulate. They look to our system of rehabilitating going concerns values where possible as preferable to their emphasis on liquidation. Just as the rest of the world is realizing that our system 

encourages risk taking and promotes the rehabilitation of distressed businesses, this bill—or this provision would take our system back in the other direction. Perhaps this Committee could listen to the sound of the market forces before acting. 

I urge the adoption of this amendment to allow the system to remain somewhat flexible so that businesses can be saved instead of 

liquidated. Thank you. I yield back. 

Chairman SENSENBRENNER. The gentleman from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. 

Section 404 of the bill, under current law, Chapter—this refers 

to section 404. Under current law, a Chapter 11 debtor or lessee 

must assume or reject a nonresidential lease within 60 days. This 

60-day period, however, can be and often is routinely extended by 

the court. Section 404 of the current bill fixes the deadline by 

which the debtor must assume or reject a lease. It requires a nonresidential lessee to either assume or reject within 120 days of the 

filing of bankruptcy or by the date that the court confirms the plan 

of reorganization. This period can be extended for an additional 90 

days on the motion of the lessee or the lessor. And then there are 

further provisions for extension. 

Let me just point out that section 404 is a result of extensive negotiation over the preceding three Congresses. This bill is not hostile to lessees. As a matter of fact one of the principal groups of 

428 

nonresidential lessees, the National Retail Federation, is one of the 

bill’s strongest supporters on this particular point. 

The provision gives landowners greater certainty in dealing with 

bankrupt tenants because it sets a firm time frame by which the 

debtor must decide whether to continue with a lease of a shopping 

center and the ability it produces means ultimately we get better 

rates more equitable rates, and promotes competition among landlords. Bankruptcy Code section 502 limits the amount of damages 

that a landlord can claim as an administrative expense, priority if 

a tenant assumes a lease, and then rejects the lease at a later 

time. This prevents landlords from getting a financial windfall at 

the expense of unsecured creditors. It’s a well-thought-out and 

well-balanced part of the whole bill. 

Now, many of these issues deal with small businesses, and we 

have very, very wide-ranging groups supporting these small business provisions, like the National Bankruptcy Review Commission, 

Executive Office of the United States Trustees, bankruptcy judges, 

the National Association of Credit Management, and the American 

Bankruptcy Institute. 

This section gives teeth to those charged with the oversight of 

these cases, including the courts, the United States trustees and 

parties in interest. It only requires small business debtors to do 

what they should do and be doing while they’re in Chapter 11, that 

is, pay their post-petition obligations as they become due and make 

progress toward confirmation. 

Deadlines in these provisions are not absolute. Most can be extended upon a proper showing of cause. And this streamlines the 

process by providing for flexible rules for disclosure statements and 

plans. 

Again, the bill can be criticized at various points and narrow perspectives, but as a whole, and in particular with this section, the 

section that’s attempted to be amended here by Mr. Nadler, the bill 

is well considered and well balanced, and I would urge my colleagues to reject this amendment. 

Thank you, Mr. Chairman. I yield back. 

Mr. BERMAN. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from California, Mr. 

Berman. 

Mr. BERMAN. Thank you, Mr. Chairman. Move to strike the last 

word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. BERMAN. I yield to the gentleman from New York. 

Mr. NADLER. Thank you. Mr. Chairman, the provisions—what’s 

wrong with the provisions in the bill that this seeks to enact is that 

they are rigid. One, first of all, most of what Mister—the gentleman from Utah talked about was lessees. Lessees and lessors 

are only one part of what we’re talking about here. And if you look 

at the amendment, it says repeatedly the court may extend the 

time period specified in this paragraph if the debtor established by 

clear and convincing evidence that an extension is justified by circumstances beyond the debtor’s control that were not foreseeable 

on the date for the order of relief. 

Again, unless the debtor established by clear and convincing evidence that there are circumstances beyond the debtor’s control that 

429 

were not foreseeable on the date of the order of relief. Unless the 

debtor established by clear and convincing evidence that there 

are—et cetera. 

The court may extend the time period specified in paragraph 2 

if the debtor established by clear and convincing evidence that an 

extension is justified by circumstances beyond the debtor’s control 

that were not foreseeable. 

In other words, we’re giving the judge in this amendment the 

ability—in the interest of the creditors, in the interest of the debtors, in the interest of the employees, in the interest of everybody, 

the ability in case of unforeseeable developments, the ability to extend otherwise rigid deadlines, deadlines that in the abstract may 

make sense. Deadlines that may say 90 days and then a one-time 

extension of another 60 days may sound reasonable but in a given 

case may not prove to be reasonable. 

The code has always given the judges some discretion, and all 

this amendment says, the burden of proof is on the debtor. The 

burden of proof for a debtor who wants an extension of time is on 

the debtor to prove by clear and convincing evidence. The second 

highest standard of evidence that he needs the extension because 

of circumstances beyond his control that were not foreseeable at 

the time of the order. 

And if the judge believes that he has established that beyond— by clear and convincing evidence, at that point why shouldn’t the 

judge have the ability to extend a deadline and maybe save a company, save the jobs, save the community, get the creditors the ability to have more of their debts repaid? It doesn’t make sense to be 

this rigid. 

Now, judges are going to be reluctant to extend deadlines repeatedly, especially when you put the burden of proof on the debtor and 

say not only does it have to be clear and convincing evidence, but 

it has to be circumstances that are beyond his control and totally 

unforeseeable at the time the order was given. I don’t see what 

sense it makes to deny some flexibility when you may save 20,000 

jobs or a community or get—or for that matter, that may redound 

to the benefit of the creditor, too. 

So why wouldn’t we give this kind of flexibility—I shouldn’t say 

‘‘give’’—keep this kind of flexibility in the system? 

I yield back to the gentleman. I thank him for yielding. 

Chairman SENSENBRENNER. Does the gentleman from California 

yield back? 

Mr. BERMAN. I do. 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from North Carolina, 

Mr. Watt. 

Mr. WATT. I won’t take 5 minutes. I just want to make the point 

that this discussion has pointed up once again how we miss opportunities to address problems by not having hearings and going 

through regular order. I don’t think either one of these gentlemen 

is trying to do anything unreasonable, but we are operating in a 

system here that you all have set that basically is making a mockery of the legislative process. It’s clear that you’re not going to 

allow one comma, one period, one capital letter, anything to be 

done to this bill because you don’t want it to go to conference. I understand that. But it makes this markup a charade. And it makes 

430 

us look like we’re just—this is just an irrelevant process, that the 

Senate has shaped this bill, and this bill is too important to the 

American consumer, debtor, and creditor to have this happen to it. 

And our institution is too important for us to make our institution 

have this kind of impact. 

So, I mean, I—if I sound a little frustrated, it’s because I am a 

little frustrated, because we’re just playing games here. And so I 

yield back. 

Chairman SENSENBRENNER. The question is on the amendment 

offered by the gentleman from New York, Mr. Nadler. Those in 

favor will say aye? Opposed, no? The noes appear to have it. The 

noes—a rollcall will be ordered. Those in favor of the Nadler 

amendment will, as your names are called, answer aye, those opposed, no, and the clerk will call the roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. Mr. Smith? 

Mr. SMITH OF TEXAS. No. 

The CLERK. Mr. Smith, no. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

[No response.] 

The CLERK. Mr. Inglis? 

Mr. INGLIS. No. 

The CLERK. Mr. Inglis, no. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Mr. Issa? 

Mr. ISSA. No. 

The CLERK. Mr. Issa, no. Mr. Flake? 

[No response.] 

The CLERK. Mr. Pence? 

[No response.] 

The CLERK. Mr. Forbes? 

[No response.] 

The CLERK. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

431 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

[No response.] 

The CLERK. Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

[No response.] 

The CLERK. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

[No response.] 

The CLERK. aye. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

Mr. WEXLER. Aye. 

The CLERK. Mr. Wexler, aye. Mr. Weiner? 

[No response.] 

The CLERK. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Smith? 

Mr. SMITH OF WASHINGTON. Aye. 

The CLERK. Mr. Smith, aye. Mr. Van Hollen? 

[No response.] 

The CLERK. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members who wish to cast or change 

their vote? The gentleman from Alabama, Mr. Bachus. 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. 

Chairman SENSENBRENNER. The gentleman from Wisconsin, Mr. 

Green. 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. 

Chairman SENSENBRENNER. The gentleman from New York, Mr. 

Weiner. 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. 

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. 

Scott. 

Mr. SCOTT. Aye. 

432 

The CLERK. Mr. Scott, aye. 

Chairman SENSENBRENNER. The gentleman from Michigan, Mr. 

Conyers. 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 13 ayes and 18 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. Are there further amendments? 

Mr. SCHIFF. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from California, Mr. 

Smith. 

Mr. SCHIFF. Schiff. 

Chairman SENSENBRENNER. Schiff. I’m sorry. 

Mr. SCHIFF. It is going to be very confusing on this Committee 

now. 

Mr. Chairman, I have an amendment at the desk numbered 006. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to S. 256 offered by Mr. Schiff. Page 19, 

after line 21, insert the following (and make such technical and 

conforming changes as may be appropriate): ‘‘(8)(A) No judge, United States trustee’’——

Chairman SENSENBRENNER. Without objection the amendment 

will be considered as read and the gentleman from California is 

recognized for 5 minutes. 

[The amendment follows:] 

433 

Amendment to S. 256

Offered by Mr. Schiff

Page 19, after line 21, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 ‘‘(8)(A) No judge, United States trustee (or bank2 ruptcy administrator, if any), trustee, or other party in

3 interest may file a motion under paragraph (2) if the debt4 or is an identity theft victim.

5 ‘‘(B) For purposes of this paragraph—

6 ‘‘(i) the term ‘identity theft’ means a fraud

7 committed or attempted using the personally identi8 fiable information of another individual; and

9 ‘‘(ii) the term ‘identity theft victim’ means a

10 debtor with respect to whom not less than 51 per11 cent of the aggregate value of allowed claims is a re12 sult of identity theft using the personally identifiable

13 information of the debtor.’’.


A256G.AAB
434 

Mr. SCHIFF. Mr. Chairman, I thank you. My amendment would 

simply provide that if at least 51 percent of the creditor claims 

against you in bankruptcy are the result of identity theft, you 

should not be forced out of the protections of Chapter 7. This is an 

amendment similar to that offered by Senator Nelson of Florida, 

but is significantly narrower than the amendment that was offered 

in the Senate. 

A few years ago the manager of an identity theft program at the 

FTC commented on how identity theft was becoming rampant in 

the country. She commented that not only can identity theft wreak 

havoc on the credit of a victim, but it can even force them into 

bankruptcy. Since then the problem has grown at epidemic rates. 

Identity theft has now topped the list of consumer complaints filed 

with the FTC for the last 4 years in a row. In September 2003 the 

FTC released a comprehensive survey concluding that a staggering 

27 million Americans have been the victims of identity theft in at 

least the 5 years, costing consumers and businesses an estimated 

$53 billion in 2002 alone. 

In fact, the home States of several Members of this Committee 

are at the top of the list of identity theft victims, with Texas ranking No. 4, Florida ranking No. 5, and my own home State of California ranking No. 3 in the number of victims of identity theft per 

capita, with over 37,000 complaints reported by consumers, costing 

over $40 million just last year. 

We’ve also heard of the recent breaches of massive databases 

holding personal information. Identity thieves posing as legitimate 

customers gained access to ChoicePoint’s database of 19 billion 

public records. The company has acknowledged that hackers had 

access to data on 145,000 people and that stolen information has 

since been used in at least 750 identity theft scams. 

Just last week databases belonging to LexisNexis were also compromised with hackers stealing information on at least 32,000 people. With these epidemic level increases comes the likelihood that 

more innocent individuals will be forced to file bankruptcy. 

Just last month a man was sentenced in New York to 2 years 

in prison for using a former girlfriend’s identity to commit fraud. 

The scheme lasted several months, during which the perpetrator 

took out three personal loans from private loan agencies in the victim’s name, purchased an Audi and a Chevy pickup truck. Ultimately the fraud resulted in the theft of over 300,000, forcing the 

victim to declare bankruptcy. 

There are a great many examples of this. November of last year 

a women in Pennsylvania similarly victimized, similarly forced to 

file bankruptcy right before Christmas. 

We shouldn’t turn our backs on these individuals. Last year this 

Committee supported legislation Mr. Carter and I sponsored to 

crack down on criminals who perpetrate identity theft. Now this 

Committee has the opportunity to directly address the plight of 

some of the victims of this crime forced into bankruptcy. The 

amendment is simple and very narrowly drawn. It merely says that 

if at least 51 percent, slightly more than half of the claims against 

you in bankruptcy are the result of bankruptcy—the result of identity theft, something you had no control over, you should not be 

forced out of the protections of Chapter 7. 

435 

I know that there has been a desire among the majority to keep 

the bill in its pristine state, but this is a good amendment. I think 

it’s one that ought to enjoy bipartisan support, as our identity theft 

did last year, and I would urge you to accept it. This is more narrow than what was offered in the Senate. It would specifically address the problem where the major reason why you would be forced 

out of Chapter 7 is because you are a victim of identity theft, and 

I urge my colleagues to join support, and I reserve the balance of 

my time. 

Chairman SENSENBRENNER. The gentleman will have to yield 

back. 

Mr. SCHIFF. I yield back, Mr. Chairman. 

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon. 

Mr. CANNON. Thank you, Mr. Chairman. 

I’m just sort of working through this amendment now, and it’s 

obviously—it’s obvious to me that it’s an important idea and maybe 

something that we’d want to consider in the context of future 

changes, a technical blurb, something like that. For the purposes 

of this bill, besides the fact that we want to do a reasonable bill, 

and I think that this bill is available to amend if we get new reasons. Thus far I don’t think we’ve heard many. 

But this is a new issue, and I appreciate the fact that it is more 

narrowly drafted than the Senate counterpart, but there’s some 

problems that I have in this bill, and I think those are substantial, 

and that’s why I think if we do anything with this we’d have to 

do it—I would encourage the Members to vote against it so we can 

deal with it at some future time. 

In the first place we’re fairly vague about the identity theft and 

how it’s established and what that means. In the second place, 

what happens if a person has a significant amount of identity 

theft—losses caused by identity theft and then becomes wealthy 

and has the ability to otherwise deal with these things? And so—— [Laughter.] 

Mr. SCHIFF. Would the gentleman yield? 

Mr. CANNON. Yes, in just a moment. Let me just say in summary 

from my perspective, I don’t, I don’t have a handle on how we deal 

with this, how it would fit in, and it would clearly disrupt the 

whole process of moving forward a bill. So I would encourage my 

colleagues to reject this amendment. And who asked to—— Mr. SCHIFF. I asked the gentleman if he would yield. 

Mr. CANNON. Oh, certainly, Mr. Schiff. 

Mr. SCHIFF. This is a, you know, rough replay of a scenario that 

took place in this Committee a couple years ago when I offered and 

amendment to this bill, to just do a study of whether those trying 

to get child support would be adversely impacted by the bill. It just 

called for a GAO study of the issue. The author of the bill at that 

time was Mr. Gekas. He made comments very similar to yours, 

along the lines of this may not be a bad idea, this may be a good 

idea, but we don’t want anything added to the bill. 

Mr. CANNON. Reclaiming my time, I think the point between the 

time that Mr. Gekas was here and now is there’s been a lot of time 

to develop that idea, and if somebody wanted to do it, it could have 

been developed. I don’t know that this issue has come up in the 

hearings that we’ve had or in the negotiations or discussions we’ve 

436 

had anywhere. This has been an issue out there, but that hasn’t 

had an advocate in the context of this bill. 

Mr. SCHIFF. Will the gentleman yield again? 

Mr. CANNON. Certainly. 

Mr. SCHIFF. You know, I know the gentleman, with all due respect, is really reaching for a rationale to vote down the amendment, and, you know, I—Mr. Gekas, in the last scenario, offered to 

take up my amendment in the manager’s amendment. It went up 

to the Rules Committee as part of this package. It came down from 

the Rules Committee, having been deleted from the package. And 

when I asked him why, he said, ‘‘You know, I thought I was the 

author of this bill, but it essentially is being controlled by the interest behind the bill,’’ and he could not even succeed with an amendment he supported. 

I hope we’re not to that point. This is a very simple amendment 

that says——

Mr. CANNON. Reclaiming my time, I just—Mr. Gekas is not here 

to defend himself. That is an extraordinary statement. I knew Mr. 

Gekas very well. I’ve taken over the Subcommittee that he chaired 

earlier. I don’t mean to challenge your credibility on the issue, but 

beyond Mr. Gekas we need to have a process, and we have not 

talked about this issue. I don’t know if you’ve talked with other 

people that are engaged in the bill, but the issue has not, that is 

the issue of identity theft and how we fit it in the bill, has not been 

raised in a context where we could vet it and deal with it. 

So part of the reason I’m stretching is because it’s a new issue, 

and I don’t know how it fits into—and I grant that I’m stretching. 

I don’t know how it fits in. I don’t know what it does to the bill. 

If it’s going to be dealt with, it needs to be dealt with in the context 

to determine——

Mr. SCHIFF. Will the——

Mr. CANNON. Pardon me, just if I can finish. We need to deal 

with it in a context where we can consider the implications for the 

whole bill. And so I have a little bit of time left. 

Mr. SCHIFF. I appreciate the gentleman yielding, and I’m not impugning at all Mr. Gekas’ credibility, who fought for my amendment, and I’m appreciative to him. But I do challenge the process 

that’s going on here where we have a markup. We spend hours 

here. And if the majority has made the decision that we will accept 

no amendments no matter how meritorious, then this really is a futile exercise, and we are all too busy to engage in a futile exercise. 

Mr. CANNON. Reclaiming the last few moments that I have, it is 

a futile exercise if there’s nothing new or if we can’t make a clear 

and compelling case for something, which I don’t think you can do 

with an issue like this at this time with the limited debate here. 

But we have a process. 

Chairman SENSENBRENNER. The gentleman’s time has expired. 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. The question is on the——

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from North Carolina, 

Mr. Watt. 

Mr. WATT. I move to strike the last word. 

Senator Carper. The gentleman’s recognized for 5 minutes. 

437 

Mr. WATT. And I really didn’t intend to just get on this and stay 

on it, but we’re getting to the point of just being ridiculous here, 

and you know, I think we all are beginning to have our sensibilities 

insulted. And to be honest with you and very blunt, the Republicans are beginning to do a disservice to themselves by looking like 

robots, and that’s unfortunate. 

This bill and the substance of this bill is too important to the 

American people to treat it like this, and I, I mean I think there’s 

more integrity just to say, ‘‘Look, we’re not going to amend this bill, 

you know, call the previous question,’’ you know, which you all 

have done before. You try to do it when you can blame it on us. 

We’re trying to be constructive here, offer really good amendments 

that a number of people have said are really good amendments, 

and—but there’s no flexibility here, and I don’t know what we are 

doing. This is a charade. 

And I’m embarrassed because this is out of—I mean bankruptcy 

started out—I guess I’m taking the lead on this because bankruptcy is the subject matter of Commercial and Administrative 

Law, which I am the Ranking Member of, and I don’t want to see 

my Chair, Mr. Cannon, continue to embarrass himself like this. 

There’s no rational reason for what’s being—— Mr. CANNON. Would the gentleman yield? 

Mr. WATT. I’m happy to yield to him if he can tell me he’s not 

embarrassing himself. 

Mr. CANNON. You know, I actually find it embarrassing that we 

make an issue out of, out of the failure of an amendment that 

hasn’t had any development. This is not a heavy-handed process 

that has culminated over 7 years to where we are today. 

Mr. WATT. Reclaiming my time. 

Mr. CANNON. This is a 7-year process. 

Mr. WATT. Reclaiming my time, I am making an issue of the fact 

that you all are making a charade of the legislative process on an 

important public policy such as bankruptcy. I’m embarrassed by 

this, and I think you should be embarrassed by it. So I, you know, 

I’m—this is not the first time I’ve said this today. This is not about 

this particular amendment but the cumulative effect of what you 

are doing is embarrassing to yourself, and, you know, I’m going to 

keep offering these amendments as long as you all sit here and embarrass yourself, but at some point you’re going to have to just say 

to the American people, ‘‘Regardless of how meritorious an amendment is on this bill, we are not going to amend the bill because our 

leadership has told us that. Mr. Delay or whoever is calling the 

shots has told us we are not going to amend this bill.’’

And I don’t know why we fight for the jurisdiction of our Committee if our Committee can’t do anything with the jurisdiction. 

What good is jurisdiction if you’re not going to do anything? 

Mr. BACHUS. Would the gentleman yield? 

Mr. WATT. We are legislators. 

Mr. BACHUS. Would the gentleman yield? 

Mr. WATT. I’m happy to yield to the gentleman. 

Mr. BACHUS. We’ve been amending this bill for 8 years, have we 

not? I mean this bill, we amended this bill this year and last year 

and the year before. So I mean it’s not—— Mr. WATT. Keep embarrassing yourself. 

Mr. BERMAN. Would the gentleman yield? 

438 

Mr. WATT. I’m happy to yield to the gentleman from California. 

Mr. BERMAN. Would the gentleman—if the gentleman from 

North Carolina would yield to the gentleman from Alabama, could 

he explain to me why an amendment that says if 51 percent of 

your debts occurred because somebody stole your identity and that 

the ripple implications of accepting that amendment will so upset 

the delicate balance of this pristine bill that—in ways that we can 

never know. Just give us a coherent reason why an amendment as 

narrow and specific as this should be rejected on its face? I can understand accepting it and fine tuning it. I can understand—but you 

see the impression that we get over here? 

Mr. BACHUS. I appreciate the gentleman——

Chairman SENSENBRENNER. The time of the gentleman from 

North Carolina has expired. 

Mr. BERMAN. Mr. Chairman? 

Chairman SENSENBRENNER. The Chair moves to strike the last 

word——

Mr. BERMAN. Mr. Chairman? 

Chairman SENSENBRENNER.—and recognizes himself. 

First, there has been plenty of process on this bill over 8 years, 

and all of the paper that has been generated, hearings, markups, 

Committee reports and debates on the floor are on the clerk’s desk. 

And if you’re having trouble seeing the clerk over the pile of papers, it shows that there has been plenty of information that has 

been submitted. 

Now, second, relative to the amendment that has been offered by 

the gentleman from California, Mr. Schiff, a person is not responsible for debts that he or she did not incur. So if the debt was run 

up by somebody else as a result of identity theft, the person in 

whose name the debt was run up is not responsible for it. And if 

there is identity theft, that is a factual issue that the bankruptcy 

judge can determine, and even without this amendment, the bankruptcy judge can disallow the claim that has been made against the 

bankrupt’s estate. That is simple law. 

Now, everybody knows what the process is here. The people who 

don’t like this bill want to amend it to send it back to the other 

body because they know the other body will have to spend two 

more weeks jumping through the hoops to get a piece of legislation 

passed. 

This bill has been hanging around here for 8 years. It is a bill 

that has gotten overwhelming support in both the Senate and the 

House of Representatives. There has been rollcall after rollcall, and 

I’ve added up the score in both the House and the Senate. Since 

the 105th Congress the aggregate total of votes on bankruptcy legislation has been 2,455 ayes to 871 nays. 

We’re getting close to the goal line on this. Most of these arguments have been ventilated repeatedly in the past. I think that this 

amendment is merely an attempt to try to kill the bill because everybody knows that a debtor is not responsible for the debts he 

didn’t incur. The amendment should be voted down. 

Ms. WATERS. Mr. Chairman? 

Chairman SENSENBRENNER. The gentlewoman from California, 

Ms. Waters. 

Ms. WATERS. I move to strike the last word. 

439 

Chairman SENSENBRENNER. And the gentlewoman is recognized 

for 5 minutes. 

Ms. WATERS. Mr. Chairman, if in fact this amendment does no 

harm, and if in fact it would be a restatement of existing law, then 

I don’t see why it could not be considered for adoption. 

However, I think there are a few things that you, Mr. Chairman, 

said that would help everyone here to understand that you have no 

intentions of accepting any amendments on this bill today. You talk 

about the number of votes that have been taken. You talk about 

how high the paper is stacked before the clerk, and you basically 

have said to us that we’re here today convened simply to vote this 

bill out, and that you will do that because you have the numbers, 

you have the majority of this Committee. You’re not going to accept 

any amendments. And why then are we going through allowing us 

to take our good time to offer these amendments when you have 

decided the fate of our amendments already? 

I think it is worse than a charade, and I think it is, as Mr. Watt 

has said, embarrassing to us all, and I feel a little bit bad for the 

jockey of the bill over there from Idaho, who cannot defend—from 

Iowa—who cannot—where’s he from? I’m sorry, Utah, somewhere 

out there. Who cannot defend his objections to the—cannot defend 

his objections to the amendment. 

So, Mr. Chairman, is a motion in order to move that we close 

down the Committee and we just vote the bill out? 

Chairman SENSENBRENNER. Does the gentlewoman move the previous question on the bill and the amendments? 

Mr. DELAHUNT. Would the gentlelady—Mr. Chairman? 

Chairman SENSENBRENNER. Does the gentlewoman make that 

motion? 

Mr. DELAHUNT. Mr. Chairman? 

Ms. WATERS. The gentlewoman is prepared to make the motion. 

I hear some objections from my colleagues on this side of the aisle. 

Chairman SENSENBRENNER. Well, then should we vote on it and 

see what—— Ms. WATERS. Well, let me just—let me, let me just get a nod 

from—where’s my leader on this? Where’s Mr. Conyers? Is he here? 

Mr. CONYERS. Yes, he is here. 

Ms. WATERS. Mr. Conyers, what would you have me do? 

Mr. CONYERS. Well, I’d ask you to yield to me first. 

Ms. WATERS. I will yield to you on this before I offer this motion. 

Mr. CONYERS. I’d like to point out about this large number of reports and other documents that have been put on the table, the 

witness table, that I’ve counted 1, 2, 3, 4, 5, 6 new Members on this 

Committee for the 109th session. I can’t recall how many are new 

Members from the 108th session. But for the years that this bill 

has been going on, to now come up in the first part of the 109th 

session and say we’ve been working on this bill for 6 or 7 or 8 

years, and so therefore, we’ve had enough discussion, let’s get this 

on with, is perhaps not the best congressional or legislative procedure that we can engage in. 

Mr. INGLIS. Would the gentleman yield? 

Mr. CONYERS. No. I know you’re a, you’re a new old Member, and 

so we’ll give you the credit you deserve. 

But I think that that should be—I think that this should be 

taken into consideration. The amendment I offered earlier about 

440 

veterans, I don’t recall it being offered before. We haven’t had any 

hearings in this session. 

Ms. WATERS. Reclaiming my time. I think what I hear the Ranking Member advising me is not to offer the motion, so, Mr. Conyers, 

what I would like to do is make a suggestion to the Members on 

our side of the aisle, and that is, take up all your amendments, find 

some more, put your staffs to work so that they can create some 

more, and let’s just stay here for a couple of days. 

Chairman SENSENBRENNER. Does the gentlewoman yield back 

the balance of her time so that she can do that? 

Ms. WATERS. If the gentlewoman had intended to do that, she 

would have let you know. 

Chairman SENSENBRENNER. The time of the gentleman has—gentlewoman has expired. We’re about 10 minutes away from four 

votes on the floor. 

Mr. LUNGREN. Mr. Chairman? 

Chairman SENSENBRENNER. Who seeks recognition? The gentleman from California, Mr. Lungren. 

Mr. LUNGREN. Mr. Chairman, I’m one of those old new or new 

old Members that the Ranking Member referred to, and I consider 

very importantly my obligation to act in the best interest of my 

constituents and the people of this Nation. I must remark that I’m 

surprised that the gentlelady from California is yielding to the iron 

clad rule of a Ranking Member. I thought we should independently 

make our decisions as to what is best. 

But let me just say this. I have——

Ms. WATERS. They dare not take independence when they are 

doing what they are told. 

Mr. LUNGREN. I understand, I understand. I might say that I 

have been absent from this chamber for 16 years, although interestingly enough, one of the elevator operators noted me on the elevator the other day, and asked where I’d been because she hadn’t 

seen me around for a little while. So I told her it had been 16 

years. 

And I understand the frustration of the minority because I was 

there for 10 years, and I understand being on the losing side of 

votes. But, you know, it’s not a charade when the votes are taken 

and you’re on the losing side because there’s more on the other side 

than there are on your side. That’s sort of the result of what happened in November. 

The frustration that you feel is probably a mirror image of the 

frustration that those of us feel on this side who have seen this 

work done on a major effort to reform a Bankruptcy Code that 

drastically needs to be reformed. There’s a consensus in this country. And to see that happen year after year after year and be tangled up in disputes, I mean, let’s be real. The reason we don’t have 

a reform of the Bankruptcy Code over the last number of years was 

because of actions taken by some in the other body on the abortion 

issue, and there was an effort to make sure that that social issue 

was driven and driven and driven and driven and driven, despite 

all of the facts, despite all of the necessity for us to do something 

with the Bankruptcy Code. 

And so that’s why we’re here now. We know that there’s a need 

to have a Bankruptcy Code reform. We know that the best chance 

we have of doing that is to basically minimize any differences beVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00444 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
441 

tween ourselves and the Senate, particularly on a piece of work 

that has really the earmarks of Members of this body, Members of 

this Committee over the last number of years. As I understand it— and I stand to be corrected—this product has a number of amendments brought by both the majority and the minority over the last 

number of years that have been voted on either by recorded vote 

or voice vote. 

So that’s what we’re talking about, and I understand what my 

friends on the other side are doing, trying to make sure that we’re 

put in a position of voting against the aged and the poor and the 

young and kids and veterans and everybody else. And we understand that’s being done, and you have every right to do it, and I 

wouldn’t refer to it as a charade. But the fact of the matter is we 

are either going to have a major reform of the Bankruptcy Code or 

we are not, And if we repeat what’s been done in this Congress 

over the last five or six congresses, we will not have it, and that 

ill serves the American people, it ill serves the people I represent. 

So, yes, I am exercising some discipline not to offer amendments, 

and not to support certain amendments that I might otherwise 

wish to because I do not want to see my pursuit of the perfect ensure that we defeat the good. And we have made a good job of defeating the good in this Congress in the last number of years. And 

so I appreciate what my friends have said, but, frankly, it’s not a 

charade when one makes a judgment that in order to actually have 

a bill on the President’s desk that does a lot of good, rather than 

no bill once again, that we exercise discipline individually, and not 

support some things that we may otherwise wish to support. 

Mr. CONYERS. Would my friend, Mr. Lungren yield? 

Mr. LUNGREN. I would be happy. 

Mr. CONYERS. And I thank you. 

Mr. LUNGREN. And I want to say one thing. In the time that I 

was out of this chamber, whenever I visited, the Ranking Member 

was probably the most gracious in recognizing me when I was here, 

and I just wanted to say that for the record. I appreciate that. 

Mr. CONYERS. I thank the gentleman. Would you review, at your 

leisure, sir, the organizations that are supporting the position that 

has been made clear by those of us on this side of the Committee 

room and the names of the organizations, lobbyists, banks and 

credit card organizations, commercial organizations that represent 

what you asserted was a majority of people. I think you’d find, my 

friend from California, that when the National Bankruptcy Conference, the American Bankruptcy Institute, the National Conference of Bankruptcy Judges, the National Association of Chapter 

13 Trustees, the National Association of—— Mr. LUNGREN. Okay, reclaiming my time, I object to——

Chairman SENSENBRENNER. The gentleman’s time has expired. 

The question is on the amendment offered by the gentleman——

Mr. DELAHUNT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Massachusetts, 

Mr. Delahunt. 

Mr. DELAHUNT. Yes. I’m going to yield in just 30 seconds to the 

gentleman from—Schiff, who’s the author of this particular amendment. But in response to what—the observations by Mr. Lungren, 

I mean I would suggest that the amendments that have been offered today deal with obvious issues and egregious problems that 

442 

I would concluded that if there was not the exercise of discipline, 

there would be nearly unanimous agreement in terms of the adoption of these particular amendments. 

You know, I’m listening to Mr. Cannon, whom I consider a friend 

and one of the better Members of this Committee, you know, speak 

about his children and the fact that Government is not a good protector. And yet today we’re here rejecting the amendment put forth 

by Mr. Watt and myself relative to the discharge, the 

dischargeability of debts implicating interest over 50 percent. I 

mean we haven’t protected the American citizen today from the 

predatory lender. And to speak about the marketplace in terms of 

the need for credit and suggesting that putting some boundaries, 

in imposing some accountability in terms of the lending community, I would suggest that’s not doing what we ought to be doing. 

That’s not protecting the people, all of the people of this country. 

And that’s not about the marketplace. As I said earlier, that is 

right up there with, you know, what the mafia did, we reject it. 

How—if we adopted that amendment, how could the other body, 

other body not agree to that particular amendment? And the reality is—and we have heard example after example over the course 

of the last three or 4 months, that that in fact is happening to people all over the country. With that, I’ll yield to the gentleman from 

California. 

Mr. SCHIFF. I thank the gentleman for yielding, and somehow my 

amendment seems to have provoked a disagreement between the 

Chair of the Subcommittee and the Chair of the full Committee. 

The Chair of the Subcommittee maintaining that my amendment, 

the problem with my amendment is that it may somehow do harm, 

the Chairman maintaining that the problem with my amendment 

is that it does nothing at all, that is the existing law. The Chairman of the Subcommittee maintaining that the problem is that this 

issue has never been explored, the problem as addressed by the 

Chairman is that this issue and every other has already been explored. It can’t be both. 

And the charade that my colleagues from California refers to—

and charade is a stronger term than I would use—is not that you 

win a vote or we lose a vote. The illusion is that this is a markup, 

that this is a Committee that today is really deliberating the 

amendments and making decisions. That’s the illusion. The reality 

is that the deal was made before we ever came into the Committee 

room. 

And the reason I brought up the history, at least my little 

amendment some years ago in the 107th Congress, is that this has 

been the history as long as I’ve been here, on this bill. When I offered an amendment in the 107th Congress, two congresses ago, I 

was given much the same response, which is this issue has already 

been decided before the markup, so why are you offering something 

in the markup, good idea, bad idea, no idea at all? Where were you 

when we decided this in the back room before we got into the Committee? 

And you know, for most of us in the minority we’re not part of 

that discussion. The financial interests are part of the discussion, 

the majority is part of the discussion, the minority is not. My colleague from California referred to his years in the minority, and I 

can only say, as we found in 1994, majorities are fleeting. Ours 

443 

was, yours may be as well, and it would be worthwhile to consider 

what it’s like to stand in your colleague’s shoes. 

And I would only urge that if you feel the amendment has 

weight, support it. If you feel the amendment is somehow superfluous, vote against it, but let’s have a real markup where the 

Committee can do real work, where those of us who are not invited 

to the back room can have input in the work product that goes out 

of the Committee. 

Mr. Chairman, I yield back. 

Chairman SENSENBRENNER. The time of the gentleman from 

Massachusetts has expired. 

The question is on the amendment offered by the gentleman from 

California, Mr. Schiff. Those in favor will say aye. 

Opposed, no. 

The noes appear to have it. 

Mr. Chairman, I request a recorded vote. 

Chairman SENSENBRENNER. A recorded vote will be ordered. 

Those in favor of the Schiff amendment will, as your names are 

called, answer aye, those opposed no, and the clerk will call the 

roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. Mr. Smith? 

[No response.] 

The CLERK. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

[No response.] 

The CLERK. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. SCHIFF. Mr. Lungren said no. 

The CLERK. Oh, I’m sorry. Mr. Lungren, no. Mr. Jenkins, no. Mr. 

Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. Mr. Inglis? 

Mr. INGLIS. No. 

The CLERK. Mr. Inglis, no. Mr. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. Mr. Keller? 

[No response.] 

The CLERK. Mr. Issa? 

[No response.] 

The CLERK. Mr. Flake? 

[No response.] 

444 

The CLERK. Mr. Pence? 

[No response.] 

The CLERK. Mr. Forbes? 

[No response.] 

The CLERK. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. Mr. Watt? 

[No response.] 

The CLERK. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

[No response.] 

The CLERK. Ms. Waters? 

[No response.] 

The CLERK. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Smith? 

Mr. SMITH OF WASHINGTON. Aye. 

The CLERK. Mr. Smith, aye. Mr. Van Hollen? 

Mr. VAN HOLLEN. Aye. 

The CLERK. Mr. Van Hollen, aye. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their votes? The gentleman from Texas, Mr. Smith. 

Mr. SMITH OF TEXAS. Mr. Chairman, I vote no. 

The CLERK. Mr. Smith, no. 

Chairman SENSENBRENNER. Any further Members? Gentlewoman 

from California, Ms. Waters? 

445 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. 

Chairman SENSENBRENNER. The clerk will report. Oh, the gentleman from Alabama, Mr. Bachus? 

The CLERK. Mr. Chairman, Mr. Bachus is—Mr. Bachus votes no, 

has voted no. 

Chairman SENSENBRENNER. The gentleman from North Carolina, 

Mr. Watt? 

Mr. WATT. Aye. I wanted to be recorded. I wasn’t recorded. Is 

that all right? 

Chairman SENSENBRENNER. Of course. 

Mr. WATT. Thank you. 

The CLERK. Mr. Watt, aye. 

Chairman SENSENBRENNER. Anybody else who wishes to cast or 

change their vote? Going once, going twice, and the clerk will report. 

The CLERK. Mr. Chairman, there are 13 ayes and 15 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. 

We have four votes on the floor. The Chair asks Members to return promptly after the last vote so that we can get going. There 

is a hearing that has been noticed for 2:00 p.m. in the Subcommittee on the Constitution. That will be postponed until after 

the markup is completed today, and the Committee stands recessed. 

[Recess.] 

Chairman SENSENBRENNER. The Committee will be in order. A 

working quorum is present. Pending at the time of the recess was 

a motion to report the bill, Senate 256 favorably. Are there further 

amendments? 

Mr. DELAHUNT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Massachusetts. 

Mr. DELAHUNT. Thank you, Mr. Chairman. I have an amendment 

at the desk. It’s numbered Delahunt 003. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to S. 256 offered by Mr. Delahunt. Page 

507, after line 6, insert the following (and make such technical and 

conforming changes as may be appropriate): 

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read, and the gentleman from Massachusetts is recognized for 5 minutes. 

[The amendment follows:] 

446 

Amendment to S. 256

Offered by Mr. Delahunt

Page 507, after line 6, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 ‘‘(f)(1) The trustee may avoid a transfer of an inter2 est in property of a debtor who is an individual, made by

3 the debtor in the 10-year ending on the date of the filing

4 of the petition to an asset protection trust if the amount

5 of such transfer, or the aggregate amount of all transfers,

6 to such trust or to similar trusts within such 10-year pe7 riod exceeds $125,000.

8 ‘‘(2) An asset protection trust is a trust settled by

9 the debtor, in which the debtor has a direct or indirect

10 beneficial interest or under which the trustee may dis11 tribute property to or for the benefit of the debtor, and

12 as to which a restriction on the voluntary or involuntary

13 transfer of the debtor’s beneficial interest in the trust is

14 enforceable under applicable nonbankruptcy law. For pur15 poses of this subsection, the following are not asset protec16 tion trusts:


A256H.AAB
447 

2

1 ‘‘(A) Retirement funds to the extent that those

2 funds are in a fund or account that is exempt from

3 taxation under section 401, 403, 408, 408A, 414,

4 457, or 501(a) of the Internal Revenue Code of

5 1986.

6 ‘‘(B) Charitable trusts.

7 ‘‘(C) Qualified trusts under section 529 of the

8 Internal Revenue Code of 1986, and other edu9 cational trusts, funds, or accounts.’’.


A256H.AAC
448 

Mr. DELAHUNT. I thank the Chairman, and I think my final comment prior to the vote was that we haven’t protected citizens today 

because we will be passing a bankruptcy bill that while there is a 

focus on personal responsibility, there is none on corporate responsibility. But I’m also concerned that we’re establishing, for lack or 

failure to address a particularly egregious abuse that favors the affluent in this country, for failure to do that we’re creating two 

bankruptcy systems, one for the more affluent and one for the rest 

of America. 

So I would hope that all of my colleagues would support me in 

this change to eliminate what has been described euphemistically 

as a millionaire’s loophole by addressing the issue of so-called asset 

protection trust. They are trusts that a person creates to shield assets for his or her own benefit. In other words, it’s a financial planning to design for the more well to do who are concerned about potential bankruptcy. And currently there is no limit to the value of 

assets that can be shielded from bankruptcy by this particular device. The amendment is simple. It seeks to limit that value of assets up to $125,000. Now, let me emphasize that this amendment 

does not adversely affect retired Americans or take anything away 

from their retirement secretary such as IRAs, et cetera. 

It also protects charitable, educational and other trusts set aside 

for legitimate purposes. As some experts have said, asset protection 

is just another term for making one self judgment proof. I would 

suggest that it is simply abuse of the existing system, or better yet, 

it’s nothing more than gaming the current bankruptcy system. 

This is a new development that has occurred in the last several 

years. The loophole is the result of laws that were adopted in five 

States exempting the so-called asset protection trusts from the Federal Bankruptcy Code. So for those that are interested, take note 

that in Alaska, Delaware, Nevada, Rhode Island and Utah, all have 

laws protecting stashed assets, and what’s really amazing to me is 

you don’t even have to live there to take advantage of them. Now, 

that’s a good deal if you have a lot of money. 

So if we’re truly serious about abuse, bankruptcy law should not 

allow individuals to decide how much they want to keep away from 

creditors by setting up a self-created trust to do exactly that. That 

is doing financial planning and taking advantage of the current 

system to secure advantages. 

This loophole is, in my judgment, evidence of how the current 

system provides two bankruptcy laws, one for the well connected 

and one for middle class families. Remember, more than half of 

middle class Americans who declare bankruptcy do so because of 

massive hospital bills or other catastrophic health care costs that 

they didn’t expect or could not anticipate. Another third of all 

bankruptcies are the result of job losses. Nonetheless, the bill before this Committee today creates a special rule for millionaires. 

Whether the assets are villas or yachts or sport cars, investments 

or just suitcases full of cash, they’re untouchable in the bankruptcy 

reorganizations of the well to do, who utilize these asset protection 

trusts, and neither creditors nor the courts can reach them. 

The right way to address this bill is to put forth—this problem 

rather, is to put forward a bankruptcy protection bill with one 

standard, one standard for everyone that treats all Americans the 

same regardless of income and regardless of circumstances. You 

449 

know, what message does it send when Congress submits middle 

class debtors to a means test irrespective of State law, while permitting the wealthy to continue to place huge sums out of reach of 

creditors. I don’t believe we want to do that. And we can address 

it here today. 

And I would hope that my colleagues on the other side of the 

aisle would listen, would reflect. I dare say if this particular 

amendment was passed and it was returned to the Senate, you 

would have your bill, and at the same time we would eliminate this 

mechanism for abuse from the system as it now is constituted and 

we could hold our heads high. I see my time has expired. 

Chairman SENSENBRENNER. That it is. 

The gentleman from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. In fact, I appreciate 

your clarifying the State from which I come. 

[Laughter.] 

Mr. CANNON. This is an issue that has been debated in the Senate and soundly defeated. And let me just talk a little bit about 

background here. The Bankruptcy Code, section 541, generally defines what assets constitute property of the bankruptcy estate that 

can be made available to pay the claims of creditors. It also specifies what assets do not constitute property of the bankruptcy estate. For example, section 541(c)(2) provides that a trust is not 

property of the estate if the debtor’s access to the trust is restricted. Thus, for example, a spendthrift trust, which is defined as 

a trust by the terms of the trust or by statute, a valid restraint on 

the voluntary and involuntary transfer of the interest that the 

beneficiary’s imposed—pardon me for all the ‘‘legalese’’ but it gets 

to the point of where we’re going I think—is established by the 

debtor before filing for bankruptcy relief, it would not constitute 

the property of the bankruptcy estate. 

Under the Restatement of Trusts, a self-settled trust is a trust 

created by a person for his or her own benefit with a provision restraining the voluntary or involuntary transfer of person’s interest, 

so the Restatement provides that such trust can be pierced by the 

person’s creditors. Nevertheless, five States, Alaska, Delaware, Nevada, Rhode Island and Utah, have enacted laws that permit their 

citizens to establish self-settled trusts where they can place their 

assets outside the reach of their creditors including their homes as 

permitted under Delaware law. The State laws provide that property placed in such trust cannot be reached by creditors with exceptions that vary by State. Some except child, spousal support claimants and persons who suffered injury or death as a result of the 

settler’s actions, for example. 

It also appears that fraudulent transfers made by the settler to 

an asset protection trust may be avoided under applicable State 

laws as well as pursuant to Bankruptcy Code section 548. Alaska 

appears to allow such transfers to be set aside upon the showing 

of actual fraud. Delaware, on the other hand, appears to allow such 

transfers to be set aside based on either actual or constructive 

fraud, including a transfer of property for less than reasonably 

equivalent value which is similar to Bankruptcy Code section 548. 

The bill as amended closes the self-settled trust loophole. An 

amendment by Senator Talent authorizing the bankruptcy trustee 

to avoid any transfer of property by a debtor to a self-settled trust 

450 

made within 10 years preceding the filing—which is the same period that the amendment suggests, by the way—preceding the filing of the debtor’s bankruptcy case if the debtor is a beneficiary of 

such trust, and the debtor made such transfer with actual intent 

to hinder, delay or defraud a creditor. 

So what is an asset protection trust or self-settled trust? Neither 

the Internal Revenue Code nor the entire United States Code contain any reference to either of these terms. This is a matter of 

State law. To the extent that a—or an asset protection trust is a 

creature of State law, then this issue inherently involves States 

rights. The States should be able to determine for themselves what 

property their citizens can protect from the claims of creditors. This 

is not only implicit in the homestead exemption, but with regard 

to the status of all types of items of property including household 

goods and furnishings, livestock, family Bibles and church pews is 

determined under State law to be exempt property. 

For example, according to CRS, Delaware only gives its citizens $5,000 homestead exemption, while Utahans only have a $10,000 

homestead exemption. Why should these States be allowed—why 

shouldn’t these States be allowed to have their citizens provide for 

their retirement nest egg by placing their assets in a trust fund, 

when in other States like Texas you have a huge homestead exemption? 

States that have authorized asset protection trusts appear to be 

extremely supportive of them. Alaska’s legislature announced that 

it had hoped to become the financial service center for the world 

as s result of authorizing such trusts. So why do we have such outrage? Senator Kennedy successfully had a provision included in the 

pending bankruptcy legislation, section 224, that protects up to $1 

million in IRAs and other similar pension plans. An asset protection trust may be the only way for some individuals who live in a 

State with a nominal homestead exemption and no IRA exemption 

to protect assets from creditors. The issue should be studied and 

determined. We need to work on this. The fact is if we’re going to 

move a bill out today, this is an issue that has been dealt with, has 

been debated, has been argued. It’s been considered. The bill has 

been amended to include the basic provisions here, and I urge my 

colleagues to vote no on the amendment. 

Thank you, Mr. Chairman. I yield back. 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from North Carolina. 

Mr. WATT. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. WATT. Mr. Chairman and Members, all of what Mr. Cannon 

said would probably be a lot more rational if the underlying bill 

didn’t set a national standard for homesteads too, and so we set a 

national standard for homestead exemptions at $125,000, yet what 

he’s saying is that people ought to be able to be allowed to pour 

all of their non-homestead assets into these trusts and have them 

exempt because it’s a matter of State law. 

That is just absolutely inconsistent. I mean if you’re going to 

have a national standard on homestead exemptions, it seems to me 

rational that you would have a national standard on non-homestead assets, and I think that’s the only thing that Mr. Delahunt’s 

451 

trying to get at here. It is interesting that when some of us were 

trying to protect States’ rights in many, many, many other contexts, it didn’t mean a hill of beans to the people on this Committee. Yet when it’s convenient to hide behind States’ rights, all 

of a sudden we’re out here talking about States’ rights again, and 

you know, I thought we had this debate on the homestead. We resolved this debate on the homestead. So why would we have a different standard for non-homestead assets than we have for homestead assets? 

I for the life of me can’t understand that. So I would just encourage my colleagues to at least try to be consistent about this stuff, 

and encourage them to support this amendment. And I yield back. 

Chairman SENSENBRENNER. The question is on the amendment 

offered by the gentleman from Massachusetts, Mr. Delahunt. Those 

in favor will say aye. 

Opposed, no. 

The noes appear to have it. The noes have it. The amendment’s 

not agreed to. 

Are there further amendments? 

Ms. JACKSON LEE. Mr. Chairman? 

Chairman SENSENBRENNER. A recorded vote is ordered. Those in 

favor of the Delahunt amendment will, as your name are called, 

answer aye. Those opposed, no, and the clerk will call the roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. Mr. Smith? 

[No response.] 

The CLERK. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

[No response.] 

The CLERK. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

[No response.] 

The CLERK. Mr. Inglis? 

[No response.] 

The CLERK. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

[No response.] 

The CLERK. Mr. Issa? 

[No response.] 

The CLERK. Mr. Flake? 

Mr. FLAKE. No. 

452 

The CLERK. Mr. Flake, no. Mr. Pence? 

[No response.] 

The CLERK. Mr. Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

[No response.] 

The CLERK. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

[No response.] 

The CLERK. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

Mr. BOUCHER. No. 

The CLERK. Mr. Boucher, no. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. Mr. Watt? 

[No response.] 

The CLERK. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

[No response.] 

The CLERK. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. Yes. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

[No response.] 

The CLERK. Mr. Smith? 

[No response.] 

The CLERK. Mr. Van Hollen? 

[No response.] 

The CLERK. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members in the chamber who wish 

to cast or change their votes? Gentleman from Florida, Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. 

Chairman SENSENBRENNER. Gentleman from Tennessee, Mr. 

Jenkins? 

453 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. 

Chairman SENSENBRENNER. Gentleman from Florida, Mr. 

Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. 

Chairman SENSENBRENNER. Gentleman from North Carolina, Mr. 

Watt? 

Mr. WATT. I reported. I shouted out from the back and I wasn’t 

clear whether she got it. 

The CLERK. Mr. Chairman, I did not have Mr. Watt. 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. 

Chairman SENSENBRENNER. Further Members in the chamber 

who wish to cast or change their votes? If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 10 ayes and 15 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. Are there further amendments? 

Mr. BERMAN. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from California, Mr. 

Berman. 

Mr. BERMAN. Mr. Chairman, I have an amendment, BermanMeehan amendment at the desk. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to S. 256 offered by Mr. Berman and 

Mr. Meehan. Page 194, after line 2, insert the following (and make 

such technical and conforming changes as may be appropriate): section 322—— Mr. BERMAN. Mr. Chairman, I ask unanimous consent——

Chairman SENSENBRENNER. The clerk will continue to read until 

some of the Members get the amendment. 

The CLERK. Exemption for medically distressed debtors. Section 

522 of title XI, United States Code as amended by sections 224, 308 

and 322, is amended by adding at the end the following: R(1), for 

a debtor who is a medically distressed debtor, if the debtor elects 

to exempt property—— Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read and the gentleman from California will be recognized for 5 minutes. 

[The amendment follows:] 

454 

Amendment to S. 256

Offered by Mr. Berman and Mr. Meehan

Page 194, after line 2, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 SEC. 322A. EXEMPTION FOR MEDICALLY DISTRESSED

2 DEBTORS.

3 Section 522 of title 11, United States Code, as

4 amended by sections 224, 308, and 322, is amended by

5 adding at the end the following:

6 ‘‘(r)(1) For a debtor who is a medically distressed

7 debtor, if the debtor elects to exempt property—

8 ‘‘(A) under subsection (b)(2), then in lieu of the

9 exemption provided under subsection (d)(1), the

10 debtor may elect to exempt the debtor’s aggregate

11 interest, not to exceed $150,000 in value, in real

12 property or personal property that the debtor or a

13 dependent of the debtor uses as a residence, in a co14 operative that owns property that the debtor or a de15 pendent of the debtor uses as a residence, or in a

16 burial plot for the debtor or a dependent of the debt17 or; or

18 ‘‘(B) under subsection (b)(3), then if the ex19 emption provided under applicable law specifically


A256I.AAB
455 

2

1 for such property is for less than $150,000 in value,

2 the debtor may elect in lieu of such exemption to ex3 empt the debtor’s aggregate interest, not to exceed

4 $150,000 in value, in any such real or personal

5 property, cooperative, or burial plot.

6 ‘‘(2) In this subsection, the term medically distressed

7 debtor’ means a debtor who, in any consecutive 12-month

8 period during the 3 years before the date of the filing of

9 the petition—

10 ‘‘(A) had medical expenses for the debtor, a de11 pendent of the debtor, or a member of the debtor’s

12 household that were not paid by any third party

13 payor and were in excess of 50 percent of the debt14 or’s household income for such 12-month period;

15 ‘‘(B) was a member of a household in which 1

16 or more members (including the debtor) lost all or

17 substantially all of the member’s employment or

18 business income for 4 or more weeks during such

19 12-month period due to a medical problem of a

20 member of the household or a dependent of the debt21 or; or

22 ‘‘(C) was a member of a household in which 1

23 or more members (including the debtor) lost all or

24 substantially all of the member’s alimony or support

25 income for 4 or more weeks during such 12-month


A256I.AAC
456 

3

1 period due to a medical problem of a person obli2 gated to pay alimony or support.’’.


A256I.AAD
457 

Mr. BERMAN. Thank you, Mr. Chairman. 

Basically this is about creating a uniform Federal floor for home- stead exemptions of $150,000 or less, $150,000 basically for medically distressed debtors. The statistics clearly point out that there 

have been large increases in medical debt and bankruptcy cases, 

caused by medical debts, coupled with significant increases in real 

estate prices, and that has led to a new and rapidly-growing problem ignored by this bill. 

This amendment would create a uniform Federal floor for homestead exemptions of $150,000, applicable only to debtors who have 

had very substantial medical debts or a very substantial loss of income due to medical problems, losses of over 50 percent of household income. This amendment would simply permit those homeowners who have suffered serious medical problems under the 

standards of this bill, with losses again over 50 percent of household income to file for bankruptcy without having to give us homes 

where they have $150,000 or less of equity. 

The notion of forcing people out of their homes after illnesses or 

accidents is made more outrageous by the fact that this bill does 

nothing to deal with the handful of States where debtors of all 

kinds, famous sports figures, physicians who drop their medical 

malpractice insurance, real estate tycoons, can save millions of dollars in homestead. Americans, particularly those who face serious 

medical problems, are entitled to a more evenhanded justice. Families who face insurmountable debt problems following serious medical problems are confronted with the fact that they can obtain relief from their debts and bankruptcy only if they give up their 

homes. In nearly half of all States homestead exemptions are under 

$25,000. There are no escapes for families with high debts and 

home equity that exceeds that for instance very low homestead exemption. In a Chapter 7 bankruptcy case a family with equity 

greater than the State exemption limits, which in some States are 

under $10,000, must give up its home. In Chapter 13 the family 

must pay the creditors the amount equal to the greater equity 

which it can usually not afford. A family should not have to lose 

its home to obtain relief from debts caused by serious medical problems. 

The amount of equity a homeowner can protect in bankruptcy 

has not kept up with the rise in home prices. While the value of 

even modest homes climbs in some areas, the protection of the law 

does not, leaving even people of modest means with a choice between a home or discharging medical debts. This falls particularly 

hard on elderly and disabled homeowners who often live solely on 

Social Security benefits. With incomes of 800 or $1,000 per month 

they could live in their current homes which may be paid off or 

have low monthly costs, but if they are forced out of these homes, 

they cannot afford to rent a decent place to live, and in fact, these 

homeowners would have no bankruptcy relief available to them. 

The purpose of this amendment is to rectify it. 

Mr. CONYERS. Would the gentleman yield? 

Mr. BERMAN. I’d be happy to yield. 

Mr. CONYERS. I want to commend the gentleman for this amendment because it specifically covers the problem of people with severe health care, and the recent study in bankruptcy revealed that 

one half of the people forced into bankruptcy is because of medical 

458 

bills or immediate hospital costs, and I wanted the gentleman to 

know that the gentlelady from California, Zoe Lofgren, is entirely 

supportive of this amendment and will submit her own statement 

in support of it. She’s unduly delayed and in——

Chairman SENSENBRENNER. Without objection, the statement of 

Ms. Lofgren will appear in the record at this time. 

[The prepared statement of Ms. Lofgren follows:] 

PREPARED STATEMENT OF THE HONORABLE ZOE LOFGREN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Many of us have loved ones who have battled a grave illness or serious injury. 

If you’ve ever had the misfortune of being in that situation, you know that it is an 

incredibly stressful experience, both on the mind and the pocketbook. But incredibly, 

this bill chooses to treat those families the same as spendthrifts. 

A recent study conducted by professors at Harvard Medical and Law Schools demonstrated that about half of all personal bankruptcies today can be traced to severe 

medical illnesses or injuries. Among those, average unreimbursed medical costs totaled nearly $12,000. Nevertheless, the study found that these families did everything they could to pay their medical bills and avoid bankruptcy. One in five 

skipped meals. One-third had their electricity cut off. Almost half lost their phone 

service. 

Incredibly, these families also cut back on needed medications. In fact, half went 

without needed prescriptions, and a full 60% went without a needed doctor appointment. 

I cannot understand why the proponents of this bill want to treat these families 

the same as irresponsible spendthrifts. They are hard-working, middle class Americans who have had the misfortune of facing illness without adequate medical insurance. Yet this bill treats them the same as those who went on a spending spree. 

I think we should distinguish between a parent who has to pay for their child’s cancer treatments and a 22-year-old who bought too many plasma screen televisions. 

I had planned to offer an amendment today that would have exempted from the 

harsh means test those families facing bankruptcy due to a serious medical hardship. Unfortunately, I was not able to do so because of a conflicting commitment. 

However, I have no doubt that the Majority would have rejected that amendment 

just as they rejected Rep. Berman and Rep. Meehan’s medical homestead amendment and every other reasonable amendment offered to this bill. 

I am extremely disappointed that the Committee chose to abrogate its responsibilities and ignore families struggling to make ends meet in the face of a medical crisis. Unfortunately, once again, the power and influence of large corporations took 

precedence over average Americans in the Republican-controlled Congress. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Mr. BERMAN. Mr. Chairman, I yield back. 

Chairman SENSENBRENNER. Gentleman from Utah. Gentleman 

from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. 

Let me just begin by saying we are, everyone on this Committee 

is extraordinarily aware of the particular burden that medical 

problems cause and the resulting bankruptcies. But if I could clarify a couple of things, Mr. Berman, by asking a couple of questions. 

As I read this, this overrides State law and creates a new Federal exemption for people that have medical emergencies that cause 

bankruptcy; is that right? 

Mr. BERMAN. And I amends the Federal Bankruptcy Bill that 

will become Federal bankruptcy law, to provide a $150,000 equity 

exemptions so that people—for those people who have over 50 percent of their income lost because of medical bills or because of an 

injury that costs——

Mr. CANNON. Right. But that would preempt State laws in those 

cases that have a different homestead? 

459 

Mr. BERMAN. For purposes of bankruptcy, not for purposes of 

other issues, just for purposes of bankruptcy, which is a Federal 

issue. 

Mr. CANNON. Certainly bankruptcy is, but bankruptcy has always recognized homestead as a State issue, and the effect of this, 

if I understand it—I’m just looking it over now—but the effect 

would be that a couple filing jointly for bankruptcy would have a 

$300,000 exemption as I read your language. 

Mr. BERMAN. $150,000. 

Mr. CANNON. But if you had a joint filing would that not double 

to 300,000? 

Mr. BERMAN. No, no. 

Mr. CANNON. Can you help me with where the language is that 

makes it the single, because you talk about the debtor’s aggregate 

interest. 

Mr. BERMAN. You have to get back to the base bill. Why don’t 

we do it the other way around? Why don’t you show me why it 

would? 

Mr. CANNON. Okay. We’ll——

Mr. BERMAN. You got a base bill——

Mr. CANNON. I actually don’t think I have the burden. It seems 

to me—and I’ll let just the Members of the Committee make the 

judgment—that, as I read it very quickly here——

Mr. BERMAN. It deals with household and the home equity. It’s 

not, in other words it’s about——

Mr. CANNON. Reclaiming my time, we disagree and we’ll just 

have to have people exercise their judgment on that. 

It also—you know, people sometimes get ill and then get healthy 

and they overcome their problems. 

Mr. BERMAN. Yeah, that’s a real problem. 

Mr. CANNON. I don’t see how we—well, it is a wonderful thing 

that happens I guess occasionally and maybe even often. We agree, 

I might say, that home prices have gone up, but the States have 

the responsibility under the homestead relationship with the Bankruptcy Act to deal with that. 

And just I’d like to submit for the record, Mr. Chairman, a letter 

to the Honorable Charles E. Grassley, from the U.S. Department 

of Justice, signed by Mr. Will Moschella, that relates to the study 

that Mr. Conyers referred to, and if I could just read one paragraph 

of that——

Chairman SENSENBRENNER. Without objection. The letter will be 

included in the record. 

[The material referred to follows:] 

460 


256H0001.eps
461 


256H0002.eps
462 


256H0003.eps
463 

Mr. CANNON. ‘‘In general, the data describing medical-related expenses contained in official documents filed by chapter 7 debtors 

reveal that slightly more than 5 percent of their general unsecured 

debt is medical-related. The conclusion that almost 50 percent of 

consumer bankruptcies are ‘medical related’ requires a broad definition and generally is not substantiated by the official documents 

filed by debtors.’’ So I—— Mr. BERMAN. Will the gentleman yield? 

Mr. CANNON. Yes. 

Mr. BERMAN. Two points. One, although the gentleman is wrong 

on the larger issue, he, it turns out, is correct. If they are filing 

jointly, then each gets the $150,000 exemption, so I wanted to clarify that. 

And who wrote that report? That’s a very familiar name. 

Mr. CANNON. Yes. I think everybody here would know Will 

Moschella——

Mr. BERMAN. Used to work on the majority side, right? 

Mr. CANNON. He certainly, because we have a Republican President who has—who names people to political positions, but I think 

everyone here would also recognize that Mr. Moschella is a very 

thoughtful and reasonable person and he’s gone down on record, so 

if you disagree with the conclusion you might want to check with 

him. 

Mr. Smith, did you want——

Mr. SMITH OF TEXAS. If the gentleman will yield just for a 

minute. 

Mr. Chairman, I just wanted to add a couple of other points. One 

is that this amendment was offered in the Senate last week and 

was defeated on a bipartisan vote of 58–39, so that’s a good example of an amendment that received bipartisan opposition. Second of 

all, it does override States’ rights. And third of all, as the Chairman has pointed out repeatedly today, this fractures the very closely crafted compromise that existed to try to get this bill through 

today. 

Mr. BERMAN. Does the gentleman promise—— Mr. SMITH OF TEXAS. And for those reasons I’d oppose the 

amendment as well. 

Mr. CANNON. Reclaiming my time I urge my colleagues to vote 

no on the—— Mr. DELAHUNT. Mr. Chairman? 

Chairman SENSENBRENNER. The time of the gentleman has expired. Gentleman from Massachusetts. 

Mr. DELAHUNT. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. DELAHUNT. I just can’t allow that comment about this overrules States’ rights. I think it was my friend from Texas that made 

that comment, when over the course of the past months, years, this 

Committee has preempted State law in terms of torts, securities 

litigation, they want to do it in terms of medical malpractice. They 

want to do it in terms of whatever—class actions. I mean with all 

due respect to my friend from Texas, give me a break. I mean that 

argument, that dog just simply doesn’t hunt, as the Chairman of 

the Crime Subcommittee would understand. 

464 

Mr. WATT. Would the gentleman yield? 

Mr. DELAHUNT. And I’ll yield to my friend from North Carolina. 

Mr. WATT. Isn’t it true that this bill already sets a national 

standard for bankruptcy—for homesteads? It doesn’t do that? 

Mr. BERMAN. No. It allows—— Mr. WATT. It caps it, doesn’t it? 

Mr. BERMAN. No, it allow—well, it does in certain situations, but 

basically—— Mr. WATT. It caps it I mean. 

Mr. BERMAN. In limited situations, but it allows States with 

enormous homestead exemptions that allow wealthy people to 

avoid paying off their debts and still keep huge mansions in those 

States like I think Texas, to continue to do so. 

It’s just another one of the deficiencies in a bill which I actually 

am happy is being pushed through in the fashion that it is, because 

it—in a perverse way it reminds me of why I’m a Democrat. 

Mr. DELAHUNT. The time is still mine, and——

Ms. JACKSON LEE. Mr. Delahunt? 

Mr. DELAHUNT. I could always count on the gentlelady from 

Texas, my friend, Sheila Jackson Lee. I yield to her what time I 

have left. 

Ms. JACKSON LEE. You certainly can, Mr. Delahunt. Thank you 

and you were amazed at the comment regarding States’ rights. I’m 

amazed at the comments that seem to suggest a particularly orchestrated process that we can’t do anything to improve the legislation because there’s some sort of external commitment to riding the 

backs of the Senate. And I’ve always had the understanding that 

these are two distinct bodies with two distinct lines of reasoning. 

And if this is all that we’re doing in the Judiciary Committee, then 

shame on us again. 

I think the gentleman’s amendment is a very thoughtful amendment, and the reason is it is well documented that the middle class 

are most burdened in the instances of bankruptcies by catastrophic 

illnesses. It is clear. 

Now, we can either concede today and ignore this amendment, 

and say that what we want to do is to put every family out in the 

streets, and continue then the pathway of destruction, or we can 

be reasoned and establish ourselves as an independent thinking 

body and support Mr. Berman’s amendment. I think Mr. Meehan—

I’m not sure—is that on that amendment. 

Mr. MEEHAN. Yes. 

Ms. JACKSON LEE. And make a very good point about what this 

bill should be standing for. It’s helping people rebuild their lives, 

not helping people destroy their lives. 

With that, I yield to the distinguished gentleman his time if he 

desires to have it. Mr. Delahunt, I yield back to you if you desire 

to have it. 

Chairman SENSENBRENNER. The question is on the amendment. 

Mr. MEEHAN. Mr. Chairman, I move to strike the last word. 

Chairman SENSENBRENNER. Who is moving? 

Mr. MEEHAN. It’s me. 

Chairman SENSENBRENNER. Oh, the other gentleman from Massachusetts is recognized for 5 minutes. 

Mr. MEEHAN. I am also a cosponsor of this amendment, and I 

was out at another hearing when the amendment was brought up. 

465 

I want to correct something that Mr. Smith said, and this is not 

the same amendment that was debated in the Senate. In the Senate it was a quarter, the standard was a quarter of the income on 

medical bills. This is one-half a person’s income towards medical 

bills. 

We’re saying that medical costs are not spending sprees, not personal irresponsibility, but the single largest causes of bankruptcy. 

About half of the filers cite medical costs as a major factor of their 

bankruptcy. The average unreimbursed medical costs were $12,000. 

45 million people in America go without health insurance every 

day. They are one accident or one illness away from financial ruin. 

But as this study found done by Harvard University, most people 

whose health care costs drove them to bankruptcy were uninsured 

but still had thousands of dollars in medical bills. 

I believe that the Congress’s failure to expand health care coverage in America and bring down health care costs are one of the 

reasons why medical bankruptcies have increased 2,200 percent 

since 1980. This amendment inserts a teeny bit of compassion and 

common sense to this bill. For debtors who are medically distressed, it provides a modest homestead exemption. Under this bill 

wealthy people can move to States with unlimited homestead exemptions, declare bankruptcy and shield their assets, even if they 

have mansions. But a family who has someone who falls ill can’t 

afford the hospital bills, would lose their modest home, and that’s 

entirely unfair. This amendment is narrowly tailored to apply only 

to—with majority medical expense. 

To be defined here as medically distressed, you either have to be 

out of work for more than a month due to an illness in your family, 

or have medical bills that are more than 50 percent of your household income, which is different than the Senate bill. The amendment gives a reasonable household exemption of $150,000 for medically distressed debtors. 

Nearly half of all States, the homestead exemption is less than 

25,000, and several States don’t have any homestead exemption. So 

this bill sets the floor at 150,000 in home equity, and despite what 

proponents of this bill would like to suggest, most people who file 

for bankruptcy because of medical expenses are not irresponsible. 

They’re families who have had complications with the birth of a 

child. They’re working men and women caring for a sick spouse or 

an elderly parent, or they’re seniors who are living on a fixed Social 

Security check. 

So I support this amendment, would urge my colleagues to support the amendment. And I yield back the balance of my time, Mr. 

Chairman. 

Chairman SENSENBRENNER. The question is on the amendment 

offered by the gentleman from California, Mr. Berman. Those in 

favor will say aye. 

Opposed, no. 

The noes appear to have it. rollcall is ordered. All those in favor 

of the Berman amendment will as your names are called answer 

aye, those opposed no, and the clerk will call the roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

466 

The CLERK. Mr. Coble, no. Mr. Smith? 

[No response.] 

The CLERK. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

[No response.] 

The CLERK. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. Mr. Inglis? 

Mr. INGLIS. No. 

The CLERK. Mr. Inglis, no. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Mr. Issa? 

Mr. ISSA. No. 

The CLERK. Mr. Issa, no. Mr. Flake? 

Mr. FLAKE. No. 

The CLERK. Mr. Flake, no. Mr. Pence? 

[No response.] 

The CLERK. Mr. Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

[No response.] 

The CLERK. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. 

[Pause.] 

The CLERK. Oh. Mr. Boucher, no. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. Mr. Watt? 

467 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

Mr. WEXLER. Aye. 

The CLERK. Mr. Wexler, aye. Mr. Weiner? 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

[No response.] 

The CLERK. Mr. Smith? 

[No response.] 

The CLERK. Mr. Van Hollen? 

Mr. VAN HOLLEN. Aye. 

The CLERK. Mr. Van Hollen, aye. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members in the chamber who wish 

to cast or change their vote? Gentleman from Wisconsin, Mr. 

Green? 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. 

Chairman SENSENBRENNER. Further Members in the chamber 

who wish to cast or change their vote? If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 13 ayes and 18 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. Are there further amendments? The gentleman from New York, 

Mr. Nadler. 

Mr. NADLER. Mr. Chairman, I have an amendment at the desk. 

We’ll try again on the redrafted amendment No. 1 that hopefully 

will satisfy Mr.—— Chairman SENSENBRENNER. The clerk will report. 

Mr. NADLER.—Cannon. 

Chairman SENSENBRENNER. Second attempt. 

The CLERK. Amendment to S. 256 offered by Mr. Nadler. Page 

210, after line 13, insert the following (and make such technical 

and conforming——

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read and the gentleman from New York will be recognized for 5 minutes. 

[The amendment follows:] 

468 


A256J1.eps
469 


A256J2.eps
470 

Mr. NADLER. Thank you. Mr. Chairman, I’ll be brief. I started describing this amendment earlier before the point of order. 

This amendment would make debts arising from civil rights violations nondischargeable. It includes in the amendment the civil 

rights violations listed in the Federal Criminal Code, any civil 

judgment arising under civil rights violation including a 1983 violation action that is an action for violation of civil rights under color 

of law, or an intentional violation of a valid court order enforcing 

civil rights law described in the amendment. 

It also includes offenses under State law that consists of conduct 

that would be a civil rights crime described in the Federal Criminal 

Code. 

Finally, it repairs an omission in the current code that makes 

fines and restitution ordered under the Federal Criminal Code nondischargeable, but not under State law. My amendment would clarify that that includes fines and restitution ordered under State law. 

So if you violate the right to vote, the right to work, the rights 

of a person wearing the uniform of the United States military, the 

right to the free exercise of religion, freedom of—access to clinic entrances or any other federally protected rights, you will not be able 

to abuse the Bankruptcy Code either to escape your debts or to 

force your victims to chase you across the country through bankruptcy courts trying to collect lawful judgments. 

We know that that is now a common strategy, and even where 

it fails, the uncertainty in the law gives tort fees as the opportunity 

to inflict more damage and more expense on the victims through 

abuse of the Bankruptcy Code. 

Mr. Chairman, this bill, the underlying bill greatly expands the 

kinds of debts that are deemed nondischargeable. It makes nondischargeable even small cash advances on credit cards prior to the 

filing of a case. It may not be enough money to keep your kids in 

Huggies, but it’s enough to be nondischargeable. We’re protecting 

the helpless credit card companies. If you use your credit card to 

pay your taxes online, something the IRS has been urging us to do 

for years, that would become a nondischargeable debt. We seem to 

have found ways to make all sorts of debts nondischargeable in this 

bill. 

I would hope that with this amendment we could go on record 

and make the law crystal clear that if all these other things can 

become nondischargeable, then debts incurred as a result of the deliberate violations of Federal or State law to violate people’s civil 

rights should also be nondischargeable so that you cannot violate 

people’s civil rights and use the bankruptcy courts to evade your 

responsibilities under the law. 

Thank you, Mr. Chairman. 

Mr. CHABOT. Mr. Chairman? 

Chairman SENSENBRENNER. Gentleman from Ohio, Mr. Chabot. 

Mr. CHABOT. I move to strike the last word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. CHABOT. Thank you, Mr. Chairman. I won’t use the 5 minutes. My colleague indicated that he wouldn’t be real extensive in 

his arguments, so I won’t be either. I’ll keep mine brief. 

I would rise in opposition to this amendment. This really, this 

amendment is just a revised version of the Schumer amendment, 

471 

which has been responsible for scuttling the bankruptcy—passage 

of the entire bankruptcy bill for some time now. And it was defeated, this amendment was defeated in the Senate last week by 

a vote of 46 yeas and 53 noes. 

The Bankruptcy Code already prevents the discharge of most 

types of debts resulting from violent or destructive activities. Current law already clearly applies to willful and malicious acts of violence committed by, for example, pro-life activists at an abortion 

clinic, that would result in injury either to a person or to property. 

In fact, there is no reported case specifying otherwise. CRS, for example, has stated that the specific intent requirement necessary to 

establish a violation of face would arise from behavior comparable 

to an intentional tort, and thus would be nondischargeable under 

11 USC 532(a)(6). That provides that a debt for willful and malicious injury by a debtor to another entity or to the property of another entity is nondischargeable. 

So in other words, willful or wanton acts, malicious acts, would 

already be nondischargeable under the Bankruptcy Code, so this 

amendment is unnecessary and really adds nothing. And as I indicated originally, this was the very amendment which scuttled the 

passage of this very important legislation before, so I would urge 

my colleagues to vote no. 

Mr. BERMAN. Mr. Chairman? 

Chairman SENSENBRENNER. Gentleman yield back? 

Mr. BERMAN. Mr. Chairman? 

Chairman SENSENBRENNER. Gentleman from Ohio yield back? 

Gentleman from Ohio, do you yield back? 

Mr. CHABOT. I yield back, yes. 

Mr. BERMAN. Mr. Chairman? 

Chairman SENSENBRENNER. Gentleman from California. 

Mr. BERMAN. Move to strike the last word. 

Chairman SENSENBRENNER. The gentleman’s recognized for 5 

minutes. 

Mr. BERMAN. Yield to the gentleman from New York. 

Mr. NADLER. Thank you, Mr. Chairman. 

Mr. Chairman, the remarks that we just heard from the distinguished Chairman of the Constitution Subcommittee really don’t 

bear on this amendment. It is true the current code makes nondischargeable malicious and violent torts, but we’re not talking 

necessarily about malicious and violent torts. We’re talking about 

deliberate violations of civil rights of all kinds. And, yes, this would 

include within it some of what the Schumer amendment in the 

Senate—which I would remind the distinguished Chairman originated in this Committee a number of years ago as the Nadler 

amendment before they took it up in the Senate—would cover. 

But this considerably broader and it is saying that if you deliberately the civil rights of someone else and there is a—and violates 

the law, the Federal or State law, and there’s a judgment against 

you, you cannot abuse the bankruptcy courts to get rid of that judgment. 

Now, the argument that this scuttles the bill, that’s not an argument to the policy. The bill ought to say if credit cards debt incurred to pay your taxes on line is nondischargeable, then certainly 

you shouldn’t be able to get rid of a court judgment against you for 

472 

a deliberate offense against someone else’s civil rights by use of the 

Bankruptcy Code. 

The principle is sound, and we are to improve the bill, which is 

a bad enough bill, but make it a little better, by adopting this 

amendment. 

I yield back. I thank the gentleman and I yield back to him. 

Chairman SENSENBRENNER. The gentleman from California yield 

back? The time belongs to the gentleman from California. 

The question is on the Berman—excuse me—the Nadler amendment. Now, this is the Nadler amendment, it’s not the Schumer 

amendment. Those in favor will say aye. 

Opposed, no? 

The noes appear to have it. The noes—okay, a rollcall will be ordered. Those in favor of the Nadler amendment will as your names 

are called answer aye, those opposed no, and the clerk will call the 

roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. Mr. Smith? 

Mr. SMITH OF TEXAS. No. 

The CLERK. Mr. Smith, no. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. Mr. Inglis? 

[No response.] 

The CLERK. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

[No response.] 

The CLERK. Mr. Issa? 

[No response.] 

The CLERK. Mr. Flake? 

[No response.] 

The CLERK. Mr. Pence? 

[No response.] 

The CLERK. Mr. Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

473 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

[No response.] 

The CLERK. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

Mr. BOUCHER. No. 

The CLERK. Mr. Boucher, no. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

[No response.] 

The CLERK. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

[No response.] 

The CLERK. Ms. Waters? 

[No response.] 

The CLERK. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

Mr. DELAHUNT. Aye. 

The CLERK. Mr. Delahunt, aye. Mr. Wexler? 

Mr. WEXLER. Aye. 

The CLERK. Mr. Wexler, aye. Mr. Weiner? 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

[No response.] 

The CLERK. Mr. Smith? 

[No response.] 

The CLERK. Mr. Van Hollen? 

[No response.] 

The CLERK. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members who wish to cast or change 

their vote? The gentleman from Wisconsin, Mr. Green. 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. 

Chairman SENSENBRENNER. Gentleman from Arizona, Mr. 

Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. 

Chairman SENSENBRENNER. Gentlewoman from California, Ms. 

Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. 

474 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their votes? If not, the clerk will report. Gentleman from 

Virginia, Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? The clerk will try again to report. 

The CLERK. Mr. Chairman, there are 11 ayes and 17 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. Are there further amendments? 

Mr. SCOTT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. 

Scott? 

Mr. SCOTT. Thank you, Mr. Chairman. I have an amendment at 

the desk, No. 004. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

The CLERK. Amendment to S. 256 offered by Mr. Scott of Virginia. Page 13, after line 23, insert the following (and make such 

technical and conforming changes as may be appropriate): E, subparagraphs (a) through (c) shall not apply——

Chairman SENSENBRENNER. Without objection the amendment is 

considered as read, the gentleman from Virginia will be recognized 

for 5 minutes. 

[The amendment follows:] 

475 


A256K.eps
476 

Mr. SCOTT. Thank you, Mr. Chairman. Mr. Chairman, the rest 

of the reading would have said that the court may not dismiss or 

convert a case based on any form of means testing if the substantial portion of the indebtedness was incurred as a result of illness 

of the debtor, a dependent of the debtor or the debtor’s spouse if 

not the dependent of the debtor. 

Mr. Chairman, we’re talking about bankruptcy abuse. Bankruptcy filings have increased lately in recent years, and some of the 

people who file for bankruptcy haven’t been financially responsible, 

but the more likely explanation is that the consumer bankruptcy 

results were something beyond their control such as a divorce, 

major illness or job loss. 

The truth is that many people are just one paycheck away or a 

job loss away or an uncovered medical catastrophe away from 

bankruptcy. We know at the present time there are about 1.5 million people who go into bankruptcy every year. Half of those people 

who go into bankruptcy go into bankruptcy because of medical 

bills. About three-fourths of those who go into bankruptcy because 

of medical bills even have insurance. But nonetheless the explosion 

of health care costs have added such a burden to these families 

that they’ve ended up in bankruptcy. 

Mr. Chairman, if the purpose of the legislation is to deal with 

spendthrifts who are abusers of credit, we ought to distinguish 

them from the hard working Americans, basically middle class 

working families who have health insurance, or those on the right 

of the margin who wish they had health insurance, and those who 

are irresponsible in acquiring debt. 

Mr. Chairman, if we don’t adopt this amendment we’ll be sending the message that if you get sick, you’re abusing the system. Mr. 

Chairman, we need to make sure that individuals who are afforded 

the protection of Chapter 7 bankruptcy, if a substantial portion of 

their bills were incurred as a result of illness, and I would hope 

we would adopt the amendment. 

Chairman SENSENBRENNER. Gentlemen from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. If I might ask, Mr. 

Scott, on line 3 it says ‘‘on any form of means testing if, the a substantial portion,’’ but I take it the comma and the ‘‘the’’ should be 

stricken? I don’t know that it makes sense otherwise. 

Mr. SCOTT. Yes, Mr. Chairman. I think the after—‘‘if’’ the comma 

should not be there. 

Mr. CANNON. And the ‘‘the’’ should not be there either? 

Mr. SCOTT. If the—right. 

Mr. CANNON. So it means testing——

Chairman SENSENBRENNER. Without objection the amendment is 

modified. 

Mr. SCOTT. To delete the comma and the ‘‘the’’ on line 3. 

Chairman SENSENBRENNER. Gentleman from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. 

Again we’re dealing with issues that are similar to what we just 

dealt with prior to the last amendment, and I’m not going to belabor it except to encourage my—Members of the Committee to 

vote against this amendment. It prevents the—which prevents the 

case filed by a debtor from being dismissed under the means test. 

The special circumstances provision in section 102(a) addresses the 

concerns that are raised by this amendment I believe, and the 

477 

amendment does not address circumstances where the debtor is 

currently healthy, and what happens if the debtor’s a millionaire? 

That we’re not dealing with—that’s been raised significantly here. 

This is on page 12 of the bill. The paragraph beginning with line 

5 deals with those special medical—those circumstances such as a 

serious medical condition which I think deals with this issue appropriately. 

Mr. SCOTT. Would the gentleman make that citation again, 

please? 

Mr. CANNON. Yeah. On page 12 of the printed bill, it’s a—line 5, 

capital B(i) or 1, and it’s really line 7 that says ‘‘such as a serious 

medical condition’’ is one of those special circumstances. So I think 

that we’ve actually dealt with this issue in this bill. So I would encourage the Members of the Committee to vote against this amendment, and yield back the balance of my time. 

Chairman SENSENBRENNER. The question is on the adoption of 

the amendment offered by the gentleman from Virginia, Mr. Scott. 

Those in favor will say aye. 

Opposed, no. 

The noes appear to have it. The noes have it and the amendment 

is not agreed to. Are there further amendments? 

Mr. SCOTT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. 

Scott. 

Mr. SCOTT. I have an amendment at the desk, 003. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Mr. SCOTT. And, Mr. Chairman, under the—in light of the actions of the majority I’d want to take up 005 at the same time and 

take them en bloc. 

Chairman SENSENBRENNER. The clerk will report amendments 

003 and 005, and while the clerk is doing that, the staff will distribute both amendments. The clerk will read. 

The CLERK. Amendment to S. 256 offered by Mr. Scott of Virginia. Page 13, after line 23, insert the following (and make such 

technical and conforming changes as may be appropriate:) E, subparagraphs (a) through (c) shall not apply and the court may not 

dismiss or——

Chairman SENSENBRENNER. Without objection the amendments 

will be considered en bloc and without objection the amendments 

will be considered as read, and the gentleman from Virginia is recognized for 5 minutes. 

[The en bloc amendments follow:] 

478 

Amendment to S. 256

Offered by Mr. Scott of Virginia

Page 13, after line 23, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 ‘‘(E) Subparagraphs (A) through (C) shall not apply,

2 and the court may not dismiss or convert a case based

3 on any form of means testing, if a substantial portion of

4 the indebtedness is due to business losses incurred by a

5 spouse who has died or deserted the debtor.


A256L.AAB
479 

Amendment to S. 256

Offered by Mr. Scott of Virginia

Page 13, after line 23, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 ‘‘(E) Subparagraphs (A) through (C) shall not apply,

2 and the court may not dismiss or convert a case based

3 on any form of means testing, if the substantial portion

4 of the indebtedness was a result of unforeseen loss of em5 ployment through no fault of the debtor.


A256M.AAB
480 

Mr. SCOTT. Thank you, Mr. Chairman. 003 allows a spouse to file 

for bankruptcy if their—a person to file for bankruptcy if their 

spouse—if a substantial of the bills are due to business losses incurred by a spouse who has died or deserted. For example, if a wife 

co-signs some business loans on behalf of her husband, and the 

husband—the business fails because the husband died or disappears and deserts the wife, the wife is left holding the bag and 

bills she can never pay. 

The bill would deny bankruptcy relief for the spouse if the person is making more than the median amount, say, $50,000. If they cosigned $500,000 worth of bills that spouse would be left holding the 

bag and unable to declare bankruptcy. If they can pay a couple 

hundred dollars a month, $10,000 over 5 years, they would not be 

able to file bankruptcy. That essentially means that everything 

over food and rent would be garnisheed from the person because 

they had the bad judgment to co-sign their spouse’s business loans. 

It may be bad judgment but it’s certainly not abusive. 

The other amendment, Mr. Chairman, is if your bills are due, if 

you’ve gotten into financial difficulty because you lost your job 

through no fault of your own, you shouldn’t be denied the opportunity to file for bankruptcy. After Enron and WorldCom we found 

that a lot of people lose their jobs through no fault of their own because their companies went bankrupt. Traditionally in the midst 

of—or if it’s a downward economy, traditionally we deal with widespread job loss by protecting the employees by doing such things 

as extending unemployment benefits. Now we’re punishing the employee by protecting the creditors and bills they can’t pay. American families would be well served if Congress addressed the widespread economic insecurity that households face rather than close 

this door to an option of last resort. 

Mr. Chairman, this job loss amendment would apply if the indebtedness was a result of unforeseen loss of employment through 

no fault of the debtor. So, Mr. Chairman, we should not deny bankruptcy relief if you lose your job through no fault of your own, or 

because you had the bad judgment to co-sign your spouse’s business loan and you got deserted, or the spouse died and the business 

went under. 

I would hope the we would adopt these two amendments. 

Chairman SENSENBRENNER. The gentleman yield back? 

Mr. SCOTT. I yield back. Thank you. 

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon. 

Mr. CANNON. Thank you, Mr. Chairman. I’m working hard on 

understanding this. As the other side knows, I’m a slow reader and 

relatively dim-witted, and I’ll acknowledge that but still try and 

help get an understanding of where we’re going and why I don’t 

think these amendments are necessary. 

As I understand this, this would create an exemption to the 

needs based test as a grounds for dismissal so people would not be 

dismissed if this happened. I have a couple of problems with them 

in particular. In first place they are vague, so that what if the debtor is Mr. or Mrs. Trump or a widowed Mr. or Mrs. Trump? Why 

are we dealing with business losses in the first—— Mr. SCOTT. Will the gentleman yield on that point, on that point? 

Mr. CANNON. Certainly. 

481 

Mr. SCOTT. If it’s Mrs. Trump and she’s co-signed the bills and 

he deserts here and she’s left with billions of dollars or indebtedness, she would be unable to file for bankruptcy because she can 

pay $2,000 a year for the next 5 years. 

Mr. CANNON. I think this amendment, as I understand it, Mr. 

Scott, is dealing with the same section and deals with a similar situation as the last amendment, and I believe that that would be 

taken care of by the special needs section that we just quoted a few 

moments ago, so that we already have the situation where the 

debtor can be discharged of the indebtedness under these circumstances as I read them. 

Mr. SCOTT. So a spouse deserting you as part of a special circumstance is defined? 

Mr. CANNON. If you’re looking at that section B(i), and as you go 

down to line 9, to the extent that such special circumstances that 

justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative. So if a spouse 

dies, if there’s a huge business debt, I believe that would be covered by the language that is currently in the bill, and specifically 

the job loss. So you have adjustments of current monthly income 

which is job loss, as I read——

Mr. SCOTT. Would the gentleman yield? 

Mr. CANNON. Certainly. 

Mr. SCOTT. Is it your statement that the legislative intent of the 

bill is to cover people in this—as a special circumstance who lose 

their job through no fault of their own? 

Mr. CANNON. Well, I think yes. I’m comfortable with that given 

the language of the section on line 10 that justifies. So you have 

to prove it, but I think that’s a relatively straightforward process 

and deals with the issues that you’ve—that you’re suggesting here, 

and so I would ask my colleagues on the Committee to reject these 

amendments, and yield back the balance of my time. 

Chairman SENSENBRENNER. The question is on the amendments 

en bloc offered by the gentleman from Virginia, Mr. Scott. Those 

in favor will say aye. 

Opposed, no. 

The noes appear to have it, the noes have it. The amendment’s 

not agreed to. 

Are there further amendments? 

Mr. MEEHAN. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from Massachusetts, 

Mr. Meehan. 

Mr. MEEHAN. Mr. Chairman, I have an amendment at the desk. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Mr. MEEHAN. Designated 001, Conyers 001. 

The CLERK. Amendment to S. 256 offered by Mr. Meehan. Page 

13, strike lines 14 through 23, and insert the following (and make 

such technical and conforming changes as may be appropriate:) D, 

subparagraphs (a) through (c) shall not——

Chairman SENSENBRENNER. Without objection the amendment 

will be considered as read, and the gentleman from Massachusetts 

is recognized for 5 minutes. 

482 

[The amendment follows:] 

Amendment to S. 256

Offered by Mr. Meehan

Page 13, strike lines 14 through 23, and insert the

following (and make such technical and conforming

changes as may be appropriate):

1 ‘‘(D) Subparagraphs (A) through (C) shall not apply,

2 and the court may not dismiss or convert a case based

3 on any form of means testing, if the debtor is a disabled

4 veteran (as defined in section 3741(1) of title 38) and—

5 ‘‘(i) the indebtedness occurred primarily during

6 a period during which he or she was—

7 ‘‘(I) on active duty (as defined in section

8 101(d)(1) of title 10); or

9 ‘‘(II) performing a homeland defense activ10 ity (as defined in section 901(1) of title 32); or

11 ‘‘(ii) the indebtedness occurred primarily as a

12 result of an injury or disability resulting from—

13 ‘‘(I) active duty (as defined in section

14 101(d)(1) of title 10); or

15 ‘‘(II) performing a homeland defense activ16 ity (as defined in section 901(1) of title 32).


A256Z.AAB
483 

Mr. MEEHAN. Thank you, Mr. Chairman. This amendment is intended to protect injured or disabled veterans from the harsh and 

humiliating procedures established for debtors under the newly established means test. 

This bankruptcy bill is based on the presumption that people 

who go into bankruptcy are just trying to abuse the system, and 

that’s why it sets up an artificial means test to prevent people from 

trying to get a fresh start under Chapter 7. I believe that members 

of the military who swear to defend this country and risk their 

lives overseas, the presumption should be that they are responsible 

people. And so this amendment aims to exempt, all veterans returning home disabled, from the artificial means test. 

According to the GAO in recent years about 16,000 active duty 

service members have filed for bankruptcy annually. But with our 

military extended from Iraq to Afghanistan and reservists separated from their families and jobs for long stretches of time, that 

number is sure to increase. 

There were efforts in the Senate to protect all service members 

from the means test and the abusive practices by lenders, but 

many of them were turned back. Ultimately the Senate agreed on 

a more narrowly tailored protection for only disabled service members. The Senate amendment said that disabled veterans filing for 

bankruptcy, whose indebtedness occurred primarily while on active 

duty are exempt from means test. But the Senate amendment fails 

to exempt disabled service members who accumulated, amounted 

debt after their return home but because of the injury or the disability sustained while on active duty. 

We all know that the members of the military who serve oftentimes have injuries that are diagnosed when they get back to the 

United States. There’s been a lot of attention on PTSD, post traumatic stress syndrome. This amendment builds on the Senate compromise. It protects disabled veterans whose indebtedness occurred 

while on active duty as well as those whose indebtedness primarily 

as a result of their injuries or disabilities. More than a million 

service members have served in Iraq. More than 11,000 have been 

wounded. According to the New England Journal of Medicine, 16 

percent of Iraq combat veterans are returning home with post traumatic stress disorder or other psychological conditions. 

Now, I’ve gone to Walter Reed Hospital and visited kids who are 

missing arms and missing legs. They’re struggling to recover. They 

might be unable to work for months or years, and they may have 

enormous personal costs associated with their ongoing medical 

treatments. This means test in this bill establish its completely arbitrary cost for expenses that have nothing to do with the kinds of 

new expenses that disabled service members might actually be facing. All this amendment does is protect the rights that disabled 

service members have when they file for bankruptcy. It gives 

judges the discretion to determine whether they should be eligible 

for Chapter 11, Chapter 7 or Chapter 13, and does not presume 

that they are trying to game the system. 

I urge my colleagues to adapt—to adopt this amendment, and I 

urge them to look at the language that we’re talking about, the indebted—what the Senate language says is the indebtedness occurred primarily during a period when he or she was in active 

duty. This language simply says that the indebtedness occurred 

484 

primarily as a result of an injury or disability resulting from active 

duty. Clearly, a minimum we ought to be able to do for a man or 

a woman who’s injured in Iraq, who comes home only to find out 

they have injuries that they weren’t aware of, that we can excuse 

them from this means test, this arbitrary means test set up in this 

bill. 

Now, surely, even a rush to get this bill out no matter what the 

amendments that are offered, surely we can consider this amendment. 

Mr. CONYERS. Would the gentleman yield? 

Mr. MEEHAN. I would yield to the ranking——

Mr. CONYERS. I only want to underscore the importance of us 

supporting those members of the armed services who are not just 

protecting us but putting their lives at risk in an effort to fight a 

very difficult kind of war, unlike any that we’ve been forced to deal 

with before. And I concur completely in the excellent way that he 

has put forward the logic in this amendment. 

Chairman SENSENBRENNER. The time of the gentleman has expired. 

Mr. MEEHAN. And again, it’s overwhelming evidence that——

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon. 

Mr. MEEHAN.—these members get PTSD and everything else. 

Chairman SENSENBRENNER. The gentleman from Utah. 

Mr. CANNON. Thank you, Mr. Chairman. I apologize just for a 

moment here. We apparently got the wrong amendment initially 

here, so I’ve just been looking this over. And if I might ask Mr. 

Meehan just one question. 

On line 12 of your amendment it says: result of an injury or disability resulting from (1) active duty and then performing homeland defense. Does ‘‘resulting from’’ mean that it happened while 

on either active or performing, or——

Mr. MEEHAN. No. The question——

Mr. CANNON. Does it have to be something involved—that, you 

know, if a guy is on active duty but he’s out at a bar and he gets 

in a fistfight and gets disabled, do you have—what do you mean 

by that? 

Mr. MEEHAN. No. The injury would be resulting from active duty. 

In other words, if somebody, as we all know from veterans coming 

back develop PTSD, and the question also is when the indebtedness occurred. But, no, this is anyone whose injured primarily as 

a result of, injury primarily the result of active duty. And oftentimes when a service member comes home and it’s determined that 

they have PTSD, for example, then that is an injury that occurred 

as a result of active duty. Yet, if the indebtedness was not incurred 

while they were on active duty, then they don’t get any relief under 

this amendment. That’s a fundamental flaw in what the Senate 

adopted, and I think we ought to correct it here. 

Mr. CANNON. May I just ask, so if someone who is on active duty 

is in a bar and gets in a fight, does that result from the active duty 

since it’s—you know, he’s in the theater, but it’s, you know, a different circumstance than what we normally think of as post—

PTSD. I don’t—I’m just trying to understand where you’re going 

with——

485 

Mr. MEEHAN. Well, I can tell you that PTSD, the military has 

changed their policy. We now require, when soldiers come back, to 

have a full examination——

Mr. CANNON. Reclaiming my time, I’m not talking about PTSD 

so much as trying to understand, do you intend to cover everything 

that happens while a person is on active duty——

Mr. MEEHAN. Only if the injury is as a result of their service on 

active duty. In other words——

Mr. CANNON. So the fight in a bar in Iraq is not going to qualify—that is a fight with another American——

Mr. MEEHAN. Well, if it’s in Iraq, it may well qualify, it may well 

qualify. But here’s—you’re missing the point. What this is about is 

when the indebtedness occurred, so even under the Senate amendment if the indebtedness occurred while this soldier was in Iraq, 

I believe he’s covered by the Senate language. 

However, if a soldier comes back to the United States, it’s determined he has PTSD, and the indebtedness occurs after that disability has been diagnosed, and the indebtedness starts to build 

once a soldier comes back to the United States, they wouldn’t get 

relief under the Senate language. 

Mr. CANNON. Reclaiming my time, I think I understand where 

you’re coming from on that. I’m unclear as to the scope, but let me 

just point out that the bill already has very substantial protections 

for the military in it. The bill’s needs-based test includes numerous 

safe harbors and exceptions for special circumstances. As amended, 

the special circumstances exception specifically mentions a debtor 

who is subject to a call or order to active duty in the armed forces. 

And, as amended, the needs-based test has a special exception just 

for debtors who are disabled veterans if indebtedness occurred primarily during a period when the debtor was on active duty or performing a homeland defense activity. 

As amended, the bill specifies that the absolute safe harbor from 

all types of dismissal motions, under section 707(b), applies to a 

veteran. As amended, the bill excuses a debtor if he or she is on 

active military duty in a military combat zone from the mandatory 

credit counseling and financial management training requirements. 

I think we’ve done what we can do for our members of the military, and so I would encourage the Members of the Committee to 

vote no on this amendment. 

Mr. MEEHAN. Would the gentleman yield? 

Mr. CANNON. Certainly. 

Mr. MEEHAN. But what I’m talking about here is people who 

have been injured or have a disability as a result of service, for example, in Iraq. If you want language, for example, to exempt anyone who gets in a bar fight in Iraq, I would be glad to do that, but 

what——

Mr. CANNON. No. I’m just trying to understand what you want 

to do but——

Mr. MEEHAN. What I’m talking about is if a soldier who serves 

in Iraq and comes home without a leg or another—without an arm, 

as they have at Walter Reed Hospital, literally thousands of them, 

and they have PTSD, as many of them do, and their indebtedness 

starts to grow when they get back from active duty, they ought to 

be covered by the same kind of exemption here. 

486 

Mr. CANNON. Are you suggesting that—you’ve talked about post 

traumatic stress syndrome—— Mr. MEEHAN. As one example. 

Mr. CANNON. As an example, but is that because—— Chairman SENSENBRENNER. Time of the gentleman has expired. 

Mr. CANNON. Thank you, yield back. 

Chairman SENSENBRENNER. The question is on the amendment 

offered by the gentleman from Massachusetts, Mr. Meehan. Those 

in favor will say aye. 

Opposed, no. 

The noes appear to have it. 

Mr. MEEHAN. rollcall, Mr. Chairman. 

Chairman SENSENBRENNER. rollcall will be ordered. The question 

is on the Meehan amendment. Those in favor will as your names 

are called answer aye, those opposed, no, and the clerk will call the 

roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. Mr. Smith? 

[No response.] 

The CLERK. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. Mr. Inglis? 

[No response.] 

The CLERK. Mr. Hostettler? 

Mr. HOSTETTLER. No. 

The CLERK. Mr. Hostettler, no. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Mr. Issa? 

Mr. ISSA. No. 

The CLERK. Mr. Issa, no. Mr. Flake? 

[No response.] 

The CLERK. Mr. Pence? 

[No response.] 

The CLERK. Mr. Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

487 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

[No response.] 

The CLERK. Mr. Boucher? 

[No response.] 

The CLERK. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

[No response.] 

The CLERK. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

[No response.] 

The CLERK. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Smith? 

[No response.] 

The CLERK. Mr. Van Hollen? 

Mr. VAN HOLLEN. Aye. 

The CLERK. Mr. Van Hollen, aye. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members in the chamber who wish 

to cast or change their votes? Gentleman from Virginia, Mr. Boucher? 

Mr. BOUCHER. Votes no. 

The CLERK. Mr. Boucher, no. 

Chairman SENSENBRENNER. Gentleman from California, Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. 

Chairman SENSENBRENNER. Gentlewoman from Texas, Ms. Jackson Lee? 

Ms. JACKSON LEE. Am I recorded? 

The CLERK. Mr. Chairman, Ms. Jackson Lee is not recorded. 

488 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. 

Chairman SENSENBRENNER. Further Members in the—gentleman 

from Texas, Mr. Smith. 

Mr. SMITH OF TEXAS. Mr. Chairman, I vote no. 

The CLERK. Mr. Smith, no. 

Chairman SENSENBRENNER. Gentleman from South Carolina, Mr. 

Inglis. 

Mr. INGLIS. No. 

The CLERK. Mr. Inglis, no. 

Chairman SENSENBRENNER. Any other Members in the chamber 

who wish to cast or change their votes? If not, the clerk will report. 

The gentlewoman from California, Ms. Waters? 

Ms. WATERS. Aye. 

Chairman SENSENBRENNER. Is Ms. Waters recorded? 

The CLERK. Mr. Chairman, Ms. Waters is recorded with aye. 

Chairman SENSENBRENNER. The clerk will report. 

The CLERK. Mr. Chairman, there are 12 ayes and 19 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. Are there further amendments? 

Mr. SCHIFF. Mr. Chairman, I have an amendment. 

Chairman SENSENBRENNER. The gentleman from California, Mr. 

Schiff? 

Mr. SCHIFF. Mr. Chairman, I have an amendment——

Ms. JACKSON LEE. Can I have a parliamentary inquiry, pleases? 

What is the order of selecting people to do amendments? 

Chairman SENSENBRENNER. The order is at the discretion of the 

Chair. The gentleman from California, Mr. Schiff. 

Ms. JACKSON LEE. That’s what I notice, so let me say that I reject the discretion of the Chair. I’ve had my hand up forever and 

ever——

Chairman SENSENBRENNER. The gentlewoman from Texas is out 

of order. 

Ms. JACKSON LEE. You need to be fair. 

Chairman SENSENBRENNER. The gentleman from—the Chair has 

always been fair and——

Ms. JACKSON LEE. Not really. 

Chairman SENSENBRENNER. Well, the clerk will report the 

amendment of the gentleman from California, Mr. Schiff. 

Ms. JACKSON LEE. I’m planning on staying here all evening till 

you call on me. 

Chairman SENSENBRENNER. The gentlewoman from Texas will be 

called on in due course. Which amendment does the——

Ms. JACKSON LEE. Well, it will be 12 tonight and I’ll be right 

here waiting to be called on. You’re rudely unfair. 

Mr. SCHIFF. Mr. Chairman——

Ms. JACKSON LEE. Had my hand up forever. 

Mr. SCHIFF. The amendment is numbered 002. 

Chairman SENSENBRENNER. The clerk will report the amendment 

of the gentleman from California. 

Mr. SCHIFF. Amendment to S. 256 offered by Mr. Schiff. Page 92, 

after line 5, insert the following (and make such technical and conforming changes as may be appropriate:). 

489 

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read, and the gentleman from California is recognized for 5 minutes. 

[The amendment follows:] 

490 

Amendment to S. 256

Offered by Mr. Schiff

Page 92, after line 5, insert the following (and make

such technical and conforming changes as may be appropriate):

1 SEC. 220A. GAO STUDY RELATING TO CHILD SUPPORT PAY2 MENTS.

3 (a) STUDY.—The Comptroller General of the United

4 States shall carry out a study to evaluate—

5 (1) the ability of individuals who are debtors

6 under title 11, United States Code, to pay obliga7 tions for child support; and

8 (2) the ability of such debtors to obtain the

9 payment of child support they are entitled to receive;

10 during the case under such title and after such case is

11 closed.

12 (b) REPORT.—Not later than 1 year after the date

13 of the enactment of this Act, the Comptroller General shall

14 submit to the President pro tempore of the Senate and

15 the Speaker of the House of Representatives a report on

16 the results of the study conducted under subsection (a).


A256N.AAB
491 

Mr. SCHIFF. Mr. Chairman, I will keep this very brief and it 

won’t consume 5 minutes. 

This amendment would authorize a study by the GAO to determine any effects the bill may have on the ability of a parent to pay 

child support or the ability of a parent to collect child support. 

Probably the most significant concern about the bill for me is the 

collateral consequence of the bill, where those trying to collect child 

support may be placed in indirect or direct competition with credit 

card companies or others who are in a much stronger position to 

collect on outstanding debts than those who are entitled to child 

support. 

This amendment is identical to the one I offered 4 years ago that 

made it into the manager’s amendment but was later removed from 

the manager’s amendment. It would merely require that a study be 

conducted so that we can determine, after a suitable period of time 

elapses, if there has been an adverse impact in this area. Some 

have asserted that portions of the bill will actually help those attempting to collect child support, but I think it is still unclear what 

the impact will be on those who are entitled to child support and 

maybe unable to collect it. This amendment will provide for a good 

and objective analysis to help us determine whether subsequent 

legislation as a follow up would be prudent. 

The bill only calls for a study. It does not impede the date of enactment of the bill or implementation of the bill. 

With that, Mr. Chairman, I will yield the balance of my time. 

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon. 

Mr. CANNON. Thank you, Mr. Chairman. 

Let me respond by just submitting for the record a National 

Child Support Enforcement Association statement supporting the 

bill. This is from, I think this is from 2002, but I think the principles are the same. 

Let me just point out that this study can be had just by a request 

from Congress. We could even do a bipartisan request of GAO, and 

I assure the gentleman from California that I would be happy to 

sign that request with him if he’d like to do that. 

We do not need to amend the study—or amend the bill to get a 

study like this, and so I would encourage my colleagues to vote 

against this amendment, and I yield back the balance of my time. 

[The material referred to follows:] 

492 


256O.eps
493 

Mr. CONYERS. Could the gentleman from Utah yield, please? 

Mr. CANNON. Mr. Conyers, I’d be happy to yield to you in just 

a moment, but may I suggest to the gentleman that he might want 

to withdraw the amendment. And I’d be happy to sign a letter asking for the study. 

Mr. SCHIFF. If the gentleman will yield, I’d be happy to yield to 

the—I was going to say I’m—unless my colleague objects, I’d be 

happy to withdraw the amendment and join my colleague in—— Chairman SENSENBRENNER. Without objection, the amendment is 

withdrawn. 

Mr. CONYERS. Thank you. 

Chairman SENSENBRENNER. Are there further amendments? The 

gentleman from Michigan, Mr. Conyers. 

Mr. CONYERS. I wanted to just make—strike the last word. 

Chairman SENSENBRENNER. The gentleman is recognized for 5 

minutes. 

Mr. CONYERS. After the distinguished gentlelady from Texas is 

recognized, and after the Ranking Member of Commercial and Administrative Law Subcommittee, Mr. Watt, makes an important 

presentation on his amendment, it is my inclination to call for the 

previous question. And I yield back my time. 

Chairman SENSENBRENNER. Does the gentleman from Michigan 

yield back? 

Mr. CONYERS. Yes, sir. I do. 

Chairman SENSENBRENNER. For what purpose does the gentlewoman from Texas seek recognition? 

Ms. JACKSON LEE. I have an amendment at the desk. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Ms. JACKSON LEE. It is 001, and I have five amendments. 

Chairman SENSENBRENNER. Without objection, the amendments 

are considered en bloc. 

Ms. JACKSON LEE. Mr. Chairman, I am not asking him for them 

to be considered en bloc. 

Chairman SENSENBRENNER. The clerk will report the amendment. 

Ms. JACKSON LEE. 001, please. 

The CLERK. Amendment to S. 256 offer by Ms. Jackson Lee of 

Texas. Page 10, line 22, strike ‘‘$1,500’’ and insert ‘‘$3,000.’’ Chairman SENSENBRENNER. The gentlewoman is recognized for 5 

minutes. 

[The amendment follows:] 

494 

Amendment to S. 256

Offered by Ms. Jackson-Lee of Texas

Page 10, line 22, strike ‘‘$1,500’’ and insert

‘‘$3,000’’.


A256P.AAB
495 

Ms. JACKSON LEE. I thank the Chairman very much. I would like 

to have recorded—well, let me just make a statement. I was unavoidably detained for the Schiff amendment dealing with identity 

theft. I’d like to be recorded as voting aye if I had been present. 

And I was detained for the Nadler amendment. I’d like to be recorded as having voted yes. 

With that in mind, to my colleagues, I think that this amendment is a very straightforward and simple amendment, and would 

generate, I would hope, bipartisan support. My amendment simply 

increases the amount of relief that is given to those parents who 

have children in private and parochial schools, raising the amount 

that is protected from $1,500 to $3,000. 

Let me share with my colleagues what has been recently noted 

as private school dollars. In looking at a list of schools from Texas, 

you will find that most private schools, that is, primary schools, are 

anywhere from $3,500 to $5,000. The $1,500 would simply throw 

children out of school and eliminate—or burden children who are 

not responsible for the difficulties of their parents. The mean test 

mechanism, the principal mechanism aimed at the bankruptcy filing rate is the means test under section 11, which denies access to 

Chapter 7 bankruptcy to those debtors who are deemed able to 

repay their debts. The test has been described by proponents as a 

flexible test to assess an individual’s ability to repay his debts and 

as a remedy to irresponsible consumerism and lax bankruptcy law. 

The Jackson Lee amendment seeks to remove one aspect of its 

inflexibility and outdatedness. The means test limits private or parochial school tuition expenses up to $1,500 per year. According to 

a study by the National Center for Educational Statistics, even in 

1993, $1,500 would not have covered the average tuition for virtually any category of parochial school—of any parochial school or 

private school. Today it would not come close for any particular 

school. In order to yield a few dollars for credit card issuers, this 

bill would force many struggling families to take their children 

from private or parochial school, often in violation of deeply held 

religious beliefs, for 3 to 5 years in order to conform or confirm a 

Chapter 13 plan. 

My amendment, as I indicated, would simply increase this tuition payment ceiling to $3,000 to account for inflation as well as 

the current cost of parochial tuition. The average cost to educate 

one elementary school student is $3,100, which is double what it 

was 10 years ago. 

As I look at the crisis of education in America, it would certainly 

be shameful if we stood in this room to deny individuals the opportunity to be educated. 

Let me share as well some food for thought for my colleagues in 

their understanding or in their deliberation on the final resolution 

of this particular legislation. We realize that if you are with a bad 

credit score and you do accept a credit card, which they are given 

to anyone that literally breathes in America, you are usually paying usurious rates, 29 percent, 24 percent. Those interest rates are 

in essence an insurance against those who may get themselves into 

trouble. That means this is the insurance that is given to the credit 

card company when there are those who default. And what is 

strange about this is that the credit card companies collect this risk 

premium year in and year out, but when the risk actually happens 

496 

and the borrower cannot pay, the lenders want the Federal Government to intervene to force the debtor to pay. That is the ludicrous—the ridiculousness of this legislation. Credit card companies 

go off scot free, and those who are victimized have to pay. 

I would like to—and that is by Elizabeth Warren, at least the 

comment that I read. I don’t want to put the other comments—the 

comment that I read about the risk actually happens is a notation 

by Elizabeth Warren. 

I would like to put into the record what was written by David 

Broder, and I’d ask unanimous consent to put his entire article into 

the record. 

Chairman SENSENBRENNER. Without objection. 

[The material referred to follows:] 


256Q0001.eps
497 


256Q0002.eps
498 

Ms. JACKSON LEE. One of the paragraphs reads, ‘‘For 2 weeks the 

Senate sponsors shot down virtually every attempt to separate the 

sheep from the goats and carve out protections for the average family trapped by circumstances. The dry language of the Congressional Record recites a series of one-sided votes rejecting amendments ‘to protect service members and veterans . . . to exempt 

debtors whose financial problems were caused by serious medical 

problems . . . to preserve existing bankruptcy protections for individuals experiencing’’——

Chairman SENSENBRENNER. The gentlewoman’s time has—— Ms. JACKSON LEE. I don’t want to follow the—— Chairman SENSENBRENNER.—expired. 

Ms. JACKSON LEE.—Senate. I’d ask you to support my amendment. 

Chairman SENSENBRENNER. The gentlewoman’s time has expired. The question is on the Jackson Lee amendment. Those in 

favor will say aye? 

Those opposed, no? 

The noes appear to have it. The noes——

Ms. JACKSON LEE. rollcall vote. 

Chairman SENSENBRENNER. Those in favor of the Jackson Lee 

amendment will, as your names are called, answer aye, those opposed, no, and the clerk will call the roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. Mr. Smith? 

Mr. SMITH OF TEXAS. No. 

The CLERK. Mr. Smith, no. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

[No response.] 

The CLERK. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. Mr. Inglis? 

Mr. INGLIS. No. 

The CLERK. Mr. Inglis, no. Mr. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Mr. Issa? 

[No response.] 

The CLERK. Mr. Flake? 

[No response.] 

499 

The CLERK. Mr. Pence? 

Mr. PENCE. No. 

The CLERK. Mr. Pence, no. Mr. Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

Mr. BOUCHER. No. 

The CLERK. Mr. Boucher, no. Mr. Nadler? 

Mr. NADLER. Aye. 

The CLERK. Mr. Nadler, aye. Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

[No response.] 

The CLERK. Mr. Delahunt? 

[No response.] 

The CLERK. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

Mr. SCHIFF. Aye. 

The CLERK. Mr. Schiff, aye. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. Aye. 

The CLERK. Ms. Sa ́nchez, aye. Mr. Smith? 

Mr. SMITH. Aye. 

The CLERK. Mr. Smith, aye. Mr. Van Hollen? 

Mr. VAN HOLLEN. Aye. 

The CLERK. Mr. Van Hollen, aye. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Members in the chamber who wish 

to cast or change their vote? The gentleman from Wisconsin, Mr. 

Green. 

Mr. GREEN. No. 

The CLERK. Mr. Green, no. 

500 

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. 

Goodlatte. 

Mr. GOODLATTE. No. 

The CLERK. Mr. Goodlatte, no. 

Chairman SENSENBRENNER. Further Members in the chamber 

who wish to cast or change their vote? The gentleman from California, Mr. Issa. 

Mr. ISSA. Aye. 

The CLERK. Mr. Issa, aye. 

Chairman SENSENBRENNER. Further Members in the chamber 

who wish to cast or change their vote? If not, the clerk will report. 

The CLERK. Mr. Chairman, there are 12 ayes and 21 noes. 

Chairman SENSENBRENNER. And the amendment is not agreed 

to. 

Are there further amendments? 

Ms. JACKSON LEE. I have an amendment at the desk, Mr. Chairman. 

Chairman SENSENBRENNER. The gentlewoman from Texas. The 

clerk will report the amendment. 

Ms. JACKSON LEE. It is 003. 

The CLERK. Amendment to S. 256, offered by Ms. Jackson Lee 

of Texas. Page 20, line 24, insert ‘‘assistance funds received by the 

debtor as a victim of a natural disaster’’——

Chairman SENSENBRENNER. Without objection, the amendment is 

considered as read. 

[The amendment follows:] 

501 

Amendment to S. 256

Offered by Ms. Jackson-Lee of Texas

Page 20, line 24, insert ‘‘assistance funds received

by the debtor as a victim of a natural disaster, damages

awarded to the debtor as a person injured by a tort,’’

after ‘‘Act,’’.


A256R.AAB
502 

Chairman SENSENBRENNER. The gentlewoman is recognized for 5 

minutes. 

Ms. JACKSON LEE. I thank the Chairman, and I thank the Ranking Member. 

Mr. CONYERS. Would the gentlelady yield to the Ranking Member momentarily? 

Ms. JACKSON LEE. I’d be happy to yield. I’d be happy to yield to 

the gentleman. 

Mr. CONYERS. I’d ask all of my colleagues to either put all of 

their amendments en bloc or strike the last word, put the amendment and the argument in so that it will be there, because we have 

two other very important pieces of legislation after we finish this 

bill. If you could consider that, I’d be grateful. 

Ms. JACKSON LEE. Mr. Chairman, I’d be delighted, if I could do 

this one, and I’ll put the other en bloc and be finished. Would that 

meet—how can I accommodate——

Mr. CONYERS. That would delight me no end. 

Ms. JACKSON LEE. All right. I will do this very quickly, and then 

I have three others and I will put them en bloc. 

Mr. CONYERS. Thank you. 

Ms. JACKSON LEE. I thank the gentleman very much for his kindness. 

Mr. CONYERS. Thank you very much. 

Ms. JACKSON LEE. My friends, this is a circumstance that will 

confront all of our States, whether it is a flood, a hurricane, certainly any natural disaster that we can imagine has confronted individual States. We know recently that—we know recently that 

Florida suffered a historic three hurricanes or more in 2004. Families that are affected by natural disasters such as a hurricane in 

Florida or the mudslides in California should not have to apply 

their scarce relief effort monies to bankruptcy debt. The intent in 

providing Federal and State monies to families who are victims of 

such natural disasters is to relieve the burden that the disaster has 

caused, not to increase their net worth. 

Bankruptcy reform should address many specific issues, such as 

the negligent mismanagement of money, but hurt those who are already suffering from flooding or collapsed roof or house that has 

gone out to sea is absolutely ridiculous. 

I’d ask my colleagues to support this, which exempts the benefits 

that you’ve received if you have suffered a natural disaster. Again, 

I started out my concern about this legislation in that it is class 

warfare. I simply ask my colleagues to find some sense of balance 

to be able to balance this legislation with those middle-class and 

working families who are simply trying to make ends meet. We 

have already denied veterans and those returning from Iraq. We’ve 

denied those with catastrophic injuries. I can’t imagine that there’s 

not one of us that has not been in a community that has suffered 

a natural disaster. 

I ask my colleagues to support this amendment. 

Chairman SENSENBRENNER. Does the gentlewoman yield back? 

Ms. JACKSON LEE. I yield back. 

Chairman SENSENBRENNER. The question is on the amendment. 

Those in favor will say aye? Opposed, no? The noes appear to have 

it. The noes have it. The amendment is not agreed to. 

The gentlewoman from Texas. 

503 

Ms. JACKSON LEE. I have three amendments at the desk, 002, 

004, and 006. 

Chairman SENSENBRENNER. Without objection, the—— Ms. JACKSON LEE. Excuse me—— Chairman SENSENBRENNER.—amendments will be considered en 

bloc. Hearing none, so ordered. The clerk will report the amendments. 

The CLERK. Amendments to S. 256 offered by Ms. Jackson Lee 

of Texas. At an appropriate place, insert the following ‘‘(and make 

such technical and conforming changes as may be appropriate):’’ ‘‘Section. Debts incurred as a result of sex offenses against minors.’’ ‘‘Section 523(a) of title 11, United States Code, as amended by 

section’’——

Chairman SENSENBRENNER. Without objection, the amendments 

are considered as read en bloc. 

[The en bloc amendments follow:] 

504 

Amendment to S. 256

Offered by Ms. Jackson-Lee of Texas

At an appropriate place, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 SEC. ll. DEBTS INCURRED AS A RESULT OF SEX OF2 FENSES AGAINST MINORS.

3 Section 523(a) of title 11, United States Code, as

4 amended by section 224, is amended—

5 (1) in paragraph (18) by striking or’’ at the

6 end;

7 (2) in paragraph (19) by striking the period at

8 the end and inserting ; or’’; and

9 (3) by adding at the end the following:

10 ‘‘(20) for a debt arising from a sex offense, in

11 which the victim was an individual who had not at12 tained the age of 17 years, that consists of conduct

13 that would be a Federal sex offense under:

14 ‘‘(A) section 2241 (relating to aggravated

15 sexual abuse), 2242 (relating to sexual abuse),

16 2243(a)(relating to sexual abuse of a minor),

17 2244(a)(1) or(2) (relating to abusive sexual

18 contact), 2245(relating to sexual abuse resultVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00508 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1

A256S.AAB
505 

2

1 ing in death), or 2251A (relating to selling or

2 buying of children) of title 18, United States

3 Code;

4 ‘‘(B) section 2423(a) (relating to transpor5 tation of minors) of title 18 United States

6 Code, involving prostitution or sexual activity

7 constituting a State sex offense; or

8 ‘‘(C) an offense under State law that con9 sists of conduct that would be a Federal sex of10 fense described in subparagraph (A) or (B) of

11 this paragraph.’’.


A256S.AAC
506 

Amendment to S. 256

Offered by Ms. Jackson-Lee of Texas

At an appropriate place, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 SEC. ll. DEBTS INCURRED AS A RESULT OF TOBACCO-RE2 LATED CAUSES OF ACTION.

3 Section 523(a) of title 11, United States Code, as

4 amended by section 224, is amended—

5 (1) in paragraph (18) by striking or’’ at the

6 end;

7 (2) in paragraph (19) by striking the period at

8 the end and inserting ; or’’; and

9 (3) by adding at the end the following:

10 ‘‘(20) arising from a judicial, administrative, or

11 other action related to the consumption or consumer

12 purchase of a tobacco product that is based in whole

13 or in part on false pretenses, a false representation,

14 or actual fraud.’’.


A256T.AAB
507 

Amendment to S. 256

Offered by Ms. Jackson-Lee of Texas

Page 271, after line 8, insert the following (and

make such technical and conforming changes as may be

appropriate):

1 ‘‘(B) of a kind specified in section 523(a)(9); or


A256U.AAB
508 

Chairman SENSENBRENNER. And the gentlewoman is recognized 

for 5 minutes. 

Ms. JACKSON LEE. Although we may have an opportunity to address this on the floor of the House, I think my amendments are 

self-explanatory. Might I make note for the audience that I have 

a great deal of respect for the Chairman of the Subcommittee, but 

I think it is beneath the process of this body when you offer an 

amendment and there is not even the courtesy and the respect to 

have a response by the opposition. 

But this is the low level of which we have reached in this body, 

and I always believed that when you reach to go over the edge, 

when you abuse your power, I can assure you that it’s going to 

come back to you. We’re here debating the lives of people, the lives 

of people who are simply going to be crushed by this oppressive, 

destructive, and special interest legislation. And if there are any 

credit card companies in the audience, it’s not personal. But for you 

to spend this amount of money to generate this kind of ugly, onesided legislative initiative is an absolute disgrace. 

Let me cite the testimony from Elizabeth Warren, who spoke before the Committee on the Judiciary on February 10, 2005, an outstanding scholar at Harvard University Law School: ‘‘The overreaching problem with this bill is that time and the American economy has passed it by. We don’t need this legislation. It is a complete misnomer. It is nothing but a payoff to credit card companies 

who have spent $4 million and more for this legislation.’’ In the 8 years since this bill was introduced, new cases have 

burst on the scene. The names are burned into our collective 

memories: Enron, WorldCom, Adelphia, United Airlines, US Airways, TWA, LTV Steel, Kmart, Polaroid, Global Crossing. While 

the number of consumer bankruptcy cases have declined slightly in 

the past year, many of the largest corporate bankruptcy cases in 

American history have occurred since the Senate has last re-evaluated the bankruptcy laws, and some of those cases are already legend for the corporate scandals that accompany them. 

My friends on the other side of the aisle, my amendments are 

simple. Do not eliminate the debt of someone or allow someone to 

stand behind bankruptcy when they have a liability because of a 

sexual assault. Do not allow those who receive dollars because 

they’re injured in cases relating to tobacco to have to use those dollars in getting rid of their credit debt or their other debt. And if 

someone is impacted by—though we wish they would not, by some 

nuclear accident, under the Price-Anderson Act, the PAA, let us not 

have those dollars subjected to the bankruptcy laws, meaning that 

they would have to utilize them to pay off their debt. 

In this instance, I would simply say that Elizabeth Warren is 

right. She was right 8 years ago, and she is right now. We have 

seen a decrease in consumer bankruptcies. We already have an insurance plan as it relates to the credit card companies by their 

charging of usurious rates. You get any credit card invitation, and 

what you get in the mail is a complete, if you will, scandalous request for you to join their family. It is in blind need that you sign 

up for it, 30 percent, 29 percent. 

And so we have this 512-page document that gives little relief to 

anyone other than those who simply want to break the backs of the 

middle class. Let me tell you, my friends, that this company runs—

509 

excuse me, this country, this Nation runs on the backs of the middle class. They are the working people. They’re the ones that generate the economy. And, yes, they are the consumers. I already said 

that the credit card companies create a house of cards. That’s what 

they do. You can’t buy or sell without a credit card. This country 

is going to find itself overridden by not debt but by the system that 

doesn’t allow you to use your simple dollars to buy and sell. 

This bill makes it happen for sure, and all I would say is that 

I’d ask for the thoughtfulness in this process. This is not about 

whether the Chairman likes you or doesn’t like you, likes your philosophy or doesn’t like your philosophy, likes your style or doesn’t 

like your style. This is the legislative process, and I’m representing 

people who cannot speak for themselves. 

Mr. CONYERS. Would the gentlelady——

Ms. JACKSON LEE. And I will not be silenced on that basis. I’d 

be happy to yield. 

Mr. CONYERS. I’d like to say that you’ve presented three very important amendments that have not been considered in any way, 

and I don’t want anyone to confuse the fact that you have introduced them en bloc with the fact that they are any less important 

than any of the other amendments that you have put forward 

today. And I thank the lady for cooperating with the parliamentary 

process, and I support the amendments without exception. 

Ms. JACKSON LEE. I thank you for your leadership. I ask my colleagues to support the three amendments and speak on behalf of 

the American people. 

Chairman SENSENBRENNER. The gentlewoman’s time has expired. The question is on agreeing to the Jackson Lee amendments 

en bloc. Those in favor will say aye? Opposed, no? The noes—— Ms. JACKSON LEE. rollcall. 

Chairman SENSENBRENNER.—appear to have it—rollcall will be 

ordered. The question is on agreeing to the three Jackson Lee 

amendments en bloc. Those in favor will, as your names are called, 

answer aye, those opposed, no, and the clerk will call the roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. No. 

The CLERK. Mr. Coble, no. Mr. Smith? 

Mr. SMITH. No. 

The CLERK. Mr. Smith, no. Mr. Gallegly? 

Mr. GALLEGLY. No. 

The CLERK. Mr. Gallegly, no. Mr. Goodlatte? 

Mr. GOODLATTE. No. 

The CLERK. Mr. Goodlatte, no. Mr. Chabot? 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. Mr. Lungren? 

Mr. LUNGREN. No. 

The CLERK. Mr. Lungren, no. Mr. Jenkins? 

Mr. JENKINS. No. 

The CLERK. Mr. Jenkins, no. Mr. Cannon? 

Mr. CANNON. No. 

The CLERK. Mr. Cannon, no. Mr. Bachus? 

Mr. BACHUS. No. 

The CLERK. Mr. Bachus, no. Mr. Inglis? 

510 

Mr. INGLIS. No. 

The CLERK. Mr. Inglis, no. Mr. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

[No response.] 

The CLERK. Mr. Keller? 

Mr. KELLER. No. 

The CLERK. Mr. Keller, no. Mr. Issa? 

Mr. ISSA. No. 

The CLERK. Mr. Issa, no. Mr. Flake? 

[No response.] 

The CLERK. Mr. Pence? 

Mr. PENCE. No. 

The CLERK. Mr. Pence, no. Mr. Forbes? 

Mr. FORBES. No. 

The CLERK. Mr. Forbes, no. Mr. King? 

Mr. KING. No. 

The CLERK. Mr. King, no. Mr. Feeney? 

Mr. FEENEY. No. 

The CLERK. Mr. Feeney, no. Mr. Franks? 

Mr. FRANKS. No. 

The CLERK. Mr. Franks, no. Mr. Gohmert? 

Mr. GOHMERT. No. 

The CLERK. Mr. Gohmert, no. Mr. Conyers? 

Mr. CONYERS. Aye. 

The CLERK. Mr. Conyers, aye. Mr. Berman? 

Mr. BERMAN. Aye. 

The CLERK. Mr. Berman, aye. Mr. Boucher? 

Mr. BOUCHER. No. 

The CLERK. Mr. Boucher, no. Mr. Nadler? 

[No response.] 

The CLERK. Mr. Scott? 

Mr. SCOTT. Aye. 

The CLERK. Mr. Scott, aye. Mr. Watt? 

Mr. WATT. Aye. 

The CLERK. Mr. Watt, aye. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

Ms. JACKSON LEE. Aye. 

The CLERK. Ms. Jackson Lee, aye. Ms. Waters? 

Ms. WATERS. Aye. 

The CLERK. Ms. Waters, aye. Mr. Meehan? 

Mr. MEEHAN. Aye. 

The CLERK. Mr. Meehan, aye. Mr. Delahunt? 

[No response.] 

The CLERK. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. Aye. 

The CLERK. Mr. Weiner, aye. Mr. Schiff? 

[No response.] 

The CLERK. Ms. Sa ́nchez? 

[No response.] 

The CLERK. Mr. Smith? 

[No response.] 

511 

The CLERK. Mr. Van Hollen? 

Mr. VAN HOLLEN. Aye. 

The CLERK. Mr. Van Hollen, aye. Mr. Chairman? 

Chairman SENSENBRENNER. No. 

The CLERK. Mr. Chairman, no. 

Chairman SENSENBRENNER. Further Members in the chamber 

who wish to cast or change their vote? The gentleman from Ohio, 

Mr. Chabot. 

Mr. CHABOT. No. 

The CLERK. Mr. Chabot, no. 

Chairman SENSENBRENNER. The gentleman from California, Mr. 

Issa. 

Mr. ISSA. No. 

The CLERK. Mr. Issa, no. 

Chairman SENSENBRENNER. Other Members in the chamber who 

wish to cast or change their vote? If not, the clerk will report. 

The CLERK. Mr. Chairman, Ms. Jackson Lee—Mr. Chairman, Ms. 

Jackson Lee is recorded as aye. 

Chairman SENSENBRENNER. The clerk will report. 

The CLERK. Mr. Chairman, there are 9 ayes and 20 noes. 

Chairman SENSENBRENNER. And the amendments en bloc are not 

agreed to. 

For what purpose does the gentlewoman from California, Ms. 

Waters, seek recognition? 

Ms. WATERS. Mr. Chairman, I have three amendments that I will 

offer en bloc. 

Chairman SENSENBRENNER. The clerk—— Ms. WATERS. They’re at the desk, and if I may identify them as 

stay of eviction for victims of domestic abuse, homestead exemption 

for seniors, and under-age credit card amendment. 

Chairman SENSENBRENNER. Without objection, the—— Mr. BACHUS. Mr. Chairman, as to the last amendment, I’d like 

to reserve a point of order. 

Chairman SENSENBRENNER. A point of order is—well, without objection, the first two amendments are considered en bloc, and the 

clerk will report them. 

The CLERK. Amendments to S. 256 offered by Ms. Waters. Page 

159, line 13, insert the following before the semicolon: ‘‘unless the 

debtor certifies under penalty of perjury that the debtor is a victim 

of domestic violence and that the physical well-being of the debtor 

or of a child of the debtor would be threatened if’’——

Chairman SENSENBRENNER. Without objection, the two amendments considered en bloc are considered as read. Without objection, 

the third amendment will be considered en bloc, and a point of 

order is reserved against the third amendment. 

[The en bloc amendments follow:] 

512 

Amendment to S. 256

Offered by Ms. Waters

Page 159, line 13, insert the following before the

semicolon:

1 unless the debtor certifies under penalty of perjury

2 that the debtor is a victim of domestic violence and

3 that the physical well-being of the debtor or of a

4 child of the debtor would be threatened if relief from

5 the stay is granted


A256V.AAB
513 


A256W.eps
514 H.L.C.

AMENDMENT TO S. 256

OFFERED BY MS. WATERS OF CALIFORNIA

Page 504, after line 15, insert the following new section (and conform the table of contents accordingly):

1 SECTION 1310. ISSUANCE OF CREDIT CARDS TO UNDERAGE

2 CONSUMERS.

3 Section 127(c) (15 U.S.C. 1637(c)) is amended by

4 inserting after paragraph (7) (as added by section 1304(a)

5 of this title) the following new paragraph:

6 ‘‘(8) APPLICATIONS FROM UNDERAGE CON7 SUMERS.—

8 ‘‘(A) PROHIBITION ON ISSUANCE.—No

9 credit card may be issued to, or open end credit

10 plan established on behalf of, any consumer

11 who has not attained the age of 21, except in

12 response to a written request or application to

13 the card issuer that meets the requirements of

14 subparagraph (B).

15 ‘‘(B) APPLICATION REQUIREMENTS.—An

16 application to open a credit card account by a

17 consumer who has not reached the age of 21 as

18 of the date of submission of the application

19 shall require—


A256X.AAB
515 

2

H.L.C.

1 ‘‘(i) the signature of the parent or

2 guardian of the consumer indicating joint

3 liability for debts incurred by the consumer

4 in connection with the account before the

5 consumer has reached the age of 21; or

6 ‘‘(ii) submission by the consumer of

7 financial information indicating an inde8 pendent means of repaying any obligation

9 arising from the proposed extension of

10 credit in connection with the account.’’.


A256X.AAC
516 

Chairman SENSENBRENNER. And the gentlewoman from California is recognized for 5 minutes. 

Ms. WATERS. Thank you very much. Mr. Chairman and Members, the homestead exemption for seniors is pretty self-explanatory. My amendment would set a mandatory $30,000 Federal minimum homestead exemption for debtors who are 62 or older and 

would allow such debtors in bankruptcy to protect some or all of 

the value of their homes from credentials. 

It seems to me that we’re forever talking about protecting seniors. If we cannot protect seniors and keep them in their homes, 

then we have done nothing. So without going any further, that’s 

what that amendment is all about. I would ask for an aye vote en 

bloc on that amendment also. 

The second amendment is a stay of eviction for victims of domestic abuse. My amendment would modify the Bankruptcy Code to secure better protection for domestic abuse victims by granting them 

relief from summary eviction from their housing. This relief would 

only be available if a domestic violence debtor certifies under penalty of perjury that the debtor is, in fact, a victim of domestic abuse 

and that their physical well-being or the physical well-being of the 

debtor’s child would be threatened if this debtor were evicted. This 

amendment would provide a safe harbor for those victims who face 

the threat of more violence and extreme danger if their homes were 

taken. 

I would ask for an aye vote for these two amendments en bloc. 

Mr. CONYERS. Would the gentlelady yield to me? 

Ms. WATERS. Yes, I yield. 

Mr. CONYERS. I want to make a point here, that these three 

amendments are original and are not duplicative of any of the 

amendments that have occurred before: homestead exemption for 

seniors, abuse, domestic violence, victims of abuse, which is a large 

area, not understood by all, and that they are valid, each of them 

in their own right, and I urge the careful consideration of the Committee in support of these amendments. And thank the gentlelady. 

Chairman SENSENBRENNER. Does the gentlelady yield back her 

time? 

Ms. WATERS. The gentlelady yields back the time. 

Chairman SENSENBRENNER. Does the gentleman from Alabama 

insist on his point of order against the third amendment being considered en bloc? 

Mr. BACHUS. Yes, I do, Mr. Chairman. 

Chairman SENSENBRENNER. The gentleman will make his point 

of order, quickly. 

Mr. BACHUS. Mr. Chairman, the amendment—the credit card 

amendment violates house rule XVI(7) and is not germane. The 

fundamental purpose of the amendment is not germane to the fundamental purpose of the bill. The amendment, in fact, amends the 

Truth in Lending statute, and jurisdiction for that statute is outside the jurisdiction of this Committee. And as such, the amendment is not germane. 

Chairman SENSENBRENNER. Does the gentlewoman from California wish to speak on the point of order? 

Ms. WATERS. Well, Mr. Chairman, I do wish to speak on the 

point of order, and I really don’t know why I’m going through this 

charade because it really doesn’t make any difference. We’re not alVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00520 Fmt 6659 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
517 

lowed any amendments here today anyway. They’re going to be 

voted down. So I guess it doesn’t make any difference whether it’s 

done on a point of order or whether you call the roll for the vote. 

But——

Chairman SENSENBRENNER. Okay. The—— Ms. WATERS. But I think—I have not finished, Mr. Chairman. I 

think it is important to note that I think the gentleman from Alabama is opposing it because he knows that when this Committee 

hears about these under-age students who are being solicited by 

these credit card companies, running up this debt, and basically 

setting up all kind of obstacles to their being able to be successful 

when they graduate from college, then he knows he’s embarrassed 

by that. So he may have a point of order that you probably will 

rule in his favor. So be it. It doesn’t matter how it dies. It’s going 

to die one way or the other. 

Chairman SENSENBRENNER. The Chair—the Chair is prepared to 

rule. One of the tests of germaneness of an amendment is whether 

the amendment, if introduced as free-standing legislation, would be 

referred by the parliamentarians and the Speaker to the Committee that is considering the bill for amendment. The amendment—the third amendment that is proposed by the gentlewoman 

from California, Ms. Waters, is an amendment to the Fair Credit 

Reporting Act, I believe, which is not in the jurisdiction of the Judiciary Committee, but is in the jurisdiction of the Financial Services 

Committee. Therefore, the amendment is not germane, and the 

Chair sustains the point of order by the gentleman from Alabama 

relative to the third amendment being considered en bloc. The 

question is on agreeing to the other two amendments——

Mr. BACHUS. Mr. Chairman, it’s the Truth in Lending Act. 

Chairman SENSENBRENNER. The Chair stands corrected on that. 

The question is on agreeing to the other two amendments offered 

en bloc by the gentlewoman from California, Ms. Waters. Those in 

favor will say aye? Opposed, no? The noes appear to have it. The 

noes have it, and the amendment is not agreed to. 

Are there further amendments? The gentleman from North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. I call up amendments— Watt amendments 04, 06, and 06 and request their consideration 

en bloc. 

Chairman SENSENBRENNER. Without objection, the amendments 

will be considered en bloc, and the clerk will report the amendments. 

The CLERK. Mr. Chairman, I have 03 and 04. 

Chairman SENSENBRENNER. The gentleman from North Carolina? 

Mr. WATT. I’m looking at 04, 05, and 06. 

Chairman SENSENBRENNER. Would the gentleman from North 

Carolina briefly describe the subject matter? That might help the 

clerk. 

Does the clerk have them now? No. 

Mr. WATT. 04 is the one that says ‘‘04’’ in the corner. 05 is the 

one that says—— The CLERK. Mr. Chairman, I have 03, 04, and 06. 

Mr. WATT.—‘‘05’’ in the corner. 06 is the one that says ‘‘06’’ in 

the corner. 

518 

Chairman SENSENBRENNER. I believe the clerk’s got what the 

gentleman from North Carolina wishes to offer, and the clerk will 

report the amendments considered en bloc. 

The CLERK. Amendments to S. 256 

Mr. WATT. I ask unanimous consent the amendments be considered as read. 

Chairman SENSENBRENNER. Without objection. 

[The en bloc amendments follow:] 


A256Y1.eps
519 


A256Y2.eps
520 


A256AA.eps
521 

Amendment to S. 256

Offered by Mr. Watt

Page 128, line 10, insert ‘‘during the 1-year period

ending’’ after ‘‘effect’’.


A256BB.AAB
522 

Chairman SENSENBRENNER. And the gentleman is recognized for 

5 minutes. 

Mr. WATT. Thank you, Mr. Chairman. 

Amendment 04, which is supported by the American Bar Association and a whole host of other people, accomplishes two things. It 

eliminates provisions in the bill that would require the debtor’s attorney to certify the accuracy of the debtor’s schedules under penalty of harsh court sanctions, and it modifies provisions that would 

require attorneys to certify a debtor’s ability to make future payments under a reaffirmation agreement. 

Section 102 unnecessarily imposes a harsher standard on debtor 

attorneys to certify pleadings filed on behalf of the debtor. No similar heightened standard is imposed on credential attorneys, nor for 

attorneys outside the bankruptcy context. By holding the debtor’s 

attorney personally liable for the accuracy of their clients’ schedules, these provisions would force the attorney to hire private investigators and appraisers to verify information, adding thousands 

of dollars to the cost of representing a debtor in bankruptcy. Without this amendment, I believe that the bankruptcy representation—that bankruptcy representation would become unaffordable 

for most debtors. 

Also, the impact on the pro bono bar providing bankruptcy services would dwindle with the likely result that thousands of pro se 

debtors would clog up the court system or debtors will not seek the 

relief they need at all. 

Amendment 05 corrects the provisions that would require bankruptcy attorneys to identify and advertise themselves as debt relief 

agencies and comply with intrusive new regulations that would 

interfere with the confidential attorney-client relationship. Sections 

227 and two twenty—through 229 of the bill would seriously interfere with the attorney-client relationship by prohibiting debtor’s 

bankruptcy attorneys and many non-bankruptcy attorneys from 

giving their clients certain proper bankruptcy planning advice. 

These provisions would also have a chilling effect on debtor’s lawyers and their firms by requiring all of their newsletters, seminars, 

advertising materials to include awkward and misleading statements identifying themselves as debt relief agencies. 

Amendment 06 would make a—is a technical amendment that 

seeks to close an unintended, I suppose, loophole in the current bill 

that would allow sensitive personal consumer information to be 

sold on the eve of a corporate bankruptcy. The sale of consumer 

lists is not a new method to increase the capital available to failing 

companies, and as we have seen with the recent debacle with 

ChoicePoint, such lists are highly sensitive and the distribution of 

personal information included can be disastrous to consumers. 

Lists of consumer information can be worth millions of dollars, a 

tempting asset to liquidate when a company is on the way into 

bankruptcy. 

It is for these reasons that the privacy policy enforcement in the 

Bankruptcy Act of 2000 sought to exclude personally identifiable 

information from the assets of the debtor——

Mr. CANNON. Would the gentleman yield——

Mr. WATT. The bill prohibited—let me just finish and I’ll be 

through, and then you’ll have 5 minutes. 

523 

The bill prohibits the sale or disclosure—the amendment—I’m 

sorry. The bill prohibited the sale or disclosure of personally identifiable information if doing so violates a privacy policy of the debtor 

in effect at the time at which such information was collected. The 

Consumer Privacy Act also protected consumer information in the 

same manner. However, this bill doesn’t do that, and I’m happy to 

yield to the gentleman—— Mr. CANNON. Thank you. I might suggest, you know, I have concerns about some of these issues. I don’t want to see the bill 

amended at this point in time. If the gentleman—— Mr. WATT. That is quite obvious at the end of the day. 

Mr. CANNON. If the gentleman would consider withdrawing the 

amendments, I can assure him that I’d be willing to work with him 

in the Subcommittee without making any commitments for the full 

Committee on the issue to take a look at some of these things. 

Mr. WATT. Well, I would hope that the gentleman will just do as 

he has all throughout the day and just vote these things down and 

still if it’s a problem take them up in the Subcommittee. I hope the 

gentleman is not saying he’s going to punish me for offering an 

amendment by not——

Mr. CANNON. Absolutely no. 

Mr. WATT.—taking up something that he thinks is important. 

Mr. CANNON. Let me just suggest these are—there are issues 

here that we need to consider. We’ll look at those in the order—— Mr. WATT. Well, I’m not going to ask for a recorded vote. You all 

are going to vote them down and—you know. 

Chairman SENSENBRENNER. The gentleman’s time has expired. 

The question is on the amendments en bloc offered by the gentleman from North Carolina, Mr. Watt. Those in favor will say aye? 

Opposed, no? The noes appear to have it. The—— Mr. WATT. See, I told you. 

[Laughter.] 

Chairman SENSENBRENNER. The noes do have it, and the amendments en bloc are not agreed to. 

Are there further amendments? If there are no further amendments, the question—— Ms. JACKSON LEE. Mr. Chairman? I don’t have an amendment. 

I’d like to put something in the record. I ask to strike the last word 

for submission—— Chairman SENSENBRENNER. The gentlewoman is recognized for 5 

minutes. 

Ms. JACKSON LEE. I wanted to add into the record, Mr. Chairman, the complete testimony of Professor Elizabeth Warren, Leo 

Gottlieb Professor of Law at Harvard Law School, February 10, 

19—excuse me, February 10, 2005. And I wanted to——

Chairman SENSENBRENNER. Where—well, if the gentlewoman 

will yield, where was this testimony presented? 

Ms. JACKSON LEE. In the United States Senate. 

Chairman SENSENBRENNER. Because the rules prohibit us including in the record proceedings in the other body, I would ask the 

gentlewoman to withdraw her unanimous consent request. The 

Senate has published that hearing, and it is a part of the record 

of the Senate consideration of this legislation. 

Ms. JACKSON LEE. I will at this time withdraw that request, Mr. 

Chairman, and I’ve made mention of it. I want to make sure that 

524 

I did have included, however, a bankrupt reform article. I believe 

I did, but I want to double check, and that’s by David S. Broder, 

and that’s Sunday, March 13, 2005. 

Chairman SENSENBRENNER. The gentlewoman has already asked 

unanimous consent to include that in the record and has received 

it from the Committee. 

Ms. JACKSON LEE. Thank you. 

Chairman SENSENBRENNER. Are there further—— Ms. WATERS. Mr. Chairman? 

Chairman SENSENBRENNER. The gentlewoman from California, 

Ms. Waters. 

Ms. WATERS. I, too, would seek unanimous consent to submit for 

the record my statements on the bills that I introduced. I did not 

give the complete statements in the interest of time, and I——

Chairman SENSENBRENNER. Without objection, the statements of 

the gentlewoman from California will be included in the record. 

[The prepared statements of Ms. Waters follow:] 

PREPARED STATEMENT OF THE HONORABLE MAXINE WATERS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Chairman, I have an amendment at the desk. 

Mr. Chairman, I ask unanimous consent that the reading be dispensed with so 

that I may explain my amendment. 

Mr. Chairman, the very modest amendment I am now offering will help protect 

seniors who have to file for bankruptcy from losing their homes. My amendment 

sets a mandatory $30,000 federal minimum ‘‘homestead exemption’’ for debtors who 

are 62 or older, and would allow such debtors in bankruptcy to protect some or all 

of the value of their homes from creditors. It also would substantially decrease the 

likelihood that many of these seniors must sell their homes. 

Mr. Chairman, many of our seniors have been driven into bankruptcy because of 

huge medical expenses that they could not pay, job losses, and other events beyond 

their control. 

When these seniors face the misfortune of bankruptcy because of medical expenses, they should not also have to lose virtually all of the equity in their home, 

equity that many of them have saved and struggled throughout their lifetime to 

build. 

Nor should they be forced to sell their home if they file for a bankruptcy, a result 

that frequently is the case in states with low homestead exemptions. In many cases, 

a home may be an older person’s only significant asset, representing an entire life 

savings. 

My amendment sets a $30,000 nationwide floor on the homestead exemption for 

seniors, debtors who are 62 years old or older. States, like California, that have a 

more generous homestead exemption would not be affected by my amendment, but 

my amendment would protect more of the equity of older debtors who live in states 

like Ohio, with low homestead exemptions. 

Mr. Chairman, some states have very low homestead exemptions. Ohio has an exemption of $5,000, and North Carolina has an exemption of $10,000. Currently, only 

two states have a higher exemption for the elderly. California’s regular exemption 

is $50,000, but it is $150,000 for seniors. Maine’s exemption is $35,000, but $70,000 

for the elderly. Wisconsin’s homestead exemption is $40,000 across the board. Florida and Texas have an unlimited dollar value homestead exemption while many 

states, like Ohio, have exemptions as low as $5,000. 

Mr. Chairman, I believe that Federal law should provide additional protection to 

seniors in states where the homestead exemption is very low. A senior debtor should 

be entitled to a decent degree of basic protection for his home equity, wherever that 

senior happens to live. 

Many of our seniors have scrimped and saved for a lifetime to buy their homes. 

We should do all that we can to help protect them from having to sell their home 

because illness or job loss required them to file for bankruptcy. 

Mr. Chairman, the pain and burden for our seniors of dealing with huge, unexpected medical expenses or job loss is enormous. Let’s not add insult to injury by 

making them suffer the loss of their homes as well. Please join me in preserving 

the dignity of our seniors by supporting my homestead exemption for seniors’

amendment. 

525 

I yield back the balance of my time. 

PREPARED STATEMENT OF THE HONORABLE MAXINE WATERS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Chairman, I have an amendment at the desk. 

Mr. Chairman, I ask unanimous consent that the reading be dispensed with so 

that I may explain my amendment. 

Mr. Chairman, this is an unbalanced, unfair anti-consumer bill that is tilted way 

too far in favor of the credit card companies. My amendment makes a modest attempt at restoring some balance by holding credit card companies responsible for 

their reckless extensions of credit to young people without regard to their capacity 

to handle such credit card debt. 

My amendment would that an application for a credit card by someone under 21 

have the signature of the young person’s parent or guardian, that is, that there be 

a co-signer, or the submission of financial information by the under 21 year old consumer that demonstrates that this young applicant has the financial capacity to 

repay the credit sought. Under my amendment, no credit card could be issued to 

anyone under twenty one whose application did not meet this requirement. 

Mr. Chairman, I am very concerned that because of the reckless practices of the 

credit card companies, many young people with little financial education or sophistication end up with huge debts that they simply cannot handle. The credit card 

companies, with their relentless marketing campaigns and endless television ads, 

seduce our young people with promises of the good life, without taking any responsibility for those who cannot responsibly handle the credit that they extend. 

In recent years, there has been a huge effort by the credit card companies to market their cards to college students, and many students just starting out are being 

saddled with huge credit card debts that they cannot repay, debts that drive some 

of them into bankruptcy. 

All of us know about the t-shirt giveaways, the low ‘‘teaser’’ rates that are used 

to entice young people, and the large number of marketing representatives who appear on college campuses at sporting events and other venues to push credit cards. 

Mr. Chairman, for all too many of our young people, these cards are not so-called ‘‘convenience’’ cards that are paid in full every month. They often result in the creation of long term debt that these students lack the means to repay. My amendment 

would provide a means to significantly decrease the chance that a young borrower 

would get into financial trouble. 

Let’s do something meaningful to protect our young people from being victimized 

by the credit card companies. I urge all of my colleagues to support this common 

sense amendment. 

I yield back the balance of my time. 

PREPARED STATEMENT OF THE HONORABLE MAXINE WATERS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Chairman, I have an amendment at the desk. 

Mr. Chairman, I ask unanimous consent that the reading be dispensed with so 

that I may explain my amendment. 

Mr. Chairman, my amendment would provide a safe harbor for the many victims 

of domestic abuse whose physical well-being or their children’s well-being would be 

greatly threatened by summary eviction procedures authorized under this bill. 

Mr. Chairman, women and children who are victims of domestic violence join the 

ranks of the homeless every day. For women are so desperate to flee domestic abuse 

that they too often find themselves without funds with which to support themselves 

and their children. Victims often have a difficult time finding room at domestic violence shelters. Furthermore, domestic violence victims have a difficult time finding 

affordable long term housing because of the severe shortage of long-term affordable 

housing. 

Mr. Chairman, domestic violence victims also find it extremely difficult to find 

and keep jobs. Their batterers often harass them at their places of work, which frequently results in the loss of their jobs. This directly affects their economic stability 

and often results in the inability to pay for life’s basic necessities—such as housing. 

Mr. Chairman, my amendment would provide protection for the overwhelming 

number of women and children who are trying to escape and survive domestic abuse 

and would greatly aid in allowing these victims to start a new life for themselves 

and their children. It would keep more of them in a safe and secure home. 

Mr. Chairman, my amendment would modify the bankruptcy code to secure better 

protection for domestic abuse victims by granting them relief from summary eviction 

526 

from their housing. Please note, this relief would only be available if a domestic violence debtor certifies, under penalty of perjury, that the debtor is, in fact, a victim 

of domestic abuse and that their physical well-being or the physical well-being of 

the debtor’s child would be threatened if this debtor were evicted. This amendment 

would provide a safe harbor for those victims who face the threat of more violence 

and extreme danger if their homes were taken. 

Mr. Chairman, we must recognize that these victims face the threat of losing their 

lives due to abuse and violence. They should not be forced from their homes dues 

to financial difficulties that are often out of their hands. Domestic abuse victims 

need the chance to start a new life free from violence, in a safe and secure home. 

Please support my amendment to carve out an exemption for domestic violence victims from summary eviction procedures authorized by this bill. 

I yield back the balance of my time. 

Mr. WATT. Mr. Chairman? 

Chairman SENSENBRENNER. The gentleman from North Carolina. 

Mr. WATT. I ask unanimous consent to submit for the record a 

letter from the American Bar Association dated March 11, 2005, to 

Chairman Sensenbrenner and to John Conyers related to one of the 

three amendments. 

Chairman SENSENBRENNER. Without objection, that letter will be 

included in the record. 

[The material referred to follows:] 

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Chairman SENSENBRENNER. Are there further amendments? If 

there are no further amendments, a reporting quorum is present. 

The question is on reporting the bill Senate 256 favorably to the 

full House. Those in favor will say aye? Opposed, no? 

Mr. CONYERS. Mr. Chairman, I ask for a recorded vote? 

Chairman SENSENBRENNER. The ayes appear to have it, and a recorded vote will be ordered. Those in favor of reporting the bill favorably to the full House will, as your names are called, answer 

aye, those opposed, no, and the clerk will call the roll. 

The CLERK. Mr. Hyde? 

[No response.] 

The CLERK. Mr. Coble? 

Mr. COBLE. Aye. 

The CLERK. Mr. Coble, aye. Mr. Smith? 

Mr. SMITH OF TEXAS. Aye. 

The CLERK. Mr. Smith, aye. Mr. Gallegly? 

Mr. GALLEGLY. Aye. 

The CLERK. Mr. Gallegly, aye. Mr. Goodlatte? 

Mr. GOODLATTE. Aye. 

The CLERK. Mr. Goodlatte, aye. Mr. Chabot? 

Mr. CHABOT. Aye. 

The CLERK. Mr. Chabot, aye. Mr. Lungren? 

Mr. LUNGREN. Aye. 

The CLERK. Mr. Lungren, aye. Mr. Jenkins? 

Mr. JENKINS. Aye. 

The CLERK. Mr. Jenkins, aye. Mr. Cannon? 

Mr. CANNON. Aye. 

The CLERK. Mr. Cannon, aye. Mr. Bachus? 

Mr. BACHUS. Aye. 

The CLERK. Mr. Bachus, aye. Mr. Inglis? 

Mr. INGLIS. Aye. 

The CLERK. Mr. Inglis, aye. Mr. Hostettler? 

[No response.] 

The CLERK. Mr. Green? 

Mr. GREEN. Aye. 

The CLERK. Mr. Green, aye. Mr. Keller? 

Mr. KELLER. Aye. 

The CLERK. Mr. Keller, aye. Mr. Issa? 

[No response.] 

The CLERK. Mr. Flake? 

[No response.] 

The CLERK. Mr. Pence? 

Mr. PENCE. Aye. 

The CLERK. Mr. Pence, aye. Mr. Forbes? 

Mr. FORBES. Aye. 

The CLERK. Mr. Forbes, aye. Mr. King? 

Mr. KING. Aye. 

The CLERK. Mr. King, aye. Mr. Feeney? 

Mr. FEENEY. Aye. 

The CLERK. Mr. Feeney, aye. Mr. Franks? 

Mr. FRANKS. Aye. 

The CLERK. Mr. Franks, aye. Mr. Gohmert? 

Mr. GOHMERT. Aye. 

The CLERK. Mr. Gohmert, aye. Mr. Conyers? 

Mr. CONYERS. No. 

534 

The CLERK. Mr. Conyers, no. Mr. Berman? 

Mr. BERMAN. No. 

The CLERK. Mr. Boucher? 

Mr. BOUCHER. Aye. 

The CLERK. Mr. Boucher, aye. Mr. Nadler? 

Mr. NADLER. No. 

The CLERK. Mr. Nadler, no. Mr. Scott? 

Mr. SCOTT. No. 

The CLERK. Mr. Scott, no. Mr. Watt? 

Mr. WATT. No. 

The CLERK. Mr. Watt, no. Ms. Lofgren? 

[No response.] 

The CLERK. Ms. Jackson Lee? 

[No response.] 

The CLERK. Ms. Waters? 

Ms. WATERS. No. 

The CLERK. Ms. Waters, no. Mr. Meehan? 

Mr. MEEHAN. No. 

The CLERK. Mr. Meehan, no. Mr. Delahunt? 

[No response.] 

The CLERK. Mr. Wexler? 

[No response.] 

The CLERK. Mr. Weiner? 

Mr. WEINER. No. 

The CLERK. Mr. Weiner, no. Mr. Schiff? 

Mr. SCHIFF. No. 

The CLERK. Mr. Schiff, no. Ms. Sa ́nchez? 

Ms. SA ́ NCHEZ. No. 

The CLERK. Ms. Sa ́nchez, no. Mr. Smith? 

[No response.] 

The CLERK. Mr. Van Hollen? 

Mr. VAN HOLLEN. No. 

The CLERK. Mr. Van Hollen, no. Mr. Chairman? 

Chairman SENSENBRENNER. Aye. 

The CLERK. Mr. Chairman, aye. 

Chairman SENSENBRENNER. Are there Members who wish to cast 

or change their vote? The gentleman from Arizona, Mr. Flake. 

Mr. FLAKE. Aye. 

The CLERK. Mr. Flake, aye. 

Chairman SENSENBRENNER. Further Members who wish—the 

gentlewoman from Texas, Ms. Jackson Lee. 

Ms. JACKSON LEE. No. 

The CLERK. Ms. Jackson Lee, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their votes? If not, the clerk will report. And while the 

clerk is adding up, I would remind the Members that we have one 

more bill that needs to be considered that will go very briefly. It’s 

a resolution of—is the gentleman from California, Mr. Issa, recorded? 

Mr. ISSA. On final passage? 

Chairman SENSENBRENNER. Yes. 

Mr. ISSA. Aye. 

The CLERK. Mr. Issa, aye. 

Chairman SENSENBRENNER. Okay. The clerk will report—the 

gentleman from Massachusetts, Mr. Delahunt. 

535 

Mr. DELAHUNT. No. 

The CLERK. Mr. Delahunt, no. 

Chairman SENSENBRENNER. Further Members who wish to cast 

or change their vote? 

[No response.] 

Chairman SENSENBRENNER. The clerk will report. 

The CLERK. Mr. Chairman, there are 22 ayes and 13 noes. 

Chairman SENSENBRENNER. And the motion to report favorably 

is agreed to. Without objection, the staff is directed to make any 

technical and conforming changes, and all Members will be given 

2 days, as provided by the House rules, in which to submit additional dissenting, supplemental, or minority views. 

[Intervening business.] 

The business scheduled before the Committee having been completed, the Committee stands adjourned. 

[Whereupon, at 5:42 p.m., the Committee was adjourned.] 

(537) 

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1The following are the States that have unlimited homestead exemptions: Florida, Iowa, Kansas, South Dakota, Texas, and the District of Colombia. 2 11 U.S.C. 522(b)(2)(A). 

3 11 U.S.C. 522(b)(1). 

4 Rep. Waters offered an amendment setting a $30,000 Federal minimum homestead exemption for debtors 62 and older to protect some or all of the value of their homes from credentials 

in bankruptcy. The amendment was rejected by voice vote. Rep. Berman and Rep. Meehan offered an amendment to create a uniform Federal floor for homestead exemptions of $150,000 

for debtors with substantial medical debts or a substantial loss in income, alimony, or child support due to medical problems. The amendment was rejected with 13 ayes and 18 noes. 5 11 U.S.C. 522(d)(1) allows a debtor to exempt up to $18,450 in value in the debtor’s residence. 

ADDITIONAL DISSENTING VIEWS

In addition to the concerns raised in the general dissenting 

views, we remain disappointed by the Committee’s consistent refusal to put an end to two of the most notorious abuses of the bankruptcy system—the financial planning strategy by which debtors 

are able to purchase expensive homes in States which allow a debtor to exempt an interest in a primary residence of a unlimited dollar value,1 and the development of ‘‘asset protection trusts,’’ which 

would allow individuals to set up a trust for which they are the 

sole beneficiaries, and potentially place substantial assets outside 

the estate, and beyond the reach of the creditors. 

I. THE UNLIMITED HOMESTEAD EXEMPTION. 

The unlimited homestead exemption, known s the ‘‘millionaires’

loophole,’’ has allowed the very wealthy to shield from their creditors vast sums of money in palatial homes. The current Code allows a debtor to claim a State’s exemptions.2 A State may ‘‘opt out’’

and bar a debtor from using the federal exemptions in sec. 522(d), 

which are, in many cases, lower than exemptions allowed under 

State law.3

Over the years, many of us have offered amendments that would 

have placed an overall limit on State homestead exemptions, or repealed State opt-out so that debtors would be able to avail themselves of the federal exemptions if they are higher than applicable 

State law.4 In each case, these proposals have been rejected. A proposal to place an absolute cap on State homestead exemptions in 

the amount of $1 million was even rejected by House conferees to 

H.R. 333 in the 107th Congress. Apparently, the proponents of this 

legislation believe that there is no amount too high for the wealthiest debtors to shelter in their homesteads, and that the poorest 

debtors are not entitled to even the modest floor provided by federal law.5

These proposals would have, respectively, helped to eliminate the 

biggest loophole in the Bankruptcy Code, and eliminate a significant inequity for homeowners of the most modest means. The proposals reflect the recommendations of the National Bankruptcy ReVerDate Aug 04 2004 00:35 Apr 09, 2005 Jkt 020436 PO 00000 Frm 00595 Fmt 6601 Sfmt 6601 E:\HR\OC\HR031P1.XXX HR031P1
592 

6 BANKRUPTCY: THE NEXT TWENTY YEARS, FINAL REPORT OF THE NATIONAL BANKRUPTCY RE- VIEW COMMISSION, Recommendation 1.2.2, at 125–133 (Oct. 20, 1997). The Commssion recommended a national cap of $100,000, and a national floor of $20,000. 7Larry Rohter, ‘‘Rich Debtors Finding Shelter Under a Populist Florida Law,’’ N.Y. Times A– 1 (July 25, 1993). 8 Id. 

9 Id. 

10David J. Morrow, ‘‘Key to a Cozier Bankruptcy: Location, Location, Location,’’ N.Y. Times, 

A–1 (Jan. 7, 1998). 

11 Id. 12 Eliot Kleinberg, ‘‘Reynolds Gets Out from under Bankruptcy,’’ The Palm Beach Post, (Oct. 

8, 1998) 

view Commission, that Congress provide a meaningful cap on 

homestead exemptions as well as a federal floor.6

The rationale that has been given for the so-called ‘‘needs-based’’

reforms proposed in S. 256 is to eliminate abuses of the bankruptcy 

laws-abuses which proponents of the legislation have characterized 

as the use of the Bankruptcy Code as a ‘‘financial planning tool.’’

Yet while the bill would presume that debtors of modest means 

are abusing the system if they can pay general unsecured creditors 

as little as $100 a month in chapter 13, it continues to permit, indeed it endorses—the most notorious abuse of the consumer bankruptcy system of all. 

If the sponsors were truly serious about curtailing abuses in 

bankruptcy, this is the place to start. Some of the more notorious 

cases have included: 

• Marvin Warner, a former ambassador to Switzerland and 

the owner of a failed Ohio Savings & Loan, who paid off only 

a fraction of $300 million in bankruptcy claims while keeping his multi-million-dollar horse ranch near Ocala, Florida.7

• Martin A. Siegel, a former Wall Street investment banker 

convicted of insider trading. While facing a $2.75 billion civil 

suit, he bought a $3.25 million, 7,000-square-foot beachfront 

home in Ponte Vedra Beach.8

• Former baseball commissioner Bowie Kuhn, whose Manhattan law firm went into bankruptcy. After creditors seized his 

weekend house in the Hamptons and were about to attach 

his $1.2 million home in Ridgewood, New Jersey, Kuhn acquired a million-dollar house in Florida with five bedrooms 

and five baths.9

• Dr. Carlos Garcia-Rivera, a Miami physician with no malpractice insurance, who was named in four separate malpractice actions, filed for bankruptcy protection, and kept a 

$500,000 home with a 100-foot swimming pool.10

• Dallas developer, Talmadge Wayne Tinsley, who filed under 

chapter 7 after incurring $60 million in debts. Tinsley objected to the Texas law that permitted him to keep only one 

acre of his $3.5 million, 3.1-acre magnolia-lined estate. But 

that acre included a five-bedroom, six-and-a-half-bath mansion with two studies, a pool and a guest house.11

• Movie actor, Burt Reynolds, who declared bankruptcy in 

1996, claiming more than $10 million in debt. Reynolds kept 

a $2.5 million home—appropriately named ‘‘Valhalla’’—while 

his creditors received 20 cents on the dollar.12

593 

13 Hearing Before the Senate Committee on the Judiciary on S. 220, (Written statement of 

Brady C. Williamson), at 6 (Feb. 8, 2001). 14 Judge A. Jay Cristol, quoted in Rohter, supra note 6. 15Footnote 10: David Wessel, ‘‘A Law’s Muddled Course,’’ The Wall Street Journal, at 1 (Feb. 

22, 2001). 16 Havoco of America, Ltd. v. Hill, No. SC 99–98 (June 21, 2001). 

• Paul Bilzerian, who used Florida’s unlimited homestead exemption to avoid his creditors. He filed for bankruptcy in 

1991, and filed again last month. He retains his $5 million 

Florida home, and can completely avoid the $200 million in 

debt owed his creditors, including the IRS.13

The situation in Florida has become so notorious that one Miami 

bankruptcy judge told the New York Times, ‘‘You could shelter the 

Taj Mahal in this State and no one could do anything about it.’’ 14

As the Wall Street Journal noted recently concerning the Kuhn 

case, ‘‘the bill that Congress will soon send to a welcoming President Bush would make [pre-bankruptcy planning using the unlimited homestead exemption] more difficult, but that’s symbolic. Few 

people anticipating bankruptcy have the cash to pull off that maneuver. This is a national problem that demands a uniform solution. Without a nationwide cap, debtors who live in the 45 States 

that cap the exemption at $200,000 or less are free to relocate to 

one of the five so-called ‘‘debtors’’ paradises ‘‘that have no cap at 

all.’’ 15

Indeed, the Florida Supreme Court has ruled that even fraudulent transfers are protected by the unlimited homestead exemption 

under that State’s constitution.16

The sponsors try to claim that they have closed the loophole by 

placing certain restrictions on State homestead exemptions. While 

true, these restrictions still leave the unlimited homestead exemption largely intact for most wealthy debtors. To the extent that the 

restrictions may prevent some forms of abuse, they will also have 

unintended consequences that might harm innocent debtors who 

inadvertently run afoul of the complex new rules attached to exempt property. 

The bill does not place an absolute national dollar cap on homestead exemptions. People who, with the exceptions made in the bill 

as described below, would otherwise be entitled to an unlimited 

homestead exemption, would still be able to claim the exemption. 

The bill does not alter the opt out rule in the Bankruptcy Code, 

so there is still no federal floor. 

Domiciliary Requirement: The domiciliary requirement determines which State’s exemptions the debtor is allowed to claim. 

Sec. 307 of the bill requires a debtor to claim as a domiciliary 

the place of residence for the greater part of the 730 days preceding 

the date of the filing of the petition. This applies for claiming any 

property exemptions, not just the homestead exemption. Current 

law is 180 days. 

While it would make pre-bankruptcy planning more difficult for 

a wealthy debtor seeking a jurisdiction with generous property exemptions, it would also have a substantial impact on a debtor who 

moves from a jurisdiction with a low exemption to a jurisdiction 

with a high exemption. 

594 

For example, a debtor who lives in New York and retires to Florida would get caught in this net. If the debtor sold her home in 

New York, moved to Florida, and purchased a home in Florida with 

the proceeds of the sale, became sick and had to file for bankruptcy 

(which is a common occurrence) within the 730 period, she would 

not be able to use the Florida exemption and keep the full value 

of her home. Instead, she would have to use the New York exemption of $10,000. The rest would be available to pay her creditors. 

If there is excess value (above the equity and transaction costs) the 

trustee would have a duty to sell the home to generate funds to pay 

creditors. The debtor would get a check for $10,000, and lose her 

home. This would be even less than the federal exemption of 

$18,450, so she would be harmed even more by the failure of Congress to adopt a federal floor. 

Converting a non-exempt asset into an exempt homestead 

asset: The bill provides, in sec. 308, that a debtor who converted 

a non-exempt asset into an interest in an exempt homestead within 

the ten year period ending on the date of the filing of the petition, 

would have the allowed exemption reduced by the amount of that 

additional interest. This provision requires proof that the debtor 

did so with the intent to hinder, delay or defraud a creditor. Because this is such a high standard of proof, it is likely that this provision will be rarely enforced. 

Example: Debtor has $100,000 in a bank account. Debtor closes 

the account and uses it to pay down a mortgage on her residence. 

She now $150,000 in the home, all of which is exempt. The debtor 

would get to claim the full amount as exempt unless a creditor is 

able to prove that the debtor moved the funds from the non-exempt 

asset (the bank account) to the exempt asset (the homestead) with 

the intent to hinder delay and defraud a creditor. If the creditor is 

able to meet that burden of proof, the debtor may claim only the 

$50,000 interest in the homestead as exempt. 

Another domiciliary requirement and conversion of nonexempt assets limitation: Sec. 322 limits a debtor to $125,000 in 

a homestead exemption for any interest in a homestead that was 

acquired 1215 days before the date of the filing of the petition that 

exceeds in the aggregate $125,000 in value. It does not apply to a 

debtor who is a family farmer under ch. 12 of the Code, or a debtor 

who acquires the interest within the same State. It only applies to 

a debtor who acquires the interest in a homestead in a State other 

than the State in which the debtor lived within the look-back period. Thus, if a debtor who lived in Texas acquired an interest in 

a homestead in Texas during the look-back period, the $125,000 

cap would not apply. It would, however, apply to a New York senior who sold her home, moved to Florida, purchased a home in 

Florida with the proceeds from the sale of the New York home, got 

sick and had to file within the 1,215-day period. Because she would 

have acquired an interest in the property in excess of $125,000, she 

would be limited to $125,000. The rest of her equity could be used 

to pay her creditors. 

Cap on homestead exemption for certain types of wrongdoing: Sec. 322 also caps a debtor’s homestead exemption at 

$125,000, if: 

595 

• The court, after notice and a hearing, determines that the 

debtor has been convicted of a felony, as defined in 18 U.S.C. 

3156, which, under the circumstances, demonstrating that 

the filing of the case was an abuse of the provisions of the 

Code; 

• The debtor owes a debt arising from a violation of the Federal or State securities laws; fraud, deceit or manipulation in 

a fiduciary capacity or in connection with he purchase or sale 

fo any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934, or section 6 of the Securities 

Act of ‘‘1933; any civil remedy under 18 U.S.C. 1964 [the 

RICO statute]; any criminal act, intentional tort, or willful 

or reckless misconduct that caused serious physical injury or 

death to another individual in the preceding 5 years. The 

last clause does not include simple negligence resulting in 

serious physical injury or death. This reflects a concern 

among some proponents of the bill that doctors whose malpractice caused serious physical injury or death not lose 

their unlimited homestead exemption. The limitations due to 

securities violations and the RICO judgments were added in 

response to concerns that former Enron Chairman Kenneth 

Lay would be entitled to an unlimited homestead exemption 

in his native Texas should he file for bankruptcy. Mr. Lay 

has not, however, filed for bankruptcy, and it is not yet clear 

whether he will be found by a court to have run afoul of any 

of the enumerated offenses. 

There is also a savings clause that a debtor who owes a debt of 

the kind described above would not lose her homestead exemption 

over $125,000, to the extent that the equity is reasonably necessary 

for the support of the debtor and any dependent of the debtor. It 

is an outrage that the same ‘‘reasonably necessary standard’’ that 

would protect the unlimited homestead exemption is the same one 

that the drafters of the bill specifically chose to remove from the 

Code, in favor the means test in sec. 102 of the bill, and the IRS 

standards to determine a debtor’s allowed expenses. 

While these amendments may eliminate a few of the abuses, they 

do not solve the problem. Wealthy debtors who are able to afford 

skillful legal advice, and are sophisticated enough to engage in 

complex pre-bankruptcy planning, will, in many cases, will be able 

to evade the paltry restrictions in this bill. Truly needy debtors, the 

kind whose life savings may be bound up in their residence, and 

who can afford neither sophisticated legal advice, or complex prebankruptcy planning, will get caught in the many twists and turns 

that will now be added to the Code. Far from eliminating the abuse 

of the unlimited homestead exemption, this bill will have the perverse effect of perpetuating it while creating new traps for the 

truly needy unsophisticated debtor. 

What message does it send when Congress subjects middle-class 

debtors to a means test and other onerous changes to the Code, 

while permitting the wealthy to continue to place their millions out 

of reach of their creditors? A bill this rife with favoritism toward 

wealthy debtors and against middle class families is anything but 

a ‘‘Bankruptcy Abuse Prevention and Consumer Protection Act.’’

596 

17Gretchen Morgenson, Proposed Law on Bankruptcy Has Loophole, N. Y. TIMES, Mar. 2, 

2005, at C1. 18 11 U.S.C. 541(c)(2) (2004). 19 151 CONG. REC. S1981 (daily ed. March 2, 2005) (statement of Sen. Schumer). The amendment excludes from its coverage trusts not for the benefit of the debtor that would otherwise 

be excluded from the estate, and trusts established for retirement purposes under the new 11 

U.S.C. 522(d)(12). 

If Congress is serious about curbing abuse, a national, absolute 

dollar amount cap, without any loopholes, is the only way to do it. 

The bill, as reported, fails this test and so bears the burden of 

treating poor and middle class families harshly while letting the 

wealthiest individuals, who are clearly abusing the system and defrauding their creditors, shelter millions of dollars. 

II. THE BILL DOES NOT ADDRESS THE

ASSET PROTECTION TRUST LOOPHOLE. 

Although this legislation is exceedingly draconian with respect to 

low and middle income debtors, the sponsors have consistently resisted amendments that would close loopholes for the wealthiest 

debtors. 

One such loophole is the so-called ‘‘asset protection trusts,’’

which, under the law of five States, allows an individual to set up 

a trust account for which the person establishing the trust would 

also be the beneficiary.17 Trusts, established under non-bankruptcy 

law, are not treated a property of the bankruptcy estate, and so are 

beyond the reach of creditors.18 A debtor may, under the laws of 

these five States, establish such a trust, solely for the benefit of the 

debtor, and may be able to shield unlimited amounts of money 

from creditors. So long as the funds were not placed in the trust 

by means of a fraudulent transfer, the trustee might have no power 

to recover them for the benefit of the creditors. 

Senator Schumer offered an amendment that would have limited 

the value of assets that could be shielded in these trusts to 

$125,000, if transferred within the ten years preceding the filing of 

the petition.19 Rep. Delahunt offered a similar amendment during 

the Judiciary Committee’s markup, limiting such trusts up to 

$125,000, while protecting conventional retirement funds currently 

exempt from federal taxation, charitable trusts, and educational 

trusts. The amendment was rejected with 10 ayes and 15 noes. 

The rejection of these reasonable amendments by the Senate and 

by the House Judiciary Committee again demonstrate that, despite 

its lofty title, the bill does not target bankruptcy abuse by the 

wealthy and well connected. 

Bankruptcy should provide a safety net for families truly in need 

of relief. This legislation, which imposes stringent new rules on financially distressed families, should not leave the most notorious 

loopholes for the very wealthy. 

JOHN CONYERS, JR. 

JERROLD NADLER. 

ROBERT C. SCOTT. 

MELVIN L. WATT. 

MARTIN T. MEEHAN. 

ANTHONY D. WEINER. 

CHRIS VAN HOLLEN. 

(597) 

ADDITIONAL MINORITY VIEWS

While I agree with the Minority Views to S. 256, I want to submit additional views to explain my dissent. 

Once again we are attempting to push through the Bankruptcy 

Abuse Prevention and Consumer Protection Act, which despite its 

name provides little meaningful protection for consumers. We all 

can agree that the system needs revision, but this legislation is not 

the answer. 

Bankruptcy filings have risen slightly in recent years and while 

some who file for bankruptcy have not been financially responsible, 

the overwhelming majority of people who file for bankruptcy do so 

as the result of a divorce, major illness or job loss. Many people are 

just one paycheck, job loss or medical catastrophe away from bankruptcy. We know at the present time there are 1.6 million people 

who go into bankruptcy every year. Half of those people go into 

bankruptcy because of medical bills. About three-quarters of those 

individuals who go into bankruptcy because of medical bills have 

health insurance, but nonetheless, the explosion of costs in health 

care have added such a burden to these families that they have 

had to go into bankruptcy. 

If the purpose of this legislation is to try to deal with spendthrifts and those who are abusers of credit, we ought to be able to 

distinguish them from hard-working Americans who unfortunately 

became ill, those who have had an unforeseen change in their employment, and those whose spouses experienced business failures. 

Unfortunately, this legislation does not make those distinctions. 

I believe that any meaningful bankruptcy reform ought to ensure 

that individuals are afforded the protection of Chapter 7 bankruptcy and are exempt from dismissal or conversion if: (1) a substantial portion of the indebtedness is due to business losses incurred by a spouse who has died or deserted the debtor; (2) a substantial portion of the indebtedness was incurred as a result of illness of the debtor, a dependant of the debtor, or the debtor’s spouse 

if not a dependant of the debtor; or (3) a substantial portion of the 

indebtedness was a result of unforeseen loss of employment 

through no fault of the debtor. 

Another category of citizens who will be adversely impacted by 

this legislation are small business entrepreneurs who go into business considering a risk/benefit ratio that includes the possibility of 

making a lot of money but also includes the possibility of losing everything and ending up in bankruptcy. With the passage of this 

legislation, those entrepreneurs and their families risk not only losing everything, but also remaining destitute. 

Finally, we should consider the impact on society of increasing 

the number of people who conclude that they have nothing left to 

lose. It is ironic that the last time we debated bankruptcy reform 

on the Floor of the House of Representatives, a farmer had driven 

598 

his tractor into a pond near Washington’s monuments, tying up 

traffic in D.C. for several days. He was quoted as saying, ‘‘I’m 

broke. I’m busted.’’ He was also quoted as saying, ‘‘I’ve got the rest 

of my life to stay right here. I’m not going anywhere.’’ People who 

feel they have nothing left to lose often lack any incentive to be a 

productive member of society, and this can also create a potential 

danger to society. Denying bankruptcy protection to people who 

need a fresh start will only increase this category of citizens. Instead we should be providing them with the assistance they need 

to get back on their feet. 

While the bankruptcy code clearly could benefit from reform and 

modernization, this legislation does not differentiate between those 

who abuse the system and those who truly need the aid it provides. 

ROBERT C. SCOTT. 

Æ